The External Environment & The Global Environment

Week 3 DQs

1.      Why is it important to look at the PESTLE (political, economic, social, technological, legal, and ecological) factors in environmental scanning? Describe each and give examples of their importance to industries and various companies relative to strategic planning.

The PESTLE Analysis is basically used as a framework or tool to identify, analyze and scan the firm’s external remote environment so as to make the strategic planning efficiently and effectively for achieving a competitive advantage. The abbreviation used in PESTLE stands for Political, Economic, Social, Technological, Legal, and Ecological factors It is important to look at this analysis because it provides the firm to assess the current environment and potential changes that are likely to occur in the future. The main idea here is that if this analysis is done properly than its competitors, it would be able to respond to changes more effectively and efficiently. The PESTLE analysis comprises the following major components:

1.      Political Factors: Political factors are concerned with the legal and regulatory parameters within which firms must operate (Pearce II, J.A.,& Robinson, R.B., 2012). These factors include employment laws, tax policies, trade reforms, trade restrictions, environmental regulations, political stability, tariffs and the like.

2.      Economic Factors: Economic factors refer to the nature and direction of the economy in which a firm operates. It comprises the three basic factors such as economic system: free market, planned and mixed economy, economic policies such as monetary, fiscal & industrial policies, and economic conditions such as interest rates, economic growth, recession, inflation, exchange rate, minimum wage rates, unemployment rates, level of people’s income, & credit facility.

3.      Social Factors: They refer to socio-cultural factors in which a firm operates.  Social factors include the social norms, values, beliefs & attitudes, social institutions such as family, reference group, social class, social change and mobility, and demographics such as size, distribution & growth of population, age mix, urbanization etc.

4.      Technological Factors: With the advancement of technology, the companies are finding very hard to adapt in new context as the time period of advancement is very short. However, if the company cannot adapt itself according to the change in technological factors, then the company might be handicapped. For instance, after the digital revolution in photography, Kodak Company, though being the pioneer company in photography field, collapsed badly as they couldn't realize the need of change brought by the revolution in photography.

5.      Legal Factors: Legal factors refer to legal surroundings in which a firm operates.  These include all legal aspects like employment, quotas, taxation, resources, imports and exports, etc.

6.      Ecological Factors: This factor takes into consideration ecological and environmental aspects that could be either economic or social in nature. These include temperature, monsoons, natural calamities, access by rail, air, and road, ground conditions, ground contamination, nearby water sources, and so forth.

In conclusion, the PESTLE analysis is an important tool to analyze the external environmental factors which provides the foundation for strategic planning and decision making for any industry and firms. It helps to understand the environment, encourage the strategic thinking, reduce the future potential risks, and ideally enable the firms or industries to spot new opportunities and threats.

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

(n.d.) Retrieved from http://www.brighthubpm.com/project-planning/51754-components-of-a-pestle-analysis/

2.      Explain Porter’s five forces model of industry analysis and give examples of the influences of entry barriers, supplier power, buyer power, substitute availability, and competitive rivalry on a firm.

Porter's five forces model of industry analysis is one of the important analyses to gain a clear picture of the industry-specific environment. The five forces and examples of the influences on them are discussed as follows:

1.      Bargaining power of suppliers: It refers to those situations where suppliers have the ability to force the firm to pay higher prices which are driven the product's key input, uniqueness of the product and services and so on. It affects the industrial profit. For example, the bargaining power of drug industry is high as there are specific or limited industries.

The bargaining power of suppliers is high when:

·         Suppliers are few and buyers are many

·         Products/services are unique and not easily available

·         Firms are not a significant customers for supplier group

·         Suppliers’ goods are essential to buyers’ market success

·         Suppliers’ have ability to integrate forward

2.      Bargaining power of buyers: It means that the buyer has the capacity to reduce the price of the products and also demand for high quality goods and services and so on. For example: the bargaining power of auto manufacturers for purchases of its parts.

The bargaining power of buyers is high when:

·         Buyers are few and they place large orders

·         Alternative sellers are high and they sell at a lower price

·         Low cost for switching the product

·         Undifferentiated products and ability to do backward integration

·         Buyer has full information

3.       Competitive Rivalry: It means that the strong competitors has the ability to keep impact upon the market. As there are large and strong competitors who offers homogeneous goods then they result in less power then it definitely affects the market. For example, customers switching their bank accounts from one bank to other.

The competitive rivalry is high when:

·         There is presence of more or equally balance competitors

·         They have high fixed storage costs

·         There is lack of product differentiation or low switching costs

·         There are diverse competitors and existence of global customers

·         There is slow industry growth

4.       Threat of Substitute products: Substitute good means those goods which has ability to satisfy the same need of the customers. Due to the availability of substitute products in the market, the customer, if not satisfied can switch their product as substitute goods. For example, the threat of substitute goods is high in tea, coffee products.

The threat of substitute products is high when:

·         Customers face lower switching costs

·         Substitute’s product’s price is lower

·         Substitute’s product’s quality and performance is high

·         Buyers have more propensity to substitute

5.      Threat of New Entrants: It explains about the chance that new entrant will enter into the industry. For example, the difficulties for new automobiles industries to entry in the market because of the technologies and cost of those products. It is affected by two major factors such as

a)      Barrier to entry

·         Economics of scale

·         Product differentiation

·         Switching costs

·         Capital requirements

·         Access to distribution channels

·         Government policies

·         Cost disadvantages independent of scale

b)      Expected retaliation from existing firms

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

3.      Compare and contrast the foreign market entry options available to firms wanting to start doing business internationally.

Strategic options for firms that are attempting to move globalization can be categorized by the degree of complexity of each foreign market being considered and by the diversity in a company’s product line (Pearce II, J.A.,& Robinson, R.B., 2012). Some of the major foreign market entry options available to firms wanting to start doing business internationally are compared and contrasted as follows:

1.      Exporting: Exporting is the easiest and simplest form of entering into the foreign market. In this option, goods and services will be sold and distributed from one country-home country, to the other country (host counties). This option does not require much investment like other options do.

2.      Licensing/Contract Manufacturing: It is a contractual agreement between the parent company-licensor and the foreign company-licensee whereby the licensor allows the licensee to manufacture a company's product for a fixed term in a specific market and in return the licensor must pay a royalty or specific amount to the parent company. Licensing is generally given for a fixed period of time. After the expiration of agreement, the company can decide whether to renew the agreement or not.

3.      Franchising: It is special form of licensing in which franchisor allows the franchisee to sell highly publicized products or services, using the parent’s brand name or trademark along with operational and marketing strategies. In return, the franchisee must pay a fee to the parent company based on the volume of the sales on that particular market or country. However, a franchisee or local investor must adhere to the strict rules or policies of the parent company-franchisor. Some of the common examples of franchising are Coca-Cola, Pepsi, Kentucky Fried Chicken, McDonald, Avis, and Burger King.

4.      Joint Venture: Joint venture is the safest mode of entering into the foreign market in which the company makes an agreement and partners with the local firm for attaining common objectives. Since it begins with a mutually agreeable pooling of capital, production, marketing, patents, trademark or management expertise Joint venture is generally done for a long period of time, it offers more permanent cooperative relationships than exporting or contract manufacturing. However, there is a chance of having high conflicts among the involved parties in terms of authority, control and secret information.

5.      Foreign Branching: A foreign branching is an extension of the company in its foreign country- a separately located strategic business unit directly responsible for fulfilling the operational activities such as sales, customer service, and physical distribution as per the company. This option requires to comply with host countries’ rules and regulation in its operational activities so it is often short term and has to be renewed after its expiry.

6.      Equity Investment: This option is suitable for small and medium-size enterprises with strong growth potential which requires additional funds to grow further before deciding to trade their stock publicly in the marketplace. These companies often need a support from a venture capital firm or private equity in start-ups and other risky but potential very profitable.

7.      Wholly Owned Subsidiaries: Wholly-owned foreign subsidiaries require the highest investment commitment along with an ability and willingness to do by companies. These companies insist on full ownership for reasons of control and managerial efficiency. It can be of two types-Green field investment which can be started from scratch and Acquisition which is purchasing of already established firms in the host country. Choosing this option has to face a number of risks to their normal mode of operations. First, it requires a high investment for start-ups or acquisitions. Second, it has to tackle with foreign culture or language problems. Third, host country expects a long term commitment from parent company to include the local employees in the organization and comply with its parent company’s standards.

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

4. Do you agree that all businesses will soon have to evaluate global environments? Explain why or why not.

Yes, I agree that all businesses will soon have to evaluate the global environment. However, how much is needed depends upon the nature of businesses and the level of complexities or risks involved. It is true that the businesses whose operations are world-wide need a higher level evaluation and the businesses which operate locally may not need that much level of evaluation. Having said this, however, every business needs more or less evaluation of global environment. It is essential that every business organization should have a clear understanding of the global environment so that they can compete over their rivals and gain a competitive advantage. The main reasons why all businesses must evaluate the global business environment are outlined below (Pearce II, J.A.,& Robinson, R.B., 2012):

·         The increased scope of the global management task

·         The increased globalization of firms

·         The information explosion

·         The increase in global competition

·         The rapid development of technology

·         Strategic management planning breeds managerial confidence

In short, due to above mentioned reasons, it has become an essential task for any businesses to evaluate the global business environment. Many businesses are already involved in the globalization process and many are going to be globalized soon so that it would not be enough to think just locally, they have to think globally so they need to have a clear picture of global environment through its assessment.  

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

Corporate Social Responsibility and Business Ethics

Week 2 Discussion Questions(DQs):

2.1.    How do different stakeholders view corporate social responsibility? What types of social commitment must managers consider regarding social responsibility?

The term “Corporate Social Responsibility” is basically concerned with a company’s responsibility or duty to operate in an honorable manner by providing good working conditions for internal employees, being a good steward of the environment and proactively working to improve the quality of life in the external communities where it operates at large. The term “stakeholders” refers to those people who have some stakes or interest on the operation of the business. It includes the internal people such as employees, board of directors, stockholders, and external people such as customers, suppliers, government, competitors, unions, local communities and the like. Each of these interest groups has some justifiable reasons for getting involved and obviously they expect or demand their needs to be satisfied or fulfilled by a firm in a responsible manner. The ways how these stakeholders view corporate social responsibility are shown below.

1.      Stockholders: Appropriate returns on investment, participation in decision making, additional stock offering, election of board of directors etc.

2.      Creditors: Timely interest payment, return on investment, priority in case of liquidation.

3.      Employees: Job satisfactions-economic, social and psychological, job autonomy, good working conditions etc.

4.      Customers: Reasonable price, quality product, services such as warranties, credit facility etc.

5.      Suppliers: Reliable buyers, continuing source of business, good relationship etc.

6.      Governments: Adherence to legislation, income and property taxes, fair and free competition etc.  

7.      Unions: Justice or benefit to their members, recognition as a negotiator for employees.

8.      Competitors: Fair competition, business statement on the part of peers etc.

9.      Local Communities: Responsible citizen, Support in community-related activities and events such as charitable and cultural projects etc.

10.  The general Public: The firm’s existence to better the quality of life, participation in and contribution to society as a whole, fair price for products etc.

While considering social responsibility, there are fundamentally four types of commitments a manager must make, are discussed below:

1.      Economic Responsibilities: The responsibility and duty of managers, as agents of the company owners, to maximize the value of a share or shareholders’ wealth. In this responsibility, a manager must try to maximize the profit whenever possible so as to maximize the shareholders’ wealth. Besides this, it also includes good payments to employees, and tax payments to its states or government.

2.      Legal Responsibilities: These responsibilities are concerned with the firm’s obligations to comply with the laws and regulations that govern the business activities in a responsible manner. For example, consumer product safety act to protect consumers from potential risks of injury in the use of consumer products, environment protection act to protect the environmental harm-pollutions.

3.      Ethical Responsibilities: Those ethical behaviors or actions of the managers which should be good enough to do as expected by others. For instance, it may include activities such as promoting workforce diversity without any discrimination, creating favorable working conditions, creating fair or equal behavior to all staffs.

4.      Discretionary Responsibilities: Those activities which are desired by the general public but voluntarily assumed by a business organization are called discretionary responsibilities such as good public relations, good citizenship, and full corporate social responsibility. For example, as a good citizenship, a company may proactively support ongoing charities, public service advertising campaigns, or other major issues in the public interest.

References

David, F. R. (2011 (13th ed.)). Strategic Management: CONCEPTS AND CASES. New Jersey : Pearson Education,Inc.

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

2.2.    How has the Sarbanes-Oxley Act changed boards of directors' thinking relative to business ethics and social responsibility? 

The Sarbanes-Oxley Act of 2002 is one of the revolutionary acts applies to public companies with securities registered under section 12 of the Securities Act of 1934 and those required to file reports under section 15(d) of the Exchange Act (Pearce II, J.A.,& Robinson, R.B., 2012, p. 57). It includes required certification for financial statements, new corporate regulations, disclosure requirements, and fines or penalties for failure to comply.

The Sarbanes-Oxley Act states that the CEO and CFO must clarify each and every report containing the company’s financial statements. As a part of review, they must attest that there is no any untrue statements or omitted important information. Furthermore, this act consists the provisions restricting the corporate control of executives, accounting firms, attorneys, and auditing committees. Executives are not allowed for their personal loans. Not only this much, the act does not give the right to executives or officers to purchase, sell, acquire, or transfer any equity security during pension fund blackout period. In addition, the SEC will provide the company’s executives with a code of ethics to adopt, and the reason of failure to meet the code must be disclosed to the SEC.

Having said these all the above, it is certainly true that the Sarbanes-Oxley Act has summarized the important laws and regulations made for public company’s executives or a board of directors and many others regarding business ethics and social responsibilities.

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

2.3.    Explain the five principles of collaborative social initiatives.

The term “Collaborative Social Initiatives” or CSIs refer to social actions or activities initiated by a collaborative approach of a single company or multiple companies to make a positive change in the society. Through CSIs, each partner or firm not only benefits by sharing their knowledge, skills, and capabilities, they also use it as a tool to make a brand recognition in the eyes of stakeholders. There are basically five principles of collaborative social initiatives as described below:

1. Identify a Long- Term Durable Mission: In order to make the greatest social contribution, companies must identify an important, long- standing policy challenge and they participate in its solution over the long term. It basically includes the long term problems such as global hunger, ill health, substandard education, and degradation of the environment. For example, AES’s Carbon Offsets program which has been initiated to reduce a global warning by effective means of Carbon offsets.

2. Leverage Core Capabilities: Contribute “What We Do": Companies strive to maximize the benefits of their corporate contributions by leveraging their core capabilities and contribute products and services that are based on expertise used in or generated by their normal operations. Such contributions create a mutually beneficial relationship between the partners. For instance, in IBM’s Reinvesting Education, it uses its leading expertise, educational consultants and technology to support school restructuring.

3. Contribute Specialized Services to a Large- Scale Undertaking: Companies are likely to get the greatest social impact when they make specialized contribution to large- scale cooperative efforts. For example, In case of IBM’s Reinvesting Education, it monitors the program with rigorous, independents from the center for children & Technology in conjunction with the Harvard Business School (Pearce II, J.A.,& Robinson, R.B., 2012, p. 72).

4. Weigh Government's Influence: Taking government support for corporate participation in CSIs- or at least willingness to remove barriers- can have an important positive influence. It helps to get tax incentives, liability protection, and other forms of direct and indirect support for businesses that help to foster business for long term. Endorsements can also be very valuable.  N case of IBM, for instance, IBM teams works with the U.S. Department of Education and the U.K. Department of Education and Employment on many reinvestment projects. (Pearce II, J.A.,& Robinson, R.B., 2012, p. 72).

5. Assemble and Value the Total Package of Benefits: It is possible to gain even the greatest benefits from their social contributions when companies put a price on the total benefit package. The valuation should include both the social contributions delivered and the reputation effects solidify or enhance the company's position among its constituencies. In case of IBM’s Reinvesting Education, for example, it views a long term commitment to education as a strategic business investment. By investing in its future customers and workforce, IMB feels that success is being promoted.

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

2.4.    Compare and contrast the different approaches to business ethics.

First let me define what ethics actually is, ethics refers to the concept of right and wrong, fair and unfair, moral and immoral that reflect society’s beliefs about the actions of an individual or a group. Business ethics typically can be defined as the applications of general principles and standards to business behaviors. While defining the most critical quality of ethical decision making, the consistency comes at first so that most managers often strive to adopt a philosophical approach. Based on it, there are basically three fundamental approaches to business ethics as described below.

1.      The Utilitarian Approach: It refers to judging the appropriateness of a particular action based on a goal to provide the greatest good for the greatest number of people. For example, a company that decides to move their production facilities from one part of the country to another. How much good is expected from such move? How much harm? If the good appears to outweigh the harm, the decision to move may be deemed an ethical one, by the utilitarian approach.

2.      The Moral Rights Approach: It refers to judging the appropriateness of a particular action based on a goal to maintain the fundamental rights and privileges of individuals and groups. It differs substantially from the utilitarian approach on ethics and would not allow, for instance, the harming of some individuals in order to help others. In this approach, each person must be treated equally, with the same level of respect and no one is treated as a means to an end. For instance, a standard of truthfulness, the rights of human beings to life and safety, freedom of speech, and private property etc. are considered as some of the examples of this approach.

3.      The Social Justice Approach: It includes judging the appropriateness of a particular action based on equity, fairness, and impartiality in the distribution of rewards and costs among individuals and groups. It includes different principles such as the liberty principle, difference principle, distributive-justice principle, fairness principle, and natural duty principle.

References

David, F. R. (2011,13th ed.). Strategic Management: CONCEPTS AND CASES. New Jersey : Pearson Education,Inc.

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

Overview Of Strategic Management

1. Think about the courses you have taken in functional areas such as marketing, finance, production, human resources, and accounting. What is the importance of each of these areas to the strategic planning process?

Strategy is a broad action plan or means by which long term objectives will be achieved. Strategic management is defined as the set of decisions and actions that results in the formulation and implementation of plans designed to achieve a company’s objectives (Pearce II, J.A.,& Robinson, R.B., 2012, p. 3).  It is true that a strategic management is a blend of different functional areas such as marketing, finance, production, human resource, and accounting in a way that leads to achieve a competitive edge in the marketplace.

The courses taken in functional areas such as marketing, finance, production, human resource, and accounting will have a greater importance in formulating, implementing and controlling of different plans, policies, programs designed to accomplish a company’s objectives. The importance of each of these areas to strategic management is outlined as follows:

Marketing: Having the knowledge of marketing will help to understand the market and identify the potential customers strategically while formulating, implementing and controlling the different plans, policies and programs to offer the products or services what they want. The Four Ps of marketing would be helpful in setting these different strategic activities to cope with the market changes.

Finance: Knowledge regarding the finance provides the guidelines on how to allocate the financial resources for what purposes which can be much more beneficial for formulating, implementing and controlling financial activities such as budgeting, capital formation and allocation etc.  

Production: In setting the strategic planning process, production function plays a pivotal role for determining the level of production, and raw material requirements which are essential for providing the right product at the right time to right customers.

Human Resources: It is definitely true that HR activities such as hiring, training, and retaining motivated and efficient employees are essential to convert the strategic plans into action and then into a desirable results.  HR activities should be considered in all three components of strategic planning process so as to produce a better result.

Accounting: Accounting functional area helps to keep track of the business transaction, and forecasting the amount needed to formulate, implement and control the different sets of activities while setting up the strategic business planning process.

In summary, Strategic planning process comprised of three important steps-formulation, implementation and controlling which, in each of these stages, are greatly facilitated by these functional areas-Marketing, Finance, Production, Human resources and Accounting. Thus, it can be said that they play a significant role in achieving the company’s overall objectives in the competitive marketplace.

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

1.2. Many successful individuals have single-handedly directed their companies to success. Is participative strategic management approach likely to stifle or suppress the contributions of such individuals?

While it is true that many successful individuals have single-handedly directed their companies to success, doing this, however, is not likely to succeed anymore in the competitive environment. Thus, the participative strategic management approach, I think, is not likely to stifle or suppress the contributions of such individuals but rather create a greater value in the organization.

It is evident that many successful individuals have single-handedly directed their companies to success. However, maintaining that success for prolonged period is surely challenging and tough job so that participative strategic management will create the open culture in the organization where many employees are likely to participate in decision making and innovative actions. Which, in turn, build a positive relationship among the employees and managers for achieving organizational goals. It is also undeniable fact that delegating decision-making responsibilities to the employees will make the employees more responsible and they feel they are the part of the organization which possibly will have a positive impact on their job performance.

To sum up, participative strategic management approach will create an open culture for greater involvement and decision making by employees which will improve the workers efficiency and productivity which is not possible when the organization is single-handedly. Having said this, participative strategic management approach is not likely to stifle or suppress the individual contributions but rather it will help to maintain the success of the company for a prolonged period of time.

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

1.3. How can a mission statement be an enduring statement of values and simultaneously provide a basis of competitive advantage?

An organization’s mission states the purposes or the reason for the existence of the organization by performing some functions. Ideally it deals with a company’s present business scope and boundaries, and it also clarifies what the company is, what it does and why it is here. Broadly speaking, a company mission statement is the unique purpose that distinguishes a company from others in terms of scope and boundaries such as products, markets and technologies in the competitive marketplace.

It is obviously true that it can be an enduring statement that clearly helps to identify the goals, objectives and values of the mission for a particular company. Furthermore, it is assumed that the mission statement is likely to create a commitment of the organization for serving internal and external stakeholders such as customers, employees, shareholders, investors, governments and other publics as a strategic weapon. In addition, it will provide basis for the company to analyze a SWOT analysis, PEST analysis and other strategic benchmarking to achieve a competitive advantage over its rivals.

In a nutshell, a mission statement having characteristics such as precise, flexible, clear, motivating and distinctive, helps to apart the company itself from others and create a unique value in a turbulent marketplace so as to simultaneously provide a basis of competitive advantage through SWOT analysis, PEST analysis and benchmarking etc.   

References

Pearce II, J.A.,& Robinson, R.B. (2014). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.

1.4. What is the agency theory? How do agency problems occur? How can a board of directors solve agency problems?

The agency theory:

In general, agency theory refers to the relationship between the (principal) shareholders/owners and the agent (managers). Here the principal hires the agent to perform the task on behalf of them. Agency theory explains the relationship between these parties and strives to solve the raised conflict between them while performing the given task. Agency issues happen basically when contrasts emerge between them or when an agent does not perform the task as desired by the principal or owners.

Agency problems occur due to following reasons:

1. Moral hazard issue: Moral hazards occur in the organization when agents design strategies that provide greatest possible benefits for themselves by keeping the organizational (owners) welfare as a second priority as they have high access to the information. Therefore, as an after effect of moral hazard, agent may be profited at the expense of the owners' benefits.

2. Adverse selection: Adverse selection refers to the process of selecting the wrong agent who is not fit for the owner’s tasks. It can occur when owners, in the organization, could not precisely determine the competencies and priorities of the executives (agents) at the time they are hired.

A broad of directors solve the agency problems in the following ways:

1. The agency problems can be solved by positive ways such as offering good payment or incentives to executives/agents to get things done. Providing additional benefits with a clearly defining the responsibilities of managers can mitigate the agency problem when managers can align their interest with the company's welfare.

2. The agency problem can be solved by negative ways such as threating of firing or take over from the respective jobs. However, this is a punishment which should be used only when above action does not work and should be often avoided to apply.

References

Pearce II, J.A.,& Robinson, R.B. (2012). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Irwin.