The Role of Resources in Strategic Management
Mark Bush
Management and Strategy
Edward Farrell
26 October, 2012

Abstract There has been a push in recent years to make weather a stakeholder in business. It affects the way business is conducted and impacts productivity. Weather must be taken into account when making strategic plans. The various weather patterns must be looked at, placement of assets and resource management must be considered. An organization must make plans for weather related issues in order to stay competitive.

The Role of Resources in Strategic Management

During strategic planning, upper level management and boards of directors look to the future of their organizations. They plan for spending on new assets. They look for the best courses of action to find and procure the best inputs for the cheapest price in order to make the most profit. They look to their employees for continuity and also how to replace employees as they leave. These upper level managers need to account for weather and its affects. The key questions that need to be asked are:

• What is the product I am selling?

• Where is my market:

• What are the inputs I need to create my product?

• How will I move my product to market or to my customers?

• How many employees do I need to produce my products?

• What are the skill sets I need in my employees?

• How do I expand my market base? The additional questions that need to be asked are: • What will cause disruptions and where of my product? • Will weather patterns affect my resources? • Will a storm affect transportation of my resources needed? • Will a storm affect transportation of my finished product to market? • Will extreme weather affect my properties where I make and store my products? Weather needs to be addressed in a business plan. In agriculture weather can impact the harvest and yield. In transportation weather can slow or all together stop it. Placement of real assets such as plants, warehouses and stores can be affected by extreme weather. Customers can also be affected by shortages of your product. Customers and employees are also affected if they are displayed through evacuation. In some areas of the world basic utilities can be disrupted by even the mildest weather. A hot summer can cause an increase in electricity as air conditioners are used more. This increased demand can cause a shortage in other areas, a potential injury to your business if the shortage is in your area. A colder than normal winter or a cold front can cause an increase in heaters usage. Again electricity can be impacted but also natural gas and propane can become scarce as the demand for heat rises. If your organization uses these fuels, a shortage can impact your productivity. When an organization offshores its manufacturing processes, it must take into account the local weather, the utilities and how the local populace reacts and deals with weather. If you move to a flood prone area, you stand the risk of loss of your facilities, resources and products. If the infrastructure is weak or over taxed from local consumption, all weather patterns can magnify that consumption. In the event of extreme weather, several of which will be covered, the biggest area of disruption is the transportation industry. While offshoring and outsourcing can move an organization’s production facilities to other areas of the world, there is still the need to transport your products to your buyers. From sea-lanes, airports, routes traveled by aircraft, trains, and trucks, transportation can be the easiest point to disrupt any organization. Strategic management looks to its resources and how weather can affect them. No matter how big and powerful or how small the organization, it cannot control the weather. This paper will cover a weather type and its effects on businesses; more importantly its effects on resources which impact the business. From draughts to monsoons and hurricanes, snow and extreme cold, these weather patterns affect the way production is adjusted. In 1984, Freeman made the definition of stakeholders as: any group or individual who can affect or is affected by the achievement of the organization’s objectives (Haigh, N., & Griffiths, A., 2009). Since that time, corporate strategists have sought to include the weather and its effects on production. While weather can help it also can hinder or stop production. This is done by stopping inputs collection and outputs transportation, storage and sale. In the case of produce farms, vegetables and grains need nutrients from the soil and water to grow. If the weather does not supply enough rain, the farmers are reduced to irrigating from lakes, rivers or wells. During a drought farms place a tremendous amount of pressure on water resources. If the drought goes too long the crops can fail from lack of water. If the crops fail there is no produce to pick and sell to markets. “Meteorologists call drought the "creeping disaster" because, unlike hurricanes and tornadoes, droughts normally unfold in slow motion, day after dry day. The "flash drought" of 2012, though, is proving to be anything but a slow burn. From the middle of June to the middle of July, drought gobbled up cropland at an alarming rate, pushing the amount of land under severe drought from 17% to 39% of the continental U.S. Bone-dry weather combined with high temperatures--2012 is on track to become the hottest year on record--sucked the moisture from the air and the soil, toasting America's breadbasket. More than half the continental U.S. is parched--the largest swath of the country that has been this dry since 1956. Crops are wilting in Corn Belt states like Illinois and Indiana, where some farmers have already given up on a harvest. Only 26% of the corn crop is currently rated good or excellent, according to the U.S. Department of Agriculture (USDA), whereas 45% is rated as poor or very poor. What was expected to be a record harvest--farmers planted more corn this spring than in any year since 1937--is sure to disappoint; the USDA has already cut the projected corn yield by 12%. That's caused prices to rise, with corn hitting a record $8.24 a bushel on the Chicago commodities exchange. Last year at this time it was less than $7 a bushel. The torrid weather is hitting at a time when grain stockpiles are unusually low, increasing pressure on prices. If the drought lingers--and weather forecasts offer neither rain nor hope--we can expect to see more-costly food across the board this fall in the U.S. and, even worse, in developing nations where hundreds of millions already go hungry.” (Walsh, B. (2012)). Also in a drought, the soil loses its nutrients and can become barren. This problem is created because the plants that would normally hold and use the nutrients are missing or stunted in their growth. As the plants wither the ground losses shade and moisture through evaporation it becomes dusty. As a light breeze picks up the dust is picked up and blown away. These dried nutrients are lost and only make the situation worst. A drought causes a cascade of damages to markets everywhere. As stated above the produce industry is shorted products to sell. They either look to other sources of produce or suffer a loss in revenue. If they find a different supplier they have to compensate for longer storage and transportation rates. These costs are passed onto the customer. If the product becomes too expensive, customers either buy or they do not. During the “crisis” the individuals affected by the drought are the grower, the picker, the transporter, the supplier, the seller and the customer. All of these stakeholders hold a vested interest in the drought and when it will end. A separate, and on the other side of the spectrum, but no less powerful force of nature is water. Water in measured amounts brings life and controlled growth. Water in massive amounts is destructive. Not only does it flood fields and drown crops, it destroys buildings, roads and infrastructure. The primary source of water in our environment is produced from rain. In our farming regions we rely on rain as the primary source of irrigation. When the rain is scarce, farmers use wells, rivers, and lakes to augment the rain fall. Rains affect the production of farm products. The west coast states grow apples, grapes, oranges and other fruits. The Midwest states grow wheat, corn, vegetables and livestock. The east coast is known for its oranges, peaches, peanuts as well as other fruits and vegetables. All regions rely on rain. Too little and crops do not produce enough or none at all. Too much and the fields are flooded, drowning produce. For livestock it may not be as bad if it rains too much as they can move around. But even livestock stand no chance if too much rain falls and rivers crest their banks. The worst weather that causes severe flooding is hurricanes, monsoons or typhoons, depending on what part of the world you are in. Regardless of what it is called, this weather pattern is a swirling vortex of wind and rain; lots of rain. On 18 September 1900, Galveston TX incurred $30 million of property damage (Sims, 2012). The port was severely damaged and imports and exports had to be routed to other ports along the gulf coast as well as eastern and western seaboards. Apart from the costs of damages the economies across the United States were disrupted as transit times for products was increased. Costs to move freight and goods rose.

A more recent destructive hurricane was Hurricane Katrina of 2005. Louisiana was rocked to the amount of $125 billion in damages. The entire gulf coast was devastated. Shipping came to a halt, oil platforms were damaged and oil production was stopped. Across the United States, gas shortages caused long lines and significantly higher prices at the pumps. But not only did the prices rise at the pumps, but across the nation, food prices soared due to transportation cost increases. The US Government provided assistance and mobilized a veritable army of agencies who poured money and resources to rebuild the affected areas. “Hurricane Katrina is the hurricane many think of as one of the most destructive storms in the United States and based on economic losses, they'd be right. Katrina is "costliest U. S. hurricane on record," according to the National Hurricane Center (Gaulin, 2010).”

On October 29 2012, Hurricane Sandy roared up the eastern seaboard and came onshore devastating New York City. It pushed a wall of water or a storm surge ashore ahead of it that flooded the city. Circuit breakers tripped as the power substations were flooded. A city without power is a devastating thought. Any and all markets are losing frozen and chilled products. Any items on lower shelves were damaged as seawater washed over them.

Another effect the hurricane had been on the automobiles. Gas stations were closed without electricity; but many fuel tanks were also contaminated by water. With cars, buses and semi-trucks awash from the surge, the damage to them alone was all but complete. Today’s automobile is computerized. Computers and water do not mix. New car dealerships had millions of dollars of damaged vehicles. Car owners lost their conveyances. Transporters were unable to move their goods into or out of the affected areas.

Another massive blow to economies the world over was the tsunami that struck Japan in 2012. It knocked out a nuclear power plant. While the loss of power to the region was devastating as it was in New York; a more damaging action was the decimation of a company that produced computer chips and control boards. This company produced a majority of the chips in many of the computers used by everyone. As a result the market on computers, televisions and other electronics became a shortage. As these products became scarce, prices rose on the remaining products. The production companies had to go to alternate suppliers who had to ramp up production and they raised the prices as they had to pay more for their inputs to create their outputs.

Hurricanes and tsunamis cause damage and destruction to property and disrupt utilities and transportation assets. In many areas of the world some of the most pristine and beautiful vacation spots are in the areas hardest hit by storms and hurricanes. While these storms renew and rebuild the water shortages, it can devastate tourism and entertainment industries. Florida and much of the American southeast is a tourism based economy. From its historic sites, beaches, and access to some of the best deep-sea fishing in all the United States, the southeast is racked every year by hurricanes.

Areas like Japan and much of coastal Asia also face monsoons with much the same affects. While many of these areas are underdeveloped and considered third world economies, they are lucrative spots for offshoring as the cost of living is very low and taxation is minimal. But these areas are also often hit with earthquakes and tsunamis. Devastation of farm land and factories is common place. When these happen in industrialized areas like Japan, Korea or Australia economies everywhere are hampered.

Another problem from water is mudslides and ground liquefaction. This happens when the ground becomes saturated by too much water. The ground loses its ability to hold on a slope and slides as water would downhill. Mudslides have wiped out roads, buildings and farms. One industry that has been set back time and again is mining. From the use of tunnels and their collapse to strip mining and walls sloughing off, mines are affected severely. The loss of equipment is bad, but the time needed to pump out and/or remove the mud is costly.

In China, a mining operation was closed down in 2010 due to a typhoon. The rain was so intense it caused a mudslide of its tailings pond. The company, Zijin Mining is the primary producer of gold in China as well as a major contributor of copper, zinc and tin. During the same year the company lost production of several of their mines due to mudslides and dam failures due to excessive rain (Zijin suspends tin mine on mudslides, 2010).

The final weather pattern to be discussed is snow. While snow is just frozen water, it plays a major role in agriculture for the coming year. As snow melts it replenishes the water used by farms to all the sources tapped. If the snow fall is short or small for the winter, there is less water of course. But where the most issue comes in is during the winter months. As snow accumulates during the winter it can cause avalanches in the mountains. These avalanches can disrupt transportation. The disruption causes the routes to be unusable and new routes need to be found. With the advent of aviation some products can be moved by airplane. But, by and large the primary source of transportation is trucking followed closely by trains. But anything that travels on the ground can be affected by avalanches. While avalanches are an extreme form of snow issue, snow on roadways cause for slower traffic and accidents from inattentive or inexperienced drivers. Again this is a disruption of commerce from transportation. This paper has discussed the effects weather has on business. While it covered the agricultural market the most, all industries are affected by weather. Despite the effects, every organization needs to have a plan to cope with the effects. One such company is Gerdau Long Steel North America of Sayreville, N.J., facility and its Perth Amboy, N.J. In 2011, they activated an emergency response plan to severe weather when Hurricane Irene hit New Jersey in order to protect its assets and employees (American Metal Market, 2011). In the metals industry, throughout the northeast, Hurricane Irene caused minimal damage to infrastructure of the organizations. However these organizations did have issues with electricity, transportation and communication lines. With the loss of these utilities they had to suspend production. But because they planned for weather effects, their losses were manageable and negligible compared to what could have been. Another company, RJ Steel LLC of Sparrows Point MD enacted its own emergency response plan. It shut down the blast furnace and steel production to keep the plant from incurring damages from water hitting a super-heated furnace. This action alleviated the damages that would have been incurred and the cost of replacement or repair of damaged equipment. By planning and incorporating weather as a stakeholder affecting resources and outputs, companies are minimizing damages and losses. Without proper planning loss of production, loss of resources, loss of employees and customers and most importantly revenue can lead to total collapse of the organization. In summary, as an organization plans for its future the management must take into account the weather and how it will affect the organizations output. Extreme weather can destroy an organization through damage or destruction of its facilities; disruption of basic utilities, loss of products or resources used to make the products and disruption of transportation assets. The worst case scenario is loss of customers and personnel. Mild weather patterns can help or hinder your organization especially if you are in agriculture. But regardless, weather will impact you in some form or fashion. Whether it is by loss of production, loss of resources or transportation disruption, weather will be a factor in your decisions and future planning. Weather must be considered a stakeholder and at the least a resource you need to consider and plan for.

References
Strategic Management, Formulation, Implementation, and Control (12th ed.). (2011). New York: McGraw-Hill Irwin.

Haigh, N., & Griffiths, A. (2009). The natural environment as a primary stakeholder: the case of climate change. Business Strategy & The Environment (John Wiley & Sons, Inc), 18(6), 347-359. doi:10.1002/bse.602

Sims, A, (2012, November 28). Top 10 deadliest hurricanes in US history.
Retrieved from http://www.nbc12.com/story/14774312/most-destructive-hurricanes-in-us-history

Gaulin, P, (2010, September 2). Top 5 Most Destructive Hurricanes in the United States
Retrieved from http://news.yahoo.com/top-5-most-destructive-hurricanes-united-states.html
Walsh, B. (2012). When the Rains Stop. Time International (South Pacific Edition), 180(7), 32-35.
Often-brutal summer leaves its mark on US metals industry. (2011). American Metal Market, 120(9), 2.
Zijin suspends tin mine on mudslides. (2010). Metal Bulletin, (9168), 17.