ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS:ETHICS IN THE WORKPLACE, SOCIAL RESPONSIBILITY

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Introduction to Business MGT 211

LESSON 8

ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS

All businesses, regardless of their size, location, or mission, operate within a larger external

environment.

External environment--Everything outside an organization's boundaries that might affect it.

a. Organizational Boundaries--That which separates the organization from its

environment. Today boundaries are becoming increasingly complicated and hard to

pin down.

b. Multiple Environments include economic conditions, technology, political-legal

considerations, social issues, the global environment, issues of ethical and social

responsibility, the business environment itself, and numerous other emerging

challenges and opportunities.

THE ECONOMIC ENVIRONMENT

Economic environment--Conditions of the economic system in which an organization

operates

a. Economic Growth

i. Aggregate Output and Standard of Living

1. Business cycle--Pattern of short-term ups and downs

(expansions and contractions) in an economy

2. Aggregate output--Total quantity of goods and services produced

by an economic system during a given period

3. Standard of living--Total quantity and quality of goods and

services that a country's citizens can purchase with the currency

used in their economic system

ii. Gross domestic product (GDP)--Total value of all goods and services

produced within a given period by a national economy through domestic

factors of production

Gross national product (GNP)--Total value of all goods and services

produced by a national economy within a given period regardless of

where the factors of production are located

1. Real Growth Rate--the growth rate of GDP adjusted for inflation

and changes in the value of the country's currency

2. GDP per Capita--GDP per person and reflects the standard of

living.

3. Real GDP--GDP calculated to account for changes in currency

values and price changes versus Nominal GDP, GDP measured

in current dollars or with all components valued at current prices.

4. Purchasing Power Parity--Principle that exchange rates are set

so that the prices of similar products in different countries are about

the same.

iii. Productivity--Measure of economic growth that compares how much a

system produces with the resources needed to produce it.

There are a number of factors which can inhibit the growth of an

economic system including:

1. Balance of Trade--the economic value of all the products that a

country exports minus the economic value of imported products.

Introduction to Business MGT 211

a. Trade Deficit--A positive balance of trade results when

a country exports (sells to other countries) more than it

imports (buys from other countries).

b. Trade Surplus--A negative balance of trade results

when a country imports more than it exports.

2. National Debt--Amount of money that a government owes its

creditors. The U.S. national debt is over $6 trillion.

b. Economic Stability

Condition in an economic system in which the amount of money available and

the quantity of goods and services produced are growing at about the same

rate.

Factors which threaten stability include:

i. Inflation--Occurrence of widespread price increases throughout an

economic system

1. Measuring Inflation: The CPI--Measure of the prices of typical

products purchased by consumers living in urban areas

ii. Unemployment--Level of joblessness among people actively seeking

work in an economic system. Unemployment may be a symptom of

economic downturns.

1. Recessions

and

Depressions

Recession--Period during which aggregate output, as measured

by real GDP, declines

2. Depression--Particularly severe and long-lasting recession

c. Managing the U.S. Economy

i. Fiscal policies--Government economic policies that determine how the

government collects and spends its revenues

ii. Monetary policies--Government economic policies that determine the

size of a nation's monetary supply

iii. Stabilization policy--Government policy, embracing both fiscal and

monetary policies, whose goal is to smooth out fluctuations in output

and unemployment and to stabilize prices

d. The Global Economy in the Twenty-first Century

The decade of the 1990s saw a sustained period of expansion and growth that

served to increase business profits, boost individual wealth, and fuel optimism.

During the latter part of 2001 and into 2002, however, economic growth began

to stall.

i. Three Major Forces

1. The information revolution will continue to enhance productivity

across all sectors of the economy, most notably in such

information-dependent industries as finance, media, and wholesale

and retail trade.

2. New technological breakthroughs in areas such as biotechnology

will create entirely new industries.

3. Increasing globalization will create much larger markets while also

fostering tougher competition among global businesses; as a

result, companies will need to focus even more on innovation and

cost cutting.

Introduction to Business MGT 211

ii. Projected Trends and Patterns--There are a number of projections for

the near future. Sudden changes in environmental factors, such as war,

can alter these projections.

THE TECHNOLOGICAL ENVIRONMENT

Technology has a variety of meanings, but as applied to the environment of business, it

generally includes all the ways by which firms create value for their constituents.

a. Product and Service Technologies--the technologies employed for creating

products (both physical goods and services) for customers. Although many

people associate technology with manufacturing, it is also a significant force in

the service sector.

b. Business Process Technologies--are used not so much to create products

as to improve a firm's performance of internal operations (such as accounting,

managing information flows, creating activity reports, and so forth). They also

help create better relationships with external constituents, such as suppliers

and customers.

i. Enterprise Resource Planning--Large-scale information system for

organizing and managing a firm's processes across product lines,

departments, and geographic locations

3. THE POLITICAL-LEGAL ENVIRONMENT

Conditions reflecting the relationship between business and government, usually in the

form of government regulation. Pro- or anti-business sentiment in government can

further influence business activity. Political stability is also an important consideration,

especially for international firms.

4. THE SOCIOCULTURAL ENVIRONMENT

Conditions including the customs, mores, values, and demographic characteristics of

the society in which an organization functions

a. Customer Preferences and Tastes--Customer preferences and tastes vary

both across and within national boundaries. Similarly, consumer preferences

can also vary widely within the same country. Consumer preferences and

tastes also change over time. Finally, socio cultural factors influence the way

workers in a society feel about their jobs and organizations.

b. Ethical Compliance and Responsible Business Behavior

5. THE BUSINESS ENVIRONMENT

a. Redrawing Corporate Boundaries--To stay competitive, companies are

removing traditional corporate boundaries. For example building partnerships

or temporary alliances with other companies or competitors.

i. Core competency--Skills and resources with which an organization

competes best and creates the most value for owners

b. Emerging Challenges and Opportunities in the Environment of Business

i. Outsourcing--Strategy of paying suppliers and distributors to perform

certain business processes or to provide needed materials or resources

ii. Outsourcing

versus

Vertical

Integration

Outsourcing is why vertical integration is no longer as popular as it once

was.

1. Vertical integration--Strategy of owning the means by which an

organization produces goods or services.

Introduction to Business MGT 211

iii. Disadvantages of Outsourcing--The expected benefits of outsourcing

are sometimes not realized. For example, suppliers often don't

understand what they are supposed to do, charge too much, and

provide poor service.

c. Viral Marketing--Strategy of using the Internet and word-of-mouth marketing

to spread product information. Using various formats--games, contests, chat

rooms, and bulletin boards--marketers encourage potential customers to try

out products and tell other people about them.

d. Business Process Management

i. Process--Any activity that adds value to some input by transforming it

into an output for a customer (whether internal or external)

ii. Business process management--Approach by which firms move

away from department-oriented organization and toward process-

oriented team structures that cut across old departmental boundaries

e. The Aftermath of 9/11--The flexibility and strength inherent in the U.S. political

and economic systems became just as obvious as their flaws. Most people kept

their jobs, and most businesses kept going. Even as some economic sectors

declined, others continued to expand. Exports continue to flow into other

countries,

did

foreign

direct

investment.

On the other hand, American business now faces major changes. A specific

effect that businesses themselves are already addressing involves workplace

security.

1. ETHICS IN THE WORKPLACE

Ethics--beliefs about what is right and wrong or good and bad in actions that affect

others.

Ethical Behavior--behavior conforming to generally accepted social norms

concerning beneficial and harmful actions.

Unethical Behavior--behavior that does not conform to generally accepted social

norms concerning beneficial and harmful actions.

Business Ethics--ethical or unethical behaviors by a manager or employer of an

organization.

a. The Problem with Ambiguity--because ethics are based on both individual

beliefs and social concepts, they vary from person to person, from situation to

situation, and from culture to culture. Social standards tend to be broad enough

to support certain differences in beliefs so that, without violating these general

standards, an individual may develop personal codes of ethics that reflect a

wide range of attitudes and beliefs.

b. Individual Values and Codes begin when we are children and are further

developed throughout our life.

c. Business and Managerial Ethics--Standards of behavior that guide individual

managers in their work

i. Behavior toward Employees--this category covers such matters as

hiring and firing, wages and working conditions, and privacy and

respect.

ii. Behavior toward the Organization--Ethical issues also arise from

employee behavior toward employers, especially in such areas as

conflict of interest, confidentiality, and honesty.

1. A conflict of interest occurs when an activity may benefit the

individual to the detriment of his or her employer.

Introduction to Business MGT 211

iii. Behavior toward Other Economic Agents--Ethics also comes into

play in the relationship between the firm and its employees with so-

called primary agents of interest--mainly customers, competitors,

stockholders, suppliers, dealers, and unions.

d. Assessing Ethical Behavior--To reduce subjectivity in distinguishing ethical

from unethical behavior, a firm should establish a process for applying ethical

judgments to situations that may arise during the course of business activities.

i. Three-step model for applying ethical judgments to situations:

1. gather relevant factual information

2. determine the most appropriate moral values

3. make an ethical judgment based on the rightness or wrongness

of the proposed activity or policy

ii. Four ethical norms:

1. Utility--does a particular act optimize what is best for those who

are affected by it?

2. Rights--does it respect the rights of the individual involved?

3. Justice--is it consistent with what we regard as fair?

4. Caring--is it consistent with people's responsibilities to each

other?

e. Company Practices and Business Ethics

Perhaps the single most effective step a company can take is to demonstrate

top management support. Actions by senior managers, whether commendable

or otherwise, often set the tone in the organization.

i. Adopting Written Codes--Many companies have adopted written

codes of ethics that formally acknowledge their intent to do business in

an ethical manner.

ii. Instituting Ethics Programs--The question arises whether business

ethics can be "taught." Most analysts agree that companies must take

the chief responsibility for educating employees. Some firms have major

training programs or ethical "hot line" numbers employees can call to

discuss troubling situations or report unethical behavior of others.

2. SOCIAL RESPONSIBILITY

3. Social Responsibility--the attempt of a business to balance its commitments to

groups and individuals in its environment, including customers, other businesses,

employees, and investors.

Organizational Stakeholders--those groups, individuals, and organizations which are

directly affected by the practices of an organization and which therefore have a stake in

its performance.

a. The Stakeholder Model of Responsibility

Most companies that strive to be responsible to their stakeholders concentrate

on five main groups: customers, employees, investors, suppliers, and local

communities.

b. Contemporary Social Consciousness

Social consciousness and views continue to evolve, seemingly to today's

enlightened view stressing the need for a greater social role for business. For

instance, Sears and Target stores refuse to sell handguns and other weapons,

and toy retailers like KayBee and Toys R Us won't sell toy guns that look

realistic.

Introduction to Business MGT 211

4. AREAS OF SOCIAL RESPONSIBILITY

a. Responsibility toward the Environment

Pollution--the injection of harmful substances into the environment.

i. Air Pollution--Much of the damage to forests and streams in the

eastern United States and Canada has been attributed to acid rain

(which occurs when sulfur is pumped into the atmosphere, mixes with

moisture, and falls to the ground as rain).

ii. Water Pollution--Water quality in many areas of the United States is

improving thanks to new legislation (such as laws forbidding phosphates

in New York and Florida).

iii. Land Pollution--The two key issues in land pollution are restoring land

that has already been damaged and preventing future contamination.

1. Toxic waste disposal--Toxic wastes are dangerous chemical

or radioactive byproducts of manufacturing processes.

2. Recycling--the re-conversion of waste materials into useful

products--has become an issue not only for municipal and state

governments but also for many companies engaged in high-

waste activities.

b. Responsibility toward Customers

The Federal Trace Commission (FTC) regulates advertising and pricing

practices, and the Food and Drug Administration (FDA) enforces guidelines for

labeling food products.

i. Consumer Rights

Consumerism--form of social activism dedicated to protecting the

rights of consumers in their dealings with businesses.

1. President John F. Kennedy's Consumer Bill of Rights

a. Consumers have a right to safe products.

b. Consumers have a right to be informed about all relevant

aspects of a product.

c. Consumers have a right to be heard.

d. Consumers have a right to choose what they buy.

ii. Unfair Pricing

1. Collusion--illegal agreement between two or more companies

to commit such wrongful acts as price fixing.

iii. Ethics in Advertising--Misleading, deceptive, or morally objectionable

advertising have been criticized by consumers.

c. Responsibility toward Employees

i. Legal and Social Commitments

Legally, businesses cannot practice illegal discrimination against people

in any aspect of the employment relationship. A firm should strive to

ensure that the workplace is physically and socially safe.

1. Whistleblower--employee who detects and tries to put an end

to a company's unethical, illegal, or socially irresponsible actions

by publicizing them. Whistleblowers are sometimes demoted or

fired when their accusations are made public. The law offers

them some recourse in the form of a civil suit for damages.

d. Responsibility toward Investors

i. Improper Financial Management--Improper Financial Management-

Occasionally organizations or their managers may be guilty of blatant

Introduction to Business MGT 211

financial mismanagement-offenses that are unethical but not necessarily

illegal.

1. Check Kiting--illegal practice of writing checks against money

that has not yet been credited at the bank on which the checks

are drawn.

2. Insider Trading--occurs when someone uses confidential

information to gain from the purchase or sale of stocks.

3. Misrepresentation of Finances--A firm's failure to conform to

generally accepted accounting practices (GAAP) when reporting

its financial status is illegal.

5. IMPLEMENTING SOCIAL RESPONSIBILITY PROGRAMS

a. Approaches to Social Responsibility

i. Obstructionist Stance--approach to social responsibility that involves

doing as little as possible and may involve attempts to deny or cover up

violations.

ii. Defensive Stance--approach to social responsibility by which a

company meets only minimum legal requirements in its commitments to

groups and individuals in its social environment.

iii. Accommodative Stance--approach to social responsibility by which a

company exceeds legal minimums in its commitments to groups and

individuals in its social environment.

iv. Proactive Stance--approach to social responsibility by which a

company actively seeks opportunities to contribute to the well-being of

groups and individuals in its social environment.

MANAGING SOCIAL RESPONSIBILITY PROGRAMS

Managers must take steps to foster a companywide sense of social responsibility.

i. Social Audit--systematic analysis of a firm's success in using funds

earmarked for meeting its social responsibility goals.

b. Social Responsibility and the Small Business--Ethics and social

responsibility are decisions faced by all managers in all organizations,

regardless of rank or size.

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