Strategic management Lecture 10. The business ethics, social responsibility, and corporate culture
Process of strategic management Expectations and purposes Resources, competences and capability The environment Strategic analysis Organisation structure and design Bases of strategic choice Strategy implemen- tation Strategic choice Resource allocation and control Strategic options Strategy evaluation and selection Managing strategic change
Expectations and Purposes - Outline • Identification of organisational stakeholders • Stakeholder mapping • Corporate governance • Ethical issues • Culture
A Ford Pinto story Inthe 1970’s more and more companydevelopedsmall, simple, and cheapcar, fortheyoungpersons. The Ford Co. delayed, and try th catchup. The management speedupthedevelopments, and entersthe market withthe Ford Pinto. Therewere more than 500 thousendcaronthe market when a seriousaccidenthappened: Afterdrivingawayfromthefillingstationtwocracollided, the Ford Pintoblowup, and threegirlburnedinthecar. A magazin investigatedthecase and realised, thattherewere more than 10 similaraccidects, and therewere 5 death The companyinvestigatedthecase and theanalysisdescovered: • Back bumperweak, and weretooneartothefuel tank. • The engineeersknowabouttheproblems, howevertheywereindelay • The problemscould be solvedby building intocars a 10 $rubberplate • The management findthatthecarinthisformmettheexistingsafetiregulations. • Howeverthecompanywaslobbiingagainstrisingthesafetystandards. • The cost-benefitanalysisdescribe, iftheycall back allthecars and rebuildthecaritwouldcost 11 m $. • Ifthecompanywillchangeonlythefuture’scars, therewill be about 10 death, and itwouldcostabout 10 m $forthecompany. • The decisionwere: notthechange. • Therewere 2 millió cars, about 11 death, butthisnumberwerebetterthantheindustrial avarege.
Business ethics – the societal expectations of organisations • Macro level • Range from laissez faire to shapers of society • Ethical stance of organisation in society • Extent an organisation exceeds its minimum obligations to stakeholders and society • Corporate social responsibility • Specific ways to exceed minimum obligations imposed by legislation/corporate governance • Reconcile conflicting demands of stakeholders • Individual level • Behaviour and actions of individuals within organisations
The most important ethical concepts • Moral: Relating to, dealing with, or capable of making the distinction between right and wrong in conduct or character • Ethics: The system or code of morals of a particular person, religion, group or profession. • Ethical: Conforming to moral standards, conforming to the standards of conduct of a given profession or group. • Ethical behaviour is what is accepted as „good” and „right”, and as opposed to „bad” and „wrong” in the context of governing moral code.
Four ways of rationalize ethical misconduct • Convincing yourself that the behaviour is not really illegal • Convincing yourself that the behavoiur is really everyone’s best interests • Convincing yourself that nobody will ever find out what you’ev done. • Convincing yourself that the organization will protect you.
ETHICAL GUIDELINES FOR MANAGERS Obey the Law. A basic tenet of social responsibility and mamagerial ethics is obedience to the law, preferably both the letter and the spirit of the law. Tell the truth. Telling the truth is important in building trust with relevant stakeholders. Show respect for people. Stick to the „golden rule”. "Do unto others as you would have them do unto you". Above all, do not harm. This principle - the first rule of medical ethics - is considered by some writers to the bottom-line ethical consideration. Practice participation, not paternalism. This principle is aimed at learning about the needs of relevant stakeholders, rather than deciding what is the best for them. Always act when you have responsibility. Managers have the responsibility of taking action whenever they have the capacity or resources.
Continuum of social responsibility • Social obligation - corporate behavior at this level conforms only to legal requirements and competitive market pressures • 2. Social responsibility - Corporate behavior at this level is congruent with prevailing norms, values, and expectations of society. • 3. Social responsiveness - Corporate behavior at this level takes preventive action to avoid adverse social impacts from company activities and even anticipates or takes the lead in future movement beyond current expectations.
The most important areas of the corporate social responsibility (1) Ecology and Environmental Quality Pollution cleanup and prevention Dispersion of industry Land use and beautification Consumerism Truth in lending, advertising, and business Product warranty and service Control of harmful products Community needs Use of expertise for local problems Aid with health-care facilities and education Service on voluntary groups Governmental relations Restrictions on lobbying Control of business political action
The most important areas of the corporate social responsibility (2) Minorities and Disadvantages persons Training of unemployed Equal employment opportunity Locating plants and offices in minority areas Purchasing from minority businesses Labor relations Improved occupational health and safety Provision of day-care centers Options of flexible work hours Stockholder relations Public seats on the board of directors Improved financial disclosure Corporate philanthrophy Financial support for arts and culture Special scholarships and gifts to education Financial support for assorted charities
Arguments for and againts of corporate social responsibilities
Corporate social responsibility Corporate social responsibility (CSR, also called corporate conscience, corporate citizenship, social performance, or sustainable responsible business/ Responsible Business) is a form of corporateself-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere who may also be considered as stakeholders.
Organisational Culture “The basicassumptions and beliefsthat areshared by members of an organisation,that operateunconsciouslyand define in a basictaken-for-grantedfashion an organisation’sview of itself and its environment” Schein 1997
Corporate culture • Patterns of behaviour based on mutual values and ways of thinking within a certain corporate. • Each company has its own norms of behaviour, which help its members to understand what the organisation represents.
Culture as mental programming • Hofstede’s idea of culture • Every person has patterns of thinking, feeling and potential acting • Analogy to way computers are programmed = mental programs or software of the mind • Culture is the collective programming of the mind, which distinguishes the members of one group of people from an other!
Organisational Field • Organisations within a field have: • Common business environment • Common norms and values • Shared set of assumptions • A recipe of organizational purpose and shared wisdom • Dangers: • Institutionalised managers may be blinkered • Transition between sectors difficult • Legitimacy: • Need to meet expectations in terms of assumptions, behaviours and strategies
HANDY’s classification of corporate cultures Handy defines four major corporate cultures, in which the organisational structure of the given culture can be found. Power or ‘club’ culture Structure: like a web, with a spider in the middle, a boss possessing all power. Zeus, directed by his instinct and caprice. Most important is the relationship with the central leader. Important is the belief in individual performance. Rating is based on result. Flexible structure
HANDY’s classification of corporate cultures Role culture Classical bureaucracy. Like a Greek temple, works according to logic and rationality. Apollo, God of clear mind and practicality. Function is dominated, not the individual. Stability and predictability are important. Rigid structure.
HANDY’s classification of corporate cultures Task culture Concentrates on successful fulfilment of tasks.Like a matrix, power is in the cutting points.Source of power are the knowledge and expertise. Pallas Athene, Goddess of wisdom, nature and inventions. Team culture, the result by joint effort is important. Objective oriented and flexible. Hard to carry out control, short life.
HANDY’s classification of corporate cultures Personality culture Individuality oriented, structure lives for the realisation of the objectives of the individuals. Loose cooperation of highly qualificated individuals. Dionysus, autonomous God of wine and ecstasy.
Entreprenurial culture is one that fosters positive • attitudes towards entrepreneurship • Environment which combines social,political • and educational attributes. • USA is the most entreprenurial culture of the world: • -always seeking sg. new • achievement-orientation • they worship innovation • non-conformist • entrepreneurship is a career option
HOFSTEDE: Impact of national culture on corporate culture low Market Family Uncertainty avoidance GB, USA, Canada, Denmark India, Malaysia Machine Pyramid Germany, Finland, Austria France, Japan, Hungary, Greece high Power distance low high
Entrepreneurial culture: Hofstede’s dimensions This is the degree to which people prefer to act as individuals rather than groups.? Me-culture This level depends on the socio-culture of the country. Individualism: West-Europe, USA Collectivism: We -culture: Japan, China, South-America Individualism vs. collectivism Power distance This is the degree of inequality among people that the community is willing to accept. Low power distance: informal and open relation, flat structures in organisation. Example: UK, USA, Scandinavia High power distance: formal relation, hierarchies: France, Russia South America Uncertainty avoidance Degree to which people prefer to avoid uncertainty and prefer structured rather than unstructured situation. Low uncertainty avoidance: prefer flexibility, high risk-taking, ambiguity. Example: USA, Scandinavia High uncertainty avoidance: prefer rules and procedures. masculinity This define quality of life issue. Masculine virtues are: assertiveness, competition and success,social gender roles are distinct. Feminine virtues: modesty, compromise and co-operation social gender roles overlap. Important: warmth in personal relationships.
Major differences between national and corporate cultures • Values of national culture are incorporated to our mind until age of 10-12. • We are not affected that deep by the corporate culture. National cultural features can be observed more at work than corporate culture.
Problems of conflicts of cultures at international acqusitions and fusions • Conflicts of both national and corporate cultures 1 Deculturisation – aggressive merging 2 Separation – both cultures live further parallel 3 Assimilation – One culture dominates, merging a slow and peaceful process 4 Integration – equal, balanced merging of two cultures by creating a new one.
DEAL and KENNEDY corporate structure categories • Basis of categorisation is rate of the risk undertaken and the speed of the feed back of success. 1 Tough guy, macho culture High risk, prompt feed-back on success, slogan: ‘seek for a hill and climb it’ Specification: pushy, extravagant persons e.g. stock exchange, TV producers
DEAL and KENNEDY corporate structure categories 2 ‘Work hard/ play hard’ culture Slogan: ‘Seek for a need and satisfy it’. Small risk, but prompt feed-back on success. Continuous team work. Good consumer servise is a must in this culture. E.g. service companies, department stores, computer dealers, etc.
DEAL and KENNEDY corporate structure categories 3 ‘Bet-your-company’ culture Big, long term risk, very slow feed-back. Slow and sound analytical work Slow rating of employees. E.g. Investment banks, space research, cancer research, etc.
DEAL and KENNEDY corporate structure categories • ‘process’ culture Low risk, very slow feed-back on success, if it exists at all. Hard to detect the performance of the employees. Working process is highlighted. E.g. bureaucratic banks, insurance companies, governmental offices