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CHAPTER 8. Establishing an ethical and socially responsible business and structuring an entrepreneurial venture. Learning Objectives. Explain the role of ethics in entrepreneurship. Discuss how entrepreneurs can demonstrate social responsibility. - PowerPoint PPT Presentation
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Establishing an ethical and socially responsible business and structuring an entrepreneurial
venture
CHAPTER 8
Explain the role of ethics in entrepreneurship.
Discuss how entrepreneurs can demonstrate social responsibility.
Describe how an entrepreneur’s vision and values contribute to the culture of the new venture.
Discuss the relationship of core values to success.
Learning Objectives
Learning ObjectivesDescribe how businesses are organized.Discuss the role of strategic alliances in a
new organization. Explain how to identify the appropriate
business site.Discuss the most critical issues related to
organizing people.
The moral code by which we live and conduct business.
Derives from the cultural, social, political, and ethnic norms with which we were raised as children.
Ethics
Ethical decision making, 4 categories:1. Individual values2. Organizational values3. Customer satisfaction4. External accountability
Ethics (cont’d)
Categories of perspectives about ethical dilemma:Ideals
Looking at the dilemma from an Aristotelian perspective about one’s virtues, integrity, and values
Obligations One’s duty, rights, or what is lawful or just
Utility Analyzes costs and benefits of potential
alternative consequences of action or inaction
Ethics (cont’d)
Approaches to avoiding ethical issues:1. Dogmatism: “I simply will never
lie or cheat or steal.”2. Egoism: “Everyone needs to
lookout for himself.”3. Relativism or Situational: “When
in Rome, do what the Romans do.”
4. Subjectivism: “Ethics is a point of view.”
Ethics (cont’d)
Four most common types of ethical dilemmas:Conflicts of interest: Occurs when a person’s
private or personal interests clash with professional obligations.
Survival tactics: What an entrepreneur does today out of desperation will follow him for the rest of his business career.
Stakeholder pressure: All stakeholders want what is owed them when it is owed them.
Pushing the legal limit: Entrepreneurs who regularly play too close to the edge of legality eventually get caught and the price is often their businesses and their reputations.
Ethics (cont’d)
There is no better way to understand the role of ethics in any business than to encounter real-world dilemmas and determine how they might be resolved.
Small businesses are as guilty as multinational corporations when it comes to ethical missteps.
Learning from Real-Life Dilemmas
Code of ethics: Set of ethical standards by which a company functions.
When a code of ethics is spelled out and written down, people in the organization take it more seriously.
The Importance of Developing a Code of Ethics
Guidelines from The Josephson Institute of Ethics:TrustworthinessRespectResponsibilityFairnessCaringCitizenship
The Process of Developing a Code of Ethics
Clear and easy to understandMake all employees awareShare with customersClear channel for reporting unethical
behaviorMeans for rewarding ethical behavior
Characteristics of an Effective Code
Social responsibility is operating a business in a way that exceeds the ethical, legal, commercial and public expectations that society has of the business.
Socially responsible businesses start with a social mission, which must be achievable.
Majority of social ventures are nonprofits that must seek their funding from philanthropists or grants.
Social Responsibility
First, company must set a goal.Second, company must get employees
and customers (if appropriate) involved.
Ways to establish positive relationships in the community:Donate products, services, or revenuesDonate expertiseContribute to the community
Effective Ways to Become Socially Responsible
Core values:The fundamental beliefs that a company holds
about what is important in business and in life in general.
Based on the founder’s personal values and beliefs.
They tell the world who the company is and what it stands for.
Vision and Values
Purpose The company’s fundamental reason to be in
businessMission
The company’s mission brings everyone together to achieve a common objective.
The mission statement communicates the mission.
Vision and Values (cont’d)
Strategies: Plans for achieving company goals and
accomplishing the missionTactics:
The means to execute the strategies
Strategies and Tactics
The Components of VisionFigure 11.2
Constants of success:PurposeFailureSense of satisfaction with workNo free lunch
Core Values and Success
Design: Understanding the Way the Business WorksOrganizational structure
Finding the best fit, given the existing:Contextual factors (environment, technology,
market)Design factors (strategy and models)Structural factors (complexity, formalization)
Building Blocks of an Entrepreneurial Organization
Figure 12.1
Design: Understanding the Way the Business Works (cont’d)
Distributed forms of organizationsCompanies generally distributed on four levels:
1. Geographically (locally or across continents)
2. Organizationally by department or project group
3. Temporally by time zone4. By stakeholder groups
Identifying Business ProcessesDesign the process map/flowchart that traces
how information flows through the business.Mapping leads to better decisions
Number of people to hireAmount of equipment to purchaseType of facility for workingType of organizational structure to employ
The Virtual EnterpriseA virtual enterprise is a “business
without walls.”A temporary network of independent
companies, suppliers, customers, even erstwhile rivals—linked by information technology to share skills, cost, and access to one another’s markets
The Virtual Enterprise (cont’d)
Its goal is to deliver highest-quality product at the lowest possible cost in a timely manner.Outsources in a virtual worldForms a network of strategic alliancesKeeps distributed employees and strategic
partners linked
Location Strategy: Finding the Appropriate Business Site
Site decisions begin at macro levelChoosing the region, state, and community
Economic baseFinancial incentives
Population demographics
Location Strategy: Finding the Appropriate Business Site (cont’d)
Choosing a retail siteThe trade areaCompetition and characterAccessibility
Choosing the service/wholesale siteSome of same considerations as retail site
(accessibility, attractiveness, trade area of sufficient size, etc.)
No need for upscale version
Location Strategy: Finding the Appropriate Business Site (cont’d)
Choosing the manufacturing siteAccess to suppliersCost of laborAccess to transportationCost of utilities
The Lease–Build–Buy decisionAsk the right questions at each stage
StartupRapid growthStable growth
Location Strategy: Finding the Appropriate Business Site (cont’d)
Alternatives to conventional facilities:IncubatorsShared spaceMobile locationsTemporary tenant agreements
People Strategy: Organizing Startup Human ResourcesStartup operations
Organization chart tends to be flatMuch work accomplished through informal
organization or network of relationshipsNew ventures adopt team-based approach
rather than formal “departments”Often employ independent contractors
Simple Organizational Chart for a Growing Business
Figure 12.3
People Strategy: Organizing Startup Human Resources (cont’d)
Common leadership traps:Isolating themselves from the rest of the
startup team Always having the one “right” answer Keeping people on board who are not up to
the needs of the companyTaking on too much too soonSetting unrealistic expectations Not building support
Creating the Company CultureThe personality of the company, that
intangible set of values that determines how and why the people in the organization respond to their business environment the way they do
Culture of startup derives from vision and values of founding team
Aligning Culture and StrategyFigure 12.4
Hiring the Right PeopleImportant for an entrepreneur to
understand how to hireFunctions to fillThe employee searchInterviews
Human resource leasingProfessional employer organization (PEO)
Managing Employee Risk Risk management is a set of policies and
their associated decision-making processes that reduce or eliminate risks associated with having employees.
Financial risks Obey all rules and regulations
Planning for Ownership and Compensation
The major issues:How much of the company to sell to
potential stockholders?How much to pay key managers?
Compensating with stockAn investor does not need to be an equal
partner.Hire talent rather than give away
ownership.Use cash for bonuses rather than stock.
Founder’s StockKnown as “144 stock”Payoff comes with liquidity event such as IPO
or acquisition by another companyStock is issued to the first shareholders of the
corporationRestricted by SEC rules
Alternatives to Equity IncentivesDeferred compensation plansBonus plansCapital appreciation rightsProfit-sharing plans
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