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Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000

TheEnvironment

ofManagement

II

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1.1 Social Responsibility and Ethics

Stakeholders:people or groups that

have an interest in the organization.Stakeholders include employees, customers,shareholders, suppliers, and others.Stakeholders often want different outcomesand managers must work to satisfy as many as possible.

Ethics:Moral principles or beliefs about

what is right and wrong.-Ethics guide people in dealings with stakeholders andothers, to determine appropriate actions.-Managers often must choose between the conflictinginterest of stakeholders.

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Stakeholder2-3

Any group inside or outside the organization that can affect or

be affected by the organization's activities.

The

Organization

Localcommunity

Localgovernment

Owners/investors

Tradeassociations

Interestgroups

Courts

Employees

Suppliers

Foreigngovernment

Colleges anduniversities

State/federalgovernment

CustomersCreditors

Figure 2.1

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2-4


Ethical Decisions A key ethical issue is how to disperse harm and

benefits among stakeholders.

Some other issues managers must consider.

-Should you hold payment to suppliers as long as possibleto benefit your firm?This will harm your supplier who is a stakeholder.

-Should you pay severance pay to laid off workers?This may decrease the stockholder's return.

-Should you buy goods from overseas firms that hirechildren?If you dont the children might not earn enough money to eat.


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Why Behave Ethically and Unethically?

Managers should behave ethically to avoid harming

others.Managers are responsible for protecting and nurturing resources in

their charge.

An important safeguard against unethical behavior is the

potential for loss of reputation.

Unethical managers run the risk for loss of reputation.managers put their personal interest above the interest of other

organizational stakeholders or choose to ignore the harm that theyare inflicting on other.

This is a valuable asset to any manager!Reputation is critical to long term management success.All stakeholders are judged by reputation.


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Sources of an Organizations Code of Ethic

Figure 2.2 Societal Ethics:

The values and standards embodiesIn a societys law, customs, practice

And norm, and values

Professional

Ethics:The Values and standard

that groups of Managersand workers use to decide

how to behave

appropriately

Personal values and standard

that result from the influence

of family, peers, upbringing,

and Involvement in

significant Social

institution

OrganizationsCode of Ethics

Individual

Ethics:

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Ethical Origins

Societal Ethics:standards that members of society use

when dealing with each other.

Based on values and standardsfound in societys legal rules,norm, and mores.Codified in the form of law and society customs.Norms dictate how people should behave.

Societal ethics vary based on a given society.Strong beliefs in one country may differ elsewhere.Example: bribes are an accepted business practice in some countries.

All stakeholders are judged by reputation.


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Ethical OriginsProfessional ethics:values and standards used by

groups of managers in the workplace.Applied when decisions are not clear-cut ethically.

Example: physicians and lawyers have professional associations thatenforce these.

Individual ethics:values of an individual resulting

from their family& upbringing.If behavior is not illegal, people will often disagree on if it is ethical.

Example: Ethics of top managers set the tone for firms.


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Social ResponsibilityWhat Is Social Responsibility? A firms practices with other

parties such as customers, competitors, the government, employees,

supplier, and creditors.

the managers duty to nurture, protect and enhance the welfare ofstakeholders.

There are many ways managers respond to this duty: Obstructionist response:managers choose not to be socially

responsible. Managers behave illegally and unethically. They hide and cover-up problems.


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Social Responsibility

Defensive response:managers stay within the law butmake no attempt to exercise additional social

responsibility.oPut shareholder interest above all other stakeholders.oManagers say society should make laws if change is needed.

Accommodative response: managers realize the needfor social responsibility.

oTry to balance the interests of all stakeholders.Proactive response: managers actively embrace socialresponsibility.

oGo out of their way to learn about and help stakeholders.


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Levels of Responsibility

Obstruction

response

Defensive

response

Accommodative

response

Proactive

response

LowHighSocial responsibility

Figure 2.3

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Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000Copyright by Houghton Mifflin Company. All rights reserved.

Managerial Ethics

Employees Organization

Conflicts of interest

Secrecy and

confidentiality

Honesty

Hiring and firing

Wages and working

conditions

Privacy and respect

Subject to ethical ambiguities Advertising and promotions

Ordering and purchasing

Bargaining and negotiation

Financial disclosure

Shipping and solicitation

Other business relationships

Economic Agents

Customers

Competitors

Stockholders

Suppliers

Dealers

Unions

Three basic areas ofconcern for managerial

ethics are therelationships of the firmto the employee, theemployee to the firm,and the firm to othereconomic agents.

Figure 2.4

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Why be Responsible?Managers accrue benefits by being responsible.

Workers and society benefit.

Quality of life in society will improve. It is the right thing to do.

Whistleblowers: a person reporting illegal orunethical acts.Whistleblowers now protected by law in most cases.

Social audit:managers specifically take ethicsand business into account when makingdecisions.


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Arguments For and Against Social Responsibility

1. Business creates problems and

should therefore help solve them.

2. Corporations are citizens in our

society.

3. Business often has the resources

necessary to solve problems.

4. Business is a partner in our

society, along with the govern-

ment and the general population.

Social

Responsibility

4. The purpose of business in U.S.

society is to generate profit

for owners.

2. Involvement in social programs

gives business too much power.

3. There is potential for conflicts

of interest.

1. Business lacks the expertise to

manage social programs.

Arguments For Social Responsibility Arguments Against Social Responsibility

Figure 2.5

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1.2 The Increasing Diversity of the Workforce Managing Diverse Workforces

The workforce has become much more diverse during

the last 30 years.Diversity refers to differences among people such as age,gender, race, religion.

Diversity is an ethical and social responsibility issue.

Manager need to give all workers equal opportunities Not following this is against the law and unethical. When all have equal opportunity, the organization benefits.


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Types of Diversity

Figure 2.6

Capabilities

Disabilities

Socioeconomicbackground

Sexual

orientation

ReligionEthnicity

Race

Gender

Age

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How to Manage DiversityIncrease diversity awareness:managers need to become

aware of their own bias.

Understand cultural differencesand their impact onworking styles.

Practice effective communicationwith diverse groups.

Be sure top management is committedto diversity.

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Age Distributions

1999 2025

Under15

15 to24

25 to34

35 to49

50 to

64

65 orolder

21.4%

20.1%

13.9%

13.1%

14%

12.9%

23.5%

18.2%

14.6%

17.2%

12.7%

18.5%

By 2025, more than one-third of the

population will be over age 50:

1999 2005 2010 2015 2020 2025

40

The median age will climb to 38:

39

38

37

36

35

0

38

35.5

Figure 2.7

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Copyright by Houghton Mifflin Company. All rights

reserved.

Ethnicity Distribution Trends in the U.S.

20251999

W h it e

O t h e r r a c ia l o r e t h n ic g r o u p

37.6%

62.4%

28%

72%

Racial or ethnic breakdown

Hispanics 17.6%Blacks 13%Asians 6.2%Native Americans 0.8%

Racial or ethnic breakdown

Hispanics 11.5%Blacks 12.1%Asians 3.7%Native Americans 0.7%

By 2025, Hispanics will be the largest minority groupin the United States. The share of the population ofeach group now and projected in 2025

Figure 2.9

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How Diversity and Multiculturalism

Promote Competitive Advantage

Resourceacquisitionargument

Systemsflexibilityargument

Creativityargument

CompetitiveAdvantage

Costargument

Problem-solvingargument

Marketingargument

Figure 2.10

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2.1 What is the OrganizationalEnvironment ?

Organizational Environment:those forces

outside its boundaries that can impact it.

set of forces and conditions that operate beyond anorganizations boundaries but affect a managers

ability to acquire and utilize resources.Environment consists of all forces with thepotential to influence the organization and itsperformance.

The environment can help or hurt managements

efforts to attain the goals.

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How Organizations Respond to Their Environments

General Environment

Task Environment

Information

management

Social

responsibility

Strategic

response

Mergers, takeovers,

acquisitions,alliances

Direct

influence

Organization

design and

flexibility

TheOrganization

Figure 2.11

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How Environment Influences theOrganization

Environmental Uncertainty

-Environmental Change, -Environmental Complexity

Environmental Interaction-Environmental Munificence, -Resource Dependence

How Managers Respond?Boundary Spanning

Adaptation to the Environment : Organization Structure,Buffering, Forecasting, Smoothing and Rationing

Influence on the Environment : Political and Legal Activities,Joint Ventures, Advertising and Public Relations, Domain Shifts.


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2.2 Forces in the Organizational

Environment

Technological

Forces

Firm

TaskEnvironment

GeneralEnvironment

Suppliers

Distributors

Customers

Competitors

Global

Forces

Political &

Legal Forces

Sociocultural

Forces

Economic

Forces

Demographic

Forces

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Internal Environment:The factors within anenterprise (such as Board of Directors, and

employees, structure, Organizational Culture,

Owners & Shareholders, policies, and reward)that influence how work is done and how goals

are accomplished.

- Culture (a system of behavior, rituals, and share meaning held by

employees that distinguishes the group of organization from other similar

units.


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External Environment:a wide variety offorces and institutions outside the organization

that may affect its performance

Partners, Customers, Competitors, Suppliers, Labour Supply,and Regulators

ForcesPolitic legal, Economic, Technological,

Sociocultural, and International

General EnvironmentTask Environment


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The Task Environment:

The set of forces and condition that originate with

supplies, distributors, customers, and competitors

and affect an organizations ability to obtain

inputs and dispose of its outputs because they

influence manager on a daily basis.


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The Task Environment-Suppliers: individualsand organizations thatprovide material and equipment that it needs toproduce goods and services.

Managers need to securereliable input sources.Suppliers provide raw materials, components, and evenlabor.

-Working with suppliers can be hard due to shortages, unions, and lackof substitutes.

-Suppliers with scarce items can raise the price and are in a goodbargaining position.

Managers often prefer to have many, similar suppliers ofeach item.


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The Task Environment-Distributors:organization that help othersorganizations sell their goods and services to customers.

Compaq Computer first used special computer stores to sell their

computers but later sold through discount stores to reduce costs.Some distributors like Wal-Mart have strong bargaining power.

They can threaten not to carry your product.

-Customers:individuals and groups that buy the

goods and services that an organization products.Usually, there are several groups of customers.For Compaq, there are business, home, &government buyers.


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The Task Environment-Competitor:organization that produce goodsand services that are similar to a particular

organization goods and services Rivalry between competitors is usually the most seriousforce facing managers.

High levels of rivalry often means lower prices.Profits become hard to find.

Barriers to entry keep new competitors out and resultfrom:

Economies of scale: cost advantages due to large scale production.

Brand loyalty: customers prefer a given product.


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Industry Life Cycle

Reflects the changes that take place in anindustry over time.

Birth stage:firms seek to develop a winning

technology. VHS vs. Betamax in video, or 8-track vs. cassette in

audio.

Growth stage:Product gains customer

acceptance and grows rapidly. New firms enter industry, production improves,

distributors emerge.

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Shakeout stage:at end of growth, there is a

slowing customer demand. Competitor rivalry increases, prices fall.

Least efficient firms fail and leave industry.

Maturity stage:most customers have bought

the product, growth is slow. Relationships between suppliers, distributors more

stable.

Usually, industry dominated by a few, large firms.

Decline stage:falling demand for theproduct. Prices fall, weaker firms leave the industry.

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The Industry Life CycleFigure 2.13

Birth Growth Shakeout Maturity Decline

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General Environment : includes the broadconditions that may affect organizations.

-Forces have profound impact on the firm.

-Managers usually cannot impact or control these.

Economic forces:affect the national economyand the organization.

-When there is a strong economy, people have more money tospend on goods and services.

-Includes interest rate changes, unemployment rates, economicgrowth, inflation, and other factors that affect the general healthand well being of a nation or world region


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Technological forces: outcomes of changes in thetechnology that manager use to design, produce or

distribute goods and services.

Result in new opportunities or threats to managers.

Often make products obsolete very quickly.Can change how we manage.

Political and Legal forces: result from changes inlaw and regulations, such as the deregulations of

industries, the privatization of organizations, andincrease emphasis on environmental protection.

These are often seen in the laws of a society.

Today, there is increasing deregulation of many state-run firms.


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Demographic forces: result from changes in thenature, composition and diversity of a population.

These include gender, age, ethnic origin, social

class... For example, during the past 20 years, women have entered the

workforce in increasing numbers.

Currently, most industrial countries are aging.

This will change the opportunities for firms competing

in these areas.

New demand for health care, assisting living can be

forecast.


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Managing the Organization EnvironmentManagers must measure the complexity of the

environment and rate of environmental change.

Environmental complexity:deals with the number

and possible impact of different forces in the

environment.-Managers must pay more attention to forces with larger impact.

-Usually, the larger the organization, the greater the number of forces

managers must oversee.The more forces, the more complex the mangers

job becomes.


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Managing the Organization Environment

Environmental change:refers to the degreeto which forms in the task and generalenvironments change over time.

-Change rates are hard to predict.-The outcomes of changes are even harder to identify.

Managers thus cannot be sure that actions

taken today will be appropriate in the futuregiven new changes.


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Reducing Environmental Impact

Managers can counter environmental threats byreducing the number of forces. Many firms have sought to reduce the number of suppliers it

deals with which reduces uncertainty.

All levels of managers should work to minimizethe potential impact of environmental forces. Examples include reduction of waste by first line managers,

determining competitors moves by middle managers, or thecreation of a new strategy by top managers.


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2.3 The Organizations CultureOrganizational cultureis a collection of values,

norms, & behavior shared by workers that control theway workers interact with each other.

How Employees Learn CultureStories - a narrative of significant events or people

Rituals- repetitive sequences of activitiesMaterial symbolsessential in creating an

organizations personality.Language - identifies members of a culture

- organizations develop unique terminology or jargon


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Organizational Culture Ceremonies and Rites:formal events that focus on

important incidents.

Rite of passage: how workers enter firm & advance.

Rite of integration: build common bonds with office parties,

celebrations.

Rites of enhancement: enhance worker commitment to values.

Promotions, awards dinners.

Stories and Language:Organizations repeat stories offounders or events.

Show workers how to act and what to avoid.

Stories often have a hero that workers can mimic.

Most firms also have their own jargon that only workersunderstand.


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Values and Norms: Creating a strongOrganization culture

Organizational values and normsinform workersabout what goals they should peruse and how they should behave

to reach these goals.

-Values: Ideas about what a society believes to begood, desirable and beautiful.

-Provides conceptual support for democracy, truth,

appropriate roles for men, and women.

-Usually not static but very slow to change.


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Norms Unwritten rules and codes of conduct that prescribe how

people should act in particular situations.

Folkwaysroutine social conventions of daily life (e.g.,dress codes and social manners)

Moresbehavioral norms that are considered central tofunctioning of society and much more significant thanfolkways (e.g., theft and adultery), and they are often enacted

into law.

Norms vary from country to country.

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Creating Strong OrganizationalCulture

Values of Founder

Socialization Process

Ceremonies & Rites

Stories & Language

Organizational

Culture

Figure 2.14

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Industry Environment

Prentice Hall, 2002 4-46

Thread of newentrants

Competitive analysis: Porters Five-Force Model

Competitors

Threat of substitute

product or services

Suppliers Customers

Figure 2.15

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Environment Scanning

Define

Recognize

Analyze

Apply

Figure 2.16

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Scanning and Monitoring

Environmental scanningis an importantboundary spanning activity.

Includes reading trade journals, attending tradeshows, and the like.

Gate keeping:the boundary spanner decideswhat information to allow into organizationand what to keep out.

Must be careful not to let bias decide what comes in.

Interorganizational Relations:firms needalliances globally to best utilize resources.

Managers can become agents of change and impactthe environment.

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The Global EnvironmentIn the past, managers have viewed the global

sector as closed.Each country or market was assumed to be isolated from others

Firms did not consider global competition, exports.

Todays environment is very different.Managers need to view it as an open market. Organizations buy and sell around the world.Managers need to learn to compete globally.

Organizations that operate and compete not only

domestically, but also globally

Uncertain and unpredictable environment


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Copyright by Houghton Mifflin Company. All rights reserved.

Levels of International Business Activity

Level of International ActivityLowest Highest

Domestic

business

Multinational

business

International

business

Global

business

Figure 2.16

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Why Go Global?Growing Importance of International Markets The Search for Resources

The Search for Customers

National Comparative and Competitive Advantage

Global Outsourcing Purchase of inputs from foreign suppliers or the production of inputs

abroad to lower production costs and improve product quality and design

Offshore ProductionEstablishing assembly or manufacturing plants in other countries where

labour and resource costs are relatively low


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Copyright by Houghton Mifflin Company. All rights reserved.

The Global EconomyThe global economy is dominated by three relatively mature

market systems

Figure 2.17

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Entering the Global MarketApproaches to

Internationalization Advantages Disadvantages

Importing or

Exporting

1. Small cash outlay

2. Little risk

3. No adaptation necessary

1. Tariffs and taxes

2. High transportation costs

3. Government restrictions

Licensing 1. Increased profitability

2. Extended profitability

1. Inflexibility

2. Helps competitors

Strategic Alliance/

Joint Venture

1. Quick market entry

2. Access to materials and technology

1. Shared ownership (limits

control and profits)

Direct Investment 1. Enhances control

2. Existing infrastructure

1. Complexity

2. Greater economic andpolitical risk

3. Greater uncertainty

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International ExpansionImporting and Exporting:the least complex method ofexpansion.

-Exporting: firm makes products and sells abroad.-Importing: firm sells products made abroad.

Licensing:firm allows foreign organization to make anddistribute goods for a fee.

Helps the home firm since it does not have to set up a completeproduction and distribution network.

Franchising:company sells a foreign organization therights to use brand name and know-how in return forpayment and profit percentage.


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International Expansion

Importing

Exporting

Licensing

FranchisingJoint Ventures

Strat. Alliances

Wholly-

owned For.

Subsidiary

Low HighLevel of Foreign involvement and investmentneeded by a global organization

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Management Approaches to

Global Activities

Ethnocentric Management

Values and interests of the parent company in its homecountry guide the decisions and actions of operations outsidethe home country

Polycentric Management

Managers in the home country allow managers in othercountries to make their own decisions in response to localneeds and environmental pressures

Geocentric Management

Managers take a global view of the organizationsinternational operations

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ASEAN Members


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European Union Countries


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Economic Systems

Free market economy:production of goods and services isin private ownership.

Production is dictated by supply and demand.

Command economy:decisions on what to produce, howmuch, done by the government.

Most command economies are moving away from thecommand economy.

Mixed economy:certain economic sectors controlled byprivate business, others are government controlled.

Many mixed countries are moving toward a free enterprisesystem.

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Changing Political andEconomic Forces

Russia

1985

Russia

1995

Democratic

Political

Freedom

TotalitarianChina1985

China

1995

Command MarketMixed

Economic Freedom

Britain

1985

Britain

1995

Hungary

1985

Hungary

1995

Figure 4.4

Documents

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