Certification Study Group Business Ethics and Social Responsibility Comparison of Business Ethics and Social Responsibility Business Ethics Social Responsibility Refers to the principles and standards that define acceptable conduct in the world of business. Refers to a business’s obligation to maximize its positive impact and minimize its negative impact on society. ©The McGraw-Hill Companies, 2000 Comparison of Business Ethics and Social Responsibility Business ethics deal with the right and wrong actions that arise in any work environment Social responsibility refers to management’s consideration of the social and economic effects of its decisions The Role of Ethics in Business Laws and regulations codify the most basic ethical and responsibility concerns. Business ethics goes beyond legal issues. All actions deemed unethical by society are not necessarily illegal. Ethical Issue 3-2 An identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as right or wrong, ethical or unethical. Ethical Issue Categories Conflict of interest Fairness and honesty Communications Business relationships Plagiarism Company Loyalty vs. Truth The Pyramid of Social Responsiblity Voluntary Responsibilities being a “good corporate citizen”; contributing to the community and quality of life Ethical Responsibilities being ethical; doing what is right, just, and fair; avoiding harm Legal Responsibilities obeying the law (society’s codification of right and wrong); playing by the rules of the game Economic Responsibilities being profitable Source: Adapted from Archie B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders.” Business Horizons 34 (July/August 1991): 42. Responsibility Issues To The General Public and the Environment To The Consumer Responsibilities of Business To Owners & Stockholders To The Employee Arguments for Social Responsibility Business helped to create many of the social problems that exist today, so it should play a significant role in solving them Businesses should be more responsible because they have the financial and technical resources to help solve social problems. As members of society, businesses should do their fair share to help others. Socially responsible decision making by businesses can prevent increased government regulation. Social responsibility is necessary to ensure economic survival Arguments Against Social Responsibility It sidetracks managers from the primary goal of business–earning profits. Participation in social programs gives businesses greater power, perhaps at the expense of particular segments of society. Some people question whether business has the expertise needed to assess and make decisions about social problems. Many people believe that social problems are the responsibility of government agencies and officials, who can be held accountable by voters. Certification Study Group The Control Process The Nature of Control Control The regulation of organizational activities so that some targeted element of performance remains within acceptable limits. Provides organizations with indications of how well they are performing in relation to their goals. Provides a mechanism for adjusting performance to keep organizations moving in the right direction. The Planning—Controlling Link Source: Van Fleet, David D., and Tim Peterson, Contemporary Management, Third Edition. Copyright © 1994 by Houghton Mifflin Company. Used with permission. The Nature of Control The Purpose of Control Control is one of the four basic management functions. The control function, in turn, has four basic purposes. Adapt to environmental change Limit the accumulation of error Control helps the organization Cope with organizational complexity Minimize costs Types of Resource Controls Physical Financial Human Information The Nature of Control Types of Controls Areas of Control Physical resources — inventory management, quality control, and equipment control. Human resources — selection and placement, training and development, performance appraisal, and compensation. Information resources — sales and marketing forecasts, environmental analysis, public relations, production scheduling, and economic forecasting. Financial resources — managing capital funds and cash flow, collection and payment of debts. The Nature of Control Steps in the Control Process 1 Establish standards 2 Measure performance 3 Compare performance against standards Maintain the status quo Correct the deviation 4 Determine need for corrective action Change standards Figure 14.3 Steps in the Control Process Establish Standards Control standard—a target against which subsequent performance will be compared. Control standards should be expressed in measurable terms. Control standards should be consistent with organizational goals. Control standards should be identifiable indicators of performance. Steps in the Control Process Measure Performance Performance measurement is an ongoing process. Performance measures must be valid indicators (e.g., sales, costs, units produced) of performance. Steps in the Control Process Compare Performance Against Standards Define what is a permissible deviation from the performance standard. Utilize the appropriate timetable for measurement. Determine the Need for Corrective Action Maintain the status quo (do nothing). Correct the deviation to bring operations into compliance with the standard. Change the standard if it was set too high or too low. Forms of Operations Control Feedback Inputs Transformation Outputs Preliminary control Screening control Postaction control Focuses on inputs Focuses on how Focuses on outputs to the organizational inputs are being from the organiza- system transformed into tional system outputs Figure 14.4 Financial Control Financial Control Control of financial resources (i.e., revenues, shareholder investment) as they flow into the organization, are held by the organization (i.e., working capital, retained earnings), and flow out of the organization (i.e., payment of expenses). Financial Control Budgets Budget A plan expressed in numerical terms Financial Operating Sources and uses of cash Planned operations in financial terms Nonmonetary Planned operations in nonfinancial terms Financial Control Financial Control Budgetary Control Budgets may be established at any organizational level. Budgets are typically for one year or less. Budgets may be expressed in financial terms, units of output, or other quantifiable factors. Financial Control Budgets serve four purposes: Help managers coordinate resources and projects. Help define the established standards for control. Provide guidelines about the organization’s resources and expectations. Enable the organization to evaluate the performance of managers and organizational units. Operating unit budget requests Division budget requests Organizational budget • Prepared by budget committee • Approved by budget committee, controller, and CEO Financial Control Developing Budgets in Organizations Figure 14.5 Other Tools of Financial Control Ratio Analysis The calculation of of one or more financial ratios to assess some aspect of the organization’s financial health. Financial Audits Audit—an independent appraisal of an organization’s accounting, financial, and operational systems. External audits—financial appraisals conducted by experts who are not employees of the organization. Internal audits—appraisals conducted by employees of the organization. Managing Control in Organizations Characteristics of Effective Control Integration with Planning Flexibility the more control is linked to planning, the more effective the control system. the control system must be flexible enough to accommodate change. Accuracy Inaccurate information results in bad decision making and inappropriate managerial actions. Managing Control in Organizations Characteristics of Effective Control Timeliness A control system should provide information as often as necessary. Objectivity A control system must be free from bias and distortion. Managing Control in Organizations Resistance to Control Overcontrol Trying to control too many details becomes problematic when control affects employee behavior and employees perceive control attempts as unreasonable. Inappropriate Focus The control system may be too narrow or it may focus too much on quantifiable variables and leave no room for analysis or interpretation. Managing Control in Organizations Resistance to Control Rewards for Inefficiency Rewarding operational inefficiency can lead employees to behave in ways that are not in the best interests of the organization. Too much accountability Efficient controls are resisted by poorly performing employees. Overcoming Resistance to Control Resistance to control can be overcome by: Designing effective controls that are properly integrated with organizational planning and aligned with organizational goals and standards. Creating controls that are flexible, accurate, timely, and objective. Avoiding overcontrol in the implementation of controls. Guarding against creating controls that reward inefficiencies. Overcoming Resistance to Control Resistance to control can be overcome by: Encouraging employee participation in the planning and implementing of control systems. Developing a system of checks and balances in the control systems through the use of multiple standards and information systems that allow the organization to verify the accuracy of performance indicators. Certification Study Group Organizational Structure and Authority Organizational Culture Refers to an organization’s shared values, beliefs, traditions, philosophies, rules, and heroes. Also referred to as corporate culture Organizational culture gives employees’ roles meaning and suggests rules for how to behave and deal with problems Organizational culture A firm’s culture may be expressed formally through codes of ethics, memos, manuals, and ceremonies. A firm’s culture may be expressed informally through dress codes, work habits, extracurricular activities, and stories. Should be shared by all members of the organization and in turn expressed to outsiders Structure in Organizations Structure Organizing Organization Human Interaction Structure Goal Directed Activities Assigning Tasks Specialization The division of labor into small, specific tasks and the assignment of employees to do a single task Rationale for specialization is efficiency Steps in the Organizing Process Determine specific work activities necessary to implement plans and objectives Group work activities into logical patterns or structures Assign activities to specific positions and people, and allocate necessary resources Coordinate activities of different groups and individuals Evaluate results of the organizing process The Organization Chart The visual representation of a firm’s structure that illustrates: Job positions and functions Lines of authority Staff relationships Lines of communication Common Bases of Departmentalization Geographic Eastern Region Southern Region Accounting Midwest Region Human Resources Rocky Mountain Region Western Region Tide Detergent Sure Deodorant Function Manufacturing Military Accounts Corporate Accounts Quality Control Product Crest Toothpaste Customer Government Accounts Research & Development Small Business Accounts Non-Profit Accounts Jif Peanut Butter Folgers Coffee Functional Departmentalization Accounting Human Resources Research & Manufacturing Development Quality Control Product Departmentalization Tide Detergent Sure Deodorant Crest Toothpaste Jif Peanut Butter Folgers Coffee Geographic Departmentalization Eastern Region Southern Region Midwest Region Rocky Mountain Region Western Region Customer Departmentalization Government Accounts Military Accounts Corporate Accounts Small Business Accounts Non-Profit Accounts Authority and Delegation The act of assigning work activities to subordinates Delegation is a transfer of authority Three Types of Authority Line Authority Staff Authority Functional Authority Line Structure/Organizations Owner Manager Assistant Manager Hourly Employees A Line-and-staff Organization President Assistant to President Director of Human Resources Director of Operations Director of Purchasing Unit 1 Plant Manager Sup.of Human Resources Other Supervisors Sup. Of Operations Authority Relationships Line Staff Functional Other Directors Unit 2 Plant Manager Sup. of Purchasing Sup.of Human Resources Other Supervisors Sup. Of Operations Sup. of Purchasing Chain of Command More commonly known as unity of command - an employee should have only one supervisor to whom he/she is directly responsible This principle should not be violated Span of Management: Wide Span and Narrow Span 8-6 Wide Span: Flat Organization Narrow Span: Tall Organization ©The McGraw-Hill Companies, 2000 Also Known As Span of Control There are contrasting spans of control Wide span of control Contemporary organizations Narrow span of control The 1970s Span of Control Wide span of control Fewer levels of management Reduces costs Requires improvements in skill levels Requires redesigning jobs Degree of Centralization The extent to which authority is delegated throughout an organization determines its degree of centralization. Centralized Decentralized Other Forms of Organization Structure 8-7 Multidivisional Matrix ©The McGraw-Hill Companies, 2000 An Example of Multidivisional Structure: The Walt Disney Company CEO Michael Eisner Walt Disney Attractions Motion Pictures Walt Disney World Magic Kingdom FL Walt Disney Studios TV Consumer Products Animation Magic Kingdom CA Tokyo Disneyland EuroDisney Disney Stores Licensing Publishing Epcot Center DisneyMGM Studios Disney Channel Disney Music Software and Education Catalog Marketing Source: The Walt Disney Company Annual Report Matrix Design Design MFG Contract Admin Purchasing Accounting HR Alpha Project Design Group MFG Group Contracts Group Purchasing Group Accounting Group Human Resources Group Beta Project Design Group MFG Group Contracts Group Purchasing Group Accounting Group Human Resources Group Gamma Project Design Group MFG Group Contracts Group Purchasing Group Accounting Group Human Resources Group Omega Project Design Group MFG Group Contracts Group Purchasing Group Accounting Group Human Resources Group