PowerPoint Presentation by Charlie Cook The University of West Alabama Copyright © 2006 Thomson Business and Economics. All rights reserved. Chapter 2 Environment: Culture, Ethics, and Social Responsibility

2–22–2Copyright © 2006 Thomson Business and Economics. All rights reserved. Learning Outcomes 1.Explain the five internal environmental factors: management and culture, mission, resources, systems process, and structure. 2.List and explain the need for the two primary principles of total quality management (TQM). 3.Describe the three levels of organizational culture and their relationship to each other. 4.Describe how the nine external environmental factors— customers, competitors, suppliers, labor force, shareholders, society, technology, economies, and governments—can affect the internal business environment. 5.Compare the three levels of moral development. After studying this chapter, you should be able to:

2–32–3Copyright © 2006 Thomson Business and Economics. All rights reserved. Learning Outcomes (cont’d) 6.Explain the stakeholders’ approach to ethics. 7.Define the following key terms: internal environment levels of culture organizational culture symbolic leaders mission learning organization stakeholdersexternal environment systems process ethics quality stakeholders’ approach to ethics customer value social responsibility total quality management (TQM)

2–42–4Copyright © 2006 Thomson Business and Economics. All rights reserved. Ideas on Management at Ford and General Motors 1.Who is the top manager at Ford and GM, and what is Ford’s mission? 2.What makes up the Ford culture, and what drives it? 3.What is GM’s worldwide ranking in terms of sales of light vehicles, and which of the company’s competitors are also its partners? 4.What is included in the Ford Motor Company Standards of Corporate Conduct? 5.How is GM socially responsible?

2–52–5Copyright © 2006 Thomson Business and Economics. All rights reserved. The Internal Environment Management and Culture –Organizational culture The values, beliefs, and assumptions about appropriate behavior that members of an organization share. Mission –A organization’s purpose or reason for being Top management’s responsibility to develop a mission with clear measurable objectives. States the unique advantage the firm offers to customers that differentiates it from its competitors. Is relevant to all stakeholders’ interests.

2–62–6Copyright © 2006 Thomson Business and Economics. All rights reserved. Internal Environment Means and Ends Exhibit 2–1

2–72–7Copyright © 2006 Thomson Business and Economics. All rights reserved. The Internal Environment (cont’d) Resources –Human resources –Physical resources –Financial resources –Informational resources Systems Process –The method used to transform inputs into outputs –Process components 1.Inputs 2.Transformation 3.Outputs 4.Feedback

2–82–8Copyright © 2006 Thomson Business and Economics. All rights reserved. The Systems Process Exhibit 2–2

2–92–9Copyright © 2006 Thomson Business and Economics. All rights reserved. The Internal Environment (cont’d) Quality –Comparing a product’s actual functioning to requirements to determine value. Customer value –The perceived benefits of a product, used by customers to determine whether or not to buy a product. Total Quality Management (TQM) –Focusing the organization on the customer to continually improve product value.

2–10Copyright © 2006 Thomson Business and Economics. All rights reserved. The Internal Environment (cont’d) Structure –The way in which resources are grouped to effectively achieve the organization’s mission. –Organizations structure resources to transform inputs into outputs. –All of an organization’s resources must be structured effectively to achieve its mission.

2–11Copyright © 2006 Thomson Business and Economics. All rights reserved. Components of the Internal Environment Exhibit 2–3

2–12Copyright © 2006 Thomson Business and Economics. All rights reserved.

2–13Copyright © 2006 Thomson Business and Economics. All rights reserved. Organizational Culture Learning the Organization’s Culture –Heroes –Stories –Slogans –Symbols –Ceremonies Three Levels of Culture –Level 1. Behavior includes the observable things that people do and say, or the actions employees take; also called the visible level. –Level 2. Values represent the way people believe they ought to behave, and beliefs represent “if-then” statements: If I do X, then Y will happen.”. –Level 3. Assumptions are value and beliefs that are so deeply ingrained that they are considered unquestionably true.

2–14Copyright © 2006 Thomson Business and Economics. All rights reserved. Three Levels of Organizational Culture Exhibit 2–4

2–15Copyright © 2006 Thomson Business and Economics. All rights reserved. Organizational Culture (cont’d) Strong Cultures –Have employees who subconsciously know the shared assumptions; consciously know the values and beliefs; agree with the shared assumptions, values, and beliefs, and behave as expected. Advantage: benefit from easier communication and cooperation; unity of direction; and consensus is easier to reach Disadvantage: threat of becoming stagnant Weak Cultures –Have employees who do not behave as expected and do not agree with the shared values.

2–16Copyright © 2006 Thomson Business and Economics. All rights reserved.

2–17Copyright © 2006 Thomson Business and Economics. All rights reserved. Organizational Culture (cont’d) Managing, Changing, and Merging Cultures –Symbolic Leaders Articulate a vision for the organization and reinforce the culture through slogans, symbols, and ceremonies. Facilitate cultural change and/or mergers. Learning Organizations –Have cultures that value sharing knowledge to adapt to the changing environment and continuously improve. Strong leadership, team-based structure, employee empowerment, open information, a participative strategy, and a strong adaptive culture

2–18Copyright © 2006 Thomson Business and Economics. All rights reserved. The External Environment Customers –Their needs decide what products businesses offer. Competition –Competitors’ business practices often have to be duplicated to maintain customer value. Suppliers –Poor quality suppliers mean poor quality products. Labor Force/Unions –Quality labor is needed to produce quality products. Shareholders –The board of directors monitors management and provides direction for the organization.

2–19Copyright © 2006 Thomson Business and Economics. All rights reserved. Light Vehicle Sales Source: “Race Leaders,” Wall Street Journal (December 8, 2003), p. A1. Exhibit 2–5 Worldwide ranking, by sales volume, of companies that manufacture light vehicles (as of October 2003). Note that the exhibit lists global competitors. U.S. automakers lost market share to foreign rivals in 2003.

2–20Copyright © 2006 Thomson Business and Economics. All rights reserved. The External Environment (cont’d) Society –Businesses are pressured by societal forces to behave in an acceptable manner. Technology –Firms must stay current on technology to stay competitive and provide customer value. The Economy –Economic activity has both short and long-term effects on an organization’s ability to provide customer value. Governments –Policies, rules, and regulations affect what, how much, and how business is conducted.

2–21Copyright © 2006 Thomson Business and Economics. All rights reserved.

2–22Copyright © 2006 Thomson Business and Economics. All rights reserved. The External Environment (cont’d) Chaos and Interactive Management –Reactive managers Make changes only when forced to by external factors. –Responsive managers Try to adapt to the environment by predicting and preparing for change before it occurs. –Interactive managers Design a desirable future and invent ways of bringing it about by trying to prevent, not prepare, for threats and to create, not exploit, opportunities.

2–23Copyright © 2006 Thomson Business and Economics. All rights reserved. The Organizational Environment Exhibit 2–6

2–24Copyright © 2006 Thomson Business and Economics. All rights reserved. Business Ethics Ethics –The standards of right and wrong that influence behavior. Right behavior is considered ethical, and wrong behavior is considered unethical. –Government laws and regulations are designed to govern business behavior. However, ethics go beyond legal requirements. –Ethical concepts are culturally-bound. What is considered ethical in one country may be unethical in another.

2–25Copyright © 2006 Thomson Business and Economics. All rights reserved. Business Ethics (cont’d) Does Ethical Behavior Pay? –Research shows a positive relationship between ethical behavior and leadership effectiveness. Having strong ethics means having integrity, and people trust others they believe have integrity. –Unethical behavior creates a negative image of big business. Mahatma Gandhi called business without morality a sin.

2–26Copyright © 2006 Thomson Business and Economics. All rights reserved. Levels of Moral Development Preconventional –Self-interest motivates behavior. Conventional –Behavior is motivated by the desire to live up to others’ expectations. Postconventional –Behavior is motivated by universal principles of right and wrong, regardless of the expectations of leaders or one’s group. Exhibit 2–7

2–27Copyright © 2006 Thomson Business and Economics. All rights reserved. How People Justify Unethical Behavior Moral Justification –The process of reinterpreting immoral behavior in terms of a higher purpose. Displacement of responsibility Diffusion of responsibility Advantageous comparison Disregard or distortion of consequences Attribution of blame Euphemistic labeling

2–28Copyright © 2006 Thomson Business and Economics. All rights reserved. Business Ethics (cont’d) Simple Guides to Ethical Behavior –Golden Rule “Do unto others as you would want them to do unto you.” –Four-Way Test Is it the truth? Is it fair to all concerned? Will it build goodwill and better friendship? Will it be beneficial to all concerned? –Stakeholders’ Approach to Ethics Creating a win-win situation for all stakeholders so that everyone benefits from the decision.

2–29Copyright © 2006 Thomson Business and Economics. All rights reserved. Business Ethics (cont’d) Managing Ethics –Codes of Ethics State the importance of conducting business in an ethical manner and provide guidelines for ethical behavior. –Top Management Support and Example It is the responsibility of top management to develop codes of ethics, to ensure that employees are instructed on what is and what is not considered ethical behavior, and to enforce ethical behavior. –Enforcing Ethical Behavior Do not fail to punish unethical behavior. Whistle-blowers should not suffer negative consequences.

2–30Copyright © 2006 Thomson Business and Economics. All rights reserved. Social Responsibility Social Responsibility to Stakeholders –The conscious effort to try to create a win-win situation for all external stakeholders, as well as internal stakeholders. Does It Pay to Be Socially Responsible? –Social responsibility doesn’t guarantee or improve profits, but scandals hurt corporate reputations. Social Audit –A measure of how well a firm’s social behavior helps it achieve its social objectives.