POM STUDY MATERIALS: UNITS 1 & 2rockcitizen.weebly.com/uploads/3/0/5/4/3054668/unit-3_… · Web...

POM : UNIT 3 Pramod

DEFINITIONS OF BUSINESS ENVIRONMENT:

Business Environment has been defined by Bayard O. Wheeler as “the total of all things external to firms and industries which affect their organization and operation”.

According to Arthur M. Weimer, business environment encompasses the ‘climate’ or set of conditions, economic, social, political or institutional in which business operations are conducted.

CONCEPT OF BUSINESS ENVIRONMENT

A business firm is an open system. It gets resources from the environment and supplies its goods and services to the environment. There are different levels of environmental forces. Some are close and internal forces whereas others are external forces. External forces may be related to national level, regional level or international level. These environmental forces provide opportunities or threats to the business community. Every business organization tries to grasp the available opportunities and face the threats that emerge from the business environment.

Business organizations cannot change the external environment but they just react. They change their internal business components (internal environment) to grasp the external opportunities and face the external environmental threats. It is, therefore, very important to analyze business environment to survive and to get success for a business in its industry. It is, therefore, a vital role of managers to analyze business environment so that they could pursue effective business strategy. A business firm gets human resources, capital, technology, information, energy, and raw materials from society. It follows government rules and regulations, social norms and cultural values, regional treaty and global alignment, economic rules and tax policies of the government. Thus, a business organization is a dynamic entity because it operates in a dynamic business environment.

The business environment or the external forces acting on the business consists of a large number of forces.

These are:

1. Demographic2. Economic

3. Geographical

4. Ecological

5. Social and Cultural

6. Political & Legal

Personal material not to be duplicated: B. G. Bhattacharya

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7. Technological

1. Demographic Factors:

Demography is a study of human population with reference to its size, density, distribution and other connected vital statistics. This information is very essential in modern days for planning and development and also for framing laws relating to society and business. The density of population, the extent of their standard of living, the level of their education and the nature of their occupation etc., greatly influence the type of business the entrepreneurs could undertake. The business units require customers for its survival and growth; naturally business can thrive in populace regions, though now-a day’s transportation helps a lot in bringing the commodities to the scarcely populated areas.

2. Economic Factors:

The business enterprise is affected by various economic forces which cannot be controlled by the business. These economic forces, can be divided into two categories, ie. Demand Force and Competitive Force. For a business firm to survive and thrive, it should have adequate demand for its products. At the same time, the firm has to complete with the rival firm producing similar products or substitute products.

Economic forces affecting demand:

For customers to buy the commodity of the firm, they should have the ability to buy and willingness to buy. The ability to buy a commodity depends on the income of the customer, to be very precise, the disposable income of the customer. Out of the total income, the individual has to pay taxes due to the government and the disposable income will be less if the taxes are high. Secondly, if the individual wants to save more, the amount for spending will be less. Thus, the ability to buy a commodity depends on the a) Total income earned out of the employment of the individual b) The taxes of the government and c) The savings of the individual.

An increase in tax will reduce the demand for the commodity. The attitude of the individual towards ‘Saving’ will affect the demand. A change in ‘Price’ of the commodity will affect the demand. Expectation of a further change in price or change in taxes will also affect the demand.

Competitive forces: The competitive tools are price cutting, advertisement, product differentiation, marketing strategies and consumer service.

Price cutting: Price cutting or price reduction is a method which has to be adopted very cautiously, as it may ultimately lead to price-war between firms competing, resulting in reduction of profits.

Advertisement: Advertisements in modern days have become a very powerful tool in persuading the consumers of a product to a particular brand. In monopolistic competition, a


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large share of the market is entrenched by firms making effective and aggressive advertisement.

Product differentiation: A firm tries to get competitive strength by differentiating its product from those of its rivals. By having special design, colour, packing and features, the firm tries to get competitive edges.

Marketing strategies and Consumer Service: Modern firm adopt various types of marketing strategies to create market for their products. Installment system, credit system, hire-purchase, etc., are the prominent ways by which firms try to cut through the poor segments of the society and convert them their customers. Besides customer service like, free door delivery, quick service, after sales service, guarantee from defects up to a certain period are adopted to have more and more demand for their commodities.

3. Geographical and Ecological Environment:

Geographical conditions, to a greater extent, influence the type of industries and business in a region. Generally, the people of a particular geographical region will have similar tastes, preferences and requirements. The geographical situation, the physical feature, the climate, rainfall, humidity, the vegetation, etc., decide the type of living in a particular region and only those industries which could cater to the needs of the people, could develop. In other words, geographical conditions exert profound influence on the location of the business.

Ecological is a study “dealing with the interaction of living organism with each other and with their non-living environment”. It is a science telling about the relationship of all living beings. (ie., human beings, animals, plants) with non- living beings (air, water, soil represented by atmosphere, rivers, lakes, mountains and land).

4. Social and Cultural Environment:

Social and Cultural attitudes of a region influence the business organizations of the region influence the business organizations of the region in a verity of ways. The business practices and the management technique of the organization should cope with the social and cultural attitudes of the people.

The modern business is a social system in itself, but it is also part of a larger social system represented by society in general. Clearly, there should be some reciprocal relationship between business and this larger society. To put it shortly, the business should adopt itself to the social and cultural environment.

It is the class structure of the society. It tells about the social roles and organizations and the development of social institutions. The class-structure depend upon the occupation of the people, their education, income level, social status, their mobility, their attitude towards living, work and social relationship and above all, their attitude towards business.


POM : UNIT 3 Pramod

Every society develops its own ‘culture’ which means how the members of that society behave and interact with each other in society, as well as outside society. The term culture includes values, norms, customs, ethics, goals and other accepted behaviour patterns.

5. Political and Legal Environment:

Political Environment:

All business firms are directly affected to a greater or lesser degree by the government and its programs. Political forces will decide the nature of business, programs and projects to be undertaken for the development of the country. These political forces can be classified as long term forces, quick changes, cyclical changes and regional factors.

Long term forces denote the secular trends in business activities due to the political conditions prevailing and the adoption of a particular line of policy in business.

Quick Changes consist of sudden political changes due to army coup or revolt or capturing of the government machinery by the dissident group. The quick change may also be the result of proclamation of ‘emergency’ or ‘Martial Law’ due to sudden outbreak of war with a belligerent nation. In all these cases, the business manager has to take quick decisions to adopt his business to the changed environment.

Cyclical Changes denote periodical anticipated changes like ’General Election’ which may change the government and consequent change in plans and programmes as well as priorities by the new Government.

Regional Factors the regional consideration may dominate the political scene. Development of agricultural or development of an industrially backward region may draw the attention of politicians and government. Consequently, special legislations or policies will be framed to help the backward regions or sector. In such changes, the business has to adopt itself by studying and estimating the risks and dangers involved in taking decisions.

Legal Environment:

Business in a country can be started and nurtured to grow into big business only within the legal system of the country. In this connection, all countries of the word have a separate set of laws for the control and direction of business. The business law of the country is a complex system of regulations and intervention that form the legal environment of the business. All business managers should have the knowledge of business law for taking management decision.

6. Technological Environment


POM : UNIT 3 Pramod

Technology means “the systematic knowledge of the industrial arts”. ‘Technique’ denotes the method of performance. These two are increasingly used in modern literature on industrial production. The present age is the age of technology. Technology affects the business in two ways.

Its impact on the society and Its impact on business operation.

INTERNAL ENVIRONMENT

The conditions, entities, events, and factors within an organization that influence its activities and choices, particularly the behavior of the employees. Factors that are frequently considered part of the internal environment include the organization's mission statement, leadership styles, and its organizational culture.

The Internal Environment Analysis

The internal environment assessment and analysis is conducted after the external environment analysis. While the external environment analysis seeks to identify opportunities and threats in the external environment, the internal environment analysis seeks to identify the strengths and weakness in your business. Note that it focuses on factors that are internal to your business, some of which can be easily changed or improved upon. The 7's model is particularly useful when identifying internal factors in your business. It looks at the following:

1. Strategy2. Structure

3. Style

4. Staff

5. Skills

6. Systems

7. Shared values

Using the model is simple, you simply check for the degree to which your business possess the above 7's and access which 'S' is a strength or weakness in your business. For example, if your business has the right number of people (Staff) and these people possess the right kind of skills, competence and expertise (Skills), then these are considered to be the internal strengths of your business. Where your business lacks Shared values and Systems, these are considered to be weaknesses. This is discussed further below:


http://www.businessdictionary.com/definition/organizational-culture.html

http://www.businessdictionary.com/definition/style.html

http://www.businessdictionary.com/definition/leadership.html

http://www.businessdictionary.com/definition/mission-statement.html

http://www.businessdictionary.com/definition/organization.html

http://www.businessdictionary.com/definition/employee.html

http://www.businessdictionary.com/definition/behavior.html

http://www.businessdictionary.com/definition/choice.html

http://www.businessdictionary.com/definition/activity.html

http://www.businessdictionary.com/definition/influence.html

http://www.businessdictionary.com/definition/factor.html

http://www.businessdictionary.com/definition/events.html

http://www.businessdictionary.com/definition/entity.html

http://www.businessdictionary.com/definition/condition.html

POM : UNIT 3 Pramod

1. Strategy

Do your strategies take into account the short term, medium term and long term?


POM : UNIT 3 Pramod

2. Structure

Do you have a formal organizational structure in place? Are clear lines of reporting or communicating present?

3. Style of leadership

What is your style of leadership?

Participative leadership style Democratic leadership style

Autocratic leadership style

Dictatorship leadership style

4. Staff

Do you have competent, skilled and experienced staff to work with? How can you manage to keep staff in the current environment?

How do you recruit your staff?

How trustworthy are your employees?

Do your staff work long hours?

How do you retain quality employees?

5. Skills and competencies

What skills and competencies are present in your business? This may encompass:

Leadership skills Management skills

Technical skills

Interpersonal skills

Intra personal skills


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6. Systems, processes and procedures

What systems, processes and procedures do have in place or intend to have in place?

Performance management system Financial management system

Management information system

Accounting information system

Quality control system

Health and safety

Stock control system

Cash control system

Accounting system

Expense control system

Debtors control system

Creditors control system

Production related systems

7. Shared values

What qualities or attributes do you base your actions on? What attributes defines the culture of your business? What are the core values of your business? Examples of values include:

Timeliness Reliability

Convenience

Driving internal efficiency

Effectiveness

Efficiency

People

Customer satisfaction


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Customer intimacy

Transparency

Accountability

Brand and business reputation

Quality

Innovation

Creativity

THE DYNAMIC NATURE OF INTERNAL ENVIRONMENT

Along with the external environment, internal environment of an organization also keep on changing. An organization’s internal environment is actually, composed of multiple elements existing within the organization, including management, current employees and most importantly corporate culture, which ultimately defines the employee behavior. Although few elements affect the organization as a whole and others affect only the manager and his/her operations. A manager’s leadership style or philosophical directly puts impacts upon the employees. Conventional managers give explicit instructions to their employees; on the other hand progressive managers empower their employees to make them capable of taking their own decisions. Changes in the leadership style or/and managerial philosophy put considerable impact upon the organization.

Various other dynamic components of internal environment are given below:

• Organizational mission statements• Company policies• Formal structures• Organizational cultures• Resources• Managerial philosophies• Managerial leadership styles

ORGANIZATION AND ENVIRONMENT RELATIONSHIPS

Organizations are open systems and must relate to their environments. They must acquire the resources and information needed to function; they must deliver products or services that are valued by customers. An organization's strategy—how it acquires resources and delivers outputs—is shaped


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by particular aspects, and features of the environment. Thus, organizations can devise a number of responses for managing environmental interfaces, from internal administrative responses, such as creating special units to scan the environment, to external collective responses, such as forming strategic alliances with other organizations.

Organization and Environment Framework

This section provides a framework for understanding how environments affect organizations and, in turn, how organizations can affect environments. The framework is based on the concept that organizations and their subunits are open systems existing in environmental contexts.

Environments can be described in two ways. First, there are different types of environments that consist of specific components or forces. To survive and grow, organizations must understand these different environments, select appropriate parts to respond to, and develop effective relationships with them. A manufacturing firm, for example, must understand raw materials markets, labor markets, customer segments, and production technology alternatives. It then must select from a range of raw material suppliers, applicants for employment, customer demographics, and production technologies to achieve desired outcomes effectively. Organizations are thus dependent on their environments. They need to manage external constraints and contingencies and take advantage of external opportunities. They also need to influence the environment in favorable directions through such methods as political lobbying, advertising, and public relations.

Second, several useful dimensions capture the nature of organizational environments. Some environments are rapidly changing and complex, and so require different organizational responses than do environments that are stable and simple. For example, chewing gum manufacturers face a stable market and use well-understood production technologies. Their strategy and organization design issues are radically different from those of software developers who face product life cycles measured in months instead of years, where labor skills are rare and hard to find, and where demand can change drastically overnight. In this section, first we describe different types of environments that can affect organizations. Then we identify environmental dimensions that influence organizational response to external forces.

Environmental Types

Organizational environments are everything beyond the boundaries of organizations that can directly or indirectly affect performance and outcomes. That includes external agents that directly affect the organization, such as suppliers, customers, regulators, and competitors, as well as indirect influences in the wider cultural, political, and economic context. These two classes of environments are called the task environment and the general environment, respectively. It can be categorized into technological, legal and regulatory, political, economic, social, and ecological components. Each of


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these forces can affect the organization in both direct and indirect ways. For example, economic recessions can directly impact demand for a company's product.

The general environment also can affect organizations indirectly by virtue of the linkages between external agents. For example, an organization may have trouble obtaining raw materials from a supplier because the supplier is embroiled in a labor dispute with a national union, a lawsuit with a government regulator, or a boycott by a consumer group. Thus, components of the general environment can affect the organization without having any direct connection to it. The task environment consists of the specific individuals and organizations that interact directly with the organization and can affect goal achievement: customers, suppliers, competitors, producers of substitute products or services, labor unions, financial institutions, and so on. These direct relationships are the medium through which organizations and environments mutually influence one another. Customers, for example, can demand changes in the organization's products, and the organization can try to influence customers' tastes and desires through advertising.

Environmental Dimensions

Environments can also be characterized along dimensions that describe the organization's context and influence its responses. One perspective views environments as information flows and suggests that organizations need to process information to discover how to relate to their environments.

The key dimension of the environment affecting information processing is information uncertainty, or the degree to which environmental information is ambiguous. Organizations seek to remove uncertainty from the environment so that they know best how to transact with it. For example, organizations may try to discern customer needs through focus groups and surveys and attempt to understand competitor strategies through press releases, sales force behaviors, and knowledge of key personnel. The greater the uncertainty, the more information processing is required to learn about the environment. This is particularly evident when environments are complex and rapidly changing.

These kinds of environments pose difficult information processing problems for organizations. For example, global competition, technological change, and financial markets have created highly uncertain and complex environments for many multinational firms and have severely strained their information processing capacity. Another perspective views environments as consisting of resources for which organizations compete. The key environmental dimension is resource dependence, or the degree to which an organization relies on other organizations for resources.

Organizations seek to manage critical sources of resource dependence while remaining as autonomous as possible. For example, firms may contract with several suppliers of the same raw material so that they are not overly dependent on one vendor. Resource dependence is extremely high for an organization when other organizations control critical resources that cannot be obtained


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easily elsewhere. Resource criticality and availability determine the extent to which an organization is dependent on the environment and must respond to its demands. An example is the tight labor market for information systems experts experienced by many firms in the late 1990s. These two environmental dimensions—information uncertainty and resource dependence—can be combined to show the degree to which organizations are constrained by their environments and consequently must be responsive to their demands.

Organizational Responses

Organizations must have the capacity to monitor and make sense of their environments if they are to respond appropriately. They must identify and attend to those environmental factors and features that are highly related to goal achievement and performance. Moreover, they must have the internal capacity to develop effective responses. Organizations employ a number of methods to influence and respond to their environments, to buffer their technology from external disruptions, and to link themselves to sources of information and resources. These responses are generally designed by senior executives responsible for setting corporate strategy and managing external relationships. Three classes of responses are described below: administrative, competitive, and collective.

Administrative Responses

The most common organizational responses to the environment are administrative, including the formation or clarification of the organization's mission; the development of objectives, policies, and budgets; or the creation of scanning units. These responses can be either proactive or reactive and are aimed at defining the organization's purpose and key tasks in relationship to particular environments.

Organizations may also create scanning units, such as market research and regulatory relations departments, to respond administratively to the environment. These units scan particular parts or aspects of the environment, interpret relevant information, and communicate it to decision makers who develop appropriate responses. Scanning units generally include specialists with expertise in a particular segment of the environment. For example, market researchers provide information to marketing executives about customer tastes and preferences. Such information guides choices about product development, pricing, and advertising.

Competitive Responses

Competitive responses to the environment typically are associated with for-profit firms but can also apply to nonprofit and governmental organizations. Such actions seek to enhance the organization's performance by establishing a competitive advantage over its rivals. To sustain competitive


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advantage, organizations must achieve an external position vis-à-vis their competitors or perform internally in ways that are unique, valuable, and difficult to imitate.

Uniqueness

An organization first must identify the bundle of resources and processes that make it distinct from other firms. These can include financial resources, such as access to low-cost capital; reputational resources, such as brand image or a history of product quality; technological resources, such as patents or a strong research and development department; and human resources, such as excellent labor management relationships or scarce and valuable skill sets.

Value

Organizations achieve competitive advantage when their resources and processes deliver outputs that either warrant a higher-than-average price or are exceptionally low in cost. Both advantages are valuable according to a performance/ price criterion. Products and services with highly desirable features or capabilities, although expensive, are valuable because of their ability to satisfy customer demands for high quality or some other performance dimension. Mercedes automobiles are valuable because the perceived benefits of ownership, including engineering performance, reliability, and prestige, exceed the price paid. On the other hand, outputs that cost little to produce are valuable because of their ability to satisfy customer demands at a low price. Chevrolet automobiles are valuable because they provide basic transportation at a low price. Mercedes and Chevrolet are both profitable, but achieve that outcome through different value propositions.

Imitability

Finally, sustainable competitive advantage is achieved when unique and valuable resources and processes are difficult to mimic or duplicate by other organizations. For example, organizations can protect their competitive advantage by making it difficult for other firms to identify their distinctive competence. Disclosing unimportant information at trade shows or forgoing superior profits can make it difficult for competitors to identify an organization's strengths. Organizations can aggressively pursue a range of opportunities, thus raising the cost for competitors who try to replicate their success. Organizations can seek to retain key human resources through attractive compensation and reward practices, thereby making it more difficult and costly for competitors to attract such talent.

Collective Responses

Organizations can cope with problems of environmental dependence and uncertainty through increased coordination with other organizations. Collective responses help control interdependencies among organizations and include such methods as bargaining; contracting; co-


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opting; and creating joint ventures, federations, strategic alliances, and consortia. Contemporary organizations increasingly are turning to joint ventures and partnerships with other organizations to manage environmental uncertainty and perform tasks that are too costly and complicated for single organizations to perform.

MANAGERIAL ETHICS

Honesty and Loyalty may be often deeply ingrained in the make-up of simple and humble people than in men of high position. A man who was taking bribes when he was a constable does not turn honest when he becomes the Chief of Police. The only thing that changes is the size of the bribe. Weakness of character and inability to withstand temptation remain with the man no matter how high he climbs.

Ethics and human resource management

It is often stated that the most important resource of any organization is the Human Resource. This article addresses the relevance of ethics in Human Resource Management and discusses various ethical and motivational aspects, including ethical values and ethical decision-making.

Ethics is an integral and vital aspect of Human Resource Management since most of our actions and decisions have ethical manifestations with consequential ramifications in the HR domain.

There is a general belief that ethics is concerned only with financial propriety. Whilst this aspect certainly involves ethics, ethical management is all encompassing concerning each and every facet of your professional and personal life.

There is a story, probably apocryphal, which illustrates this aspect.

There was a cyclonic storm and millions of fish were washed ashore and were struggling for life on the beach. A man came to the beach and patiently began to pick up the fish, one by one, and throw them back into the sea. An amused passerby asked him what difference it would make, to which the man pointed to the fish in his hand and said, “Ask this fish?”

Thus, we see that seemingly routine decisions, which at the organizational level do not appear to have major ethical magnitude, have large ethical significance at the individual level.

The purpose of this article is to give you a basic understanding of the fundamental concept of ethics, to have you reflect upon the relationship between your ethical values and your behaviour as an HR Manager and to show you how to develop a personalized approach to deal with ethical dilemmas.


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Even though only a very small fraction of the employees may indulge in unethical behaviour, it has serious ramifications on the organization as a whole and affects a large number of people who are stakeholders.

Many of us do not even know whether certain of our actions and decisions have ethical implications or not and the consequences thereof.

Definition and purpose of ethics

What is ethics and what does it deal with?

(a) Ethics is that set of behavioral standards that relate to a set of principles, values and ideals for human conduct. Ethics may be defined as ‘the standards of conduct which indicate how one should behave on moral duties and obligations’.

(b) Ethics deals with two aspects: the first involves one’s ability to distinguish right from wrong, good from evil and propriety from impropriety; the second involves the commitment to do what is good, right and proper.

Core ethical values

Values are core beliefs, which guide or motivate attitudes and behaviour. They are the established ideals of life that members of a given society regard as desirable.

Ethical Values are directly related to our beliefs concerning what is right, good and proper. They impose moral obligations and are concerned with our sense of moral duty. The 10 core ethical values are:-

(i) Honesty (ii) Integrity (iii) Promise keeping (iv) Loyalty (v) Fairness (vi) Concern and Caring for others (vii) Respect for others (viii) Responsible Citizenship (ix) Pursuit of excellence (x) Accountability

What are your care ethical values?


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With how many of the above do they coincide?

Or, do you have other unique ethical values?

Before you can develop an approach to ethical decision making, you should invest some time and effort and attain a solid understanding of your own core ethical values.

Ethical decision making

Ethical perspectives of decisions

There is an ethical dimension to every decision that can be evaluated in terms of its adherence to the previously discussed core ethical values. Thus any of your decisions, which affect other persons, have ethical implications, and virtually all of your important decisions reflect your sensitivity and commitment to ethics.

In summary, as you perform your job in your workplace, what are the ethical dimensions as you deal with your superiors, peers, subordinates and others connected with your work?

Different stakeholders have different ethical perspectives.

Take the case of organizational romance.

Whereas, some organizations feel that there is nothing ethically wrong and may even encourage organizational romance and marriage among colleagues by giving various perks and incentives like dating allowance, some other organizations may prohibit or discourage organizational romance. Of course, sexual harassment would be universally considered unethical.

Ethical commitment

Ethical Commitment is the strong desire to act ethically, to do the right thing, especially when ethics imposes financial, social or psychological costs.

Regardless of profession, nearly all people believe they are and should be ethical. While most are not satisfied with the ethical quality of the society as a whole, they believe their profession is more ethical than others and they are at least as ethical as those in their profession.

Unfortunately our behaviors do not consistently conform to our self-images and moral ambitions. As a result, a large number of decent people who are committed to ethical values regularly compromise these values, often because they lack the strength to follow their conscience. Both in your


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professional and personal life, you will be confronted with a continuous stream of stream of situations in which your ethical commitment will be constantly tested.

Ethical consciousness

While weakness of will explains a great deal of improper conduct, a much greater problem arises from our failure to perceive the ethical implications of our conduct. Many of us simply fall to apply our moral convictions to our daily behavior.

Some of us do not always see ethical issues that are likely to trouble others. Sometimes perfectly legal conduct often appears to be ethically improper or inappropriate.

Ethical competence

Being ethically conscious and being committed to act ethically is not always enough. In complex situations, which are frequently faced by most of us involved in Human Resource Management, the following reasoning and problem solving skills are also necessary:

Evaluation – The ability to collect and evaluate relevant facts and to know when to stop and how to make prudent decisions based on incomplete and ambiguous facts.

Creativity – The capacity to develop alternative means of accomplishing goals in ways which avoid or minimize ethical problems.

Prediction – The ability to foresee potential consequences of conduct and assess the likelihood or risk that person will be helped or harmed by an act.

The stakeholder concept

A person concerned with being ethical has a moral obligation to consider the ethical implications of all of his or her decision upon others.

Each entity, person, group, institution or constituency that is likely to be affected by the decision is a “stakeholder” with a moral claim on the decision maker. The stakeholder concept provides a systematic way of perceiving and sorting out the various interests involved in our ethical decision making.

The stakeholder concept reinforces our obligation to make all reasonable efforts to foresee possible consequences and take reasonable steps to avoid unjustified harm to innocent stakeholders – an ethical decision maker would never inadvertently cause harm.


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Stages of moral development

The extent to which we use the this approach to ethical decision making to guide our behaviors in management situations will very from person to person. Kohlberg offers a handy framework for delineating the stage each of us has reached with respect to personal moral development.

Stage 1. Physical consequences determine moral behavior. At this stage of personal moral development, the individual’s ethical behavior is driven by the decision to avoid punishment or by deference to power. Punishment is an automatic response of physical retaliation. The immediate physical consequences of an action determine its goodness or badness. Such moral behavior is seen in cadets at service training academics where physics punishment techniques are prevalent with a view to inculcate the attributes of obedience and deference to power.

Stage 2. Individual needs dictate moral behavior. At this stage, a person’s needs are the person’s primary concern. The right action consists of what instrumentally satisfies your own needs. People are valued in terms of their utility. Example: “I will help him because he may help me in return – you scratch my back, I will scratch yours.”

Stage 3. Approval of others determines moral behavior. This stage is characterized by decision where the approval of others determines the person’s behavior. Good behavior is that which pleases or helps others within the group. The good person satisfies family, friends and associates. “Everybody is doing it, so it must be okay.” One earns approval by being conventionally “respectable” and “nice.” Sin is a breach of the expectations of the social order – “log kya kahenge?”

Stage 4. Compliance with authority and upholding social order are a person’s primary ethical concerns. “Doing one’s duty” is the primary concern. Consistency and precedence must be maintained. Example: “I comply with my superior’s instructions because it is wrong to disobey a senior officer,” Authority is seldom questioned. “Even if I feel that something may be unethical, I will unquestioningly obey all orders and comply with everything my boss says because I believe that the boss is always right.”

Stage 5. Tolerance for rational dissent and acceptance of rule by the majority becomes the primary ethical concern. Example: “Although I disagree with her views. I will uphold her right to have them.” The right action tends to be defined in terms of general individual rights, and in terms of standards that have been critically examined and agreed upon by the whole society. The freedom of the individual should be limited by society only when it infringes upon someone else’s freedom.

Stage 6. What is right is viewed as a matter of individual conscience, free choice and personal responsibility for the consequences. Example: “There is no external threat that can force me to make a decision that I consider morally wrong.” An individual who reaches this stage acts out of universal ethical principles.


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Moral development is in no way correlated with intellectual development or your position in the hierarchy or factors like rank/seniority/status/success.

In the words of Alexander Orlov: “Honesty and Loyalty may be often more deeply ingrained in the make-up of simple and humble people than in men of high position. A man who was taking bribes when he was a constable does not turn honest when he becomes the Chief of Police; the only thing that changes in the size of the bribe. Weakness of character and inability to withstand temptation remains with the man no matter how high he climbs.”

Ethical traits accompany a man to the highest rungs of his career.

If the environment is not conducive, a person can intellectually reach stage 6 but deliberately remain morally at stage 4 as he may find that he has to sacrifice too much to reach stage 6. This can be particularly seen in most hierarchical organizations where most smart employees make an outward preference of being at stage 3 or 4 (Conformance and Compliance) to avoid jeopardizing their careers even if internally they have achieved higher ethical states. This Dr. Jekyll and Mr. Hyde schizophrenic moral approach is at the heart of many ethical dilemmas people encounter in their professional lives and results in stress due to ethical confusion.

Whenever two individuals at different stages of moral development interact with each other both of them try to force/maneuver the other into their own appreciation of the ethical situation, thus leading to conflict. In a formal hierarchical setup the players in the chain may not be at the similar stage of moral development thereby leading to dissonance in the system.

Where the ethical susceptibility is high, morally strong people (less vulnerable) should be appointed and conversely, in such jobs where ethical susceptibility is low, weakness persons can be appointed.

What is your stage of personal moral development?

Be honest with yourself and recall the decisions you made in recent ethical situations.

The six stages are valuable landmarks as they tell you approximately where you are and what changes you will have to make in your behaviours and decisions to move to a higher level of moral development.

The ultimate goal is to engage in ethical decision making at stage 6. However, the level that you do reach will depend on your ethical commitment, your ethical consciousness and your ethical competence.

Ethical susceptibility and vulnerability


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Ethical Susceptibility is the inability to avoid ethical dilemmas. It is environment dependent (on external factors).

Ethical Vulnerability is your inability to withstand succumbing in the given ethical dilemmas /situations. It is dependent on your internal stage of moral development in the given ethical situation.

Whereas being in an ethical dilemma is not in your control, to act in a proper and ethical manner in the prevailing situation is certainly in you control.

Ethical vulnerability is the ease with which a man be ethically compromised, especially in an ethically poor climate.

Where the ethical susceptibility is high, morally strong people (less vulnerable) should be appointed and conversely, in such jobs where ethical susceptibility is low, weaker persons can be appointed.

SOCIAL RESPONSIBILITY

Social responsibility is an ethical ideology or theory that an entity, be it an organization or individual, has an obligation to act to benefit society at large. Social responsibility is a duty every individual or organization has to perform so as to maintain a balance between the economy and the ecosystem. A trade-off always exists between economic development, in the material sense, and the welfare of the society and environment. Social responsibility means sustaining the equilibrium between the two. It pertains not only to business organizations but also to everyone whose any action impacts the environment. This responsibility can be passive, by avoiding engaging in socially harmful acts, or active, by performing activities that directly advance social goals.

Businesses can use ethical decision making to secure their businesses by making decisions that allow for government agencies to minimize their involvement with the corporation. For instance if a company is and follows the United States Environmental Protection Agency (EPA) guidelines for emissions on dangerous pollutants and even goes an extra step to get involved in the community and address those concerns that the public might have; they would be less likely to have the EPA investigate them for environmental concerns. “A significant element of current thinking about privacy, however, stresses "self-regulation" rather than market or government mechanisms for protecting personal information” (Swire , 1997) Most rules and regulations are formed due to public outcry, if there is not outcry there often will be limited regulation.

Critics argue that Corporate social responsibility (CSR) distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; others argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations though there is no systematic evidence to support these criticisms. A significant number


http://en.wikipedia.org/wiki/Individual

http://en.wikipedia.org/wiki/Organization

http://en.wikipedia.org/wiki/Entity

http://en.wikipedia.org/wiki/Ethics

POM : UNIT 3 Pramod

of studies have shown no negative influence on shareholder results from CSR but rather, a slightly positive correlation with improved shareholder returns.

Corporate Social Responsibility

Corporate Social Responsibility or CSR has been defined by Lord Holme and Richard Watts in The World Business Council for Sustainable Development’s publication ‘Making Good Business Sense’ as “…the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large". CSR is one of the newest management strategies where companies try to create a positive impact on society while doing business. There is no clear-cut definition of what CSR comprises. Every company has different CSR objectives though the main motive is the same. All companies have a two point agenda- to improve qualitatively (the management of people and processes) and quantitatively (the impact on society). The second is as important as the first and stake holders of every company are increasingly taking an interest in “the outer circle”-the activities of the company and how these are impacting the environment and society.


POM : UNIT 3 Pramod

For materials on EMERGING BUSINESS ENVIRONMENT IN NEPAL, refer to the separate PDF attached file.

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