CH-5-6 Ethics: Managing for Moral Excellence – Principles of Responsible Management: Global Sustainability, Responsibility, and Ethics : Book Guide

This Document Contains Chapters 5 to 6 CHAPTER 5 ETHICS: MANAGING FOR MORAL EXCELLENCE GET IN TOUCH! This instructor’s manual can only cover a small initial selection of relevant advice. Please visit the website of the Center for Responsible Management Education www.responsiblemanagement.net or write to Oliver Laasch through [email protected] to share your ideas for new contents, experiences in teaching with the book, constructive criticism, and, of course, questions. The textbook is a snapshot of a quickly developing field that aims to educate responsible managers, and to create responsible businesses, which requires constant updating. We invite you to become part of a growing community of academics and practitioners taking on this task. THE INSTRUCTOR’S MANUAL This Instructor’s Manual contains a brief chapter introduction, a listing of chapter objectives, an expanded outline, chapter summary, teaching points, answers to end of chapter questions and exercises, and test questions INTRODUCTION Does business have issues? The answer is yes. As with any other type of organization, business and the managers working in organizations face a wide variety of ethical problems, dilemmas, and issues for which there is not one clear answer. Should I fire an older employee because he or she is performing less consistently, or should I keep that person as a reward for all the years served to the company? Should I close the deal with that cigarette company in spite of knowing that their products kill millions of people? Should I recommend a marketing campaign of unhealthy food products to children for its profit potential? Business ethics is about doing the right thing in such ethical issue situations and dilemmas and about realizing ethical opportunities to do good. In these situations, managers first have to understand that there is an issue, then decide what is the right alternative, and finally, act accordingly. The more managers and employees who do the right thing and separate the acceptable from the unacceptable, the higher will be the whole organization’s ethical performance. The management tool for achieving such performance is ethics management, the management of ethical issues. CHAPTER OBJECTIVES After reading this chapter, students should be able to…  . . . .solve moral dilemma situations by applying the three main theories of moral philosophy.  . . . analyze why people do right or wrong things.  . . . apply ethics management instruments to help people make the right decisions and take the right actions when facing ethical issues and opportunities. CHAPTER OUTLINE I. Origins of Business Ethics: While ethics in the form of moral philosophy has a long history, business ethics is a rather young discipline that has exceeded its purely philosophical roots. Business ethics is a fascinating multidisciplinary mix of concepts that have long been institutionalized. A. Roots of Business Ethics: Before business ethics was established as its own branch of applied ethics, the field of ethics went through a pre-philosophical and a philosophical phase. Applied ethics are disciplines where ethical theories have been applied to a specific type or area of decision making. B. The Discipline of Business Ethics Phases in the development of the business ethics discipline: • In the first phase before 1960, “Ethics in business,” there was no accepted field of business ethics. General ethical principles, derived from classic moral philosophy, were applied to the field of business. • In the second phase, “Social issues in business,” the criticism moved from a theological basis to a broader societal movement of countercultures, such as anti-consumerism, environmentalism, or anti-business attitudes. • In the third phase from the 1970s on, business ethics began to emerge as a field. First conferences, publications, and business school courses allowed for a discourse that led to the development of business ethics as an academic discipline, and then increasingly the ideas were picked up by companies and translated into practice. This process led to the still valid understanding of business ethics as the interdisciplinary study of ethical problems in business. C. Institutionalization, Status Quo, and Future: This section provides examples of salient institutions and developments, such as the proliferation of codes of ethics, organizations such as the ethics and compliance officers association (ECOA), or rankings like “World´s Most Ethical (WME) Companies.” The section also highlights that in spite of the solid institutional infrastructure, there is a general perception that businesses themselves have not become more ethically advanced. II. Basic Concepts of Business Ethics A. Defining Business Ethics: Business ethics is the interdisciplinary study of ethical problems in business. B. Levels of Application • Individual ethics is the study of moral issues as encountered by single individuals. • Organizational ethics is the study of moral issues on an organizational level. • Economic ethics is the study of systemic moral issues of the economy. C. Moral Dilemmas and the Relationship to Law and Compliance: A moral dilemma is a situation where right or wrong is questioned through a set of alternative actions that are likely to have significant effects on oneself and others. To find out if an organization is experiencing a moral dilemma one can ask the following three questions: • Is the decision to be made likely to have significant effects on others? • Does the decision to be made provide choices and alternative actions? • Is the decision perceived as ethically relevant about moral right or wrong? In practice, often the field of law (What is legally required?) and compliance (Which norms do we have to obey?) are managed together with the field of business ethics. The three fields are overlapping. D. Morality and Values: Morality describes norms, values, and beliefs that define right and wrong for a specific individual or group in certain situations. Values are aspired ideal goals, beliefs, and concepts that shape thinking and actions. Both values and morality are mutually dependent. Values often are the basis for what is deemed morally right and the morality is an important factor, forming values. E. Interpreting Business Ethics: The understanding of and attitude toward business ethics varies greatly. Opposing views on business ethics (e.g. absolutism versus relativism, philosophy versus social sciences) form a nexus of different views. The two most extreme forms of those views can be described as the traditional, narrow perspective and as a more progressive, broad perspective. III. Domains of Business Ethics: Business ethics consists of three main domains: normative ethics, descriptive ethics, and ethics management. A. Domain 1: Normative Ethics—Evaluate Right or Wrong: Normative ethics can be subdivided into three big ethical theories. The “tripartite” approach to ethical theories assumed in this chapter acknowledges both advantages and disadvantages of all three theories, and stresses their complementary character: • Virtue ethics: The one who lives a virtuous life, based on a virtuous character and virtuous habits, will make right decisions. • Deontology (Ethics of duty): Importance of duties and rules, and higher moral principles to be applied among human beings. • Consequentialism: Judges by the consequences of one´s actions and aims at creating the biggest value possible for all involved actors. Integrating and Operationalizing Traditional Theories: Making decision makers in business understand how ethical theories interact and can be used to make better decisions is crucial for business ethics. B. Domain 2: Descriptive Ethics—Explain Right and Wrong Actions: Descriptive ethics fulfills the important function for business ethics of describing, understanding, influencing, and predicting ethical behavior of individuals and groups whose ethical performance is influenced by individual and situational factors. The underlying ethical decision and action model can be divided into the four phases of 1) awareness 2) judgment 3) motivation, and 4) behavior. Individual factors contain demographic and psychological factors. Situational factors include external factors, both issue-related and context-related. C. Domain 3: Ethics Management—Apply Management Tools for Right Actions: The subject to be managed by ethics management is moral performance, which, if managed well, can be called moral excellence. Fostering moral excellence is the goal of ethics management. Three salient moral performance assessment approaches are through 1) moral development (dilemma method), 2) implemented ethics (inventory of practices), and 3) observed ethics (quantitative survey). Ethics management can be divided into three main types: • Specialized ethics management: Using specialized ethics management tools (e.g. code of ethics) to manage moral performance (normative leadership, organizational structure, and feedback mechanisms). • Departmental ethics management: Using tools of a mainstream business department (e.g. ethical sourcing policy) to manage moral performance. • Ethical management: Doing your mainstream management job ethically. Principles of Ethics: Managing for Moral Excellence (SUMMARY) I. Business ethics is the interdisciplinary study of moral issues and opportunities in business. It can be applied on the levels of individual, organizational, and economic ethics. II. Business ethics overlaps with the fields of law and compliance. It is related to morality, as ethics provides the rules for deciding what is right or wrong, while morality explicitly describes right or wrong for a specific group and situation. III. Interpretations of business ethics vary greatly and can be subdivided into a narrow and a broad perspective. IV. The three domains of business ethics are normative ethics, based on moral philosophy; descriptive ethics, based on behavioral psychology; and ethics management, based on management studies. V. The three major theories of moral philosophy, inside the domain of normative ethics, are virtue ethics, based on a virtuous life; deontology, based on rules; and consequentialism, based on achieving the best-possible outcome. VI. Descriptive ethics aims to describe, understand, influence, and predict ethical behavior of individuals and groups. It is based on the ethical decision-making process, which revolves around the four stages of ethical awareness, judgment, motivation, and behavior and takes both individual and situational factors into account. VII. Ethics management is the process of managing ethical problems through management tools with the goal of improving ethics performance. VIII. Ethics performance can be assessed through the three approaches of moral development, implemented ethics, and observed behavior. IX. Ethics management tools to achieve ethics performance fall into the categories of ethical management, departmental ethics management, and specialized ethics management. If applied well, those tools serve to create a self-reinforcing ethical organizational culture. TEACHING POINTS 1. Objective and rationale: Making decisions about right or wrong, and taking actions to do the right thing permeates everything we do as human beings. Naturally, responsible management has an important ethical component. The word “responsible” itself carries strong notions of “doing the right thing.” This chapter aims to provide basic knowledge about ethical decisions and actions with the goal to inform managers´ practice. 2. Not all topics covered are of moral nature: On purpose we have made reference to topics in this chapter that might not typically be subsumed under the umbrellas of ethics and morality. The most salient example is compliance. The reasoning for including compliance in this ethics chapter is that ethics management in practice is often closely-related to the compliance department, being either a part of it or working in close collaboration. Also, the compliance function if interpreted as “assuring that people do what they know is right” has many components related to behavioral ethics and ethics management. 3. The attitude-action gap: Knowing what is right is often easy - few extreme dilemma situations will be encountered in reality, which does not mean they are not important when they do. Often the more difficult task is to act upon knowing what is right, which is why this chapter, after covering normative theories, focuses on behavioral ethics and ethics management tools. We recommend presenting all three domains of business ethics (normative ethics, descriptive/behavioral ethics, ethics management) as highly interlinked, almost as a process in which each domain fulfills a different unique function and adds value to the overall outcome. 4. Working with real-life dilemmas- show relevance: We have often heard the argument that ethical dilemmas are too “constructed” and unlikely to occur in real life. Nevertheless, ethical dilemmas have been proven valuable educational instruments in both assessing and honing students’ ethical reasoning competency. What has worked well for us is to rather work with student-proposed dilemmas from their own experience and to run through the three domains of business ethics in these scenarios. We engaged students into discussion by asking 1) What would be the right thing to do (normative ethics); 2) What factors influence the person in this case to do the right thing (behavioral ethics); and 3) What can a manager do to aid the person in making the right decision and doing the right thing (ethics management)? 6. Embracing variety: This chapter aims to provide an as-broad-as-possible perspective on the different streams of thinking in business ethics, with the goal to enable students to “make up their own minds.” The opposing views on business ethics illustrated in Figure 5.6 especially pursue this goal. In classroom practice we often encountered extreme perspectives (as much from lecturers as from students). Our tactic in such cases has been to avoid normative statements regarding whose perspective is right or wrong, but to clearly understand the different stances through discussion, so that students got a clear picture and were able to form their own opinions. 7. Ethical issues AND opportunities: Traditionally, business ethics has been focusing on avoiding wrong behaviors in issue and dilemma situations. In this chapter we propose “ethical opportunities” as a more proactive and optimistic complementary perspective. Making students understand that ethics is not just about avoiding to do the wrong thing in difficult situations, but also about proactively pursuing the question of “how could I do good?” ANSWERS TO END-OF-CHAPTER QUESTIONS AND EXERCISES A. Remember and Understand A.1. Define the following terms, and interrelate them: (a) normative theories [ethics], (b) descriptive ethics, and (c) ethics management. Definitions: Normative ethics is centered on ethical theories of right and wrong to solve ethical dilemmas. Descriptive ethics serves to describe, understand, influence, and predict moral behavior of individuals and groups. Ethics management is the process of managing ethical problems through management tools. Interrelation: Normative ethics helps to understand what the right behavior in a given situation should be while descriptive ethics helps to understand why people then carry out this right behavior or not. Ethics management requires a normative understanding of what would be right, and of the reasons for compliance or misbehavior in order to employ ethics management tools based on these insights. A.2. Define the following terms, and interrelate them: (a) business ethics, (b) law [not defined], and (c) compliance. Definitions: Business ethics is the interdisciplinary study of ethical issues and opportunities in business. Law outlines the behaviors that are legally required. Compliance describes efforts related to conforming with generally accepted norms of behavior. Interrelation: Business ethics, law, and compliance are overlapping areas (see Figure 5.5) that, in practice, leads to the situation where all three areas are managed by a similar group of people, often of the same department. Many ethical issues will be codified by law and compliance might include compliance with legal topics or with broadly accepted ethical standards. A.3. Explain the relationship, similarities and differences, between ethics and morality. Use your own examples. Ethics in a narrow understanding can be described as moral philosophy, the discipline that uses philosophy to evaluate moral dilemma situations, while morality describes norms, values, and beliefs that define right and wrong for a specific individual or group in certain situations. The common point element in both ethics and morality is the judgment about right or wrong. Morality refers to a “pre-defined” catalogue of what is right or wrong for a specific scenario, while ethics provides the broader reasoning mechanisms to understand what is right or wrong in new or changed situations. A.4. Mention the four types of ethical problems, and describe how to approach each in one sentence. • Genuine ethical dilemmas are characterized by a high motivation to do the right thing and a dilemma situation highly difficult to judge morally. Actors want to do the right thing but have difficulties understanding what the right thing is. The required action is to assist in the ethical decision-making process to create clarity. • No-problem problems exist when the moral judgment is clear and actors are highly motivated to act upon it. In such a case, it remains for ethics management to create an organizational environment in which motivation and judgment can easily be translated into ethical action. • Moral laxity problems are situations in which the ethical judgment does not fail due to the complexity of the dilemma, but due to a lack of motivation to deal with it. In order to solve moral laxity problems, it is necessary to actively identify and judge issues. • Compliance problems are issues where the right thing is very clear, and normatively defined, but nevertheless actors do not comply with those norms. The ethics management task lies first in understanding why employees do not comply, and second in deploying the right ethics management tools to ensure the right things are done. B. Apply and Experience B.5. Enter the Stanford Encyclopedia of Ethics through http://plato.stanford.edu/. Compare the ethical theories of virtue ethics, deontology, and consequentialism and their variants. Which of the theories reflects most how you personally judge in moral decision situations? The goal of this exercise is for students to reflect on a meta-level how they think and make ethical decisions. The intended outcome is for them to understand how most people do have an inclination toward one or another way of reasoning, and that all of these different inclinations have a solid rationale (reflected in the ethical theories) standing behind them. B.6. Talk to a company employee you know well and ask her or him about one specific ethical dilemma on his job. Then use the concepts of descriptive ethics to find out how people behave in this dilemma situation and why they do so. Students here are asked to go beyond evaluating what is right or wrong and toward understanding the real-life contingencies that influence peoples´ actions. It would be recommended for students to use the list of the Figures 5.12 and 5.13 as either a checklist (e.g. by asking “Is factor x a reason for why people behave this way?”) or as a classification tool (e.g. “the employee told me that it is accepted that profit comes before morale- this is an example for how culture influences ethical behavior”). B.7. Think of one situation for each individual and situational factor mentioned in Figure 5.12 and Figure 5.13. In the situations constructed, the individual or situational factor scrutinized should be of significant help to assess the ethical decision making and behavior. Individual and situational factor here refers to the four broad categories of demographic and psychological factors (individual), and issue-related and context-related factors (situational). The constructed situations might look similar to the following example for a demographic factor, in this case religion: A US American company has made plans to globally implement a gender-equality policy. Some managers in Islamic countries have actively tried to sabotage the implementation. They state that many parts of the policy contradict their religious beliefs. C. Analyze and Evaluate C.8. Use Figure 5.6 to analyze in which part of the nexus of opposing views on business ethics you are. Do the same thing for your professor and compare the results. What areas of conflict might occur between you and your professor based on your respective understandings of business ethics? The goal of this exercise is for students to assume a reflective and critical perspective, to develop their own moral stance, and to appreciate differences through comprehension of the underlying rationale of different understandings of dealing with right-or-wrong. C.9. Look up an ethical dilemma that has been covered extensively in the news. Prepare a 360-degree ethics assessment for three different alternative decisions and actions that could have been taken in the dilemma situation. Students are asked to use the tool proposed in Figure 5.9 to understand major ethical aspects of a dilemma from the different perspectives of virtue ethics, deontology, and consequentialism. Students should provide answers to the 9 questions posed in Figure 5.9. These answers should make a direct connection to facts of the chosen ethical dilemma. Examples for such dilemmas might be, for instance, the “News of the World” newspaper example (http://www.bbc.co.uk/news/uk-11195407) where reporters interjected private phone messages for their stories or the role of bank executives in establishing sub-prime loans which then led to the financial crisis beginning in 2008. C.10. Look up a company´s website, examine the company reports, and prepare an “implemented ethics assessment” in which you list the ethical dilemmas explicitly addressed by the company and the ethics management tools deployed. The goal of this exercise is to have a glimpse of the ethical issues that companies and their executives face, and how companies try to manage these issues. Students might, for instance, find a whistleblowing phone hotline as a management tool aiming to control various issues, such as sexual harassment, misappropriation, or human rights abuses. Some companies report in a very detailed fashion what issues have been raised how often through their whistleblowing channels. Also company codes of ethics (often called code of conduct) provide an extensive picture of the ethical issues a company typically has to deal with. D. Change and Create D.11. Imagine you are the newly assigned ethics officer of Siemens. Write an ethics management plan for the company describing a set of ethics management tools to be applied. Explain how this ethics management system will create ethical excellence and avoid wrong decisions and actions. The repeated ethical scandals at Siemens have led to an environment in which the company is forced to develop a strict ethics management system. Examples are the 2006 bribery scandal (http://www.theguardian.com/sustainable-business/recovering-business-trust-siemens) and the 2013 allegations of cartel building (http://www.dw.de/cartel-accusations-against-siemens-in-brazil/a-16960997). This task aims to “connect the dots” and to see how making ethical judgments, understanding the reasons for behavior, and employing ethics management tools go together in practice. We recommend the ethics management plan to be between one and two pages long and to cover contents related to all three topics of normative and descriptive ethics, and of ethics management. D.12. Engage a representative of a specific profession, company, or industry in a discussion on a typical ethical issue encountered in his/her professional sphere. Try to jointly analyze the person´s behavior and develop strategies to increase his/her ethical performance. The exchange will probably be easier if you have a personal connection to this person. The goal of this task is for students practice active listening and problem solving in a situation close to real-life. An intended outcome is also to move from judging wrongdoing from an external perspective to stepping into the shoes of the person behaving in a certain manner and to pragmatically searching for solutions. TEST QUESTIONS 1. Which of the following statement about business ethics is true? Business ethics a. is the interdisciplinary study of ethical problems in business. b. is divided into the three domains of business ethics, deontology, consequentialism and virtue ethics. c. and business morality have the same meaning. d. is divided into the three domains of normative ethics, ethics management, and utilitarianism. Answer: a 2. One of your professors asked the question “Is capitalism good?” in one of his lectures. To which level of application of business ethics does the question refer? a. Organizational ethics. . b. Economic ethics. c. Professional ethics. d. Individual ethics. Answer: b 3. Imagine you had overheard the following statement at work: “I really thought it does not matter if I used some of the company stationery at home, but then I thought about what would happen if everybody did this!” With which of the following terms is the argumentation best applied? a. Greatest happiness principle. b. Virtuous (good) life. c. Categorical imperative. d. Fairness. Answer: c 4. Imagine a company establishes an accounting process to measure the number of calls made at their ethics hotline, which also registers and categorizes the type of ethical issues raised by callers. The goal is to understand better what ethical challenges employees typically encounter and with what frequency. The situation is an application of which of the domains of business ethics? a. Normative ethics. b. Virtue ethics. c. Economic ethics. d. Descriptive ethics. Answer: d 5. “It judges right or wrong by referring to higher duties that must be derived from universal rules.” Which of the following terms does the definition describe? a. Deontology. b. Consequentialism. c. Virtue Ethics. d. Moral philosophy. Answer: a 6. Which sequence of the components of the ethical decisions and actions framework is correct? a. Motivation, awareness, judgment, behavior. b. Awareness, judgment, motivation, behavior. c. Individual factors, situational factors, ethics management. d. Descriptive ethics, normative ethics, ethics management. Answer: b 7. When talking about companies and their motivation for engaging in responsible business practices, a colleague states “I frankly don´t care if a company does good things only to sell more - in the end the thing that counts is they do good things, isn´t it?” This argument of moral philosophy is a good example of a. deontology. b. professional ethics. c. consequentialism. d. virtue ethics. Answer: c 8. Which of the following philosophers is the creator of the “Greatest Happiness Principle?” a. Plato. b. Immanuel Kant c. John Stewart Mill d. Jeremy Bentham Answer: d 9. Which of the following philosophers is the creator of the “good life” concept? a. Aristotle b. Jürgen Habermas c. John Bordley Rawls d. Immanuel Kant Answer: a 10. “A situation that requires an ethically relevant decision where right or wrong is questioned through a set of alternative actions that are likely to have significant effects on others.” Which of the following terms is described by this definition? a. Compliance b. Moral dilemma c. Ethics d. Moral laxity problem Answer: b 11. Imagine you have a job in a convenience store as a sales clerk. There is a special “meal deal” where customers can save more than 50 percent if they pick a certain combination of food items. Often customers pick the wrong combination of items without knowing and many sales clerks tell them how to save the money. One of your colleagues does not do this and you ask him why. Here is his answer: “I know I should tell them, but why should I make the extra effort?” You look up the customer policy of the convenience store, but it does not mention what to do in such a situation. This is a a. compliance problem b. moral laxity problem c. no-problem problem d. genuine ethical dilemma Answer: b 12. Which of the following definitions describes an ethics program? a. A situation where ethical behavior has become part of the natural character of the company. b. The management of ethical problems with the goal of achieving maximum moral performance. c. A set of ethics management instruments chosen by a specific organization to create ethics performance. d. An issue that is best solved by the ethics management process. Answer: c 13. A line manager of a medium-sized company has decided to always be fair when dealing with his employees. This can be characterized as a. specialized ethics management. b. whistleblowing. c. departmental ethics management. d. ethical management. Answer: d 14. A logistics manager of a local Mexican dairy company has the suspicion that the drivers of the delivery trucks sell decayed goods at a lower price to small local neighborhood stores. If it is true, this would be a dangerous reputational risk for the company. The manager considers hiring a private investigator to talk to storekeepers to find out. Which of the following ethics performance assessment approaches does he aim to use? a. Observed behavior. b. Implemented ethics. c. Moral development. d. Dilemma method. Answer: a 15. Which of the following is a situational influence factor? a. Locus of control. b. Moral complexity. c. Level of education. d. Gender. Answer: b 16. “Follow higher principles and duties!” This statement is the central theme of which of the following theories of moral philosophy? a. Virtue ethics. b. Consequentialism. c. Deontology. d. Descriptive ethics. Answer: c 17. “A set of rules to guide the ethical behavior of individuals.” What does this definition describe? a. Code of ethics. b. Whistleblowing. c. Ethics training. d. Ethics audit. Answer: a 18. You listen to a TV discussion on CNN about offshoring jobs from economically developed to developing countries, a typical dilemma of globalized companies. Person A is of the opinion that companies should outsource as long as consumers buy the company´s product and do not punish it through consumer boycotts. Person B stresses that it is not fair to have people in economically developing countries work for less than a dollar a day under inhumane working conditions only so that people in economically developed countries can buy goods a couple of cents cheaper. Person C interjects that the US American citizens expect the government to provide jobs for all and that every job offshored means another unhappy citizen. Using Kohlberg´s theory of moral development, which of the following statements about the situation is right? a. Argument A is a typical example of Stage 5, “social contract.” b. Assessing the moral maturity of the three arguments on Kohlberg´s pyramid we find that Argument A represents the lowest moral development out of the group, Argument B the highest, and Argument C takes the middle position between A and B. c. Argument C is a typical example for Stage 1, “obedience and punishment.” d. Assessing the moral maturity of the three arguments on Kohlberg´s pyramid we find that Argument A represents the lowest moral development out of the group, Argument C the highest, and Argument B takes the middle position between A and C. Answer: b 19. Your professor is of the opinion that business ethics must always deliver the one right answer about right or wrong by applying the arguments of classic Western moral philosophy. Which of the following statements is correct? a. Your professor´s opinion is based on a relativist understanding of business ethics. b. Your professor´s perspective is “contra-business.” c. Your professor´s perspective is based on views on business ethics that are all examples of a narrow understanding of business ethics. d. Your professor´s perspective is based on a broad understanding of business ethics. Answer: c 20. In practice: Which of the following short case descriptions is summarized correctly? a. Policen Direkt is known as one of the black sheeps of the insurance market. b. Fairfax media failed to base their code of conduct on sound normative theories of ethics. c. The ethical auditing activities of the supermarket chain Woolworths were welcomed by their suppliers. d. The fruit smoothie company Innocent bases its ethical corporate identity on virtue ethics. Answer: d CHAPTER 6 STRATEGY: RESPONSIBLE COMPETITIVENESS GET IN TOUCH! This instructor’s manual can only cover a small initial selection of relevant advice. Please visit the website of the Center for Responsible Management Education www.responsiblemanagement.net or write to Oliver Laasch through [email protected] to share your ideas for new contents, experiences in teaching with the book, constructive criticism, and, of course, questions. The textbook is a snapshot of a quickly developing field that aims to educate responsible managers, and to create responsible businesses, which requires constant updating. We invite you to become part of a growing community of academics and practitioners taking on this task. THE INSTRUCTOR’S MANUAL This Instructor’s Manual contains a brief chapter introduction, a listing of chapter objectives, an expanded outline, chapter summary, teaching points, answers to end of chapter questions and exercises, and test questions. INTRODUCTION This chapter describes how to integrate the three domains of responsible management, sustainability, responsibility, and ethics into the strategic management process with the goal of achieving responsible competitiveness. We divide the strategic management process into four phases, which are also the main sections of this chapter. In phase 1, the task is to define the business’s broad strategic direction by crafting the vision and mission statements and strategic objectives. The environmental analysis conducted throughout phase 2 serves to identify strategically relevant internal and external parameters, often summarized in a strengths-weaknesses-opportunities-threats (SWOT) analysis. Phase 3, the strategy formulation process, consists of the development of strategies for manifold management situations. Strategies can be developed for single functional areas, a specific business unit, or the whole corporation. Strategy implementation (phase 4) translates these strategies into organizational realities such as governance and organizational architecture structures, change management activities, leadership, and entrepreneurial processes. CHAPTER OBJECTIVES After reading this chapter, students should be able to… …integrate responsible management into an organization’s strategy. …analyze an organization’s responsible business strengths, weaknesses, threats, and opportunities. …achieve responsible competitiveness. CHAPTER OUTLINE I. Strategy and Responsible Management: Sustainability, responsibility, and ethics have become important considerations for strategic management. The broad perspective on the intersection between strategy and responsible management describes any advantage business can reap from responsible business behavior, while the narrow perspective specifically refers to the integration of responsible management factors into the traditional strategic management process. The strategic management process consists of four main phases: (1) shaping vision and mission, (2) analyzing the internal and external strategic environments, (3) shaping strategies, and (4) implementing and evaluating strategies. II. The Goal: Responsible Competitiveness: The goal of strategic responsible management is the achievement of level-two responsible competitiveness, a situation in which the organization’s economic competitiveness is based on and enhanced by responsible business competitiveness. Responsible competitiveness is a situation in which an organization achieves a coexistence of a competitive advantage and above-average responsible business performance. III. Phase 1: Formulating the Mission, Vision, and Strategic Objectives: Mission and vision statements are a “lighthouse” for any subsequent organizational activity and therefore should integrate responsible business considerations in addition to economic aspirations. IV. Phase 2: Analyzing the Strategic Environment: The three strategic environments are the company’s internal, industry, and macro- environments. In each environment, responsible management factors play a crucial role. A. External Environment Analysis: For strategic analysis purposes, the external company environment can be subdivided into a macro-environment summarizing broad factors influencing many different industries, and into an industry-specific environment. B. Internal Environment Analysis: To describe the internal environment we propose the traditional value chain model that summarizes a company´s internal functional structure and the resource-based view on strategy that explains competitive advantage as based on the resources and competences of a company. C. Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis: The SWOT (strengths-weaknesses-opportunities-threats) analysis summarizes the external and internal analysis in the same management tool. The SWOT analysis can be seen as a summary of a more detailed and extensive analysis process throughout businesses’ external and internal environments. It is also used to achieve a quick first glance at environmental factors. V. Phase 3: Crafting the Strategy: The strategy hierarchy consists of corporate strategies for a company with several strategic business units, the business unit strategy, and the functional strategy. Together these three strategy levels constitute the strategic backbone of a company to which various other strategies covering additional situations can be attached. Responsible management can create valuable diversification advantages on the corporate level, support strategic positioning for business units, and support functions’ contributions to the overall organizational strategy. A. Corporate Level Strategy: The corporate level strategy answers the question “In how many markets do I want to compete and how many stages of my value chain activities do I perform myself?” It defines in how many markets a company competes (horizontal integration) and to what degree the business performs activities throughout its upstream and downstream supply chain (vertical integration). B. Business Unit Level Strategy: The business level strategy gives guidance on “How do I manage a strategic business unit competing in a certain product market?” C. Functional Level Strategy: The functional level strategy answers the question “How do single business functions support the overarching strategic objectives?” Strategic considerations throughout single functions will be illustrated in great depth in subsequent chapters that are each dedicated to one specific business function. VI. Phase 4: Executing and Evaluating Strategy: The task of aligning business on all levels and in all spheres with the crafted strategy, to bring the strategy into every instance of the business, is the main task of strategy implementation. After strategy has been implemented, companies should enter into a process of scrutinizing the effects—the success or failure—of the strategy and use this observation to readjust parts of strategy to achieve the ultimate goal of a responsible competitive advantage. A. Strategy Implementation: Strategy implementation, especially when it is related to responsible management, needs to be based on two fundamental activities, hardwiring and soft wiring. “Hardwiring” of a responsible management strategy refers to its implementation in the organizational infrastructure, while “soft wiring” refers to the implementation of responsible management throughout the organization’s social fabric. B. Strategy Control, Review, and Evaluation: Organizational controls guide the use of strategy, indicate how to compare actual with expected results, and suggest corrective actions when the difference between actual and expected results is unacceptable. For instance, the balanced scorecard is an excellent tool for controlling the social, environmental, and economic indicators leading to responsible competitiveness. Principles of Strategy: Responsible Competitiveness (SUMMARY) I. The goal of strategic responsible management is the achievement of level-two responsible competitiveness, a situation in which the organization’s economic competitiveness is based on and enhanced by responsible competitiveness. II. The strategic management process consists of four phases: (1) shaping vision and mission, (2) analyzing the internal and external strategic environments, (3) shaping strategies, and (4) implementing and evaluating strategies. III. Mission and vision statements are a “lighthouse” for any subsequent organizational activity and therefore should integrate responsible business considerations in addition to economic aspirations. IV. The three strategic environments are the company’s internal environment, the industry, and the macro-environment. In each environment, responsible management factors play a crucial role. V. The strategy hierarchy consists of corporate strategies for a company with several strategic business units, the business unit strategy, and the functional strategy. VI. Responsible management can create valuable diversification advantages on the corporate level, support strategic positioning for business units, and support functions’ contributions to the overall organizational strategy. VII. The implementation of responsible management strategies is based on “hardwiring” them into organizational structure, and “soft wiring” them throughout the human factors. VIII. The balanced scorecard is an excellent tool for controlling the social, environmental, and economic indicators leading to responsible competitiveness. TEACHING POINTS 1. Objective and rationale: Strategic management and responsible competitiveness as its aspired goal should be the guiding light for the responsible management activities throughout all other management topics in theory, and throughout the business functions in practice. The main objective of this chapter is to provide a basic understanding of the importance of responsible competitiveness, and to give students the tools required to achieve it. In subsequent chapters, students will then see how other business areas, from organizational structure to financial management, may contribute to the achievement of responsible competitiveness on an organizational level. 2. Transition to following chapters: This strategy chapter is the first out of 10 chapters in Parts C to F. Phase 4 of this chapter, “Executing and Evaluating Strategy,” is meant to make the transition to the subsequent 9 chapters by highlighting the operational aspects of strategy execution, a task that touches upon all business functions. Also, the paragraph on “Functional Level Strategy” connects to the subsequent chapters by illustrating how other business functions contribute to the overall strategy. Both sections are on purpose short, as they are meant to be mere connectors to subsequent chapters. 3. The role of strategy in the managerial planning task: Parts C-F of this book reflect the four main management tasks of C) Planning, D) Organizing, E) Leading, and F) Controlling. In the C, “Planning” section we cover Chapter 6, “Strategy”, and Chapter 7, “Entrepreneurship.” These two chapters have two different, but complementary, roles in managerial planning. The strategy chapter mostly takes the perspective of an established business with the main task to integrate responsible management into its strategic management process. Strategies are seen here as plans to achieve responsible competitiveness, mainly in existing structures. The entrepreneurship chapter instead takes the perspective of an organization that is in transition. The planning component of the entrepreneurship chapter is planning value-added ventures that transform the business, and often even its environment. 4. Mainstream tools, responsible management application: In this and in most of the following chapters, we introduce mainstream management tools and concepts and re-interpret them by highlighting their value for managing sustainability, responsibility, and ethics. In this strategy chapter, we highlight how traditional strategic management frameworks, such as the five forces model, SWOT analysis, and the balanced scorecard are valuable and useful to responsible management practice. The underlying rationale of doing this is to show students that responsible management is not something apart from mainstream management practice, but something that has to be taken into consideration whenever a manager makes decisions. In order to help students internalize this important point, it would be recommended to use cases related to responsible business, and analyze them based on one or several of these tools. A very welcome side-effect of referring to tried and tested management tools is that several business schools have begun to use this book for their introduction to management course, which de-facto have become introductions to responsible management. 5. Ethics and strategy: This chapter has a strong emphasis on the sustainability and responsibility domains of responsible management. This should not distract from the importance of ethical considerations. Ethical issues in strategic management have been touched on through the box on fair competition and an in-practice box on the Unilever, P&G, and Henkel product cartel. The ethics column of the responsible strategy checklist may be a starting point to further explore and practice the ethical dimension of business strategy. 6. Pioneer and practitioner interviews: We recommend for educators to make much use of the exclusive interviews at the end of the chapters. For this strategy chapter, we feature Mark Kramer, who together with strategy guru Michael Porter brought the connection between strategy and society to the management agenda. Kramer talks about how strategic CSR has developed throughout the last decade and gives an exciting outlook on what is likely to happen in the future. He also illustrates how the “shared value” concept can be only one of many important part of the responsible management agenda. The practitioner interview in this chapter features Gansu Gedik, a consultant who works with companies that want to become responsible businesses to craft their strategies. Her insights and hands-on experience described in the interview may go a long way in making students understand the practice-relevance of the intersection of strategy and responsible management. ANSWERS TO END-OF-CHAPTER QUESTIONS AND EXERCISES A. Remember and Understand A.1. Mention the three levels of responsible competitiveness and describe the main differences and commonalities. Responsible competitiveness is a situation in which an organization achieves a coexistence of a competitive advantage and above-average social and environmental value creation. Accordingly, irresponsible competitiveness, or “level-zero responsible competitiveness,” occurs when an organization is economically competitive at the cost of society and the environment. Level-one responsible competitiveness is achieved by pure coexistence of socio-environmental competitiveness and economic competitiveness, while level-two responsible competitiveness occurs when an organization is able to leverage its responsible business excellence to increase its economic competitiveness. A.2. Describe the four phases of the strategic management process and give an example of a typical management task for each phase. (1) Shaping vision and mission: Work with stakeholders to co-create a renewed company mission. (2) Analyzing the internal and external strategic environments: Conduct a SWOT analysis to understand how the company´s internal responsible business competencies relate to external forces, such as new “green” technologies, heightened stakeholder activism, consumers´ new wants and needs, and new responsible business regulation. (3) Shaping strategies: Make a plan of where and how to position your company´s new sustainable product range in your core market. (4) Implementing and evaluating strategies: Create structures that support your strategy and prepare people to do so too. A.3. Mention the three levels of the strategy hierarchy and describe one strategic choice to be made for each level. (1) Corporate Level Strategy: Should we buy our supplier companies in order to have full control over their human resources practices? (2) Business Unit Level Strategy: Should we use a cost-leadership strategy for our main product, based on the lower production costs achieved through our eco-efficiency campaign, or should we keep prices up and strengthen our differentiation strategy by highlighting that this is the most eco-efficient product on the market? (3) Functional Level Strategy: Should we launch an open-innovation strategy in our R&D department that aims to get stakeholder insight for new sustainable innovation products which then support our differentiation strategy on business unit level? (The strategic choices described here are just arbitrary examples. Many different answers are possible.) A.4. Describe the difference between the following: • Broad versus narrow perspectives: The broad perspective on the intersection between strategy and responsible management describes any advantage business can reap from responsible business behavior, while the narrow perspective specifically refers to the integration of responsible management factors into the traditional strategic management process. • Inside-out versus outside-in linkages: Inside-out linkages describe how the business’s internal environment influences the external environment, while outside-in linkages describe the influence of external factors on internal productivity and strategy execution. • Hardwiring versus soft wiring: “Hardwiring” of a responsible management strategy refers to its implementation in the organizational infrastructure, while “soft wiring” implements responsible management throughout the organization’s social fabric. B. Apply and Experience B.5. Look up the mission statement of a company of your choice and rewrite it by integrating responsible business considerations. Then rewrite the strategic objectives based on the new statement. The current mission statement of McDonalds reads as follows: “Our mission is to be our customers' favorite place and way to eat.” (http://www.aboutmcdonalds.com/mcd/our_company.html) The text has little relationship to sustainability, responsibility, and ethics. I would propose to change the mission to: “Our mission is to be the place that people visit to eat environmentally sustainable, healthy, and achievable food, produced under compliance with the highest ethical standards.” Three main strategic objectives could be to: 1) Certify all direct suppliers and restaurants, based on the highest environmental certifications; 2) Redesign all dishes under consideration of strictest health aspects without compromising taste; and 3) Achieve zero-ethical issues throughout all operations from marketing to operations. B.6. Design a balanced scorecard for a company of your choice, integrating at least two responsible business indicators per scorecard category (financial, customer, process, learning, and growth). For this exercise it is important that students first acquire profound knowledge about the company for which they design the balanced scorecard. They should do so by looking up information about the businesses´ mainstream strategy through annual reports and the corporate website and by looking up information on responsible business activities through the company´s global reporting initiative report. Please use the “Cinépolis” scorecard covered in Figure 6.10 as a template. Instructors may ask students to either develop both mainstream and responsible management indicators or to focus only on indicators relevant from a responsible management perspective, as it has been done in the Cinépolis template. C. Analyze and Evaluate C.7. Look up information on the strategic move of L’Oreal buying up The Body Shop. Use the BCG matrix to categorize both brands and evaluate the strategic value of the move for both brands. The body shop has achieved continuous growth through sustainable innovations, and a brand revamp (http://www.retail-week.com/city-and-finance/the-body-shop-records-solid-growth/5033604.article; http://www.retail-week.com/sectors/health-and-beauty/the-body-shop-generates-91-profit-jump-in-2012-with-brand-revamp/5046074.article), but continues to have a low market share of the overall cosmetics industry. In the BCG matrix (Figure 6.7, right illustration), the Body Shop can be evaluated as a “question mark.” To be a “star” in the L’Oreal portfolio, it would need to have achieved a higher market share, but the continuing growth makes it an attractive part of the L´Oreal corporate portfolio. At the time of the acquisition this looked different. The Body Shop lost much brand reputation and credibility through controversies about the inconsistency of the advanced ethical practices of The Body Shop and L´Oreal´s open approval of animal testing. The strategic value for buying The Body-Shop might not have been found in the corporate strategy after all, but in an attempt to acquire a new core competence in ethical business conduct, as suggested by the founder of The Body Shop who was cited as follows: “Dame Anita last month justified the sale by saying that L'Oréal wanted to learn from Body Shop's commitment to the environment and human rights in business.” (http://www.independent.co.uk/news/uk/this-britain/body-shops-popularity-plunges-after-loreal-sale-473599.html). . C.8. Look up the most recent sustainability report of the United Parcel Services (UPS) and analyze if the company’s social and environmental activities support the strategic market position chosen. Applying Porter´s strategic positioning matrix (Figure 6.8), we can classify UPS to be in a “differentiation focus” market position. UPS provides a highly-differentiated (i.e. small-to-medium-sized parcels, fastest option, door-to-door, personal delivery, traceable) transport service to a narrow market (small segment of the overall transport services). From UPS´s Corporate Sustainability Report 2012, we can learn about the “eight sustainability highlights” in 2012. Some of the examples seem to be positively related to the company´s differentiation focus market position. For instance, the highlight of “Outstanding logistics and environmental performance in the 2012 London Olympic and Paralympic Games,” is related to the UPS logistics and environmental competencies, an important basis for their differentiation-based competitive advantage. The company may have used the Olympics to both pilot-test new green logistics strategies, and to use media attention to communicate their leadership to their customers. Other highlights, such as “A Global Forestry Initiative to plant more than 1 million trees by the end of 2013” or “1.8 million volunteer hours donated by UPS employees and their families, a new record” lack a direct relationship to the market position. D. Change and Create D.9. Design the strategic management approach of the future. What should strategic management be in fifteen years to make a maximum contribution to sustainable development? To answer this question, we recommend an essay form such as this brief example: “I think strategic management could make a maximum contribution to sustainable development if it changed from the very beginning by changing companies´ missions so that they describe how to be a sustainable business - one that has a neutral or even positive triple bottom line. If we achieved this, all following steps in the strategic management process would automatically lead to this goal. A good strategy should no longer focus on above-average financial returns on investment for company owners, but on above-above triple-bottom line returns on investment in the social, environmental, and economic dimensions.” An additional related exercise could be to ask students to share their “vision” of the strategy of the future with their strategy professor, to get feedback, and engage in discussion. TEST QUESTIONS 1. Which of the following statements about responsible competitiveness is not true? Responsible competitiveness a. may describe situations where a company is competitive at the cost of society. b. is based on the co-creation of competitive advantage for an organization and of above-average responsible business performance. c. in its most advanced form has the capacity to create economic competitiveness from the organization´s responsible business excellence. d. as a concept, embraces economic competitiveness. Answer: a 2. One of your friends talks about how the company she is working in, a dairy business, owns all parts of the dairy supply chain, from farm to shop. She highlights that this way the company is able to control the responsible business practices of the chain. What can we call this situation in strategic terms? a. Unrelated diversification. . b. Vertical integration. c. Competitive advantage. d. Horizontal integration. Answer: b 3. The shoe company TOMS donates one pair of shoes to children in need for every pair a customer buys. TOMS mainly produces light summer shoes in the upper to higher price segments, based on a traditional Argentinian design that mainly appeals to a socially-conscious customer group. This core activity has led to a unique market position that we can best describe as: a. differentiation. b. cost focus. c. differentiation focus. d. cost leadership. Answer: c 4. Pepsico´s employee diversity program is part of a broader strategy to attract, retain, and motivate skilled employees. On which of the following levels of the strategy hierarchy would you place this strategy? a. Business level strategy. b. Corporate level strategy. c. Individual level strategy. d. Functional level strategy. Answer: d 5. In a discussion about “green” business strategies, you hear two opposing points of view. An experienced entrepreneur says “It is all about being in the right place at the right time. You have to put your business into a market where green-tech will boom!,” while a vice president of human resources of a leading multinational company says that strategy is about developing your company´s core-competences to cope with environmental challenges. Which of the following views on competitive advantage best describes the first of the two points of view? a. Environmental model. b. Resource-based model. c. SWOT model. d. Competitive parity. Answer: a 6. If you wanted to analyze your industry environment in order to see how topics related to sustainability, responsibility, and ethics change your competitive context, which of the following tools would be most suited for the task? a. Five forces model. b. Value chain model. c. Synergy map. d. Supply chain model. Answer: a 7. Almost all major companies in the Mexican consumer goods market have achieved the distinction as “Empresa Socialmente Responsible,” which translates as “Socially Responsible Business.” The distinction is highly recognized by Mexican consumers. Which of the following terms describes this situation best? a. Temporary competitive advantage. b. Sustained competitive advantage. c. Competitive parity. d. Competitive disadvantage. Answer: c 8. According to several studies, highly-skilled employees increasingly favor responsible businesses as their future employer. They are even willing to accept a lower wage in exchange for a job at a responsible business. Assuming the position of an “irresponsible business,” what is the strategic assessment of this development, using the SWOT analysis? The development is an a. Opportunity b. Strength c. Weakness d. Threat Answer: d 9. Which of the following people is one of the creators of the “shared value” concept? a. Mark Kramer b. John Elkington c. John P. Kotter d. Edward Freeman Answer: a 10. There is an increasing choice of environmentally friendly cars. Analyze the industry environment of the auto industry using the five forces model. Pick the one development from the following list that is unlikely to occur as a consequence of the increased choice. a. Higher bargaining power of customers. b. A higher threat of substitutes. c. Stronger competition among producers of environmentally friendly cars. d. A higher choice of components for environmentally friendly cars provided by suppliers. This may or may not affect suppliers bargaining power. Answer: b 11. Which of the following strategic management tools is mainly used in the strategy implementation phase? a. BCG Matrix b. Balanced scorecard c. Value chain d. SWOT analysis Answer: b 12. Imagine a multinational oil company buys the world´s biggest producer of wind energy. In which of the following levels of the strategy hierarchy would you place this strategy? a. Business level strategy. b. Corporate level strategy. c. Individual level strategy. d. Functional level strategy. Answer: b 13. In some cases, a company´s strong responsible business practices (such as high labor or environmental standards) have inspired lawmakers to make such practices a legal requirement. For which of the following terms is this an example? a. Responsible competitiveness. b. Outside in linkage. c. Hardwiring d. Inside-out linkage. Answer: d 14. The cleaning product corporation Clorox bought the natural cosmetics company Burt´s Bees. For which of the following terms is this an example? a. Unrelated diversification. b. Business unit level strategy. c. Soft wiring. d. Vertical integration. Answer: a 15. Which of the following elements is not part of the original balanced scorecard model? a. Financial perspective. b. External environment. c. Internal process. d. Learning and growth. Answer: b 16. If you want to analyze how your different business departments and functions contribute to the creation of a triple bottom line, which of the following tools would be best to use? a. Five Forces Model b. Balanced scorecard c. Value chain d. SWOT analysis Answer: c 17. Which of the following statements about strategic management is incorrect? a. A main goal of strategic management is to create competitive advantage. b. Responsible management and strategic management can be integrated through a “narrow perspective,” which describes any advantage that a business can achieve from responsible management as being strategic. c. The process of strategic management can be divided into the four phases of 1) vision, mission, objectives, 2) environmental analysis, 3) strategy formulation, and 4) implementation and control. d. A strategy is an integrated and coordinated set of commitments and actions. Answer: b 18. Which of the following texts is a typical mission statement? a. This year, we aim to provide clean drinking water to over 5000 people. b. We are a competitive business that delights customers through high-quality products, and employees through first-class jobs. c. Honesty, quality, passion. d. We strive to become the world´s most reputable clothing company, and one of the first truly sustainable businesses worldwide. Answer: b 19. In practice: Which of the following short case descriptions is summarized incorrectly? a. The movie business Cinépolis has integrated responsible business indicators into its balanced scorecard. b. Toyota´s hybrid car “Prius” was the result of a successful analysis of the external environment of the company. c. P&G, Unilever, and Henkel showed morally unquestionable behavior when they agreed to not reduce the product price, after having reduced the production cost by decreasing packaging. d. Unilever´s “Sustainable Living Plan” is a set of strategic goals and objectives to create social, environmental, and economic business performance. Answer: c 20. In practice: Which of the following short case descriptions is summarized correctly? a. The company Beta pharm was able to achieve responsible competitiveness through the massive use of traditional marketing promotion. b. The ice-cream business Ben & Jerry´s has three missions, a social, an environmental, and an economic mission. c. The large eco-products retailer “Econoia” successfully created a sustained competitive advantage from their knowledge about sustainable innovation products. d. The toy producer “Wonderworld” implemented responsible management programs in the area of human resources, which supported the company´s differentiation strategy. Answer: d Solution Manual for Principles of Responsible Management: Global Sustainability, Responsibility, and Ethics Roger N. Conaway, Oliver Laasch 9781285080260, 9789387994904