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Business Basics 103

Part 3 – Corporate Social Responsibility

Corporate social responsibility (CSR) refers to companies as good citizens, concerned with the welfare of society and not just the owners. CSR is based on fairness, integrity and respect. While a company’s loyalty and obligation is to its owners, being a good corporate citizen can increase profitability in the long run. Companies with a good CSR reputation are cosidered ethical and often attract and retain better employees, enjoy greater employee loyalty, and draw more customers.

There are a variety of methods for CSR, including corporate philanthropy, corporate social initiatives, corporate responsibility and corporate policy. In addition to money, many companies allow their employees to volunteer during company time.

We know that companies have a responsibility to customers, pleasing them by offering real value. All things being equal, customers tend to favor the socially conscious company over its less socially conscious competitors. In fact, customers are often willing to pay more for goods from the socially responsible company. Thus CSR is also a tool to attract new customers. The question then becomes, how to make customers aware. Social media has become a low-cost, efficient way of conveying a company’s CSR efforts, allowing companies to reach and interact with a broad and diverse audience. However the company must live up to its hype or face dire consequences. If a company does not follow through on its CSR as claimed, it loses customers’ trust; customers do not want to do business with a company they don’t trust.

Many investors also believe that it makes financial sense to invest in companies engaged in CSR , and that ethical behavior adds to the bottom line.

Companies that treat their employees with respect usually earn the respect of their employees. This mutual respect can have a significant impact on the company’s profit. Retaining good employees saves money, is good for business and also good for morale. A disgruntled employee can wreak havoc on a business, thus loss of employee commitment, confidence and trust in the company can be extremely costly.

CSR has many benefits, each of which can increase a company’s profitability while also doing good for society as a whole.

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Business Basics – 103

Part 2 – Management’s role in setting ethical standards

Ethics isn’t so much taught as it is picked up vicariously. We tend to learn our standards and values based on observing what others do, not what they say. Organizational ethics begins at the top, with leadership and strong managers helping to instill corporate values in employees.

Intra-company relationships should be based on fairness, honesty, openness and moral integrity. Trust and cooperation between workers and managers is built on these foundational structures. The same applies to business-to-business relations as well. Businesses managed ethically often enjoy many benefits, such as maintaining a good reputation, keeping existing customers and attracting new ones, avoiding lawsuits, reducing employee turnover, pleasing customers and employees, and simply doing the right thing.

While some managers think ethics is a personal matter, having nothing to do with management, and that they are not responsible for their employee’s misdeeds, the business environment has moved the other way, that ethics has everything to do with management. There is recognition that individuals typically don’t act alone, they need the direct, or even implied, cooperation of others to behave unethically within a corporation. For example, poorly designed incentive programs might reward employees for meeting certain goals, and in order to meet these goals they need to act in their own best interests rather than the best interests of the customers. Here the message is clear, while their managers don’t directly say to deceive customers, overly ambitious goals and incentives can create an environment in which unethical actions are likely to occur.

A popular trend is that companies are adopting written codes of ethics. While these codes vary greatly, they fall within two broad categories: compliance-based and integrity-based. Compliance-based codes emphasize preventing unlawful behavior by increasing control and penalizing wrongdoers, while integrity-based codes define the organization’s guiding values, create an environment supportive of ethically sound behavior, and stress shared accountability. Stated differently, integrity-based codes of ethics go beyond legal compliance and create an environment emphasizing core values such as honesty, fair play, good customer service, a commitment to diversity and community involvement.

Business ethics should include the following:
1. Top management should adopt and unconditionally support a written code of conduct.
2. Employees must understand expectations for ethical behavior, that it comes from the top, and that senior management expects all employees to act accordingly.
3. Managers and other key personnel must receive training on the ethical implications of business decisions.
4. The company should create an ethics office, where employees can communicate freely. Make it clear to employees that whistleblowers are protected from retaliation.
5. Pressure to ignore ethics programs often comes from the outside. Help employees to resist such pressure by ensuring outsiders such as suppliers, subcontractors, distributors, customers, etc. are aware of the company’s ethical standards.
6. The code of ethics must be timely enforced if violated.

Enforcement might be the most critical component, it communicates to employees that the code is serious; a company’s code of ethics is worthless if not enforced. Select an effective ethics officer to set a positive tone, communicate effectively, and relate well with all levels of employees. The ethics officer should be comfortable in the roles of counselor and investigator, should be trusted to maintain confidentiality, conduct objective investigations, and ensure fairness. This demonstrates to stakeholders that ethics is important in eveything the company does.

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Business Basics – 103

Part 1 -The responsibility of businesses to their stakeholders: customers, investors, employees and society

Mover/entrepreneur Aaron Steed recognizes that “it [isn’t] so much about how we moved furniture, it was about how we made our clients feel.” This young man understands that the customers’ experience is critical, and in fact it is that same attitude that has led to the huge success of his moving company.

Aaron and his brother, Evan, of Meathead Movers, early in their young business, began moving women out of domestic abuse situations for free. They also implemented a policy of hiring student athletes: respectful, clean-cut, drug-free. These ethical entrepreneurs are moved by each call they receive from a domestic abuse survivor thanking them for turning something so bad into a celebration of moving to their new homes and new lives. And this, in turn, has led executives and employees of domestic abuse centers to recommend Meathead Movers throughout their local non-profit community, resulting in huge growth for the business.

Ethics is more than legality. A society gets into trouble when people consider only what is illegal and not also what is unethical. Ethics and legality are two very different things. Although following the law is an important first step, behaving ethically requires more than that. Ethics reflects people’s proper relationships with one another: How should we treat others? What responsibility should we feel for others? Legality is narrower; it refers to laws we have written to protect ourselves from fraud, theft and violence. Many immoral and unethical acts are legal nonethless.

We define ethics as society’s accepted standards of moral behavior; behaviors accepted by society as right rather than wrong. Many people have few moral absolutes, deciding on a situation by situation basis. They seem to think that what is right is whatever works best for them, that each person has to work out for himself the difference between right and wrong. This thinking may be part of the behavior that has led to scandals in both government and business.

This is not the way it always was. In the United States, for example, with so many diverse cultures, it might seem impossible to identify common standards of ethical behavior. But this is not true. Common statements of moral values include integrity, respect for human life, self-control, honesty, courage and self-sacrifice. Cheating, cowardice and cruelty are commonly deemed wrong. And of course there is Golden Rule: Do unto others as you would have them do unto you.

Ethics begins with each of us. It is easy to criticize business and political leaders for moral and ethical shortcomings. Managers and workers often cite low managerial ethics as a major cause of US businesses’ competitive problems. But employees also frequently violate safety standards, or goof off during the work week. Adults in general are not always as honest or honorable as they should be. Even though volunteerism is at an all time high, 75% of our population do not give any time to the community in which they live. Plagiarism is the most common form of cheating today. And while most teens believe they are prepared to make ethical decisions in the workplace, more than half of high school students admit they have cheated on tests in the past year. Studies have found a strong relationship between academic dishonesty and workplace dishonesty.

Choices are not always easy, and the obvious ethical solution may have personal or professional drawbacks. Aaron and Evan Steed were young entrepreneurs, scraping by, yet due to their sense of right and wrong decided to offer free services to domestic abuse survivors. Non-paying customers certainly pose drawbacks, especially for a new enterprise. But their ethical convictions not only lead them to doing good, it also resulted in them doing well.

It can be difficult to balance ethics with other goals, such as pleasing stakeholders or advancing your career. These three questions may help: Is my proposed action legal; does it violate any law or company policy? Is it balanced; am I acting fairly; would I want to be treated this way; will I win at the expense of another? And how will it make me feel about myself?

Remember, doing well by doing good is a good thing.

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Business Basics – 102

Economics – The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals.

Business cycles – The periodic rises and falls that occur in economies over time.

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Economic boom – Business is booming.

Recession – Two or more consecutive quarters of decline in the gross domestic product.

Depression – A severe recession, usually accompanied by deflation.

Recovery – When the economy stabilizes and starts to grow again. This eventually leads to an economic boom, starting the cycle over again.

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Business Basics – 101

Part 4 – The Business Environment

The business environment is the surrounding factors that either help or hinder business development. These include the economic and legal environment, the technological environment, the competitive environment, the social environment and the global business environment. Businesses that create wealth and jobs should grow and prosper in a healthy environment. Although businesses can’t control their environment, they should pay careful attention so they can adapt as it changes.

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People are often willing to start new businesses if they believe the risk of losing their money is not too great. Both the economic system and the way the government works with or against businesses can have a strong impact on the risk level. For instance, government can actively promote entrepreneurship by allowing private ownership of businesses and passing laws that enable people to write enforceable contracts, among others. The Uniform Commercial Code is an example of laws that regulate business agreements such as contracts and warranties, thus allowing companies to know they can rely on one another.

Information technology has had the most comprehensive and lasting impact on businesses, and affects all industries. It has changed the way people communicate with one another, as well as created ways to reach suppliers and customers. Technology is a broad term including phones, computers, copiers, mobile devices, medical imaging machines, robots, the Internet, social media and software programs and apps that make business processes more effective, efficient and productive. Effectiveness means producing the desired result; efficiency is producing goods and services using the least amount of resources; and productivity is the amount of output you generate given the amount of input, e.g. number of hours worked. E-commerce, the buying and selling of goods online, is important in both the business-to-consumer and business-to-business markets.

Competition among businesses seems to be at an all time high. Some have found a competitive edge by focusing on quality which, when coupled with good value, i.e. oustanding service at competitive prices, allows them to stay competitive. Exceeding customer expectations is critical. Today’s consumers want not only good quality and low prices but great service as well. In the past business had been more management-driven, in today’s competitive environment it is more customer-driven. Successful businesses listen more closely to their customers’ wants and needs, then adjust their products, policies and practices accordingly. Part of this customer-oriented shift requires customer-facing workers to have greater responsibility, authority, freedom, training and equipment to respond quickly to customer requests. This empowerment allows frontline workers to provide the great service demanded by today’s consumers.

The U.S. population is going through significant changes that are dramatically affecting where and how people live, what they buy and how they spend their time. The social environment requires companies to manage diversity, including not only minorities and women, as in the past, but also older adults, people with disabilities, married people, singles, those with a different sexual orientation, atheists, extroverts, introverts, religious people, and immigrants, to name but a few. People aged 65-74 are currently the richest demographic in the country, thus representing a lucrative market for many companies. By 2030 the popluation 65 and older will increase by 20%, and by 2050 it will more than double. Products and services for middle-aged and elderly customers will provide excellent opportunities in the 21st century. The number of single parent families is also on the rise, which has had a major affect on businesses, such as encouraging family leave programs and flextime.

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Business Basics – 101

Part 3 – The Importance of Entrepreneurs to the Creation of Wealth

There are two ways to succeed in business, either to rise through the ranks of a large company or to become an entrepreneur. Working for others offers the advantages that somebody else assumes the company’s entrepreneural risk and provides you with benefits, like paid vacation time and health insurance.

Becoming an entrepreneur is risker but more exciting. Owning your own business allows you to reap its profits or to fail. As an entrepreneur you don’t receive benefits, such as paid vacation, day care, a company car or health insurance. You have to provide them for yourself. But you gain the freedom to make your own decisions, opportunity and possible wealth, so the trade off can be worth the effort. Part of your due diligence before taking on the challenge of starting your own business should be to study successful entrepreneurs to learn the process.

Economists have identified five factors of production that seem to contribute to wealth:

  • Land/natural resources. Land and other natural resources are used to make homes, cars and other products.
  • Labor/workers. People have always been an important resource in producing goods and services, but many people are now being replaced by technology.
  • Capital. This includes machines, tools, buildings, and whatever else is used in the production of goods. It might not include money; money is used to buy factors of production but is not always considered a factor in and of itself.
  • Entrepreneurship. All the resources in the world have little value unless entrepreneurs are willing to take the risk of starting businesses to use those resources.
  • Knowledge. Information technology has revolutioned businesses, making it possible to quickly determine wants and needs and to respond with the desired goods and services.

Traditionally business and economics textbooks emphasized only the first four factors, but the late management expert and business consultant Peter Drucker said the most important factor of production in our economy is and will always be knowledge.

When we compare the factors of production in rich and poor countries, we find that land is not the critical element for wealth creation; numerous poor countries have plenty of land and natural resources. Nor is labor. Most poor countries have plenty of laborers who need to find work to make a contribution, thus they need entrepreneurs to create jobs for them. In addition capital, such as machinery and tools, is now fairly easy for companies to find in world markets, so capital is not the missing ingredient either. In fact, capital is not productive without entrepreneurs to put it to use.

What makes countries rich is a combination of entrepreneurship with the effective use of knowledge. Entrepreneurs use the knowledge they have learned in order to grow their businesses and increase wealth. The business environment either encourages or discourages entrepreneurship, which helps explain why some states and cities in this country grow rich while others remain relatively poor.