Category: Management Notes

A finite subset of the population, selected from it with the objective of investigating its properties is called a sample and the number of units in the sample is known as the sample size.

Sampling is a tool which enables us to draw conclusions about the characteristics of the population after studying only those objects or items that are included in the sample. The main objectives of the sampling theory are:

(i) To obtain the optimum results, i.e., the maximum information about the characteristics of the population with the available sources at our disposal in terms of time, money and manpower by studying the sample values only.

 (ii) To obtain the best possible estimates of the population parameters.

Some critical essentials of sampling include:

1. Representativeness: You must select the sample in a manner which represents the universe in its truest sense. Further, if you fail to do so, then you might get misleading results.
2. Adequacy: You should also select the size of the sample adequately which represents the parametric characteristics of the population.
3. Independence: When you select a sample, you must ensure that you select the items independently and also randomly.
4. Homogeneity: This is another important element of a sample investigation. Homogeneity means that there is no basic difference in the nature of the units in the sample and the universe.

Some important merits of sampling:

1. Cost-efficient: In a sample investigation, the costs associated with the collection of data are less. This is because you collect data only from a fractionof the entire population. Therefore, it is cost-efficient.
2. Time-efficient: In sampling, you require less time to collect, analyze, and interpret the data since you are working only on a fraction of the population. Hence, it is time-efficient too.
3. Reliable: Usually, the data collected under a sample investigation is reliable because of the use of well-trained and experienced investigators or experts.
4. Flexible: When you collect data through sampling, you have a greater scope of flexibility.
5. Detailed Information: Since sampling is cost-efficient and also time-efficient, you can collect detailed information about the sample in your survey.

Regression is a statistical measurement used in finance, investing and other disciplines that attempts to determine the strength of the relationship between one dependent variable (usually denoted by Y) and a series of other changing variables (known as independent variables).

Regression helps investment and financial managers to value assets and understand the relationships between variables, such as commodity prices and the stocks of businesses dealing in those commodities.

Regression Explained

The two basic types of regression are linear regression and multiple linear regressions, although there are non-linear regression methods for more complicated data and analysis. Linear regression uses one independent variable to explain or predict the outcome of the dependent variable Y, while multiple regressions use two or more independent variables to predict the outcome.

Regression can help finance and investment professionals as well as professionals in other businesses. Regression can also help predict sales for a company based on weather, previous sales, GDP growth or other types of conditions. The capital asset pricing model (CAPM) is an often-used regression model in finance for pricing assets and discovering costs of capital.

The general form of each type of regression is:

• Linear regression: Y = a + bX + u
• Multiple regression: Y = a + b1X1 + b2X2 + b3X3 + … + btXt + u

Where:

Y = the variable that you are trying to predict (dependent variable).

X = the variable that you are using to predict Y (independent variable).

a = the intercept.

b = the slope.

u = the regression residual.

Regression takes a group of random variables, thought to be predicting Y, and tries to find a mathematical relationship between them. This relationship is typically in the form of a straight line (linear regression) that best approximates all the individual data points. In multiple regression, the separate variables are differentiated by using numbers with subscripts.

Assumptions in Regression

• Independence: The residuals are serially independent (no autocorrelation).
• The residuals are not correlated with any of the independent (predictor) variables.
• Linearity: The relationship between the dependent variable and each of the independent variables is linear.
• Mean of Residuals: The mean of the residuals is zero.
• Homogeneity of Variance: The variance of the residuals at all levels of the independent variables is constant.
• Errors in Variables: The independent (predictor) variables are measured without error.
• Model Specification: All relevant variables are included in the model. No irrelevant variables are included in the model.
• Normality: The residuals are normally distributed. This assumption is needed for valid tests of significance but not for estimation of the regression coefficients.

Regression Line

Definition: The Regression Line is the line that best fits the data, such that the overall distance from the line to the points (variable values) plotted on a graph is the smallest. In other words, a line used to minimize the squared deviations of predictions is called as the regression line.

There are as many numbers of regression lines as variables. Suppose we take two variables, say X and Y, then there will be two regression lines:

• Regression line of Y on X: This gives the most probable values of Y from the given values of X.
• Regression line of X on Y: This gives the most probable values of X from the given values of Y.

The algebraic expression of these regression lines is called as Regression Equations. There will be two regression equations for the two regression lines.

The correlation between the variables depend on the distance between these two regression lines, such as the nearer the regression lines to each other the higher is the degree of correlation, and the farther the regression lines to each other the lesser is the degree of correlation.

The correlation is said to be either perfect positive or perfect negative when the two regression lines coincide, i.e. only one line exists. In case, the variables are independent; then the correlation will be zero, and the lines of regression will be at right angles, i.e. parallel to the X axis and Y axis.

Note: The regression lines cut each other at the point of average of X and Y. This means, from the point where the lines intersect each other the perpendicular is drawn on the X axis we will get the mean value of X. Similarly, if the horizontal line is drawn on the Y axis we will get the mean value of Y.

Uses

Three major uses for regression analysis are

(1) Determining the strength of predictors

(2) Forecasting an effect

(3) Trend forecasting.

First, the regression might be used to identify the strength of the effect that the independent variable(s) have on a dependent variable. Typical questions are what is the strength of relationship between dose and effect, sales and marketing spending, or age and income.

Second, it can be used to forecast effects or impact of changes. That is, the regression analysis helps us to understand how much the dependent variable changes with a change in one or more independent variables.  A typical question is, “how much additional sales income do I get for each additional $1000 spent on marketing?”

Third, regression analysis predicts trends and future values. The regression analysis can be used to get point estimates.  A typical question is, “what will the price of gold be in 6 months?”

An organization’s technology is the process by which inputs from the organi­zation’s environment are transformed into outputs. Technology includes tools, machinery, equipment, work procedures, and employee knowledge and skills. In the present competitive world, technological breakthroughs can dramatically influence organization’s products, services markets, suppliers, distributors, competitors, customers, manufacturing processes, marketing practices and competitive position.

Some Examples:

1. Recent technological advances, as we well know, in computers, lasers, robotics, satellite networks, fibre optics, biometrics, cloning and other related areas have paved the way for significant operational improve­ments.
2. Manufacturers, banks and retailers, for example, have used advances in computer technology to carry out their traditional tasks at lower costs and higher levels of customer satisfaction.
3. Consider the case of an old economy giant, Ford Motor Company, which is morphing into a new economy animal using web-based technologies to the best advantage. Thanks to the Internet, the old days of being able to concentrate only on the nuts and bolts of the business seem to be over. The winners are going to be companies that move closer and connect well with customers.
4. Take the stunningly successful case of MP3, a freely available standard for the compression and transmission of digital audio. The big guns of the music business like Sony, RCA and the rest were so confident about their control over the music industry that they could not see the threat posed by a tiny player like MP3(dot)com, which quietly spun its own B-web.

The company did not try doing everything: the B-web had a combination of content companies (like MP3); manufacturers such as S3 (maker of the Rio MP3 player); distribution technologies (like Napster); and, of course, hundreds of thousands of teenagers who swore by the music, but could not pay for it.

1. Thanks to the internet, customers can now comparison-shop for cars online and purchase cars online from a number of distributors, negotiating a deal on terms that are extremely favourable to them. Most consumer electronics and book retailers have to compete on the Internet in addition to location-based competition. The Internet is altering economies of scale, changing entry barriers and redefining the relationship between industries and various suppliers, creditors, customers and competitors.

Technology and Competitive Advantage:

When a firm is able to get past competition by creating superior value at lower cost — as compared to its rivals it is able to enjoy competitive ad­vantage for fairly longer periods of time. To enjoy such a position, managers need to exploit a firm’s strengths thoroughly and develop capabilities and competencies, so that rivals find it difficult to copy or imitate it.

Competitive advantage requires a fit between a firm’s internal strengths and weaknesses and external opportunities and threats. To obtain a competitive advantage, a firm must have competencies that allow it to create a higher perceived value than its competitors or produce the same or similar products at a lower cost or to do both simultaneously.

Superior competencies help a firm create higher perceived value and/or achieve a lower cost structure. For example, McDonald’s outstanding success all these years can be attributed to its ability to put its resources to the best use, carry out its value-chain activities in a coordinated way in sync with a carefully crafted strategy in order to deliver superior value to customers at a lesser cost.

To remain at the top, firms must constantly innovate; come out with novel products that offer superior value to customers at an affordable price. Introducing new products helps firms create more value for customers. At the same time, innovations in manufac­turing (like lean manufacturing) and business processes (re-engineering) allow firms to lower the cost structure. This is where technology and innovation come to play a major role in building a sustainable competitive advantage.

Shortage of Skills:

As new technologies are developed and implemented, there is an urgent need to upgrade existing employee skills and knowledge. Additionally, there will be growing demand for workers with more sophisticated training and skills especially in emerging sectors like telecommunications, hospitality, retailing, banking, insurance, biotechnology and financial services.

For example, service sector employees require different skills than those required in manufacturing. They need strong interpersonal and communication skills, as well as the ability to handle customer complaints in a flexible way.

Downsizing and Rightsizing:

New technologies have made it possible for fewer people to do more work than before. Companies have realized the importance of replace people with machines—known as automation—long ago. The physical work is cut into pieces and converted into digital commands now-a-days, thanks to the intro­duction of computer information technology in manufacturing processes. As a result of this, many jobs are disappearing faster than one can even imagine. Coupled with the need to go lean and clean, most companies are showing the door to people who fail to acquire new skills quickly.

Downsizing the process by which an organization lays off managers and workers to reduce costs —has become the order of the day. In a tough competitive scenario, companies are forced to adjust the number of employees needed to work in newly designed technological work spots—which is therefore known as rightsizing.

The way the work is being handed, thus, has undergone a radical transformation over the years. We are no longer talking about job losses due to economic down­turns. We are talking about lean and fit organizations that are able to run the race with competition and emerge as winners.

How Companies should Deal with Imbalances in Labour Supply?

When faced with a shortage:

1. Recruit new full time employees
2. Offer incentives for postponing re­tirements

iii. Rehire retired employees part time Attempt to reduce turnover

1. Work present staff overtime
2. Sub-contract work to another firm
3. Hire temporary hands

vii. Re-engineer to reduce needs

viii. Outsource an entire function

1. Use technology to improve produc­tivity
2. Re-allocate people from elsewhere in the organization
3. Re-allocate work tasks among cur­rent employees

When faced with a surplus:

1. Do not replace employees who leave
2. Offer incentives for early retirement

iii. Transfer or re-assign excess staff

1. Use stack time for employee train­ing or equipment maintenance
2. Reduce work hours
3. Lay off employees

vii. Freeze hiring

Outsourcing:

To remain cost competitive, many firms are also engaging in an increasing amount of outsourcing. Outsourcing is simply obtaining work previously done by employees inside the company from sources outside the company. If an external source has expertise in an activity that is not strategically critical to our business and is able to do that cost-effectively it is better to outsource it. You can benefit in the form of excellent quality, reliable supply and low cost.

You can also focus exclusively on doing what you are good at (the so called mission critical activities)—thereby enhancing your own competitive advantage. For example, Dell outsources the manufacture of its computers. It concentrates all its efforts on enhancing its Web-based direct sales capability and does not dilute its energies on other aspects of the game. Outsourcing, not surprisingly, is a big hit with many global firms. Companies such as Nike and Reebok have succeeded by focusing on their core strengths in design and marketing and contracting all their footwear manufacturing to external suppliers.

Telecommuting:

The rapid advances in technology have led to the relocation of work from the office to the home. Telecommuting—also known as teleworking—has become the order of the day-where employees work at home, usually with computers and use phones and the Internet to transmit letters, data and completed work to the home office. Companies have been able to increase their applicant pool through this mode and employees have also been able to live further away from cities and gain considerably due to savings in rents, transportation and other costs.

Internet, Intranet Revolution and Virtual Organizations:

Internet and information technology have enabled companies to become more competitive by cutting costs. Manufacturers, banks, and retailers have success­fully harnessed computer technology to reduce their costs and deliver goods and services to customers at an amazing speed.

The cumulative impact of new technology is so dramatic that at a broader level, organizations are changing the way they do business. Use of the Internet to transact business has become so common-place for both large and small companies that e-commerce is rapidly becoming the organizational challenge of the new millennium.

Managing virtual corporations and virtual workers in this technology-driven world is going to pose tough challenges for managers in the years ahead. A virtual organization is a network of companies or employees connected by computers. It is a highly flexible, temporary organization formed by a group of companies that join forces to exploit a specific opportunity. After all technologies are changing so quickly and skills are becoming so specialized these days that no one company can everything by itself. So they join forces to form a virtual outfit, consisting of knowledge workers from different parts of the world.

Virtual workers work from home, hotels, their cars, or wherever their work takes them. Managers need to develop new skills in order to deal with knowledge workers who work on common projects on a temporary basis without any face to face interaction. Virtual, teams have to be built from scratch paying attention to their unique requirements. The concept of employment needs to be replaced by the concept of ‘partnership’ especially when most tend to work independently away from the permanent employees or owners of the organisation.

Temporariness:

To compete with global players, firms have realized the importance of remain­ing lean, fit and flexible. Companies have learnt, after having seen the ups and downs in economic cycle quite frequently in recent years, the art of living for the day. There is evidence of temporariness in almost everything and any­thing organizations do today. Jobs are redesigned, more and more tasks are handled by flexible teams, and non-core activities are shifted to sub-contractors and temporary workers.

Workers are made to update their knowledge and acquire new skills in sync with the changing dynamics of the workplace. Most employees are made to learn everything so as to slip into roles that are loosely defined. Global competition is putting pressure on most companies to shut operations of businesses-almost instantaneously—that have failed to live up to expectations of customers. In a dynamic world characterized by variety, complexity and unpredictability, companies have to run the show in a flexible and spontaneous manner.

The New Employment Relationship and the Role of Managers:

The relationship between the employer and the employees has undergone a radical change in the 21st century. The employer has a compelling reason to bring down costs, remain competitive, and offer the best products and services to get past competition. To attract talent, he is willing to offer a chal­lenging job, come out with an attractive compensation package and bombard the prospective job seekers with benefits and concessions that were never heard of before. But not job security.

When there is an economic downturn or when the employee is not contributing enough the employer wants the headcount to be cut down to size, without any hesitation. The employee, on the other hand, is looking for a rewarding job, full of challenge, excitement and fun. He is constantly on the look out to get past rivals and reach a top position—sometimes, by any means. The moment he finds an irresistible opportunity outside, he is prepared to shift gears and change positions.

In this competitive environment, traditional ideas such as commitment to the job, loyalty to a company and remaining faithful to a work group do not seem to excite anyone in the job market. It is more or less a contractual arrangement now between the employer and the employee—in place of a lifelong commitment of service to each other. Both parties exhibit a pronounced preference for flexibility in thinking as well as actions. The employer is will­ing to pay more for quality.

The employee is willing to go that extra mile to improve his career prospects. The employer has to invent ways and means to attract talent. Training opportunities, profit sharing plans, extra bonuses, two way communications, flexible work arrangements are all part of that strategy. This is where HR managers are expected to play a strategic role, using their “soft skills” to good advantage.

They have to go beyond the rule book, find out what the employees want, customize job offers that are in sync with expectations of job seekers, put talented employees on jobs that are challenging, motivate people to give their best, develop employee skills and knowledge constantly, and explore creative paths to enrich campus atmosphere.

Managing knowledge workers is not going to be easy, especially when every company knows that talent is going to be the key differentiator between a successful company and an unsuccessful one. (‘What it means to be a Strategic HR leader in the 21st Century”, SHRM Foundation, 2003)

Personal Responsibilities: This refers to the personal beliefs of an individual. Every individual has certain firm beliefs on certain matters’ such as honesty, avoiding criminal acts, obedience to elders, willing to perform accepted duties, promptly settling the dues etc.

Official Responsibilities: Only persons or human beings occupy positions. A person who-is occupying a certain position should strictly follow certain norms and other standards set for that official capacity.

Personal Loyalties: These include loyalties of a subordinate to his superior. So long as the superior is just and honest, the subordinates shall not face any problem.

Corporate Responsibilities: Corporations, as separate legal entities, have certain moral responsibilities. The responsibilities may not be identical with the personal moral codes of the managers who run the company. These responsibilities may be internal or external.

Organizational Loyalties: Many people develop a deep sense of loyalty towards the organization as an entity that goes beyond their personal interest. This loyalty has arisen out of love and affection. This factor can be stimulated effectively. If so, the employees will work hard and help the enterprise in achieving its objectives.

Economic Responsibilities: This type of morality guides the individual actions of an economic nature. For instance, some businessmen think it immoral to borrow. However, this type of people is very rare to see.

Technical Morality: Professional people should adhere to certain ethical standards established by competent bodies or persons or by customs. The Code of Conduct set for them by the concerned institutions governing the profession binds lawyers, chartered accountants, doctors etc.

Legal Responsibility: It refers to the responsibility imposed by law. What are all illegal are supposed to be unethical also. Everyone should be a law-abiding citizen.

The word ethics is derived from the Greek word ‘ethos’, which means character. Ethics is a branch of philosophy concerned with human character and conduct. It is the discipline dealing with ‘what is good and bad’ and with moral duty and obligation. Ethics is the embodiment of moral values, which describes what, is ‘right’ and what is ‘wrong’ in human behaviour and what ‘ought to be’.

The erstwhile-regulated economies necessitated their governments to regulate and control business organisations and economic institutions through law and government mechanisms to enable them to play their role in contributing to the growth and wellbeing of their stakeholders in a balanced way such that the interest of the almost all the people was protected.

Various business management concepts, principles, theories, practices, goals and strategies have been under evaluation, revalidation and constant change consequent upon massive liberalisation, privatisation and globalisation of business initiated towards the end of the 20th Century and geared up in the beginning of the present century.

Governments, which were hitherto discharging the responsibilities of safeguarding the customers’ interest in respect of quality, price, safe and timely delivery of the product etc., protecting the companies from unhealthy competition, restricting the concentration of economic power in the hands of a few which should be otherwise enjoyed by the majority of the population and the like, relegated and shifted the responsibility on to the shoulders of the business organisations, often simply by encouraging trade liberalization and privatisation.

Many social scientists felt that the deregulation of business would encourage the business to reverse back to its orthodox objective of profit maximization by whatever means including practising unethical conduct. But sooner or the later, a number of incidents around the world proved that businesses should carry out their operations ethically for the sake of basic survival. 

Ethics is a “consideration and application of frameworks, values and principles for developing moral awareness and guiding behaviour and action”. Commonly, ethics is also referred to as “moral, good, right, just and honest. Ethical standards are referred to as the principles or ideals of human conduct.” Thus, ethics implies good character and morality and refers to generally accepted human character and behaviour considered as a desirable by contemporary society.

The nature and concept of Ethics, we can say that Business Ethics is nothing but the application of Ethics in business. Business Ethics proves that businesses can be, and have been, ethical and still make profits. Business Ethics was thought of as being a contradiction of terms. Thankfully, not any more. Today, more and more interest is being given to the application of ethical practices in business dealings and the ethical implications of business.

Human beings have been endowed with the freedom of choice and the means of free will. He can distinguish between good and evil, right and wrong, just and proper. He can distinguish between the end he wishes to pursue and the means to gain that end.

Now, what is true for human beings is also true for business, because business are carried on by human beings only, and business organisations are nothing but formal structures for human beings to carry on their businesses. Moreover, businesses are thought of as being living, growing entities. Thus, businesses also have choices-a choice to maximise their profits and a choice to do good for the society in which they live and operate.

However, at most times, profit maximisation and discharging of social responsibilities at the maximum limit, cannot be carried on simultaneously. One is bound to affect the other. For example, Concern for Task (Productivity) and Concern for Human Beings (workers) are bound to pull each other in opposite directions. It is difficult, if not impossible, to maximise both together.

A conflict arises in trying to achieve both simultaneously. Hence, many managerial choices represent Managerial Dilemmas, between the profit consideration (commercial concern) and the social consideration (welfare concern) of the organisation. Many managerial decisions have ethical implications and these decisions give rise to Managerial Dilemmas.

For example, ruining occupations of age-old inhabitants in a particular locality and their ethical way of life, by using advanced technology, is an ethical dilemma. Technological advancements have to come, have to be used; however, what to do with the people whose life and earnings are affected by the utilisation of advanced technology, is a question which is difficult to answer.

Recently an award-winning regional language file of India, depicted the plight of an aged boatman whose occupation was to transport people and goods across the local river, as there was no bridge over the river. However, his occupation gets threatened when a bridge is built over the river.

This does not mean that technology advancement must not be utilised or that modern methods should not be welcomed. Certainly, they should. Science and technology should, by all means, be used to uplift and make better the lives of human beings all over the world, and specially in such backward regions as this boatman lived.

However, consideration should also be given to see whether alternative means of arrangements can be made so that people are not unduly disturbed or that their trauma and upheaval is kept at a minimum. In case of the boatman, an ethical and effective solution lies in providing him with alternative employment on the bridge itself-as a security man, toll tax collector, etc.

Similarly, when Mergers take place between companies, or Acquisition of one company by a bigger company, where Job positions are duplicated, instead of employees losing their jobs for no fault of their, ethical solutions lies in Job Reassignment or Retraining for alternative Job Assignments.

A business or company is considered to be ethical only if it tries to reach a trade-off between perusing its economic objectives and its social obligations, i.e., between its obligations to the society where it exists and operates; its obligations to its people due to whom it can even think of pursuing economic goals; to its environment, from whom it takes so much without it demanding anything back in return; and the like.

There are several characteristics or features of business ethics.

Some of them are discussed here:

1. Business ethics are based on social values, as the generally accepted norms of good or bad and ‘right’ and ‘wrong’ practices.
2. It is based on the social customs, traditions, standards, and attributes.
3. Business ethics may determine the ways and means for better and optimum business performance.
4. Business ethics provide basic guidelines and parameters towards most appropriate perfections in business scenario.
5. Business ethics is concerned basically the study of human behaviour and conducts.
6. Business ethics is a philosophy to determine the standards and norms to make mutual interactions and behaviour between individual and group in organisation.
7. Business ethics offers to establish the norms and directional approaches for making an appropriate code of conducts in business.
8. Business ethics are based on the concepts, thoughts and standards as contributed as well as generated by Indian ethos.
9. Business ethics may be an ‘Art’ as well as ‘Science’ also.
10. Business ethics basically inspire the values, standards and norms of professionalism in business for the well-being of customers.
11. Business ethics is to motivate and is consistently related with the concept of service motives for the customers’ view point.
12. Business ethics shows the better and perspective ways and means for most excellences in customisation.
13. Business ethics aims to emphasise more on social responsibility of business towards society.

Ethical Principles in Businesses from an Indian Perspective

Essentially, any businesses that run in India comprises of these ethical principles.

Integrity

Whenever there is great pressure to do right instead of maximizing profits, this principle is tested. The executives need to demonstrate courage and personal integrity, by doing what-what think is right.

These are the principles, which are upright, honorable. They need to fight for their beliefs. For these principles, they will not back down and be hypocritical or experience.

Loyalty

No ethical behavior can be promoted without trust. And for trust, loyalty needs to be demonstrated. The executives need to be worthy of this trust while remaining loyal to the institutions and the person. There should be friendship in the time of adversity and support and devotion for the duty.

They should not use or disclose personal information. This leads to confidence in the organization. They should safeguard the ability of a professional to make an independent decision by avoiding any kind of influence or the conflicts of interest.

So, they should remain loyal to their company and their colleagues. When they accept the other employees, they need to provide a reasonable time to the firm and respect the proprietary information attach to the previous firm. Thus, they should refuse to take part in any activity that might take the undue advantage of the firm.

Honesty

The ethical executives are honest while dealing with their regular work. They also need to be truthful and do not deliberately deceive or mislead the information to others. There should be an avoidance of the partial truths, overstatements, misrepresentations, etc. Thus, they should not have selective omission by any means possible.

Respect and Concern

These are two necessarily different forms of behavior in the organization. But they go in tandem that is why they have been put under one principle. When the executive is ethical he is compassionate, kind, and caring.

There is one golden rule which states that help those who are in need. Further, seek their accomplishments in such a manner that the business objectives of the firm are achieved.

The executives also need to show respect towards the employee’s dignity, privacy, autonomy, and rights. He needs to maintain the interests of all those whose decisions are at stake. They need to be courteous and treat the person equally and rightly.

Fairness

The executives need not be just fair in all the dealings, but they also should not exercise the wrong use of their power. They should not try to use over each or other indecent manners to gain any sort of advantage. Also, they should not take undue advantage of anything or other people’s mistakes.

Fair people are inclined more towards justice and ensure that the people are equally treated. They should be tolerant, open-minded, willing to admit their own mistakes. The executives should also be able to change their beliefs and positions based on the situation.

Leadership

Any executive, if ethical, should be a leader to others. They should be able to handle the responsibilities. They should be aware of the opportunities due to their position. The executives need to be a proper role model for others.

Basic Concept of Business Ethics:

The basic concepts of business ethics are involved with three different types of moral or ethical issues. Some concepts focus on the issues covering the function of business within the environment where the business activates i.e. political, economic, legal and other social factors. Other concepts focus on the corporate issues, i.e. the issues pertaining to the functioning of a certain business or company. While the other concepts focus on the individual issues, i.e. the issues pertaining to the conduct or behavior of individuals within a business or company. In this discussion the following concepts will be briefly explained:

• Businesses as a “Corporate Entity”
• Business Ethics considered as “Good”
• Unethical Business Practices
• Moral Rights
• The Concept of Justice

Businesses as a “Corporate Entity”:

Business corporations in most of the nations are considered legally as entities or persons, i.e. the rights and liabilities legally applicable to persons or citizens are also applicable to business corporations.

The eventual objective of individual ethics is developing a set of ethical standards which can be held as acceptable after considering everything carefully in a particular situation. These individually accepted ethical standards can also be applied to different situations such as personal, social and even in a business. Most of the consumers agree that a business should follow the same moral standard while interacting with an individual customer as well as interacting with all customers locally, nationally or globally.

Business Ethics considered as “Good”:

Business ethics considered as “Good” requires containing and following a norm of moral values keeping the expectations and rights of people ahead of the profit maximization of business. A business’s main goal is to make a profit but peoples’ rights and expectations should not be ignored. Good business ethics is beneficial for businesses in the following three ways:

• It Discourages the breaking of laws in business activities.
• It assists businesses to avoid steps for which the company may come under costly civil lawsuits.
• It demotivates companies to engage in actions which can damage the image of the company. Good business ethics helps to improve businesses profitability as following ethical values prevents loss of revenue and company reputation.

Though moral standards are something which goes beyond the legal requirements, some of them are ascertained by the legal system. There are various laws against fraudulence, stealing, killing, sexual harassment, and so on.

Unethical Business Practices:

Many big companies have been fined a large amount of money for following unethical business practices. Unethical business practices go far beyond functions breaking the law. Many renowned companies are engaged in unethical and questionable practices without breaking any laws. They follow practices just to increase their profits ignoring the rights of the consumers, such as, giving less in quantity or quality, selling old or low-quality products with free gifts, etc.

The businesses have to make a profit but not at the cost of moral or ethical values. Businesses are ethically responsible for their activities as individuals are responsible for theirs.

Moral Rights:

Generally, a moral right refers to a person’s claim to something. When a person is entitled to a right, he or she is able to make a decision whether or not to claim such right without anyone’s permission. The entitlement of moral or ethical rights implies that others have particular duties towards the person bearing the right.

Negative rights enforce duties on other people not to interfere in your activities which are right for or important to you. For example, your right to make your own decisions or right to express your own opinion about anything.

Positive rights generate duties on others to give something to the person bearing the right. They state that others must contribute some benefits to the bearer of the right. For example, education, you have the right to educate yourself. If you are eligible to get yourself admitted to a varsity to get an education on a specific subject or do a specific course, the varsity has to provide you the benefit of education.

The Concept of Justice:

The concepts of justice are based on ethical principles that determine just means of allocating benefits and burdens to all people of the society. The following beliefs are utilized to distribute the benefits and burdens in a just or fair way to the people of the society.

Egalitarianism states that all human beings are equal. According to this belief, all the benefits and burdens of the society should be circulated according to this principle:

“Every person should be given exactly equal shares of a society’s or a group’s benefits and burdens.”

Utilitarianism states that a just society’s laws and institutions promote the best overall or average welfare of its members. According to this belief, the greatest benefits for all, and the society should be organized in such a way that its wealth is allocated to meet everyone’s basic needs.

Socialist justice, states

“work burdens should be distributed according to people’s abilities, and benefits should be distributed according to people’s needs.”

 It is focuses on equal justice for everyone whether they are poor, middle class or rich.

Capitalist justice states that a person should receive the benefits proportionate to his or her contribution to the society.

Libertarian justice states that the free market is naturally just, and that redistributive taxation breaches the property rights of people. This belief is founded on two principles: Principle 1 (Principle of equal liberty) and Principle 2 (Difference principle) both referring how everyone is responsible for one’s own future not regarding of what happens.

(i) A Discipline:

Business ethics are the guiding principles of business function. It is the knowledge through which human behaviour is learnt in a business situation.

(ii) Ancient Concept:

Business ethics is an ancient concept. It has it origin with the development of human civilization.

(iii) Personal Dignity:

The principles of ethics develop the personal dignity. Many of the problems of ethics arise due to not giving dignity to individual. All the business decisions should be aimed by giving dignity to the customers, employees, distributors, shareholders and creditors, etc. otherwise they develop in immorality in the business conducts.

(iv) Related to Human Aspect:

Business ethics studies those activities, decisions and behaviours which are concerned with human aspect. It is the function of the business ethics to notify those decisions to customers, owners of business, government, society, competitors and others on good or bad, proper or improper conduct of business.

(v) Study of Goals and Means:

Business ethics is the study of goals and means for the rational selection of sacred objects and their fulfillment. It accepts the principles of “Pure goals inspire for pure means” and “Means justifies the end”. It is essential that goals and means should be based on morals.

(vi) Different from Social Responsibility:

Social responsibility mainly relates to the policies and functions of an enterprise, whereas business ethics to the conduct and behaviour of businessmen. But it is a fact that social responsibility of business and its policies is influenced by the business ethics.

(vii) Greater than Law:

Although the law approves various social decisions, but the law is not greater than ethics. Law is usually related to the minimum control of social customs whereas ethics gives importance to individual and social welfare actions.

A sudden and unexpected event leading to major unrest amongst the individuals at the workplace is called as organization crisis. In other words, crisis is defined as any emergency situation which disturbs the employees as well as leads to instability in the organization. Crisis affects an individual, group, organization or society on the whole.

Characteristics of Crisis

• Crisis is a sequence of sudden disturbing events harming the organization.
• Crisis generally arises on a short notice.
• Crisis triggers a feeling of fear and threat amongst the individuals.

Reason of Crisis

Crisis can arise in an organization due to any of the following reasons:

• Technological failure and Breakdown of machines lead to crisis. Problems in internet, corruption in the software, errors in passwords all result in crisis.
• Crisis arises when employees do not agree to each other and fight amongst themselves. Crisis arises as a result of boycott, strikes for indefinite periods, disputes and so on.
• Violence, thefts and terrorism at the workplace result in organization crisis.
• Neglecting minor issues in the beginning can lead to major crisis and a situation of uncertainty at the work place. The management must have complete control on its employees and should not adopt a casual attitude at work.
• Illegal behaviors such as accepting bribes, frauds, data or information tampering all lead to organization crisis.
• Crisis arises when organization fails to pay its creditors and declares itself a bankrupt organization.

Crisis Management

The art of dealing with sudden and unexpected events which disturbs the employees, organization as well as external clients refers to Crisis Management.

The process of handling unexpected and sudden changes in organization culture is called as crisis management.

Need for Crisis Management

• Crisis Management prepares the individuals to face unexpected developments and adverse conditions in the organization with courage and determination.
• Employees adjust well to the sudden changes in the organization.
• Employees can understand and analyze the causes of crisis and cope with it in the best possible way.
• Crisis Management helps the managers to devise strategies to come out of uncertain conditions and also decide on the future course of action.
• Crisis Management helps the managers to feel the early signs of crisis, warn the employees against the aftermaths and take necessary precautions for the same.

Essential Features of Crisis Management

• Crisis Management includes activities and processes which help the managers as well as employees to analyze and understand events which might lead to crisis and uncertainty in the organization.
• Crisis Management enables the managers and employees to respond effectively to changes in the organization culture.
• It consists of effective coordination amongst the departments to overcome emergency situations.
• Employees at the time of crisis must communicate effectively with each other and try their level best to overcome tough times. Points to keep in mind during crisis
• Don’t panic or spread rumours around. Be patient.
• At the time of crisis the management should be in regular touch with the employees, external clients, stake holders as well as media.
• Avoid being too rigid. One should adapt well to changes and new situations.

Types of Crisis

The crisis is of different types and nature and implies different responses and thereby different means of its management. The following are the major types of Crisis:

1. Financial Crisis

Financial Crisis occurs when the business is hit with the crisis financially. An example of a financial crisis is a business not having funds to pay its dues such as paying dividends, interests, making repayments of loans, etc. Such a crisis arises when the business incurs losses over considerable periods of time or when due to lack of accountability loses consumers’ trust among other situations.

This crisis is handled by mobilizing requisite funds as a short term solution and in taking major financial decisions such as restructuring, changing business operations, etc as long term solutions.

2. Technological Crisis

The technological crisis occurs as a result of break downs in the common scientific and technological tools and appliances that we use in a business. If the servers of Facebook get overloaded and all the user accounts and details are thereby deleted then such a crisis will be a technological crisis.

Common technological crisis includes software failure, industrial accidents, etc. The usual means of management would include primarily mitigating the losses and stopping the effects of the failure from affecting more people or elements.

The next step would include trying to gain back what was corrupted or lost with the help of experts in the field and would also involve finding the source and reason for the crisis.

3. Crisis of Malevolence

All businesses compete with each other. But some competitors take such extreme steps that they, in fact, try to go below the belt and ruin the other business for their own success. The crisis that happens as a result of the extreme tactics employed by a competitor or a miscreant to ruin the business is known as a crisis of malevolence.

These crises include those which are created by hacking into a company’s server, tampering with their products, etc. The measures include finding the source and minimizing the damage as soon as possible with identifying who perpetrated the crisis.

4. Natural Crisis

Natural Crisis refers to those that are created as a direct result of a natural event such as a volcano or earthquake etc. These crises are completely out of management’s hands and cannot be prevented, unlike the other crisis. The crisis management steps include evacuating the area and taking mitigating actions as precautions such as building Earthquake resistant buildings, preparing evacuation plans, etc beforehand.

Crisis of Organisational Misdeeds

Crisis of Organisational Misdeeds includes:

1. Crisis of Deception
2. Crisis of Skewed Management Values
3. Crisis of Management Misconduct