Organizational Culture & Ethics Chapter Outline: 7-1 Organizational Culture 7-1 Managerial Ethics 7-3 Social Responsibility Summary Review Questions Glossary Endnotes Key Terms culture cultural strength ethical relativism integrative social contracts view of ethics B E N N E T T , B A R B A R A 2 8 8 2 T S justice view of ethics managerial ethics religious view of ethics rights view of ethics self-interest view of ethics social obligation social responsibility social responsiveness utilitarian view of ethics values-based management 7 There is a “way things are done” in every organization. Long-term members understand it well and newcomers tend to learn it quickly. Organizational theorists refer to this phenomenon as organizational or corporate culture. Culture refers to the commonly held values and beliefs of a particular group of people,1 and the concept of organizational culture reflects the application of the culture concept to members of an organization. culture the commonly held values and beliefs of a particular group of people The concept of organizational culture is based on the observation from anthropology that unique norms of behavior develop for groups of individuals who spend a considerable amount of time together. Originally the term was used to describe behaviors within geographical boundaries, such as the British, French, or Bconcept to the study of Chinese cultures. Organizational theorists have applied the E culture) refers to the organizations. Organizational culture (also called corporate shared values and patterns of belief and behavior that areNaccepted and practiced by the members of a particular organization.2 As we shall Nsee, the organizational culture can greatly influence the success or failure of the organization. E T are often intertwined Standards and expectations for ethics and social responsibility with an organization’s culture. Managers and employeesTare expected to act in “appropriate” ways or consider certain criteria when making , decisions. As such, the notions of ethics and responsibility are inseparable from that of organizational culture. The second part of this chapter discusses ethics and responsibility in B greater detail. A R B 7-1 Organizational Culture A Although it can be traced to the 1940s, the concept of organizational culture became R popular in the 1980s when scholars and executives began searching for reasons to A 3 explain recent Japanese business success. They coined terms such as “Theory Z” to describe the type of cultures that are common to Japanese organizations.4 2 Hence, an organizational culture is influenced by the prevailing national culture, although the two concepts should be distinguished. 8 8 An organization’s culture exists at two levels. At the surface level, one can observe specific behavior of the culture, such as accepted forms2of dress and rituals or T level that includes ceremonies. These artifacts reflect a deeper, underlying shared values, belief patterns, and thought processes common S to members of the 5 organization. The underlying level is the most critical to understand. Because it cannot be seen, it is often inferred by studying the surface level. Because each organization develops its own unique culture, even organizations within the same industry and city will exhibit distinctly different ways of functioning. The organizational culture enables a firm to adapt to environmental changes and to coordinate and integrate its internal operations.6 Ideally, the values that define Organizational Theory 7-2 a culture should be clear, easy to understand by all employees, embodied at the top of the organization, and reinforced over time. “Adaptive cultures” are innovative and encourage initiative, whereas “inert cultures” are conservative and encourage maintenance of existing resources. An organizational culture provides members with a sense of belonging and identity within the organization. By definition, all organizations have cultures, although some are more pervasive than others. When a culture is well understood and B E is transferred more effectively, turnover is reduced, managed, conflicts are handled more efficiently, knowledge and teamwork is enhanced. Because culture unifies N members of an organization around a set of beliefs and behaviors, it can be a powerful help or hindrance in efforts N to facilitate change. E The first and most important influence on an organization’s culture is its founder or founders. The founder’s T core values and business beliefs serve as the foundation for the organization’s activities.7 For instance, the primary influence on McDonald’s culture was the fast-food T company’s founder, Ray Kroc. Although he passed away in 1984, his philosophy of fast service, assembly , line food preparation, wholesome image, cleanliness, and devotion to quality are still central facets of the organization’s culture.8 Likewise, Sam Walton’s influence on the Wal-Mart culture can still be seen today even though he passed away a number of years ago. B Whether allowed to evolve on its own or skillfully managed, the organization’s culture serves as the basis for A many day-to-day decisions in an organization. For example, members of an organization whose culture values R innovation are more likely to invest the time necessary to develop creative solutions to complex problems than B their counterparts in organizations whose culture values short-term cost containment. A Deal and Kennedy identified four key dimensions of culture. R 9 Values constitute the beliefs central to the culture. Heroes are individuals within the organization whoAembody the values. Rites and rituals (or ceremonies) are symbolic events that occur within organizations that influence the culture. The culture network includes the informal hierarchy and communication systems that develop in any organization. Identifying these four 2 dimensions for any organization can help determine why decisions are made. 4 Key Dimensions of Culture Values Heroes Rites & Rituals Culture Network 8 Views and assumptions about an organization’s distinctive competence 8 comprise one of the2most important elements of culture when an organization is formed and begins to develop. For example, historically innovative firms T are likely to respond to a sales decline with new product introductions, whereas companiesSwhose success is based on low prices may respond with attempts to lower costs even further.10 However, it is possible to modify the culture over time as the environment changes, rendering some of the culture obsolete and even dysfunctional. Sometimes there is considerable agreement among an organization’s members concerning its values, norms, and behavior. At other times, however, this Organizational Theory 7-3 is not the case. Cultural strength refers to the extent to which organizational members agree about the importance of certain values.11 Strong cultures—such as 3M’s strong emphasis on innovation and Southwest Airlines’ strong emphasis on delivering value in a friendly manner—can lead to success, but a culture strong in all respects may not be appropriate for all organizations. Colleges and universities, for example, value diversity of thought and expression among faculty and students. As such, a culture strong in the sense that all members place a high value on freedom of expression and differences of opinion may be appropriate. However, a culture strong in the sense that all members agree on various perspectives may not be appropriate. cutural strength the extent to which organizational members agree about the importance of certain values It is essential that an organization’s culture be alignedBwith its strategy. For example, an organization whose environment is rapidlyEchanging may craft a new strategy that makes sense from financial, product, and N marketing points of view. Implementing the strategy may be problematic, however, N because it requires 12 significant changes in assumptions, values, and ways of E working. All things considered, changing an organization’s strategy is often easier than changing its T culture, and both are often required for organizations to be successful.13 T Organizations with “strategically appropriate cultures”—such as PepsiCo, Wal, Mart, and Shell—tend to outperform those whose cultures do not fit as well with their strategies. Successful firms tend to develop cultures that emphasize three B key groups of stakeholders: customers, stockholders, and employees. Note that the A that the culture must point is not that these corporations have strong cultures, but R that can help the firm be appropriate to that firm’s strategy and must contain values adapt to environmental change.14 B A Because culture reflects the past, changes in the environment can necessitate R changes in an organization’s culture.15 Conservative organizations do not become Aformulated new goals aggressive and entrepreneurial simply because they have and plans, but because they embark on a substantial effort to modify the culture, the “way things are done.”16 2 It should be noted that cultural considerations do not end at8the organizational level. Subcultures can develop in any organization and tend to 8 be more prevalent when the organization is relatively large and its culture is relatively 2 weak. Shared values and beliefs in a subculture can be based on commonalities T within departments or divisions such as functional expertise, geography, or differences S in national culture. 7-1a Categorizing Culture Each organization has a different culture. It is difficult to categorize cultures along similarities lest the uniqueness be lost in the discussion. Nonetheless, it is useful to identify broad characterizations of cultures as a means of better understanding how they influence organizational effectiveness. One way to do so is to consider Organizational Theory 7-4 four broad categorizations on the basis of the organization’s primary internal and external characteristics. From an internal perspective, the key issue for the organization is the extent to which its strategic focus is internal or external. From an external perspective, the key issue for the organization is whether the environment necessitates flexibility or stability. In broad terms, these key issues suggest four categories of culture, as depicted in figure 7-1. Figure 7-1 Source: Adapted from D.R. Denison and A. K. Mishra, “Organizational Culture & Effectiveness,” (2001) B E N The adaptation culture emphasizes an external strategic N focus through change and flexibility. Innovation and creativity are highly valued and encouraged. The organization remains flexible so that its members can adapt to E changes in the environment as they occur. Organizations with an adaptation culture seek not only to adapt to the T needs of the external environment, but also to influence it. T The mission culture emphasizes an external strategic , focus through stability. Leaders in such organizations place a great value on developing a shared understanding of the mission and vision. The mission culture is often best suited for organizations pursuing a focus strategy, as stability is achieved through concentration on only B one specific segment of the market. A The involvement culture emphasizes an internal strategic R focus through change and flexibility. Organizations with involvement cultures view performance as emanating from satisfied employees, well-equipped with B ample resources to do their jobs. Employees are encouraged to become involved as instigators of change in the A organization. R The bureaucratic culture emphasizes an internal strategic A focus through stability. Consistency and predictability are valued by the organization’s members. Business is conducted in a methodical manner following established rules and procedures in order to sustain a stable environment. The bureaucratic culture is often seen as less 2 effective than other cultures because it does not allow members of the organization to tailor solutions to the 8 individual needs of customers. 8 Should managers attempt to promote an organizational 2 culture consistent with only one category or should they draw from multiple categories? The answer is not always clear. On the one hand, it can be argued that an T organization’s strategy should have both an internal and an external focus, and that a balance of stability and S in which organizations operate. Following this logic, flexibility might be appropriate for most environments one might reject the notion of a clearly defined culture and attempt to create a culture that reflects each of the competing internal and external perspectives. On the other hand, however, effective organizational leadership requires choices and accepts the fact that some paths will be taken and others will be avoided. It is rarely possible to produce products or services in all recognized categories for all segments of the market equally well. When an organization’s mission and Organizational Theory 7-5 Best Practices The Individual - Organization Fit Do you like to dress casually, set your own hours, and make a lot of the decisions that affect your professional life? Or do you prefer a highly defined structure with clear sets of responsibilities and hierarchical decision-making? Characteristics such as these describe an organization’s culture. Studies suggest that many individuals leave one job for another because of differences in the organizational culture. Business analytics software leader SAS is known for a highly unusual corporate culture, one that reflects a people-centeredness and promotes high loyalty and low turnover. Developing and promoting a culture can be costly, however. SAS’ Cary, North Carolina headquarters includes two on-site childcare centers, an employee health B care center, wellness programs, and even a 77,000 35 E square foot recreation and fitness facility. N SAS has been included in the list of Best Companies for Working Mothers thirteen times and is N frequently listed on Fortune’s “100 Best Companies to Work for in America.” SAS’ ability to recruit E professionals can be attributed to its ability to and retain highly marketable, talented and creative T develop a company “too good to leave.” T , strategies are clearly defined, it is logical that a culture whose values reflect the mission and strategies will be most appropriate. Hence, the key issue B is the fit between the organization’s culture and other characteristics of the organization. A R B It is difficult to change an organization’s culture. It often evolves on its own and is affected by a A number of factors outside of the control of organizational leaders. The culture can be managed, R however, so that it begins to reflect a desired set of values over a period of time. A 7-1b Managing Culture According to researcher Edgar Schein, leaders can manage and shape the organization’s culture in at least five ways.17 The first way is to systematically pay attention to areas of the business believed 2 to be of key importance to the strategy’s success. Employees notice where leaders invest time and 8 resources and are likely to incorporate the values and practices they observe into their own behavior. 8 formally by measuring and controlling the activities The leader may take steps to accomplish this goal 2 comments or questions at meetings. These specific of those areas, or less formally by making specific areas should be ones identified as critical to theTfirm’s long-term performance and survival, and may include such areas as customer service, new product S development, or quality control. The second means involves the leader’s reactions to critical incidents and organizational crises. The way a CEO deals with a crisis or important occurrence in an organization, such as declining sales or technological obsolescence, can emphasize norms, values, and working procedures, or even create new ones. When Saturn’s chief executive chose to destroy a group of vehicles produced with faulty coolant instead of simply draining the radiators, a strong pro-quality message was sent to its workers. Organizational Theory 7-6 The third means is to serve as a deliberate role model, teacher, or coach. Employees take notice of what a CEO does, both on and off the job. When a CEO models certain behavior, others in the organization are likely to adopt it as well. For example, chief executives who give up their reserved parking place and park among the line workers send a message about the importance of status in the organization. The fourth means is the process through which top management allocates rewards and status. Leaders communicate their priorities by consistently linking pay raises and promotions, or the lack thereof, to particular behaviors. Rewarded behavior tends to continue and become ingrained in the fabric of the organization. Policies that reward seniority, for example, support a culture in which loyalty, not B necessarily high performance or innovation, is highly valued. E The fifth means of shaping the culture is to modify N the procedures through which an organization recruits, selects, promotes, and terminates employees. An N organization’s culture can be perpetuated by hiring and promoting individuals E beliefs and behaviors whose values are similar to those of the firm and whose T The easiest way to more closely fit the organization’s changing value system. affect culture over the long term is to hire individuals who T possess the desired cultural attributes. , In sum, an organization’s culture can be changed, but modification is generally a difficult, time-consuming process. Leaders should seek toBmodify the culture in a positive direction (i.e., one that is appropriate for the organization). However, they A should also recognize their limitations in institutionalizing Rsteep cultural changes over a short period of time. B 7-2 Managerial Ethics A R A Inherent in an organization’s culture is a set of expectations concerning ethical behavior and decision-making. Managerial ethics refers 2 to an individual’s responsibility to make business decisions that are legal, 8honest, moral, and fair. Unethical behavior in organizations can result in costly government fines and 8 penalties when it involves a violation of the law. However, the greater costs 2 indirect, such as the incurred by organizations engaging in such practices are loss of reputation, the departure of top employees, lostTcustomers, and greater government regulation.18 Most managers and scholars agree S that organizational decisions should be made in an ethical manner. Difficulties arise when the concept of managerial ethics is examined in greater detail, however, as competing definitions and perspectives can have a great bearing on what would be considered as ethical or unethical. managerial ethics an individual’s responsibility to make business decisions that are legal, honest, moral, and fair Organizational Theory 7-7 7-2a Ethical Relativism Two contextual issues should be considered at the beginning of this discussion. The first is the frequently debated notion of ethical relativism, the idea that ethics is based on accepted norms in a culture. Most ethical relativists would argue, for example, that bribery is unethical in the United States and most western nations where the practice is generally viewed as inappropriate. In contrast, bribery is ethical in other parts of the world where the practice is a generally accepted means of getting things done. Hence, according to the ethical relativist, the culture defines the ethics. ethical relativism the idea that ethics is based on accepted norms in a culture B ethical or unethical Strict opponents of ethical relativism argue that actions are either without consideration to cultural acceptance. They would E argue that bribery might be an accepted practice in some parts of the world, but notN necessarily for the right reasons. Following this logic, allowing a culture to define ethics would result in a N society where the ethical nature of all decisions is negotiable and clear standards E of right and wrong cannot be established. T Although the debate between ethical relativists and their T opponents is real and legitimate, most decision-makers balance these contrasting views in practice. Most , managers who embrace ethical relativism, for example, would acknowledge that certain actions in organizations—such as stealing from a coworker or defrauding B most managers who a customer—are simply unethical in any culture. Likewise, eschew ethical relativism would acknowledge that otherAactions—such as giving a small gift of appreciation to a major customer—are more R complex and might be ethical in some cultures but not in B others. A disputes. The second contextual issue involves the resolution of ethical If a decision-maker determines that a course of actionRis ethical, for example, should a subordinate be required to implement the A action if the subordinate believes the action is unethical? In general, managers or other employees should not be required to perform activities 2 inconsistent with their ethical convictions concerning the role 8 that they may be expected to play in firm activities. From a 8 practical perspective, however, employees should consider 2 their ethical views when evaluating employment and pursue positions that do not inherently run counter to those T views. The ethics test on the next page provides food for S thought concerning both of these issues. Ethical dilemmas in organizations are not always easy to resolve. Organizational Theory 7-8 Ethics Test Strongly Disagree -0- -1- -2- -3- Strongly Agree -0- -1- -2- -3- 1. Employees should not expect to inform on their peers for wrongdoings. o o o o 2. There are times when a manager must overlook contract and safety violations in order to get on with the job. o o o o 3. It is not always possible to keep accurate expense account records; therefore, it is sometimes necessary to give approximate figures. o o o o 4. There are times when it is necessary to withhold embarrassing information E from one’s superior. o o o o o o o o 6. It is sometimes necessary to conduct personal business on company time. o o o o 7. o o o o o o o o 9. It is proper to use the company 800 line for personal calls as long as it’s not B in company use. o o o o 10. Management must be goal oriented; therefore, the end justifies the means. o o o o o o o o o o o o o o o o 14. Occasional use of the company’s copier for personal or community activities 2 is acceptable. o o o o 15. Taking home company property (pens, tape, paper, etc.) for personal use is 8 an accepted fringe benefit. o o o o B N 5. We should do what our managers suggest, though we may have doubts N about it being the right thing to do. 8. E T Sometimes it is good psychology to set goals somewhat above normal if it T force. will help to obtain a greater effort from the sales , I would quote a “hopeful” shipping date in order to get an order. A R 11. If it takes heavy entertainment and twisting a bit of company policy to win a B large contract, I would authorize it. A 12. Exceptions to company policy and procedures are a way of life. R 13. Inventory controls should be designed to report A “underages” rather than “overages” in goods received. 8 If your score is: 0 Prepare for canonization ceremony 1-5 Bishop material 6-10 High ethical values 11-15 Good ethical values 16-25 Average ethical values 26-35 Need moral development 36-44 Slipping fast 45 Leave valuables with warden 2 T S Total Score: ___________ Organizational Theory 7-9 7-2b Perspectives on Ethics What constitutes ethical behavior can be viewed in a number of ways, six of which are discussed here (see table 7-1). B E N N E T T The utilitarian view of ethics suggests that anticipated outcomes and consequences , should be the only considerations when evaluating an ethical dilemma. The primary shortcoming associated with this approach, however, is that it a decision B may have multiple consequences, some of which may be positive, others negative, A and still others undetermined. For example, a decision to layoff ten percent of an organization’s work force will harm those who lose R their jobs but may help shareholders by increasing the projected returns on theirBinvestments. The longterm effect of the layoff could be positive if the organization A emerges as a more competitive entity or negative if employee morale suffers and R productivity declines. Hence, the utilitarian view is not always easy to apply. utilitarian view of ethics perspective suggesting that anticipated outcomes and consequences should be the only considerations when evaluating an ethical dilemma A The self-interest view of ethics suggests that benefits of the decision-maker(s) should be the primary considerations. This view assumes2that society will likely benefit when its individual members make decisions that 8 are in their own best interest. As Smith and Friedman argued, firms that attempt to maximize their 8 returns within the legal regulations of society behave ethically. This perspective 2 limits ethical concerns to the consideration of short-term financial benefits for the T organization. self-interest view of ethics perspective suggesting that benefits of the decisionmaker(s) should be the primary considerations when faced with an ethical dilemma S However, self-interest can be viewed from a narrow, short-run perspective or from a broader, long-term perspective. It can be argued that one who always promotes his or her short-term interests at the expense of others will suffer greater loss in the long term. For example, firms whose managers construct loopholes in their product or service warranties to promote short-term profits can ultimately alienate their customers. Hence, ethical behavior has long-term profit considerations. Organizational Theory 7-10 The rights view of ethics evaluates organizational decisions on the extent to which they protect basic individual rights, such as a customer’s right to privacy and an employee’s right to a safe work environment. The key shortcoming of this approach, however, is that it is possible to protect individual rights at the expense of group progress or productivity. The rights view is generally inferred when legislation prohibiting various forms of employee discrimination is considered. Such legislation often seeks to protect the rights of current or prospective employees even if organizations must incur costs to safeguard them. From an ethical standpoint, proponents of anti-discrimination legislation often desire a bias-free workplace but invoke a different view of ethics B when evaluating the proposed law. E rights view of ethics perspective that evaluates organizational decisions on the extent to which they protect basic individual rights The justice view of ethics suggests that all decisions will be made in accordance N with pre-established rules or guidelines. Employee salaries may be administered by N experience, amount of developing a formula that computes salary based on level of E The key shortcoming training, years of experience, and previous job evaluations. associated with the justice view is that it requires decision-makers to develop rules T and procedures for every possible anticipated outcome, anTarduous task indeed. justice view of ethics The integrative social contracts view of ethics suggests,that decisions should be based on existing norms of behavior, including cultural, community, or industry factors. Although this perspective emphasizes the situational influences on a B particular decision, it deemphasizes the need for clear standards A of right and wrong 19 devoid of the situation. integrative social contracts view of ethics R B convictions. In the The religious view of ethics is based on personal or religious United States, the Judeo-Christian heritage has formed a A distinct notion of ethics, whereas Islam, Hinduism, and other religions compriseRthe majority viewpoint in many other nations. From the Christian perspective, for example, individuals A should behave in ways that benefit others, treating other people as one would wish to be treated. In one respect, the religious perspective counters the integrative 2 of right or wrong with social contracts view because it emphasizes clear principles limited regard to situational variables. Needless to say, however, the religious view 8 would result in markedly different ethical perspectives across cultures. 8 20 perspective suggesting that all decisions will be made in accordance with pre-established rules or guidelines perspective suggesting that decisions should be based on existing norms of behavior, including cultural, community, or industry factors religious view of ethics perspective that ethical dilemmas should be evaluated by considering personal or religious convictions 2 It should be noted that various additional ethical perspectives exist. Some have rich philosophical underpinnings, such as those traced toTAristotle or the famous eighteenth century philosopher Immanuel Kant. Others are Sbased in contemporary business thought and provide a broader framework for decision-making that extends beyond ethical considerations. One such perspective, the stakeholder approach, suggests that organizational decisions should balance the interests of the organization’s stakeholders (i.e., those groups that have a stake in the organization, such as employees, customers, suppliers, the community, etc.). Hence, the views presented in this chapter represent the major perspectives and do not comprise an exhaustive list. Organizational Theory 7-11 It is also worth noting that most decisions are made without conscious thought to the perspective on which they are based. For example, decision-makers rarely speak of whether an organizational decision should be made from a justice view or an integrative social contracts view. In most cases, managers evaluate alternatives and make a decision. As such, some of the perspectives applied may be subconscious. Of the major approaches, research suggests that the utilitarian view is the most commonly applied perspective in organizations.21 It should be emphasized, however, that these views of ethical decision-making are not always mutually B exclusive. Further, it is likely that most E managers employ a combination of ethical perspectives when making decisions. This N is especially true when organizations N are faced with decisions whose ethical E dimensions are not always clear. In 2003 T for example, the Recording Industry Most decisions are made without T conscious thought to the perspective Association of America launched several on which they are based. , hundred lawsuits at teenagers and college students in an effort to emphasize the notion that swapping copyrighted music files via the Internet is against the law. Critics charged that “suing kids” is both badB business and unethical, while industry executives argued that the law is clear and that widespread violations areAtaking a serious toll on its member firms.22 R B 7-2c Overcoming Ethical Dilemmas A The ethical imperatives of other decisions may be easier R to identify, however. For example, some organizations and individuals indiscriminately use bulk e-mails to “spam” the public by e-mailing unwanted direct response A advertisements of pornography sites, mortgage and investment services, and the like. One study suggested that spam cost American corporations $9 billion in 2002 due to loss of worker productivity, consumption of 2 bandwidth and other technological resources, and the use of technical support time. Although this largely illegal 8 users, enforcement is a complicated legal endeavor.23 practice is deplored by most industry groups and Internet 8 Why do some organizations portray a pattern of unethical Anand and Ashforth identified 2 business practices? 24 six commonly used rationalization tactics to explain this behavior. First, individuals deny responsibility, T rationalizing that they have no other choice but to participate in unethical behavior. One employee may contend S that the practice is directly associated with another’s responsibility. Second, individuals deny injury, suggesting that the unethical behavior did not really hurt anyone. This perspective defines behavior only as unethical if directly injured parties can be clearly identified and then hesitates to acknowledge the injury. Third, individuals deny rights of the victims, rationalizing that “they deserve what they got anyway.” This perspective rationalizes unethical behavior when competitors or other related parties are alleged to be involved Organizational Theory 7-12 at least the same level of corruption. Fourth, individuals engage in social weighting by making carefully controlled comparisons. One way this is done is by character assassination of those suggesting that a particular pattern of behavior is unethical. If those condemning us are corrupt—the argument goes—then how much credence can be given to their arguments? Another way this is done is by selectively comparing the unethical action to others whose actions are purported to be even more unethical. For example, falsifying an expense account for meals not eaten on a business trip is not considered a major offense when compared to someone who falsifies expenses for an entire business trip that never occurred. Fifth, individuals can appeal to higher values by suggesting that justification of the unethical behavior is due to a higher order value. In this sense, one might argueBthat it is necessary to accept some degree of lower-level unethical behavior in pursuit of ethical responsibility E at a higher level. For example, one sales rep who is brought in to help resolve a dispute between a customer N and another sales rep may deny the legitimate claims of the customer, rationalizing that loyalty among sales representatives is a higher order value. N Finally, individuals may invoke the metaphor of the ledger, E arguing that they have the right to engage in certain T T , B A R B A R A unethical practices because of other good things they have done. For example, a manager on a business trip may justify padding a travel expense account because2she has already done “more than her share” of traveling in recent months. 8 8 however. Treviño and Brown identified five commonly Improving the ethical stance of an organization is not easy, held myths concerning ethics in organizations.25 These 2 myths and accompanying realities are summarized in table 7-2. In concert, they argue that ethical decision-making is a complex process that extends beyond removing T the “bad apples” from the organization and establishing S formal ethics codes. It begins with proactive behavior on the part of top executives that infuses ethics into the fabric and culture of the organization. In addition, the extent to which an individual behaves ethically is influenced by many factors, including one’s stage of moral development, individual and personality differences, and the culture of the organization. The organization can influence some but not all of these factors. Organizations can foster more ethical decisionmaking to a substantial extent, however, by emphasizing ethics in leader decisions, selecting and rewarding individuals who act in an ethical manner, and raising awareness of ethical concerns through training. Organizational Theory 7-13 Career Point Valuing Ethics in the Organization Most people desire to work in an organization embodied by sound ethical principles. However, it can be difficult to distinguish between ethical organizations and unethical ones during a job search. This problem is further complicated by the fact that an organization one may loosely refer to as “ethical” probably employ some managers whose activities are not considered to be in line with company standards. Business publications can provide insight into this dilemma, especially in large firms. Periodicals such as Forbes, Fortune, and Business Week compile lists of the “most ethical” firms. It is typically difficult to collect accurate data in order to make this distinction, however. Ultimately, it is necessary to do your own detective research on organizations B where you might like to work. E customers—for their opinions is a great place to Asking an organization’s customers—and former N is always upfront in its dealings, stands behind its start. Customers may report that the organization N in a fair manner. In contrast, they may express promises, and can be counted on to conduct business difficulty dealing with members of the organization E or even feel “ripped off” at times. Asking prospective co-workers in the organization duringTan interview can also be helpful. They may not disclose complete information about the company, but it is often possible to gain valuable information T in the process. , B A 7-3 Social Responsibility R B responsibility when making business decisions, Whereas managerial ethics refers to an individual’s social responsibility refers to the expectation A that organizations should serve both society and the financial interests of the owners or shareholders. R In other words, the notion of social responsibility adds to the given economic and financial concerns A the concept of social responsiveness, the idea that organizations must adapt to changing environmental conditions and decisions should be made to promote positive social change. 2 An organization’s stance on social responsibility 8 is typically embedded in its culture. This stance can and should influence both strategic and 8 day-to-day decisions. If social responsibility is not considered, decisions may be aimed only at short-term objectives without balancing social objectives 2 that the firm might also wish to consider. As we shall see, however, these issues are not always easy T to resolve. S Business organizations have always been expected to provide employment for individuals and to meet consumer needs. Today, however, many members of developed societies also expect firms to help preserve the environment, to sell safe products, to treat their employees equitably, and to be truthful with their customers.26 In some cases, firms are even expected to provide training to unemployed workers, contribute to education and the arts, and help revitalize urban areas. Some organizations are noted for their social positions. Firms such as Coca-Cola, UPS, and Johnson & Organizational Theory 7-14 Johnson recently earned high marks for social responsibility, whereas Bridgestone and Philip Morris were at the bottom of the list.27 At the global level, environmental concerns have become a major social responsibility issue. Issues such as the depletion of natural resources, pollution of various forms, disposal of toxic wastes, and global warming are commonly discussed areas of concern. Fundamentally, organizations must either behave in a manner that is consistent with what is believed to be sound environmental practice or risk increased and costly regulation from governments. Some organizations practice values-based management, a system whereby organizational decisions are based on a set of established B organizational values. A values-based approach also has implications for ethical decision-making. E Ultimately, these values reflect the culture of the organization N and the principles it holds dear. N E T The degree to which social responsibility is a relevant concern is widely debated, however. There is a second perspective that should beTconsidered, the social , obligation perspective. This view suggests that organizations should only be required to meet their economic and social responsibilities. As such, many economists, however, including such notables as Adam Smith B and Milton Friedman, have argued that social responsibility should not be part ofA management’s decisionmaking process. Friedman has maintained that business organizations functions R best when it concentrates on maximizing returns by producing goods and services within society’s legal restrictions. According to Friedman,Bcorporations should be A concerned only with the legal pursuit of profits and let shareholders address any priorities they might have on an individual basis. R social responsiveness the perspective that organizations must adapt to changing environmental conditions and decisions should be made promote positive social change values-based management a system whereby organizational decisions are based on a set of established organizational values social obligation the perspective that business organizations should only be required to meet their economic and social responsibilities A Debates between the social obligation and social responsibility perspectives often delve into philosophical arguments. As an example, the social obligation view 2 given.” As such, an suggests that rights to property ownership are natural or “God individual owner or a group of owners (i.e., shareholders)8have the inherent right to pursue profit as long as it is pursued in a legal manner. 8 Proponents of the social obligation view tend to emphasize the idea that organizations should not harm 2 society, not the idea that organizations should seek to advance society in a certain T direction. S In contrast, according to the social responsibility view, individual property rights may be seen as granted by a society as a means of advancing social welfare for the entire society. Following this view, managers have a responsibility to direct the organization so that it furthers society’s objectives. It should be noted, however, that these philosophical viewpoints are simplified herein. Contrary to the social obligation perspective, advocates of the social responsibility view emphasize the Organizational Theory 7-15 notion that organizations should actively seek to advance certain societal goals. Delving deeper into this debate is beyond the scope of this text. From a pragmatic perspective, however, even if one accepts the social obligation view, one could argue that organizations should act in a socially responsible manner. There are two primary reasons why. First, not behaving in a socially responsible manner can increase the likelihood of more costly government regulation. Historically, a number of government regulations over business operations have been enacted because some firms refused to act in a socially responsible manner. Had some organizations not damaged the environment, sold unsafe products, or engaged in discrimination or misleading advertising—even when no laws were broken—legislation in these areas would not have been necessary. Government regulation is always possible when companies operate in a manner contrary to society’s interests. Second, stakeholders affected by an organization’s social responsibility stance—most notably customers—are also those who must choose whether or not to purchase its goods or services. Prospective customers have become more interested in learning about a company’s social and philanthropic activities before making purchase decisions. The social responsibility debate aside, many executives—especially those in large firms— have concluded that their organizations must at least appear to be socially responsible or face the wrath of angry consumers. As such, they are concerned not only about the actual behavior of the firm, but also about how it is perceived. Evidence suggests that consumers want the firms that produce the products and services they buy not only to support public initiatives, but also to uphold the same values in terms of the day-to-day decisions of running the company.28 The line between social responsibility and managerial ethics can be difficult to draw, as what Management Focus on Ethics A Memory Device for Making Ethical Decisions Most people believe it is important that ethics take on a conscious, deliberate role in business decision making. In a nutshell, the issue of ethics boils down to asking yourself, “What price am I willing to pay for this decision, and can I live with that price?” This process can be helped by defining each letter of the word ethics. EB= EXPERIENCE. The values we carry with us into adulthood, and into business, are those that were E modeled to us, usually by a parent, teacher, or some other N significant adult. How people behave and the decisions N they make speak much louder and are more convincing than E what they say. T T = TRAINING. Training means training yourself to T the question of ethics fresh in your mind deliberately. keep , H = HINDSIGHT. Success leaves clues that we need to tap into in order to help us make that tough decision. B What if the problem you face was the problem of the A you admire most in life? What would he/she do? person R IB = INTUITION. What does your “gut” tell you is the right thing to do? Some call it conscience, or insight. A How do you know when you’ve gone against your R You feel guilt, shame, remorse, have a restless, “gut”? A sleepless night, etc. Now the decision is what to do about it? 2 C = COMPANY. How will your decision affect the 8 company, the people who work with and/or for you, 8 your customers and your family? No matter how big or small 2 your decision is, it affects other people in your life. T S = SELF ESTEEM. The greatest ethical decision is one S builds one’s self-esteem through the accomplishment that of goals based on how these goals positively impact those around you. Sources: Adapted from Frank Bucaro, “Ethical Considerations in Business,” Manage, August/September 2000, p. 14; and Alice Gaudine and Linda Thorne, “Emotion and Ethical Decision Making in Organizations,” Journal of Business Ethics, 1 May 2001, pp. 175–187. Organizational Theory 7-16 may be considered by some to be socially irresponsible firm behavior may be a direct result of unethical managerial decision-making. Nonetheless, while the debate over social responsibility continues, few would argue that managers should not behave ethically. However, what is morally right or wrong continues to be a topic of debate, especially when firms operate across borders where ethical standards can vary considerably. In the U.S., for example, bribes to government officials to secure favorable treatment would be considered unethical. In a number of other countries—especially those with developing economies—small “cash tips” are an accepted means of transacting business and may even be considered an integral part of an underpaid government official’s compensation. The notion of social responsibility can be difficult to put into practice. By definition, a firm that is socially responsible is one that is able to generate both profits and societal benefits. However, exactly what is good B demands for high employment and the production of for society is not always clear.29 For example, society’s desired goods and services must be balanced against E the pollution and industrial wastes that may be generated by manufacturing operations. The decisions made to balance these concerns can be quite difficult to make. N N become increasingly concerned about trade deficits Many consumers and activists in the United States have E with other nations and job losses that occur when an organization moves a production facility abroad or a retailer 30 T of American firms have closed production facilities in stocks its shelves with imported products. A number the United States and opened new ones in Mexico, T China, India, and other countries where labor costs are 31 substantially lower. In 2003, China and Mexico accounted for almost one quarter of imported apparel in the , U.S., followed by Honduras, Bangledesh, and El Salvador. With the expiration of world garment quotas in 2005, China’s lead is expected to increase.32 Analysts also suggest that differences in wages could spark increased B technical fields, such as architects, accountants, and global outsourcing in a broad array of professional and A even attorneys.33 R Although outsourcing usually does not create legal concerns for an organization, many organizations have B become more sensitive to this issue. In 2004, for example, E-Loan announced that customers would be given A a choice about whether loan applications will be processed in Delhi or Dallas, with the latter taking as much 34 R their own decisions by balancing their concerns for as two days longer. Hence, E-Loan customers can make speed and outsourcing. A 2 8 In many respects, an organization is defined8by its culture, the shared values and beliefs held by its 2 its culture must be aligned with other characteristics members. For an organization to be effective, of the organization, including the strategy. It T is possible for leaders to shape the culture within an organization, but this process can be difficult.S Summary The culture of an organization is likely to include values or expectations concerning both managerial ethics and social responsibility. Ethics can be viewed from a variety of perspectives and is a key component in organizational decision-making. Although the extent to which social responsibility should be a concern for organizations is often debated, acting in a social responsible manner is generally in the organization’s best interest. Organizational Theory 7-17 Review Questions & Exercises 1. What is the difference between a national culture and an organizational culture? Are the two related? Explain. 2. What are four categories of organizational culture? Which of the four is best? Explain. 3. What is the difference between social responsibility and managerial ethics? Explain. 4. Could you argue that organizations should act in a socially responsible manner even if their leaders do not accept the notion that firms have social responsibilities? B E N N Glossary E • Culture: The commonly held values and beliefs of a particular group of people. T • Cultural Strength: The extent to whichTorganizational members agree about the importance of certain values. , • Ethical Relativism: The idea that ethics is based on accepted norms in a culture. • Integrative Social Contracts View of Ethics: Perspective suggesting that decisions should be A based on existing norms of behavior, including cultural, community, or industry factors. • • • • • B R B Justice View of Ethics: Perspective suggesting that all decisions will be made in accordance with pre-established rules or guidelines. A R Managerial Ethics: An individual’s responsibility to make business decisions that are legal, A honest, moral, and fair. Religious View of Ethics: Perspective that ethical dilemmas should be evaluated by considering 2 personal or religious convictions. 8 Rights View of Ethics: Perspective that 8 evaluates organizational decisions on the extent to which they protect basic individual rights. 2 Self-Interest View of Ethics: PerspectiveTsuggesting that benefits of the decision-maker(s) should be the primary considerations when facedSwith an ethical dilemma. • Social Obligation: The perspective that business organizations should only be required to meet their economic and social responsibilities. • Social Responsibility: The expectation that business firms should serve both society and the financial interests of shareholders. Organizational Theory 7-18 • Social Responsiveness: The perspective that organizations must adapt to changing environmental conditions and decisions should be made promote positive social change. • Utilitarian View of Ethics: Perspective suggesting that anticipated outcomes and consequences should be the only considerations when evaluating an ethical dilemma • Values-Based management: A system whereby organizational decisions are based on a set of established organizational values. (Endnotes) B 1. E. Weitz and Y. Shenhav, “A Longitudial Analysis of Technical and Organizational Uncertainty in Management Theory,” E Organization Studies 21 (2000): 243–265. 2. W.J. Duncan, “Organizational Culture: ‘Getting a Fix’ on an Elusive Concept,” Academy of Management Executive 3 (1989): N 229-236. 3. M. Weber, The Theory of Social and Economic Organization (Englewood Cliffs, NY: Prentice-Hall, 1947). 4. 5. N E T W.G. Ouchi, Theory Z: How American Business Can Meet the Japanese Challenge (Reading, MA: Addison-Wesley, 1981). T E.H. Schein, “Organizational Culture,” American Psychologist 45 (1990): 109-119. , 6. M. J. Rouse and U. S. Daellenbach, “Rethinking Research Methods for the Resource-Based Perspective: Isolating Sources of Sustainable Competitive Advantage,” Strategic Management Journal 20 (1999): 487–494. 7. E. H. Schein, “The Role of the Founder in Creating Organizational Culture,” Organizational Dynamics 12 (Summer 1983): 14. 8. 9. 10. 11. B A J. F. Love, McDonald’s: Behind the Golden Arches (New York: R Bantam Press, 1995). T.E. Deal and A.A. Kennedy, Corporate Cultures: The RitesB and Rituals of Corporate Life (Reading, MA: Addison-Wesley, 1982). A G.A. Yukl, Leadership in organizations ( Upper Saddle River, NJ: Prentice-Hall, 2002) R B. Arogyaswamy and C.M. Byles, “Organizational Culture: Internal and External Fits,” Journal of Management 13 (1987): 647A 659. 12. E. H. Schein, Organizational Culture and Leadership (San Francisco: Jossey-Bass, 1985) p. 30. 2 and Fall of the Intelligent Organization,” Industry Week, 78 March 1994, pp. 16–21; D. Lawrence, Jr., “The New Social Contract Between Employers and Employees,” Employee Benefits Journal 8 19, no. 1 (1994): 21–24. M. Driver, “Learning and Leadership in Organizations: Toward 2 Complementary Communities of Practice,” Management Learning 33 (2002): 96–126. T L. Hayes, “Gerstner Is Struggling as He Tries to Change Ingrained S IBM Culture,” The Wall Street Journal, 13 May 1994, pp. A1, 13. D. Tosti and S. Jackson, “Alignment: How It Works and Why It Matters,” Training 31 (April 1994): 58–64; T. Brown, “The Rise 14. 15. A8. 16. Pringle et al., Managing Organizations: Functions and Behaviors, p. 309. 17. E. H. Schein, Organizational Culture and Leadership (San Francisco: Jossey-Bass, 1985) 18. T. Thomas, J.R. Schermerhorn, Jr., and J.W. Dienhart, “Strategic Leadership of Ethical Behavior in Business,” Academy of Management Executive 18(2) (2004): 56-66. Organizational Theory 7-19 19. E. Soule, “Managerial Moral Strategies—In Search of a Few Good Principles,” Academy of Management Review 27 (2002): 114-124. 20. G. R. Weaver and B. R. Agle, “Religiosity and Ethical Behavior in Organizations: A Symbolic Interactionist Perspective,” Academy of Management Review 27 (2002): 77–97. 21. D.J. Fritzsche and H. Becker, “Linking Management Behavior to Ethical Philosophy—An Empirical Investigation,” Academy of Management Journal 27 (1984): 166-175. 22. C. Bialik, “Will the Music Industry Sue Your Kid?” Wall Street Journal, 10 September 2003, pp. D1,D12. 23. M. Mangalindan, “For Bulk E-Mailer, Pestering Millions Offers Path to Profit,” Wall Street Journal, 13 November 2002, pp. A1, A17; B. Morrissey, “Spam Cost Corporate America $9B in 2002,” 7 January 2003, Study by Ferris Research reprinted at www. cyberatlas.com. B 24. B.E. Ashforth and V. Anand, “The Normalization of Corruption in Organizations,” In R.M. Kramer and B.M. Staw (Eds.), Research in Organizational Behavior 25 (2003):1-52. Amsterdam: E Elsevier Publishing. 25. L.K. Treviño and M.E. Brown, “Managing to be Ethical: N Debunking Five Business Ethics Myths,” Academy of Management Executive 18(2) (2004): 69-81. 26. 27. N M. J. Verkerk, J. DeLeede, and A. H. J. Nijhof, “From Responsible Management to Responsible Organizations: The Democratic E Principle for Managing Organizational Ethics,” Business and Society Review 106 (2001): 353–378; A. E. Randel, “The T A Cross-Level Framework,” Business and Society 41 (2002): Maintenance of an Organization’s Socially Responsible Practice: 61–83. T R. Alsop, “Survey Rates Companies’ Reputations and Many , Are Found Wanting.” Wall Street Journal, 7 February 2001, pp. B1, B6. 28. R. Alsop, “Perils of Corporate Philanthropy,” Wall Street Journal, B 16 January 2002, pp. B1, B4; A. Maitland, “No Hiding Place For the Irresponsible Business,” Financial Times, 29 September 2003, Special Report pp. 1-2. A R Outcomes,” Administrative Science Quarterly 46 (2001): 229–273. B C. Ansberry and T. Aeppel, “Surviving the Onslaught,” Wall Street Journal, 6 October 2003, pp. B1,B6. A J. Dean, “Long a Low-Tech Power, China Sets Its Sight on Chip Making,” Wall Street Journal, 17 February 2004, pp. A1,A16; D. R Wall Street Journal, 20 February 2004, pp. A1,A6; D. Luhnow, Morse, “In North Carolina, Furniture Makers Try to Stay Alive,” “As Jobs Move East, Planst in Mexico Retool to Compete,”A Wall Street Journal, 5 March 2004, pp. A1,A8; J. Millman, “Blueprint 29. R. J. Ely and D. A. Thomas, “Cultural Diversity at Work: The Effects of Diversity Perspectives on Workgroup Processes and 30. 31. for Outsourcing,´Wall Street Journal, 3 March 2004, pp. B1,B4. 32. R. Buckman, “Apparel’s Loose Thread,” Wall Street Journal, 22 March 2004, pp. B1,B8. 33. 34. 35. 36. 2 K. Maher, “Next on the Outsourcing List,” Wall Street Journal, 8 23 March 2004, pp. B1,B8. J. Drucker and K. Brown, “Latest Wrinkle in Jobs Fight: 8 Letting Customers Choose Where Their Work Is Done,” Wall Street Journal, 9 March 2004, pp. B1,B3. 2 SAS web page, www.sas.com, accessed 6/23/04. T S and Effectiveness,” Organization Science 6 (2001): 204-223. Based on D.R. Denison and A.K. Mishra, “Organizational Culture 37. Based on L.K. Treviño and M.E. Brown, “Managing to be Ethical: Debunking Five Business Ethics Myths,” Academy of Management Executive 18(2) (2004): 69-81. Organizational Theory 7-20 Global Dynamics Chapter Outline: 12-1 Culture 12-2 Global Influences on the External Environment 12-3 Global Influences on Organizationial Mission and Direction 12-4 Global Corporate Strategy 12-5 GLobal Indluences on Business Strategy 12-6 Global Influences on the Individual Manager Summary Review Questions Glossary Endnotes Key Terms comparative advantage cultural relativism cultural universalism customization B E N N E T T , B A R B A R A 2 8 8 2 T S international franchising international licensing self-reference criterion standardization 12 Most large organizations in the developed world have shifted from an emphasis on resources, products and customers in their home countries to one that seeks to produce and distribute products worldwide. This global transformation has altered how organizations function in a variety of ways. Today more than ever, an understanding of a global orientation—including the acquisition of resources, production of goods and services, and marketing to customers across borders—is essential to organizational success. This understanding begins with the concept of culture, a concept applied to organizations in a previous chapter. 12-1 Culture Each of the world’s nations has its own distinctive culture, its generally accepted values, traditions, and patterns of behavior.1 With many organizations functioning in multiple countries and conducting business across borders, B the need to understand the influence of national culture on organizational processes has never been more important. The concept of a national culture should beEdistinguished from that of a corporate or organizational N culture, however. A national culture refers to commonalities among individuals within a country, whereas a N organization. In this chapter, the word culture refers corporate culture refers to commonalities within a single to a national culture. E T Geert Hofstede developed a popular approach for comparing and contrasting national cultures in 1980.2 His Tover 70 countries. Although it has been both refined and work is based on over 116,000 surveys of employees in , excellent starting point for discussing national culture.3 critiqued ever since, Hofstede’s framework provides an According to Hofstede, cultures can be classified along five dimensions. B The first dimension, power-distance, refers to the degree in which individuals with less power expect and accept A unequal distributions of power within a culture. Cultures like Mexico with high power-distance emphasize hierarchies and centralization, whereas cultures withRlow power-distance emphasize flatter hierarchies and a B more equal distribution of power. A The second dimension, individualism, refers to theRdegree to which one’s self and immediate family are emphasized over the society at large. High individualism A cultures such as the Australia and the United States value freedom, individualized rewards, and privacy, whereas low individualism cultures emphasize collectivism, tradition, experience, and group harmony. 2 8 The third dimension, masculinity, refers to the degree to which a culture emphasizes the traditional masculine 8 cultures such as Japan value these roles, whereas low roles of assertiveness and competition. High masculinity 2 support. masculinity cultures emphasize cooperation and family T The fourth dimension, uncertainty avoidance, refers to the degree to which individuals within a culture seek to S avoid uncertain events. Cultures high in uncertainty avoidance like France emphasize formality and structure, whereas those low in uncertainty avoidance are more informal and relaxed. A fifth dimension, long-term or short-term orientation, was a later addition to the framework.4 Cultures with a long-term orientation such as Korea prioritize values focusing on the future such as frugality, persistence, and hard work. Those with a short-term orientation emphasize such values as stability and respect for tradition. Organizational Theory 12-2 Table 12-1 lists culture dimension scores for eleven select nations and one nation cluster.5 Following Hofstede’s framework, distinct differences can be seen among nations. The United States, for example, is the most individualistic nation. As such, factors such as employee personal time, freedom and challenge in job assignments, and salary level (as opposed to working condition) are relatively more important than in other nations. In contrast, Mexico—the United States’ neighbor to the south, scored the lowest in individualism among the select twelve in the table. Japan’s high scores in masculinity and uncertainty avoidance are also noteworthy, as is Israel’s low score on power distance. B E N N E T T , In a similar vein, Ronen and Shenkar B proposed eight country clusters A based on cultural characteristics: R Anglo, Germanic, Nordic, Near Eastern, Arab, Far Eastern, Latin American, and Latin European. The Anglo cluster, for example, includes the United States, Canada, Australia, the United Kingdom, Ireland, New B Zealand, and South Africa. Ronen and Shenkar note that cultural values tend to change as a country developed A economically and technologically, and are also infuenced by language, religion, and geography.6 R Other attempts to understand and categorize national cultures have also been made. Trompenaars, for example, A surveyed over 15,000 managers in 28 countries over a ten-year period and proposed a five-dimensional framework.7 In many respects, there are substantial similarities across approaches, however. 2 The work of Hofstede and others demonstrates the importance of taking culture into consideration, especially 8 when decisions concern organizations or divisions across borders. In too many instances, these differences are 8 avoided or simply ignored. The unconscious reference to one’s own cultural values as a standard of judgment— 2 the self-reference criterion—has been suggested as the cause of many business problems when multiple T become so accustomed to their own ways of looking cultures are involved. Individuals, regardless of culture, at the world that they often have difficulty comprehending other perspectives. When organizations function S in multiple countries, however, they should adjust to the culture of a host country to improve prospects for success.8 Some adjustments are product related, such as KFC’s decision to sell a spicier version of its chicken in China than it sells in the United States. The self-reference criterion presents other problems related to organizational culture as well. Managers often believe that the leadership styles and organizational culture that are effective in their home country should work elsewhere. Because each nation has its own unique culture, organizational values and norms must be tailored Organizational Theory 12-3 to fit the unique culture of each country in which the organization operates, at least to some extent. The need to customize values and norms can create special challenges when firms from different countries become partners or even merge their organizations. There is also considerable debate on precisely how much customization is appropriate when mergers occur. Whereas the self-reference criterion refers to the subconscious realm, a distinction should be made between the conscious perspectives of cultural universalism and cultural relativism.9 Cultural universalism holds that there is a single best culture—either in theory or in practice—and all cultures should be evaluated on the basis of the superior culture’s characteristics. For example, a proponent of cultural universalism would hold that specified levels B of power distance, individualism, masculinity, and uncertainty avoidance would comprise the best E possible combination. These specified levels may be embodied within a certain N cultures would be culture, or they may represent a theoretical standard. Other N one. judged on the proximity of their scores to those of the superior E In contrast, cultural relativism holds that no single culture can be judged as inherently superior to any other culture. This perspectiveTsuggests that managers T when functioning should not attempt to enforce culturally sensitive standards in other nations. Instead, management styles should be, tailored to the specific characteristics of each culture. self-reference criterion the unconscious reference to one’s own cultural values as a standard of judgment cultural universalism the idea that that there is a single best culture—either in theory or in practice— and all cultures should be evaluated on the basis of the superior culture’s characteristics cultural relativism the idea that no culture is inherently superior to any other B as opposite ends of a Cultural universalism and cultural relativism can be viewed continuum. As such, individual perspectives may lean substantially in one direction A or the other, but most would comprise some sort of mixR of the two extremes, at least within a specified range. Hence, individual differences in perspectives on B culture are not always easy to categorize or quantify. A In some respects, cultural differences appear to be diminishing as familiarity R with other cultures increases. Indeed, the Internet explosion is in part responsible A for some degree of cultural convergence in recent years. As individuals become more comfortable with other parts of the world, they become less resistant to 2 and communication other cultures. Although the introduction of high-speed travel coupled with the expansion of the Internet has led to a convergence of social and 8 other practices across nations, substantial differences among nations still remain.10 8 Rather, the differences in culture that can affect organizations operating across 2 borders will likely remain important in the upcoming years. T It should be noted that global effects on culture are not limited S to national culture, but also include organizational culture. In many respects, an organization’s culture can be viewed as a subset of the national culture. Operating outside one’s own country can create leadership challenges and make it more difficult to maintain a strong organizational culture. For example, leaders of some nations resist innovation and radical new approaches to conducting business, whereas others welcome such change. Such national tendencies often become a part of the culture of the organization in those countries. Organizational Theory 12-4 Career Point Working Abroad Would you be excited about an international career assignment or would you rather leave the organization? As global business expansion continues, more managers will have the opportunity to work in other countries and experience other cultures. In addition to opening career doors within the organization, accepting an international assignment can also provide a rich cultural experience for a manager and his or her family. There are several things you can do to prepare for an international assignment. First, seek employment with a global organization and express your interest in working abroad. There is a need for talented, energetic professionals willing to live and work abroad. Finding the right company is the best place to start. B E courses in a language is one way to learn, but Second, study a foreign language. Taking college N programs designed to teach foreign languages. there are also numerous audio and computer-based N In general, an organization will not require language capability for an assignment and will provide “immersion” training to facilitate the survival E skills within a given country. The more background one has prior to this training, however, the better. T T Discuss your plans with your spouse before you Finally, consider your personal and family goals. pursue an international assignment. Your spouse, may also need employment and many organizations are willing to assist spouses in obtaining a rewarding experience abroad as well. B A 12-1a Influence of Religion R B factors as family values, educational institution, Cultures are comprised of and influenced by such and religious orientation. It can be argued that Areligion is the greatest of these factors because it greatly influences many of the others. Most religions R attempt to shape the morals and values of their followers, but there can be differences. There are a number of religion orientations represented in A the world, but five appear to have the greatest influence on world cultures (see table 12-2). A cursory understanding of each of these is essential to comprehending differences in world cultures. 2 8 8 2 T S Source: Based on information available at www.adherents.com Accessed Oct. 2010 Organizational Theory 12-5 Christianity has had the greatest influence in the Americas and Western Europe, although it is growing in other parts of the world as well, including Eastern Europe, Africa, and China. Christianity dates back about 2000 years, although it grew out of Judiasm, an older faith. Christians follow the teachings of Jesus Christ and as such strive to live in peace, respect individual rights and responsibilities, and treat others as they would like to be treated. Christians comprise about 31 percent of the world’s population. Islam had had its greatest influence in the Middle East and Asia with the largest number of Muslims (i.e., practitioners of Islam) living in the populous Asian countries of Indonesia, Pakistan, Bangladesh, and India. Islam claims B about 22 percent of the world’s population. Although it has roots in Judaism E prophet Muhammad and Christianity, Islam dates back to the teachings of the N around the year 600 A.D. Like Christianity, Islam teaches mutual respect and moral purity. However, Muslim practices such asNthe required five daily prayers and modest dress for women tend to transcendEother cultural influences more than the practices of many other religions. Hence, where Muslims comprise a high percentage of a nation’s population, its influence is T usually more prominent in daily life, customs, and even business dealings. T , percent of the world’s population, although most are Hinduism claims about 16 situated in the Indian subcontinent. Hinduism can be traced back about 4,000 years. In general, HindusBbelieve that one’s karma—the spiritual progression of the soul—is influenced by how one lives. Through reincarnation, individuals can A make the soul more perfect with each life and eventually attain nirvana, or spiritual R perfection. Hinduism supports the caste system whereby individuals are born into B that cannot be readily changed. Because Hindus place a clearly defined social class A do not consume beef and many are vegetarians. the cow in high esteem, most R Buddhists comprise about six percent of the world’s population, mostly in parts of Asia. Buddhism was founded A by Siddhartha Guatama in about 600 B.C. It’s followers believe that suffering emanates from the pursuit of pleasure, which can be suppressed by following the Noble Eightfold Path: right understanding, right thought, 2 right mindfulness, and right concentration. Although right speech, right action, right livelihood, right efforts, 8 the caste system. Buddhism has its roots in Hinduism, it does not support 8 About 13 percent of the world’s population follows one of many other religions. These religions 2 can be very important in certain geographical locations where they might be prominent, such as the domination of the nation of T Israel by followers of Judaism. Hence, the influence of Sshould not necessarily be discounted. religions represented in this category The non-religious category is often ignored in discussions of world religion because it does not represent a religious affiliation. This group can have a strong influence on culture, however, and includes approximately 13 percent of the world’s population. This is a very diverse category, including individuals who deny the existence of any god (i.e., atheists), those who are skeptical but undecided (i.e., agnostics), and those who are simply nonreligious. It should be noted that atheists represent less than one percent of this category, which is Organizational Theory 12-6 characterized by a general passivity towards religion. Individuals in the non-religious category often argue for high tolerance and diversity in general. In many cases, they seek to deemphasize the influence of a religion on culture. About 7.5 percent of Americans and 15 percent of Australians identify with this group. The influence of religion on organizational practice is often mediated by a nation’s culture. In the West, for example, Sunday—a preferred day of worship for Christians—is often considered to be a “day off” in many lines of employment. In contrast, offices in much of the Middle East are closed on Friday, a preferred day of worship for many Muslims. Most organizations function around these culturally-defined workweeks without regard to the religious preference of the managers or workers. B 12-2 Global Influences on the External EEnvironment N Differences in economies across borders can influence organizations in a number of ways. Most notably, these N differences include economic and related concerns, as well as differences in social changes and trends. Each of E these areas is discussed in greater detail. T T 12-2a The Economy, Regulations, and Protectionism , Organizations functioning across borders must account for differences in legal systems. Bribery, for example, is an accepted practice in some countries but outlawed B in others. In the United States, the Foreign Corrupts Practices Act of 1977 forbade any bribery involvingArepresentatives of any American business operating in another country even if the practice is condoned there. As a result, American managers cannot engage in bribery R when operating in less developed nations where “financial incentives” are often provided as a matter of course. B The economic environment also varies substantially A across borders, especially between developing and emerging nations, where the cost of borrowing can beR as high as 100 percent annually. These high interest rates are often accompanied and influenced by excessive rates A of inflation, as was the case in parts of Latin America in the 1990s. Routine decisions such as pricing and costing become almost impossible to make under such conditions. High and unpredictable inflation rates also cause the prices of goods and services to rise and become 2 less competitive in international trade. 8 The effect of global economic forces on organizations 8 is affected by political influences, especially as they relate to regulations of business activities and restrictions on global trade. The period from the 1940s to the late 2 1980s was marked by increased trade protection in most countries. Many protected their industries by imposing T tariffs, import duties, and other restrictions. Import duties in some developing Latin American countries even exceeded 100 percent.11 However, this trend was alsoSpervasive in the developed world. Countries in Europe and Asia—and even the United States—imposed import fees on a variety of products, including food, steel, and cars. In the 1980s, the United States also convinced Japanese manufacturers to voluntarily restrict exports of automobiles to the U.S. in lieu of a tariff. Interestingly, this particular tariff may be largely responsible for Japanese automobile manufacturers establishing a large number of production facilities in the United States, thereby blurring the concept of the “foreign car” among American consumers. Organizational Theory 12-7 During this time, however, leaders from many nations recognized that all countries would likely benefit if trade barriers could be reduced across the board. After the end of World War II, 23 countries entered into the cooperative General Agreement on Tariffs and Trade (GATT), working to relax quota and import license requirements, introduce fairer customs evaluation methods, establish a common mechanism to resolve trade disputes. The World Trade Organization (WTO) and the International Monetary Fund (IMF) were also established at this time. By 1994, GATT membership had expanded to more than 110 nations when it was replaced by a new WTO, viewed more as an organization than as a treaty. Today the WTO contains 147 members and continues to negotiate global trade agreements, although member nations must ratify the agreements before they become effective. A major shift in U.S. policy occurred in the late 1970s and the 1980s to reduce business regulations, eliminating B trucking, and banking. By 1990, a reversal of trade a number of legal constraints in such industries as airlines, E protectionism and strong governmental influence in business operations began to take place in the United States and many parts of the world. In the U.S., new economic N policies reduced governmental influence in business operations by deregulating certain industries, lowering Ncorporate taxes, and relaxing rules against mergers and acquisitions. Although this trend has continued into the twenty-first century, corporate scandals and concerns E over outsourcing sparked new calls for business regulation in a number of areas. T The move toward free trade was also seen in Europe,Twhere a number of nations banded together to develop a trade-free European Community. Today, Europe is fast , becoming a single market of 350 million consumers. The European Union represents the largest trading bloc on earth, accounting for more than 40 percent of the world’s gross domestic product (GDP).12 Meanwhile, the United States, Canada, and Mexico established the B its own strategic trading bloc. North American Free Trade Agreement (NAFTA) to create A Many analysts believe that global business soon will be divided into several such blocs, each providing preferred R trading status to other nations within the bloc. Such blocs have strengthened business relationships in North B America (NAFTA), Europe (EU), Latin America, Africa, and Southeast Asia. The notion of a trading bloc can be viewed as a compromise between the protectionist A model on one end of the spectrum and “totally free world trade” on the other. Because a bloc includes only a R subset of the world’s nations, and cultural and political differences among nations in a bloc are usually less substantial than exist among the world’s nations as a whole, A the trading bloc concept allows a nation to pursue free trade with its neighbors without engaging in a degree of conflict that is more likely to occur on a global scale. 2 This trend toward less regulation has even extended 8 to the former communist countries. As the nations of the former Soviet bloc in Eastern Europe overturned their8 governments, they began to open markets and to invite foreign investment.13 In addition, China officially remains 2 a communist nation, but its economic development policies have taken a distinctively free market approach since the late 1990s. Nonetheless, regulation—or the T lack thereof—always seems to be a key political and business issue, most recently in copyrighted products S distributed electronically such as software, music, and movies.14 It should be noted that trade restrictions will always exist to some extent, especially in politically sensitive areas. For example, the United States and other Western countries have banned the export of advanced technology in some circumstances. The United States prohibits the export of certain electronic, nuclear, and defense-related products to many countries, particularly those believed to be involved in international terrorism. Many of these restrictions were revised and strengthened following the terrorist attacks of September 11, 2001.15 Organizational Theory 12-8 12-2b Global Social Forces Changes in social forces occur constantly throughout the world but can take different forms in different nations. Some social changes may occur in many or all nations, but at different times. For example, the pastime of watching television took hold in the United States in the 1950s. Because of its link to technological advances, however, it did not spread to emerging nations for several decades. Other social forces, such as preferences for clothing styles or particular sporting activities, show varying amounts of consistency across borders. Managers in progressive organizations recognize that cross-cultural differences in norms and values require modifications in their structure and activities. Consider, for example, that business negotiations may take months or even years in countries such as Egypt, China, Mexico, and much of Latin America. Until personal B friendships and trust develop between the parties, negotiators are unwilling to commit themselves to major 16 business transactions. In addition, Japanese business E executives invite and even expect their clients or suppliers to interact socially with them after working hours, for N up to three or four hours an evening, several times a week. Westerners who decline to attend such social gatherings N regularly may be unsuccessful in their negotiations because these social settings create a foundation for serious E business relationships. Managers of American organizations should rememberTthat their firms have exceptionally high visibility because T of their American origins. As such, citizens of other countries may disrupt the business operations of American corporations as a form of anti-American activity. For ,example, only two months after Euro Disneyland opened in France, hundreds of French farmers blocked entrances to the theme park with their tractors to express their displeasure with cuts in European Community farm subsidies that had been encouraged by the United States, B even though 90 percent of the food sold at the park was produced in France.17 A R 12-2c Technological Change in the Global Environment B Changes in technology have had pronounced effectsAfor organizations operating across borders, especially R been implemented differs markedly across nations. In when the extent to which technological advances have A such as access to e-mail, cellular telephone service, developed countries, for example, technological amenities and reliable scheduled internal transportation services are expected as a matter of course. In less developed nations, however, Internet and cellular telephone service 2 may be available only in certain areas and internal bus or train transportation may not be reliable. These differences must be taken into account when conducting 8 business abroad. 8 The effect of technology on global business can viewed 2 from an economic development perspective. For years, manufacturers in technologically advanced nations established operations in developing countries to minimize T production and other costs. These expansions have generally been successful for both manufactures and the S societies where they expand because they bring capital, workforce training and development, and technology to the host country. In many cases, this interaction has benefited the developing country over the long term, most notably in the cases of emerging nations such as Mexico, Brazil, India, and China.18 Leaders in developing nations have not always been pleased with this global business expansion, in part because anticipated economic and social benefits do not always materialize. In some cases, the expanding organization promises, but does not deliver specialized business development assistance, the establishment of research and Organizational Theory 12-9 development (R&D) facilities, and the hiring of locals in managerial and other professional positions.19 On-the-job training notwithstanding, the overall longterm contribution to the host country is sometimes questioned by leaders in the developing nations. 12-3 Global Influences on Organizational Mission and Direction An organization’s mission may be closely intertwined with the global environment Bresources from abroad. in a number of ways. Most organizations require inputs and This phenomenon is most pervasive in organizations whose headquarters are E located in a small or less developed nation. Consider, forNexample, that virtually all of Japan’s industries would grind to a halt if imports of raw materials from other N nations ceased, because Japan is a small island nation and its natural resources are E quite limited. T Organizational mission and global involvement are alsoTconnected through the economic concept of comparative advantage, the idea that , certain products may be produced more cheaply or at a higher quality in particular countries due to advantages in labor costs or technology. Chinese manufacturers, for example, B have enjoyed some of the lowest global labor rates for unskilled or semi-skilled A production in recent years, resulting in increases in the outsourcing of production to facilities there. As skills rise in the rapidly emerging R nation, some companies have succeeded in extending this comparative advantage B to a number of technical skill areas as well. The annual salary for successful engineers A in China had risen to around $10,000 in 2002, a level well below their comparably skilled counterparts R in other parts of the world.20 comparative advvantage the idea that certain products may be produced more cheaply or at a higher quality in particular countries, due to advantages in labor costs or technology A Global involvement may also provide advantages to the firm not directly related to costs. For political reasons, a firm often establishes operations 2 in countries where a substantial proportion of sales are made. Doing so can also8provide managers with a critical understanding of local markets and customs. 12-4 Global Corporate Strategy 8 2 T S The most fundamental global strategic decision concerns the extent to which an organization will become engaged in activities outside of its host country. An organization may choose to be involved only in its domestic market, or it may compete abroad at the international, multinational, or global level. The use of these three terms to represent three different levels of involvement should not be confused with their relative interchangeability in everyday conversation. In Organizational Theory 12-10 general, large organizations are more likely to emphasize competition abroad, although small organizations can also be successful pursuing activities across borders.21 The most conservative means of moving outside the domestic market is to become involved on an international basis. Such organizations operate in various countries but limit their involvement to importing, exporting, licensing, or strategic alliances. Activity at this level can be beneficial to many organizations. Exporting alone can significantly benefit even a small company. International joint ventures—a form of strategic alliance involving cooperative arrangements between businesses across borders—may be desirable even when resources for a direct investment are available. For example, in 2001, GM launched a $333 million joint venture with Russian firm OAO Avtovaz to provide technological support to the struggling holdover from Soviet-era industry for engineering a stripped-down version of an SUV currently offered by the Russian carmaker. By engaging in B the joint venture, GM gains immediate access to the market but places its reputation on the line by putting its E weak automobile producer.22 “Chevy” name on a vehicle produced by a technologically N Organizations with global objectives may decide to invest N directly in facilities abroad. Due to the complexities associated with establishing operations across borders, however, strategic alliances may be particularly attractive E to firms seeking to expand their level of involvement. Organizations often possess market, regulatory, and other T knowledge about their domestic markets but may need to partner with companies abroad to gain access to this knowledge as it pertains to international markets. ATnumber of international strategic alliances can be seen , among automobile producers, including production facilities owned jointly by General Motors and Toyota or those owned jointly by Ford and Mazda. B Internal growth is usually both attractive and challenging when an organization expands outside its borders. In A 2003, for example, McDonald’s announced plans to expand its cadre of 566 stores in China by approximately R grown to about 900 eateries in China with plans for 100 annually. By that time, however, KFC had already an additional 200 units annually. McDonald’s slowerBgrowth resulted from its struggle to build a network of local suppliers, many of whom are the same ones it utilizes A in the United States, whereas KFC built a network of Chinese suppliers while aggressively adapting toRlocal tastes in an effort to speed up its growth efforts. Starbuck’s had fewer than 100 locations in 2003 and has found it difficult to convert a nation of tea drinkers to A specialty coffee.23 International strategic alliances provide a number of advantages to an organization. They can provide entry into a global market, access to the partner’s knowledge about the foreign market, and risk sharing with the partner. They can work effectively when partners can learn from each other and when both partners share common strategic goals 2 8 8 2 T S McDonald’s struggled with slow growth in China because of the organizations problems in building a network of local suppliers. image © BrokenSphere / Wikimedia Commons Organizational Theory 12-11 but are not in direct competition. However, problems can arise from international joint ventures, including disputes and lack of trust over proprietary knowledge, cultural differences between firms, and disputes over ways to share the costs and revenues associated with the partnership. Other options are also available to a firm seeking an international presence. Under an international licensing agreement, a foreign licensee purchases the rights to produce a company’s products and/or use its technology in the licensee’s country for a negotiated fee structure. This arrangement is common among pharmaceutical firms. Drug producers in one nation typically allow producers in other nations to produce and market their products abroad.24 B E International franchising is a longer-term form of licensing in which a local franchisee pays a franchiser in another country for the right N to use the franchiser’s brand names, promotions, materials, and procedures.25NWhereas licensing is predominantly pursued by manufacturers, franchising is more commonly employed E in service industries, such as fast-food restaurants. T T of activity abroad, the If top managers are interested in a more substantial degree organization can become involved at the multinational level, , where the organization international licensing an arrangement whereby a foreign licensee purchases the rights to produce a company’s products and/ or use its technology in the licensee’s country for a negotiated fee structure international franchising a form of licensing in which a local franchisee pays a franchiser in another country for the right to use the franchiser’s brand names, promotions, materials, and procedures pursues direct investments in other countries, and their subsidiaries operate independently of one another. Colgate-Palmolive has attained a large worldwide B market share through its decentralized operations in a number of foreign markets. A R investments and Finally, some firms are globally involved, with direct interdependent subdivisions abroad. Global organizations B operate in multiple nations and view their markets from a global perspective, A often without giving primary consideration to national borders. R A Developing global Organizational pursue a global orientation for many reasons. markets can reduce per-unit production costs by increasing volume. A global strategy can extend the product life cycle of products whose 2 domestic markets may be declining, as U.S. cigarette manufacturers did in the 1990s. 8 Establishing facilities abroad can also enable an organization to benefit from comparative advantage, 8 the difference in resources among nations that provide certain production cost 2 tend to be produced advantages in a particular country. For example, athletic shoes most efficiently in parts of Asia where rubber is plentifulTand labor is less costly. A global orientation can also lessen risk because demandSand competitive factors tend to vary among nations. International growth is often pursued through expansion into emerging economies, those nations that have achieved enough development to warrant expansion but whose markets are not yet fully served. Although emerging economies such as China, South Africa, Mexico, and parts of Eastern Europe are attractive in Organizational Theory 12-12 many respects, poor infrastructure (e.g., telecommunications, highways, etc.), cumbersome government regulations, and workforce limitations can create great challenges for the organization considering expansion. 12-5 Global Influences on Business Strategy Global competition is complex and in many cases intense. There is no simple formula for developing and implementing successful business strategies across national borders. Having a global presence does not guarantee success. Organizations must B and expertise on a cultivate a global mindset whereby its members seek knowledge global scale and develop the ability to integrate it into attractive E courses of action.26 Organizations can convert global presence into global competitive advantage by N adapting to local market differences as needed, exploiting economies of scale N and scope that become available at the global level, tapping optimal locations for E activities and resources, and facilitating knowledge transfer across its global sites T 27 so that managers at each location can learn from the others. T Fundamentally, an organization has three choices when it, develops a competitive 28 strategy for a market abroad. First, it may pursue standardization whereby it markets the same product or service in all of its international markets. Second, it may B or services to meet pursue customization whereby it modifies its home products A an entirely different the needs of markets abroad. Finally, it may choose to develop set of products or services for its markets abroad. If oneRof the first two options is pursued, then the organization must determine whetherB the communication and promotional efforts should be standardized or customizedAas well. As a result, the organization has five options as depicted in figure 12-3. R A standardization a global strategic approach whereby the organization markets the same product or service in all of its international markets customization a global strategic approach whereby the organization modifies its product or service offering to meet the needs of all of its international markets 2 8 8 2 T S Organizational Theory 12-13 Best Practices Global Success at Yum Brands Yum Brands operates several well-known restaurant chains including KFC, Pizza Hut, Taco Bell, A&W All American Food Restaurants, and Long John Silver’s. In addition to operations in his home country, the United States, Yum Brands is heavily represented in China, Korea, and the United Kingdom. In fact, Yum operates over 500 KFC outlets in China and its brand is widely recognized, especially by young members of the Chinese population. What is the key to Yum’s global success? First, Yum seeks a balance between its strong American brand names and local tastes in the host country. For example, KFC’s chicken is a little spicier in China than in the United States. Pizza Hut offers different condiments for its pizzas in Australia. Americans traveling abroad will recognize theB products abroad, but will notice minor changes that fit well with local tastes. E N Second, Yum hires local managerial talent whenever possible. For example, British managers are N and Japanese managers are responsible for Pizza in charge of restaurants in the United Kingdom Hut outlets in Japan. In general, local managers E are able to recruit and motivate employees more effectively than expatriates from the home country. T They are also more familiar with local customs and preferences. T , B A The first approach is to standardize both the product/service and the means of communication with the customers. This is the least expensive approach R from a cost perspective and has been employed by soft drink and other beverage producers. OneBcan argue that consistency across borders is critical, citing examples such as Coca-Cola, whose emphasis on quality, brand recognition, and a small world A theme has been successful in a number of global markets. R A The second approach is to standardize the product/service, but customize communication. A powdered soup producer may distribute the same product in both Europe and the United States, although it may be marketed a...
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