Ethical Decision Making

Issues with Ethical Decision Making Businesses are primarily profit driven and, as such, seek to maximise profits and reduce costs in any way that they can. It is within this context that the concept of ingrained corporate ethics, especially when it comes to managerial activities, is brought into question since, at the end of the day, managers and corporate executives have the responsibility of ensuring the continued survival of the company.Advertising We will write a custom report sample on Ethical Decision Making specifically for you for only $16.05 $11/page Learn More Studies such as those by De Cremer, Dick, Tenbrunsel, Pillutla Murnighan (2011) help to emphasise this point by stating that since businesses are primarily profit driven entities which is seen in the case of Carroll’s pyramid wherein economic responsibilities form the base of the pyramid are the primary focus of all businesses today. Thus, when it comes to the importance business es place on the concept of corporate ethics, it can be seen that in the business decision matrix they consider it to be less than the need to be profitable. This is not to say that corporate ethics do not exist, far from it, ethical decisions are made by corporations all the time as seen in the case of Market Basket’s former CEO Arthur T. Demoulas who focused more on providing better salaries, benefits and profit sharing opportunities to employees rather than focus entirely on shareholder payouts. However, it should be noted that such actions are not a constant aspect of business decision making as seen in the case of GE’s former CEO Jeffrey Immelt wherein despite being given significant tax breaks for the company by the Obama administration in order to generate more jobs within the U.S. actually transferred a significant portion of the company’s manufacturing division outside of the U.S. instead. From a business operations standpoint, the actions of Immelt are within reason since manufacturing products in a far cheaper location simply makes good business sense, however, when taking into consideration the fact that the tax break given was to help generate local jobs the mere fact that he did the complete opposite questions the ethics behind the decision undertaken. The linkage between effective leadership, decision making and ethical management is supported by stewardship theory which states that managers need to â€Å"do the right thing† despite how such actions could potentially compromise the profitability of the company.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Under such a concept, the use of ethical training and existing ethics codes become the best way in order to ensure ethical actions among the employees of a company wherein the focus is on operating and managing a company in a way that benefits the local community which is in line with CSR (Corporate Social Responsibility) oriented business practices (Shelley, 2005). Under the perspective of stewardship theory, ensuring organisational decisions are made ethically is done through a business environment based approach wherein the internal culture of a company influences the manner in which business decisions are made ethically (Shelley, 2005). This internal culture is often brought about through the actions of the CEO and the upper management of a company wherein their actions and supportive behaviours reflect on the employees as a whole. For instance, when comparing the benefits, salaries and profit sharing of employees from Market Basket to those received by employees of Wal-Mart, it can be seen that there is a world of difference between the two wherein Market Basket employees are actually given a â€Å"living wage† and benefits that actually help them survive as compared to the tactics utilised by Wal-Mart. The reason this is being brought u p is due to the fact that the case of Market Basket shows that if there is sufficient will in the executive branch of the company, then it is possible to create organisational decisions that are done ethically instead of being for pure profit (i.e. low pay for Wal-Mart employees). This is where the theory of the firm/strategic leadership is applied which states that: CEOs have the capacity to influence how likely a company is to engage in the act of ethical decision making. Under this particular theoretical assumption, a well structured ethical code of conduct and ethical training will result in ethical actions by the company as a whole. The reason ethical actions are important within the context of operational management is due to the work of Groves, Vance Paik (2008) who stated that employees are not so dumb as to not realise when they are being subject to unethical decisions for the benefit of others (i.e. lower employee wages for higher shareholder returns for investors) and, a s such, respond accordingly to the situation (i.e. unethical decision making.Advertising We will write a custom report sample on Ethical Decision Making specifically for you for only $16.05 $11/page Learn More Thus, when examining both cases of Wal-Mart and Market Basket, it must be asked: â€Å"what organisation is mostly likely to produce employees that ascribe to ethical decision making?† The answer is immediately obvious given the statement indicated by Groves et al. (2008) regarding employees and their response to being subject to unethical decisions. One way of looking at concept of ensuring that organisational decisions are made ethically is from the perspective of Bowen Heath (2005) and their view regarding self-interest and consensual constraint for corporations. From the perspective of Bowen Heath (2005) it is actually impossible for a corporation to act or make a decision against its own interest. This manifests itself in the decisio n to pursue an act of self interest in order to maximise the utility that can be derived from operating in a particular manner (Ferrell, Rogers, Ferrell Sawayda, 2013). For instance, since the early 2000s there has been a trend in outsourcing wherein companies within the U.S. have been outsourcing their production processes to countries such as China, India and Taiwan in order to lower the cost of labour associated with the production of their goods (Ferrell et al., 2013). Apple and Microsoft are notorious for such a practice by outsourcing the production of their iPhone and Xbox One devices to Foxxconn which is the largest third party manufacturer in the world. While there is nothing with the practice of outsourcing, the problem in the case of many third party manufacturers are the conditions that their employees are subject to. For instance, in the case of Foxxconn they actually had to place suicide prevention netting on several of their buildings in order to prevent workers from jumping to their deaths. Such actions are in part due to the horrendous working conditions in such companies and the relatively low pay workers get in compensation.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More From an organisational ethics standpoint, the continued practice of outsourcing the means of a company’s production to such locations is extremely unethical given the conditions the workers there are subject to, however, from a competitive standpoint, companies that outsource their methods of production cannot simply stop and revert to their original method of production due to the price point advantage their receive through outsourcing (Verbeke, Ouwerkerk Peelen, 1996). Evidence of this can be seen in the various news stories where Microsoft and Apple have actually stated to the media that they would evaluate their position regarding their outsourcing of production to Foxxconn due to recent news stories regarding the deplorable conditions workers are subject to. However, when examining the current third party manufacturer of these companies, it can be seen that it is still Foxxconn. Simply put, when it comes to the perspective of Bowen Heath (2005), they are absolutely rig ht since when it comes right down to it, self-interest in the face of intense competition is the only means by which a company can continue to survive. Due to the competitive nature of companies, it becomes harder to implement ethical decision making as corporations struggle to make profits in an economy where morally ambiguous corporate actions result in differing price ratios which are not in favour of a company that is not willing to pursue alternative actions of possible moral ambiguity. Ensuring Ethical Decision Making When it comes to ensuring ethical decision making within an organisation, this comes in the form of adhering to a certain moral code involving the way in which a business provide goods and services to their consumers or deal with their competitors. It is based on this that in order for leaders to ensure ethical decision making within an organisation, it is important that the eight ethical principles found in the Global Business Standards Code are implemented with in the company. By ensuring their adherence in company operations, it makes it more likely that the organisation as a whole will become more ethically oriented. Since Bowen Heath (2005) state that it is actually impossible for a corporation to act or make a decision against its own interest, then in order to bring about ethical decisions within an organisation, ethical actions must be in the direct interest of the company. The following are the principles of the Global Business Standards Code and how they are applied to ensure ethical decision making within a company: Fiduciary principle – can be described as a form of duty or obligation of an employee to the firm wherein they work in order to promote the interests of the company, ensure that other employees are benefitted from ones actions and lastly does not pursue any action that promotes one’s own self interest. In essence, the fiduciary principle can be described as one’s own loyalty to the company. Proper ty principle – is oriented towards an employee respecting the property of the company as well as other individuals. This comes in the form of ensuring that should the opportunity arise between a choice of stealing from the company or another individual or choosing an ethical course of action, it is hoped that a person will choose the most ethically sound choice. Reliability principle – is directly connected to honouring ones commitments. This comes in the form of following the guidelines set in employee contracts or following on through with a promise made to a customer. Transparency principle – specifically states that an employee must work in an open and truthful manner so as to better reflect company rather personal agendas. The principle of transparency is an important matter to take into account since if an individual is transparent in the way they work then it is likely that they will not get into any trouble regarding issues relation to honesty. Dignity p rinciple – is connected to the belief that an employee has the obligation to respect the dignity of all individuals. This comes in form of ensuring company operations in production or services adhere to proper ethical guidelines that ensure that a safe working environment is assured to employees and that adequate compensation is given for their work. Fairness principle – connected to the belief that stakeholders who have a vested interest in the company should be treated fairly. When it comes to corporate actions this take the form of fair competition wherein companies will not utilise underhanded techniques in order to get ahead in a competitive business environment, rather, they will utilise fair business strategies that ensure the company is looked upon respectfully by others. Citizenship principle – is based on the belief that an employee should act as a responsible citizen within a community. Within companies this takes the form of the employee committing t o adequate moral codes of conduct that do not harm either the company or the various employees that work in it. One example of a company that follows these types of principles would have to be one that immediately puts a stop to unethical business procedures when it is discovered that the means of production degrades human dignity. For example, with so many companies outsourcing to China it is easy to turn a blind eye to the environmental conditions in a Chinese factory since not only is the facility far away but it assures the company of a steady profit. A company that follows the Global Business Standards Codex would insist on better working standards for employees at an outsourced factory despite increased production costs in order to better uphold the principle of human dignity and fair business. On the other, hand a company that does not follow these principles would have to be one that is well aware of the unethical working environment in Chinese factories yet does nothing abo ut it in order to preserve profits. Implementing a Program Based on the various facts that have been presented so far, it can be seen that in order for leaders to ensure that organisational decisions are made ethically there is a need to implement a program in the company where the aforementioned principles in Global Business Standards Codex are implemented on a company wide basis. One way in which this can be accomplished is through a program entitled â€Å"Employee Ethics and Integrity† which will be a Code of Ethics that shall be strictly enforced by a company that all employees are expected to conform to. The value of implementing these particular standards is that it ensures that the company has a proper ethical basis by which it conducts its business. This will reflect in aspects related to corporate social responsibility, adherence to proper ethical methods of accounting and environmental protection as well as generally ensuring that employees within the stick to pract ices which are to the benefit of the company itself. Conclusion It can be assumed that if such a program is properly implemented within the near future, problems related to corporate mismanagement, falsification of data, skirting laws and government regulations can be avoided with employees taking into consideration the consequences of their actions based on prescribed disciplinary action should violations of the ethical code of conduct be violated as outlined by the Global Business Standards Codex. Not only would this adherence benefit a company but it would most likely benefit consumers as well. Reference List Bowen, S. A., Heath, R. L. (2005). Issues management, systems, and rhetoric: exploring the distinction between ethical and legal guidelines at Enron.  Journal Of Public Affairs (14723891), 5(2), 84-98. De Cremer, D., Dick, R., Tenbrunsel, A., Pillutla, M., Murnighan, J. (2011). Understanding Ethical Behaviour and Decision Making in Management: A Behavioural Business Ethi cs Approach. British Journal Of Management,  22S1-S4. Ferrell, O. C., Rogers, M., Ferrell, L., Sawayda, J. (2013). A Framework for Understanding Ethical Supply Chain Decision Making. Journal Of Marketing  Channels, 20(3/4), 260-287. Groves, K., Vance, C., Paik, Y. (2008). Linking Linear/Nonlinear Thinking Style Balance and Managerial Ethical Decision-Making. Journal Of Business Ethics,  80(2), 305-325 Shelley, S. (2005). Ethical interpretations of management decision making in higher education. International Journal Of Management Decision Making, 6(3/4), 1. Verbeke, W., Ouwerkerk, C., Peelen, E. (1996). Exploring the Contextual and Individual Factors on Ethical Decision Making of Salespeople. Journal Of  Business Ethics, 15(11), 1175-1187. This report on Ethical Decision Making was written and submitted by user Jerome Gamble to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here. Ethical decision making The situation presented before us is of dire importance and requires urgent attention. It has been recently brought to my notice that a shipment that is to be dispatched to South America soon has a batch of defective whistles and fails to adhere to the standardized content of lead in the product. This may escalate serious health issues among the young users who are target customers for the toys.Advertising We will write a custom essay sample on Ethical decision making specifically for you for only $16.05 $11/page Learn More Therefore, this memo presents three options that may prevent any form of health hazard to the children who will ultimately be using the product: recall the products which are reported as defective, do not dispatch the shipment and re-make the order considering dire financial consequences, dispatch the shipment and hush up the whole issue. The process of decision making is dependent on heuristic since it provides assumptions, integra tion of options, and ethical control. Decision environment often experience dynamics and swings which create short and long term effect on chances of survival for two alternatives to solve a problem. When faced with a decision dilemma that requires critical assessments, analysis resorts to analytical tools that ensure competitive positioning advantage. Each option is assigned to a quadrant with predetermined response strategies and ‘follow-ups’ upon implementation. Before we go ahead to choose one of the options as our final choice we must undertake a cost-benefit analysis of the three recommendations as presented above. The first recommendation as presented above is to recall the products when they are reported defective. This has many financial advantages. If we do not out rightly reject the ones that are defective and do not adhere to the safety level of lead in whistles, then the company need not incur the financial loss of re-producing the whole lot of whistles. On the other side of the problem is the question, if unethical conduct on part of the company to avoid the issue, is a serious breach of quality standard, especially when it was aware of the pending issue. Passing the products as quality checked would imply that the company had passed the products in its quality checks and it implicitly adhered to the standards set by the governments. Therefore, the consumers could take the quality standard to be perfects as per the government norms. However, if any of the products failed the quality test this would create a stigma to the company and the image of the company would be irrevocably tarnished. In addition, the company could face litigations for not maintaining quality standards from both the consumers as well as the government authorities.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The second option was to stop the delivery of the product an d re-produce the whole batch of whistles. This option though is apparently expensive for one had to forgo the cost of re-production from scratch and the rejection and dumping of the rejected whistles, however, this option was ethically correct. The reason for it being ethically correct is that the company would then follow the quality standards set by the government as well as adhere to it when they may have gotten away with the minor disruption in quality standards. This would increase the credibility of the company and may make the consumers more loyal to the products. The problematic concern for the company is the extra cost that it has to incur. The company has to face an additional cost of producing the whole batch. The financial cost of producing the whole lot again will be very high and the company may have a face a high loss. The third option would be a highly unethical standpoint i.e. to send the whole shipment for distribution and hush up the whole issue of quality breach. This would sell products and the company need not face any extra cost of production. Further, the products would be delivered on time. In addition, until the products are specifically tested for lead content in the whistles, chances are that the authorities too would not come to know about the quality violation. This option though financially extremely viable, is unethical and goes against the social responsibility of the company. If the excess percentage of lead in the whistles do children harm, the onus of the poisoning would be on the company, which may lead to loss of reputation as well as business. While evaluating the whole scenario it must be noted that the quality testing done by the quality assurance team had identified an anomaly in the lead content in the metal whistles manufactured for the elementary school toy collection. The main market where the toys are expected to be sold belongs to underage children from primary and elementary schools.Advertising We will writ e a custom essay sample on Ethical decision making specifically for you for only $16.05 $11/page Learn More The case shows that the company tested for quality of the lead whistles attached to the toys. The testing showed that the content of lead was higher than the maximum level of lead permissible in metal toys targeted to children. This is believed to be harmful for the children below seven years and do not qualify the quality standards in the US. The company had an allotment of a large shipment due to be delivered in South America by the end of the forthcoming week and missing on deadline would be disastrous for the company. The loss the company has to incur due to failure of supplying or re-production of the whistles adhering to the quality standards would be approximately around $100,000. Now as a socially responsible company, we must adhere to the ethical decision making process. However, the economical consideration in making a socially responsible et hical decision is a dichotomous path. Milton Freidman has pointed out that the social responsibility of a business is to create profit . However today reducing ethical behavior to solely economical consideration is not enough. If companies are solely driven by profit motif they will end up taking an unethical decision that may do society more harm than good. Today businesses are responsible in taking prominent roles in societal building and therefore ethical conduct devoid of profit motif becomes more important. Unlike Freidman, the present ethical concern reverses Friedman’s theory and reduces economic profit motif to ethical behavior. Therefore, the new mantra for businesses is to be socially responsible for â€Å"ethics pays† . The moral philosophy that the company must follow begins with the philosophies of Socrates and/or Plato who believed that the †¦ good and bad, right and wrong, reflect subjective opinion and desire – how we as human beings and as individuals feel about things – Plato and Socrates believed that good and bad, right and wrong, are part of the objective nature of things – how the world around us really is.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Some ethical beliefs portend that necessary economic rationality leads to ethical behavior. In other words, such idea of ethical conduct beliefs that unethical behavior is not profitable for the business. However, in case of the production of faulty metal whistles it must be understood that following the ethically correct path does not necessarily mean that it would be financially viable. In order to make the whole thing in an ethically right point one must understand that it would incur a lot of cost that will not be beneficial to the company or to any other stakeholders. Based on this understanding, the second option seems that most potent alternative that the company must pursue. Therefore, the company must pledge to call back all the whistles that do not adhere to the quality standards and reproduce them before supplying them to the market. This is the only decision that is ethically correct and helps the company to act in a socially responsible manner. For the contaminated whis tles may do harm to little children who will be the end users of the toys and may cause great harm to their health. This will not be a profitable outcome for both the company and the society. Therefore, recalling the faulty products and producing them again would be the right decision for the company to take. This decision to recall all the products will help in improving customer relations. This is so because customers will gain greater faith on the ethical conduct of the company and will be assured with the company’s socially responsible stand. Further, this ethical decision can be used as a leverage to promote the quality standard of the product to assure the customers of the company’s integrity and stand towards making quality toys safe for children to use. This would definitely improve the perception of the company to the customers. There is a very fine line between the rationally correct, economically viable, and ethically correct decision. Decision making for th e company must be based on addressing all three aspects and not only one of them. An ethically correct decision may incur short-term loss to the company but in the longer run, this would be a more profitable decision. Report Ethical decision-making is an important aspect of doing business. Many philosophers today believe that without doing business ethically one cannot assume profit. In this respect, the company must undertake ethical decision making in order to remain viable as well as respected. An unethical company may end up losing its customer base for even customers today are highly conscious of the ethical decision making done by companies. Specifically, the business cannot survive without the customer who must be made to feel part of the business endeavors to win the aspects of brand loyalty, acceptability and support. An ethical decision can be defined as a decision with moral and legal appeal to the wider community. The aspect of commitment is crucial element in examining ethicality of a decision. In precision, for these decisions to hold and be positively assimilated into the work environment, a series of tests are carried out by gathering facts and incorporating them in defined issues surrounding ethics to test the consciousness in application. Thirdly, the aspect of competency is critical in separating premises from assumptions in making ethical decisions. The first area that one must understand is that the company should encourage a culture that condemns unethical behavior and rewards ethical work activities. As a company, we must understand that being ethical is profitable. There are two types of dilemmas that companies face today – first, is to forego economic interest in order to remain ethical and the other is to forego ethical behavior to maximize profit. As a company, we have to decide which one of these problems leads to rational decision making. Therefore, as one would point out that it would be irrational for a company to consciou sly choose not to pollute the environment to save it from polluting and similarly, it would also be irrational for a company to consciously pollute the environment in order to maximize one’s profit. The second rational may sound pragmatic to many, which foster the behavior of doing what one wants to do, and the other is considered pragmatic rationalization and gains support from consequential and utilitarian philosophies. From an idealist perspective, one can reject a pragmatic approach. The idealist perspective condemns all actions that are pursued at the cost of ethical behavior in order to gain interest. Therefore, according to this perspective, ethical conduct is of utmost importance and no employee should behave unethically . From this philosophy’s point of view, all those behaviors, which are unethical but have economical rationality, are irrational. Therefore, both the pragmatic and idealist philosophies are two ends of ethical thinking and therefore in order to obtain a more rational, stable, and less obtuse philosophy. For instance, it would be pragmatic to believe that â€Å"it can be rational to choose a profitable but unethical behavior as well as to choose a costly but ethical behavior.† Therefore, the main potent of the third approach is to combining the two i.e. the material and the ethical concerns that may lead to the belief that any behavior may â€Å"a process and a consequence† . In this way, a company has to adopt a mode that involves both ethical and profit seeking behavior, which may be called the optimal behavior. In order to increase the probability of ethical decision making enshrined within the company culture, the company must undertake a few steps that would ensure ethical decision-making. The company must inculcate a culture of honesty. The reason for embracing honesty in the company culture, as businesses is nothing but a subset of human relationships. The commonplace rules of morality do not uphold in everyday business dealings where at times one has to crush to competition to become the leader. Therefore, in business, like in many other games like football or boxing the common ethical rules logically do not apply. Further, as national culture based ethical decision making research has shown countries high on individualism like the US have to incorporate ethical behavior for individuals as collective ethical norms will not be affective in such an organization . Business ethics are obligations that the management of a business should follow in doing business activities. Reflectively, when a business fails to follow these obligations, ethical dilemmas are likely to occur and negatively affect such business. Based on the code of ethics, the management of a business should exercise integrity when preparing statements and report accurate information to all stakeholders. Moreover, good business ethics define objectivity and motivation in maintaining trust in transactions. In the conte mporary world, any business has social responsibilities which determine how it operates, how it carries out its duties and how it survives in the markets full of competition. The social responsibility of a business is to make profits in the market through value addition, responsible production, accountability, and quality in their products. Therefore understanding the cultural norm of the company before implementing an ethical decision making structure is important. Strategy and the Process of identifying them Figure 1: Ethical decision-making process In order to spot the strategies, an internal survey was conducted which helped to determine the ethical requirements of the company and these strategies were identified as the most important factors affecting ethical culture. The steps followed in identifying the steps were: First the areas were identified which frequently required general ethical decision-making. This process helped to identify the issues that were ethics related. T he guidelines already at disposal were consulted to see the strategies that are important to set up an ethical decision making process. Then all the sources were evaluated that might influence decision making process such as individual and group prejudices, attitudes, and needs. The strategies that evolve from the above three processes are brainstormed and then the two strategies had been identified. Then the consequences of adopting these strategies to the business were weighed. This step was essentially a cost-benefit evaluation. This essentially viewed the outcome of adopting the strategies. The strategies were implemented. The two strategies that the company must adopt to ensure ethical decision-making are – 1) promote a culture that fosters integrity and honesty, and 2) create a workplace that respects the interest of others as well as the environment. The first point is based on the belief that honesty and integrity are two pillars that must be imbibed within individua ls as well as teams in the organization in order to inculcate a culture of honesty. This strategy was derived through detailed discussion with the top management and through a survey on their perspective of the importance of ethics and moral in the organization. Figure 1 shows that in order to establish ethical decision making within the organization, the organization must foster a culture of ethical conduct within the organization. An ethically right culture within an organization is important to help the organization make ethically correct decisions. Further, a culture that helps promote ethical behavior is important for enforced ethical conduct cannot be sustained for repeated decision-making process. It is not a point at which a decision is to be made but organizations have to undertake chain of decision making which must be enforced through an ethical culture that all believe in. an understanding of the corporate culture among the individuals and teams is important for this wil l only increase the propensity of the individuals to make ethical decision a part of their regular logical thinking. The second aspect that individuals must concentrate on is that the workplace culture must respect the stakeholders. A business has many stakeholders right from its customers to the government or the people who derive drinking water from the river where the company dumps its waste. Therefore, the company has responsibility not only to the people directly involved with the organization but also to people who are indirectly affected by the actions of the business. Given this, one must understand that ethical decision-making will help the company not only gain good popularity among its customers but also to the community. Therefore, the company has to adopt a strategy to enhance awareness of the environmental damage that a business may cause and trying to avoid such problems is important for the company and must therefore be incorporated in its regular decision making pro cess. Ethical decision-making must also include the interest of the stakeholders and the environment. Code of Ethics A code of ethics will help the company to attain a better position and a socially responsible position among its stakeholders. This can be used as a leverage to market the brand of the company. Ethical business decision making also helps in marketing the organization and developing a socially responsible brand. A code of ethics would benefit the company to gain greater loyalty from its customers and stakeholders, which would enhance its brand image. The code of ethics of 3M specifically points out that individual integrity and honesty are the most important part of ethical conduct within an organization . This is so because individuals are the microcosms that build an organization . Further, the company makes sure that its workplace of remains safe and all individuals respect the dignity of all individuals directly or indirectly involved with the organization. Further , the company pledges to promote a culture of fairness, transparency, respect, and integrity within the organization. Further, the company also pledges to protect the environment and avoid conflict between professional and personal life. The aspects of 3M’s code of ethics that could benefit the company are its culture of fairness, transparency, and integrity that would help in avoiding conflicts among the personal and professional ethics of employees. Ethical decision making process involves stating the problem after which the underlying facts are verified. This is followed by identification of the relevant factors and developing the possible options to eliminate dilemma. The identified options are then tested for their harm, publicity, reversibility, defensibility, and professional, organization, and colleague aspects. The testing step is followed by making a choice and then reviewing the entire process for authenticity within the 3M’s code of ethics. The main problem s with stakeholder collaboration include conflict of interest, imbalance of authority, legitimacy challenges and urgency response to business demands when aligning the 3M’s ethical code. These problems may make stakeholder collaboration difficult especially when the business environment is experiencing series of economic swings and require steadfast approach to reversing the challenges. Through the dual pillar approach, the 3M’s ethical leadership will comprise of a combination of moral being and moral management skills. The combination of the two aspects is critical in building ethical leadership reputation since executive responsibility functions on moral codes that promote proactive leadership in making decisions that directly affect business sustainability. This model defines expected behavior, procedural patterns, and response to every deviation. Ethical dilemmas are easy to distinguish and unravel. Thus, a comprehensive review of the situation or factors that led to such a dilemma should be analyzed with an intention of reversing the challenges currently facing this company with its Whistles product. Conclusion Therefore, the report presents the importance of building an ethically right organizational in order to inculcate an environment of ethical decision-making. Incorporating integrity and honesty within the culture of the organization is important for this would allow an unobtrusive practice of ethical decision-making. Individuals should be made aware of the ethically correct positions and they should be encouraged to be more honest and fair in their daily dealings. Reflectively, ethical conduct within the organization must be practiced to have a better organization. References 3M. (2013, May 15). Ethical Business Conduct Guidlines. Retrieved from 3M: https://www.3m.com/ Graham, G. (2004). Eight Theories of Ethics. New York: Routledge. Le Menestrel, M. (2002). Economic rationality and ethical behaviour: ethical business between venality and sacrifice. Business Ethics: A European Review, 11(2), 157-166. Vitell, S. J., Nwachukwu, S. L., Barnes, J. H. (1993). The effects of culture on ethical decision-making: An application of Hofstede’s typology. Journal of Business Ethics 12(10), 753-760. This essay on Ethical decision making was written and submitted by user Judah V. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

Free Capital Budgeting Economics Essay Example

Free Capital Budgeting Economics Essay Example Capital Budgeting Essay Sample Introduction An organizations success is largely a reflection of the profit earned to its shareholders or its owners. This includes different managerial activities that are involved in the planning and regulating the firms financial resources. Financial management is concerned with the decisions involving the financing, dividend and investment. There are many objectives or goals that a firm strives. Increasing the market value of the firm to its shareholders and the owners is the most widely accepted objective for the owners. This phenomenon is termed as shareholder wealth maximization. The financing management includes the decision concerning the various sources of money, the allocation of fund and last but not the least the distribution of funds to the various sectors of an organization. The future of a company depends on its ability to generate more money that comprises of an enhanced cash flow and attracting more investments from the stakeholders. Each of the above said work is accomplished by the virtue of capital budgeting. In todays world, all the businesses look for any opportunity that will help multiplying the shareholders value. Capital management ensures that the firm takes suitable investment opportunities that will yield positive results and have good potential for return in future. Capital budgeting an overview Capital budgeting is a process that is used to ascertain whether a firms investments or the projects undertaken would be worth more to the business with respect to their cost perspective. The process of allocating budget to any investment opportunity or a project is very crucial, as they cannot be easily reversed once they are implemented (Peterson and Fabozzi, 2002). It is imperative for the managers to adopt the sound capital budgeting technique for future benefits, needless to mention that this method is helpful to safeguard companys funds from any loss as well. Funds are invested in both long term and short-term assets. Capital budgeting primarily concerns the investment in any long-term project or an asset. The asset can be tangible and or intangible item. Tangible items include property, setting up a new factory or plant or any equipment. Non tangible or intangible items includes investment in a new technology, processes through which an advanced software and products are created, patents, trademarks, various researches, designs, developments and testing are also considered as an intangible asset. Capital investments can be differentiated from the recurrent expenditure. The capital investment projects are in general large and their profits or the cash flow spreads over many years (Baker and English, 2011). The projects are much long lived as well. The return on these investments has an effect on the future cash flow to the company. They are thus the decisive factor regarding the future investment by the stakeholders and the risk associated with the cash flow. Firms should take up the project that has a good potential to enhance the cash flow and would have great influence on the business over a period. The capital budgeting processes plays an important and a critical role in shaping up the business and are related to the firms success or failure, to an extent. It measures the performance of the firm and builds the standard and parameter to gauge and analyze any investment opportunities with respect to the market (Baker and English, 2011). Businesses aim to enhance the wealth or aspire to increase the profit of the owners and the stakeholders. In order for this, the firm should take up all possible projects that will add value to the company. This whole process is accomplished by capital budgeting. It decides the financial desirability of the project (Garcia, 2009). It can also be described as the process, which distinguishes a positive project with the negative one. Here the term positive and negative refers to those projects that will be of utmost interest to the stakeholders and its owners. The project, which has the capacity to increase the cash flow to the company, is of tremendous interest to the owners and the stakeholders. In the capital budgeting process, the goal of the shareholder is given the utmost importance. Capital budgeting is the decision taken before allocating funds to any investment project The decision taken holds critical to the company as the project will affect the cash flow and the future investment by the stakeholders. This is vital for the organizations future, longevity and reputation in the market. In the capital budgeting, strategic processing or strategic planning can be considered as the reflection of the whole framework and functioning of the firm (Garcia, 2009). The identification of a sound proposed capital expenditure and an investment project is of utmost importance. The company should make sure that all the potential investment projects and proposals are thoroughly and effectively studied and decided upon. There should be no biasness while choosing the project, does not matter how much lucrative the project appears. The best of the investment project should be selected, tested and implemented. The management should be open to any idea or any suggestion coming from outside or inside the firm. The projects are first studied and analyzed by the analysts based on the managers expertise, experience and assumption. It is then passed over to the management for further consideration. The projects are then rejected or accepted based on the recommendation and suggestions by the analyst. There are several stages in the process of capital budgeting Strategic planning is the first and the foremost step towards the capital budgeting process. The corporate goal is converted into the desired policies, necessary directions that specify the tactical areas of business development towards achieving the goal. In a nutshell, a firms goal and aim is encapsulated in the companys strategic planning. The most important aspect of the capital budgeting process is the generation and choosing the suitable investment project (Graham, Smart and Megginson, 2010). The project should be in tandem with the companys goal, visions and long-term plans. The investment opportunity and the strategic planning of an organization go hand in hand. There are again some investments, which are mandatory in nature like the safety requirements, the health measures. Others are discretionary and are taken up in accordance with the suitable growth opportunities, competition in the market, cost-cutting measures and so on. These type of capital budgeting represents the strategic plan of the firm and can be changed or modulated as per the investment opportunity. In some firms, the research and development unit identifies and creates new and attractive investment opportunities (Peterson and Fabozzi, 2002). The managements job is to choose the investment project well suited for the company by screening and analyzing the facts and figures of the same. The investment opportunities are subjected to extensive financial screenings and appraisal to ascertain if it would be worth taking the project and if it can add value to the firm. This stage is termed as the qualitative analysis, project analysis or financial and economic appraisal phase. This phase predicts the future cash flow; the possible bottleneck associated with the cash flow, suggests an alternate solution in case of any problem and prepares estimates of the projects net present value. It takes in to account the forecasting techniques, the evaluation methods, risk analysis and other programming techniques. The application of a particular type of project requires some experience and knowledge For example- asset expansion projects, international investments require a particular expertise to accomplish and to exercise it. The result from the project analysis phase dictates and guides the project selection or investment decisions. When a project passes the quantitative test, it is further evaluated with respect to the qualitative factors. The qualitative factors cannot be gauged monetarily but will have an influence overall journey of project completion. For example- the attrition rate and the new hires, the effect of the governments rules and policies on the companies, the human resource, the labor union, the consumption and the availability of the raw material, possible legal problems with the brand name, impact of the project or the investment on the society are some of the qualitative factors. The management has to study and predict the negativity of these factors on the project and its future benefits. The management decides a suitable solution for any negative related to the project and suggests a possible solution for the same. In this endeavor a constant monitoring and study is required to ensure that a corrective action is taken, if necessary. Evaluation of the performance of the similar projects from past are also taken into studied. Last step is the post implementation audit which aids in the strategic planning and formation. For example, the positives and the negatives of the past projects result on the cash flow can provide suitable framework and working for the current one (Peterson and Fabozzi, 2002). Capital budgeting is also helpful in making marketing plans. The time of completion, the investment, the reason for undertaking such project (social, economical or financial reason) can be chalked out with the help of the capital budgeting process. The marketers can ascertain if the company needs to invest more in the sales force or in advertising. Capital budgeting is one of the crucial elements in business. One wrong decision can jeopardize the entire project and can result in wasting huge amount of money, if the investment results in an uneconomic act. Processes and techniques application and theory In a firm where there is a possibility of suggesting many potential investments or projects, choosing the right type and time is a challenge. There are two types of projects generally undertaken which are the independent projects and the mutually exclusive projects. In the independent projects, the cash flow bears no impact on the sanction or disqualifying the project. In the mutually exclusive, project the cost effect on another. Therefore, they cannot be taken up together. The factors influencing the acceptance or rejection of the project is the particular strategy of the firm, the time needed for its completion, other internal factors like human resources and investment or the fund allotted (Graham et al., 2010). Independent project can also be described as the one that has no relation with the other project being implemented or under investigation. For example- Buying a new Xerox machine and setting up a new factory. The mutually exclusive projects are those where the firm has the option of choosing among the two, for example- Buying Apple PC or Dell. In a mutually exclusive project, the firm chooses the one that would enhance the money value and thus the cash flow. For example- If the company has to choose between two coffee vending machine with two different installation charges and energy costs. Both the machines might be in a way are contributing to increase the cash flow but the firm has to choose and decide the one which will add more value to the firm. The ranking approach is taken into consideration while deciding the rank from good to bad. The best is then chosen for implementation (Garcia, 2009). Capital rationing is also a decisive factor influencing the decision regarding the project or to ascertain whether to go ahead with a particular investment. Capital rationing refers to the restriction on the amount of investment and funds on any wealth-improving project. Firm may be reluctant to add expense as there may be a conflict among the owners and the partnership may be diluting (Garcia, 2009). Market should support the fund or provide monetary aid to all those projects that will bring prosperity to the company. However, there might be some limitations on the part of the managers in terms of their expertise or using any specialized machinery. In these cases, the projects selection is done on the basis of the desirability and ranking simultaneously (Tajirian, 1997). For example- a transport company aspires to expand its business in five different cities. It either has the option to choose some routes to all the cities or to some cities or it can choose not to expand the route. In the cases similar to this, the company has to decide the project based on capital rationing. The decision as to which city the transport company has to expand its business in is the decisive factor. This is considered as short run constraint. Once the rationing is lifted and the short run constraints are over, company can go ahead and can hire more resources or can invest in a bigger project. The Decision Criteria: Net present value is used as a tool for the accept-reject any investment process. If the value of Net Present Value is greater than $0, the firm accepts the project. If the value of Net Present Value is less than $0, the firm rejects the project. In the first case, the firm will earn more return than the cost of the capital. This will increase the market value of the firm and consequently the wealth of its owners. IRR (Internal rate of Return) This is also a sophisticated capital budgeting technique. It can be described as compound annual rate of return, the company can expect to earn provided it invests in the project at a given cash inflow. The Decision Criteria If the Internal Rate of Return is greater than the cost of capital, the project is accepted. If it is less than the cost of capital, the project is rejected. This ensures that the firm can get at least the expected return. This will add to the market value and consequently the wealth of its owners. Payback period Payback Periods are used to measure proposed investments. This process is considered as an unsophisticated method of capital budgeting. Payback period is the amount of time required by a firm to get back or recover the investment that was done initially in a project. The Decision Criteria If the payback period is less that the maximum acceptable payback period, the project is accepted else it is rejected. The maximum acceptable payback period is a value that is set by the management. The decision is based on the type of project, expansion, renewal and other qualitative factors existing in the market. Current trends The capital budgeting process uses different techniques. Choosing and applying the best method is a challenge. Prior to the year 1980, managers were dependent mainly on the payback and other methods. The Net Present Value (NPV) method was not in practice then. By 1990, the usage of NPV was the maximum. The Internal rate of Return (IRR) method came into practice, but its popularity and usage were not at par with the NPV. Payback was the most popular method 40 years ago. Its use as the primary criteria has fallen drastically by 1980. Companies are still using the payback method as it is easy to calculate and can be modulated according to the managers wish, but it is not used as the primary measuring technique. Other methods are also not widely taken into consideration, as the IRR and NPV are giving results that are more accurate especially the NPV method (Brigham and Houston, 2007). Evaluation and analysis of techniques In any capital budgeting process, a project is accepted if it is assumed to increase the profit of the firm and thus bring more wealth to its owners or the stakeholders. Usually the Net Present value (NPV), the internal rate of return (IRR), profitability Index (PI) is used for calculating the viability of a particular investment project. Each of the technique includes the estimation of the costs incurred, savings and the revenue earned (inflow).The tax effect is also considered. It is though difficult and cumbersome to obtain the relevant dataset, but if used and administered in a relevant way, can fetch more revenue to the company. The net present value method is rather easy to interpret and analyze. This reflects the ways or the measure to transform the project into wealth, if it is accepted. The net present value has some drawbacks as well. It requires specific expertise to use and solve it. A sound knowledge of finance is also required to implement it. Any wrong calculation in the net present value may upset the entire project if there is capital rationing in the firm. Internal Rate of Return is the rate of return that a project generates. The Internal Rate of Return is comparatively easy to generate. The acceptance criteria though remain the same- profit factor of the stakeholders. The drawback lies in its usage. It requires a financial calculator to interpret. There are chances that in a particular project there are no IRR, or there are multiple IRRs. Probability Index (PI) is relatively easy to calculate and interpret the result. It shows the chances of receiving the amount of dollars per dollar invested. In those cases when there is capital rationing in the firm, the Probability Index technique is used and implemented. The drawback with the Probability Index technique is that it cannot be used if initially the money invested is from the savings or the revenue generated. Probability Index cannot be used straightforwardly if there are mutually exclusive projects. The strength of the payback period is its ease of usage, used by large firms to evaluate small projects. It is considered as a measure of risk exposure, many firms adopt this technique to help take other decisions. It also depicts the time value of money. The drawback of this technique is that it cannot be used for wealth maximization purpose. It only tells the maximum acceptable time to get back or recover the initial investment. It does not completely consider the time factor while deciding the value of money (Capital Budgeting Techniques, 2009). The capital budgeting process may provide some acceptance or rejection decisions in the independent projects. The problem arises with the mutually exclusive projects. There are chances of conflict arising while deciding between the mutually exclusive projects. The Net Present Value is always considered while arriving at any conclusion in cases of any conflict. The Net Present Value is more stable, conservative and gives results that are more realistic. The Pay back method is also used but in more complicated situations Net Present value can be used in almost circumstances and is considered superior to even internal rate of return. Inferences The whole theory and the structure of the capital budgeting is based upon two approaches-Net Present Value (NPV) and Internal Rate of Return (IRR) on a large basis. The NPV is a better method than the IRR in many ways. The NPV yields more realistic and positive result. Some calculations give more than one IRR that makes it more difficult to understand and interpret. Practically, the financial decision makers consider the IRR a better alternative. They are more interested in understanding and measuring the rate of return than the actual dollar return. The business people find the NPV less interesting and lucrative, as it does not measure the profit based on the amount invested. There are many techniques and tools available for correcting the loopholes of the IRR technique. The financial business decision makers find it easier and comfortable to use the IRR technique. The IRR expresses the interest rate, profitability and so on are expressed as annual rate of return. Conclusion Capital budgeting is an important element in business. Capital budgeting can be considered as a tool used to understand and make correct estimate of relevant cash flow associated with proposed capital expenditure. The techniques are used for choosing the right investment plan. Decision on investments that take more time to mature should be based on the returns on that investment. The success of a firm is dependent on the kind of investment projects undertaken by the managers. The investment done can generate more revenue and add value to the firm. It is used in marketing, operations, accounting and so on. For example, the marketers can evaluate if they want to invest more in advertising or in sales force. A firm can lose large amount of money if the investment turns wrong. Decisions regarding which project to invest in, the expected value of return and the time to mature can be calculated and predicted. The need is a thorough understanding and the usage of the techniques involved. The time of completion, the investment, the reason for undertaking a project (social, economical or financial reason) can be chalked out with the help of the capital budgeting process. Capital budgeting is one of the crucial elements in business. One wrong decision can jeopardize the entire project and can result in wasting huge amount of money, if the investment results in an uneconomic act. References Baker, H.K. and English, P. (2011). Capital budgeting valuation: financial analysis fortodays investment projects. John Wiley Sons. Brigham, E.F. and Houston, J.F. (2007). Fundamentals of financial management. Thomson Learning. Capital budgeting techniques. (2009). Independent and mutually exclusive projects.Retrieved on Aug 23 2012 from capitalbudgetingtechniques.com/independent-and-mutually-exclusive-projects/ Garcia, N. (2009). Capital budgeting. Retrieved on Aug 21 2012 fromcsun.edu/~jpd45767/502/7%20-%20Capital%20Budgeting.pdf Graham, J., Smart, S.B., and Megginson, W. (2010). Corporate finance: linking theory towhat companies do. Cengage Learning. Peterson, P.P. and Fabozzi, F.J. (2002). Capital budgeting theory and practice. John Wiley Sons. Tajirian, A. (1997). The capital budgeting process. Retrieved on 22 Aug 2012 frommorevalue.com/i-reader/ftp/Ch9.PDF

Strategic management Research Paper Example | Topics and Well Written Essays - 1750 words

Strategic management - Research Paper Example a continuous process that controls and evaluates the business organization and the industries, which it involves, makes competition assessment and sets strategies and goals to enable it meet all potential and existing competitors. The business organization, then reassesses each employed strategy quarterly and annually (regularly) to evaluate its implementation to determine whether it is successful or they are need of replacement with a new strategy, which will meet charged circumstances, new economic environment, new technology, new competitors, and new financial, social, or political environment (Adair 50). Attaining a competitive advantage and enhancing business performance relative to its competitors are the core objectives of a business organization. This paper purports to discuss how strategic management can affect business organization. Strategic management depends on the size of the business organization and its environment’s proclivity to change. This means that a global transnational business organization needs to employ more structured strategic management approach, due to the large size, operations’ scope, and encompass views and requirements of its stakeholders. Most of major management theories emphasize that private business organizations can exercise choice of strategy (Adair 52). The manner and way in which they face strategic issues may affect the overall development and growth of the business. Additionally, strategic management must address fundamental aspects such infrastructure constraints, resource base, appropriate technology level, and input of raw materials. In terms of strategic planning functions, one can define it as an action employed by a business organization to achieve a superior performance in order to maximize its profits. Strategic planning is a part of strategic management, which assists a business organization to be able to determine the actions and decisions that are extremely important than others (Bryson 70). This