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Thought for the day: To accomplish great things, we must not only act, but also dream, not only plan, but also believe. Anatole France – Nobel Prize for Literature Get an A A Grade Level 4 Evaluation To what extent, Evaluate, discuss, justify, advise, recommend. Apply, Examine, Analyse, Interpret, Formulate. Level 3 Level 2 Level 1 Application & Analysis Understand Knowledge Compare, Contrast, distinguish, prepare, construct, calculate, explain, comment Define, Identify, Complete, Outline, describe, Classify 1.3 Nature and Organisation Objectives Target Learning Objective • Explain the importance of objectives in managing an organization. • Explain the purpose of mission and vision statements. • Explain the different views that firms may take of their social responsibility in an international context. Who? ALL Level 1 Keywords Mission Statements Vision statements Aims and objectives • Distinguish between objectives, strategies and tactics, and discuss how these interrelate. • Examine the reasons why organizations consider setting ethical objectives. • Analyse the advantages and disadvantages of ethical objectives. MOST Level 2 Strategic objectives Tactical/operational objectives Ethical objectives • Analyse the role of mission and vision statements in an organization. • Discuss the impact of implementing ethical objectives. • Analyse the value of social and environmental audits to different stakeholders. • Discuss why a firm’s view of its social responsibilities may change over time. • Discuss why attitudes towards social responsibility may change over time. (HL) • Analyse the impact that changes in societal norms have on the way that firms behave in a national and international context. (HL) • Analyse the reasons why firms may choose different strategies towards their social responsibilities. (HL) SOME Level 3 &4 Corporate social responsibility Purpose • All business have objectives • These are the goals of the business – what the business wants to achieve. • The objectives of business organisations will be shaped by various stakeholders in the business. Those with the most influence will tend to set the objectives. Mission Statement • The overall reason for a business’ existence is known as its corporate aim or mission. • Eg. A business could set out to be ‘the lowest cost producer in Europe's or ‘the worlds favourite car hire firm’. • A mission statement is meant to inspire and define the underlying purpose of the organisation ‘To boldly go where no man has gone before’ -Star Trek Aims In business, the main aims are usually concerned with one or more of the following: • Making a profit • Providing goods and services to the local or wider community • Surviving in a business or expanding • Maximising sales • Providing a highly competitive service • Being environmentally friendly From Mission Statement to Objectives • A mission statement may be motivating but it lacks the specific information needed for planning. -What does ‘best industry mean’? Or ‘Most profitable’? • To plan properly a business needs to turn the mission into a objective. Distinction between aims (or mission) and objectives • Mission: The purpose of the business • Aims: The goals the business wants to achieve • Objectives: Practical steps to achieve the goals – usually quantified An aim is what you set out to do An objective is a target you want to achieve Objective • Will specify exactly what the business wants to measure, how much of an increase it wants to measure and when it wants to achieve its target. ‘To increase profits by 20% over a five-year period’ The business then has to turn this overall objective into more detailed targets for individual departments and managers. Objective • To achieve the corporate objectives functional areas need to have their own targets. Eg. Marketing might be to increase sales. Operations might be to reduce costs. • Every time a target is set, the next level of management must decide how this is to be fulfilled. • If everyone meets their targets successfully then the business will achieve its overall objective. Objective • An objective should contribute towards a main aim or goal • A good objective is said to be ‘Smart’ – Specific M – Measurable A – Agreed R – Realistic T – Time constrained S Get Fit Decide Aims Lose 10 lb In 4 weeks Weigh self each week Specify Objectives Check Performance Regularly Setting and Monitoring If unsatisfactory Aims Take Corrective action And Objectives Adjust/review objectives Exercise more Change aims Learn to drive Lose 10 lb in 10 weeks Activity Level 4: Discus • Write out your own aims for the next 12 months • Under each aim write at least one SMART objective for yourself Why Have objectives? Why Important? Pg19 – 20 Clark Pg19 – 20 Clark Pg 20 Clark Pg 20 Clark Strategy • – a plan which shows how to achieve an objective • Once a objective is agreed it is possible to set appropriate strategies. • The strategy is the plan which shows how to fulfil the objective. • Eg. If the objective is to generate 25% of sales from a new product, the strategy might be to invest more heavily in research and development. How does ‘Management by Objectives’ work? • Need Mutually agreed objectives. • A manger will discuss with subordinates what needs to be achieved in their particular section of the business. • Between them they will agree specific targets for each subordinate. • The objectives are agreed upon not imposed upon the subordinates • This is because a target means nothing unless the individual feels commitment to achieving it. Advantages and Disadvantages Advantages • Everyone knows exactly what they should be doing • Motivator (responsibility) • Act as a control mechanism • Everyone working towards common goals Disadvantages • Bureaucratic • Time consuming • Setting targets doesn’t guarantee they they are achieved • Objectives can become out-of-date quickly Activity Level 1 & 2: Knowledge and understand. Mission statements & Vision Corporate objectives Interrelated objectives, strategies & tactics Note Taking ------ Key points…. Mission statements & Vision Interrelated objectives, strategies & tactics Corporate objectives Higher Level Changes in corporate objectives and strategy over time External factors External factors affect what you are capable of doing. Business is not independent of the outside world. Business needs to adapt What makes you successful will change (can’t rely on past success). Business needs to take advantage of any changes in the market. Monitor the external environment. – competition, recession, technology, political changes. Higher Level Changes in corporate objectives and strategy over time Internal Internal environment can negative change Adjust objective to address these issues (HR, finance, productivity). Improve strategies to counter act the problem. Higher Level Changes in corporate objectives and strategy over time Positive – you need to respond to things that are happening to improve the business. Continued checked and reviewed their objectives, adapted. Technology – demands change. Higher Level Business Ethics What does Ethics mean? • Standards of right or wrong behaviour. • Morality • Ethical/unethical behaviour is often a matter of opinion – What is right or wrong? What do you think? • • • • • Do you agree with abortion? Would you rip the wings off a butterfly? Would you step on a cockroach? Do you recycle? If you worked in a business: Would you steal a 30p chocolate bar from the canteen? • What about making a personal phone call? • Unethical actions are not the same as illegal actions…. The Modern business environment: • There is no longer one agreed moral code… society isn’t just one religion or belief Business Ethics • A code of behaviour considered morally correct. • For us ethics are shaped by values – indoctrinated by parents, guardians, friends etc. • Business ethics are moral guide lines for a business • A business decision made on ethical grounds might reject the most profitable solution in favour of one that befits society as well. Business can act ethically towards its stakeholder by: • Paying wages above minimum wage • Paying suppliers promptly • Supporting local community by sponsoring sport events Business ethics and business objectives We must consider the business objectives in relation to ethical behaviour – why does the business exist? What comes first: • Profit • Using all resources efficiently • Stakeholders – which could include ‘society’ Examples of ethical dilemmas are: • Should an advertising agency accept work from a cigarette manufacturer? • Should a bank invest in companies that produce weapons of mass destruction? • Should a manufacturer of cosmetics test on animals? Is ethical decision-making profitable? It can attract potential and existing employees It can have a marketing advantage - acting as a unique selling point (USP) or competitive advantage. 'United Colours of Benetton' Is ethical decision-making profitable? • Advertisers try to evoke emotional responses. • This companies sell products/services, and that is precisely the reason for using ads in the first place. Is ethical decision-making profitable? • Being ethical might reduce profitability or conflict with existing policies. • The positive effects of ethical decision making depend very much on whether consumers are well informed and concerned (marketing). • In some cases ethical policies may create a niche market. Fair trade/ Organic • M&S spending £200 m in becoming environmentally friendly • Organic food – worth £1.6 billion • In 2006 there are around 1,000 organic products in ASDA Are all ethical decisions based on sound moral principles? Public opinion and media pressure may force a firm to change its approach and adopt and ethical position. • This is not really making an ethical decision, but simply responding to pressure after considering costs and benefits. (school canteen) Delegations and ethics • There are two major influences on the moral behaviour of business: 1. Organisations consist of individuals who have their own moral codes, values and principles 2. Firms have their own cultures and codes of behaviour that affect attitudes, decision-making and management style • This distinction is important - Overall it depends which of these two is dominant Ethics • Does not just effect business as a whole. • It effects those who work in business also. Delegations and ethics • If there is a conflict between the ethical point of view of the company and the individual, then delegated decision making may not reflect the stand of the business. • Business should then invest in training and communication to ensure that all staff behave in an agreed ethical manner and that delegated activity is performed on an agreed ethical basis. Ethical Codes of Conduct • Consumer expectations and competitive pressures – business have introduced ethical codes of practice • These are intended to improve the behaviour and image of a business Ethical Codes of Practice • The precise focus of the code will depend on the business concerned. • Banks – honesty • Chemical firms – pollution • The main common feature – business publicise them. • This is because they believe if they are seen to behave ethically it is a good marketing strategy. Ethical Codes • Critics of ethical codes believe them to be public relations exercises rather than genuine attempts to change business behaviour. • They are effective if groups follow them! Should business be expected to behave ethically? • They effect stakeholders (the environment they operate in) • But business should make profit for owners? • Middle ground – always conflicts. Summary Benefits of ethical behaviour: • Avoiding PR disasters • Better image with customers and better sales • Better recruitment • Better employee motivation because they are proud of their job. Summary • • • • Effects of ethical behaviour Increased COST Conflict between profit and ethical standards Business Practice may change Ethical Objectives Advantages Disadvantages Ethical Objectives Can you: • Examine the reasons why organisations consider ethical objectives • Analyse the advantages and disadvantages of ethical objectives • Discuss the impact of implementing ethical objectives. Corporate Social Responsibility (CSR) means businesses and organisations working responsibly and contributing positively to the communities they operate in. Businesses and social restraints • Businesses affect the societies in which they operate. • Eg. Opening hours, litter, relocation of factories. • The decisions they make can affect a range of other groups and individuals. • Should businesses consider the implications of their decisions upon society and not just take into account whether these decision help achieve their (or shareholders) objectives? • Balance between legal limits and feeling of the community. Social responsibilities Social responsibilities – duties towards stakeholder groups which the business may or may not accept. Responsibilities to: • employees • Customers, and • other stakeholders Stakeholder • What is it? You define • A stakeholder is an individual or group which has an effect on and is affected by an organisation Brainstorm: Stakeholders • • • • • • • • • Stakeholders in a business are likely to include: Customers Employees Shareholders Suppliers Government Local communities and businesses Financial institutions Other creditors Stakeholder • What is it? You define • A stakeholder is an individual or group which has an effect on and is affected by an organisation Activity • Essays: • • Meeting the objectives of different stakeholder groups may be desirable, but is rarely profitable (14 marks) Managers responsibilities should be to the shareholders alone (critically assess this view) (14 marks) Brainstorm: Stakeholders • • • • • • • • • Stakeholders in a business are likely to include: Customers Employees Shareholders Suppliers Government Local communities and businesses Financial institutions Other creditors Stakeholding • All business are affected by the environment in which they operate. • Eg. On a daily bases managers come into contact with – suppliers, customers, the local community and employees. • Each of these groups has an impact on the business success and at the same time is likely to be affected by any change in its activities. Stakeholding • If, for example, the managers decide to expand the business, this may lead to: • Over time for employees • More orders for suppliers • A wider range of products for customers • More traffic for the local community. Stakeholding • Businesses have tended to be influenced mainly by customers, employees and shareholders. • Increasingly, however, other groups are affecting business behaviour. • Eg. Some businesses will only supply their products to other businesses that have an ethical or environmental policy. • If a business ignores the views of society, consumers will not buy their products. This suggests that businesses need to have a greater SOCIAL RESPONSIBILITY to groups beyond those immediately involved in the business. ‘Shareholder concept’ • The traditional view of an organisation was that managers are responsible solely to the owners of the organisation – the shareholders. • - the shareholders employ managers to run the company on their behalf. – to fulfil their needs and objectives. • Means maximising shareholder value – the share price. ‘Stakeholder concept’ • Places emphasis on the need to meet the objectives of a wider group. The stakeholder approach suggests that managers should take into account their responsibilities to other groups, not just owners, when making decisions. • The belief is that a business can benefit significantly from cooperating with its stakeholder groups and incorporating their needs into the decision making process. ‘Stakeholder concept’ • Examples include: • Improving the working life of employees through challenging work, better pay and greater responsibility, so the business benefits from a more motivated and committed workforce. • Treating suppliers with respect and building a long term relationship. Leads to better quality supplies and better all round service. The stakeholder approach is, therefore, based on an inclusive view, in which the various groups which the firm affects are included in its decision making rather than ignored. This can be argued, can lead to significant advantages for the business. Profit Business aims and objectives focused on profit Lower costs Profit Maximise sales Culture of business Shareholder concept Efficiency Productivity Relationship/ Recruitment Loyalty / reputation Stakeholder concept Unjumble the words…….. R E V O T G M E N N G O V E R N M E N T R E P L I S U P S S U P P L I E R S G A M E R A N S M A N A G E R S T O L D K E E H A S R S T A K E H O L D E R CSR • Pg 38 – 39 Clark TOK • Where do you think ethics comes from? • Which statement’s on pg 37 of Clarke are moral statements, which are conventions? • Why do some economists and politicians believe that it is not the role of the business to be ethical or socially responsible, but just to make profit? • Can this approach be justified? Social Auditing Social Auditing • A business that produces its final accounts must have them audited by law. An audit is a check to make sure the financial performance of the business, shown in its accounts, are accurate. • Social auditing is the process by which a business organisation attempts to assess the impact of the entire range of its activities on stakeholders. Scrutiny • A Social Audit is part of the move towards more scrutiny of business practices and increased availability of information for consumers and pressure groups. Social Accounts • Results in a production of a set of social accounts and attempts to evaluate performance against a set of non-financial criteria.. E.g. • Effects on the environment • Attempts to meet social obligations to employees. Social Auditing Social auditing may involve: • Identifying the social objectives and ethical values of the organisation • Defining the stakeholders of the business • Establishing social performance indicators • Measuring performance, keeping records and preparing social accounts • Submitting the accounts to an independent audit and publishing the results. Social Auditing The social audit may include details such as: • Pollution • Waste • The salary difference between the highest and lowest paid employee • Health and Safety information • The extent to which employees feel valued • The views of consumers about whether the business is living up to its ideals. • The % of recycled materials used • Industrial accidents per 100 workers Social Auditing The benefits of social auditing • Provide valuable information to pressure groups and consumers about the corporate responsibility of a business. • They allow the managers of the business to gain a complete picture of the impact of the business's activities. • This can allow the business to make better informed decisions about the impact of its activities upon stakeholders. Social Auditing The benefits of social auditing • A business can use a social audit as a means of preventing future criticism of its activities. – deflect critics. • Shareholders can use social audits to raise questions about a business’s activities at annual shareholder meetings. • Governments can use social audits of a range of businesses in a particular industry as one means of assessing the need for legislation or regulation of business in the industry. Social Auditing • ‘As business are subjected to increasing levels of scrutiny and as consumers and pressure groups have access to more information about business behaviour, it is likely that an increasing number of businesses will use social audits’. (Hall 2nd Ed page 234) Externalities • Costs and benefits which the business doesn’t pay or receive. • E.g Lorry delivering goods – creates noise – neighbours suffering don’t get compensation. • Air pollution – causes illness • Greenhouse gasses – lead to global warming, causing storms and flooding • No compensation. Externalities • Costs and benefits which the business doesn’t pay or receive. • E.g building a beautiful office block • People enjoy looking at it. • An enjoyment the business receives no money for. • Other examples: • Spill over of technology (e.g Velcro) Externalities • Noise pollution, air pollution, global warming – Negative externalities • The beautiful building – Positive externalities. • The full cost to society of an activity is equal to the cost to the business, private cost, plus any other cost, the externality. These teo add together equal social cost of an activty. Externalities • Business are under pressure to pay for the social cost of anything they do. • Environmental groups – campaign against larger business who pollute. • Residence protest against local factories that harm their environment • These protests equal bad publicity and lower sales. Market Failure • Definition: • Where the market mechanism fails to allocate resources efficiently • In this case: where external costs and benefits are NOT accounted for Market failure • External Costs • Decision makers do not take into account the cost imposed on society and others as a result of their decision – e.g. pollution, traffic congestion, environmental degradation, depletion of the ozone layer, misuse of alcohol, tobacco, anti-social behaviour, drug abuse, poor housing • Pollution = Market failure • There is a cost to society which is not being paid by the producer (and therefore not being past onto the consumer) • Ideally the cost of production, including pollution, should be passed to the consumer. • Then less polluting products would be bought as the price would be cheaper. GOVERNMENT INTERVENTION AND MARKET FAILURE • Government intervention may seek to correct for the distortions created by market failure and to improve the efficiency in the way that markets operate • Pollution taxes to correct for externalities • Laws • Traffic congestion charge • Taxation of monopoly profits (the Windfall Tax) • Regulation of oligopolies/cartel behaviour • Direct provision of public goods (defence) • Policies to introduce competition into markets (de-regulation) • Price controls for the recently privatised utilities • • • • Understand the purpose implication of social auditing. Define social cost Define market failure. Step by Step Profit Social Audit Unwrap the ‘present’ answer the question (teacher prepare before hand) Changes Higher Level in corporate objectives & strategy over time. Internal factors affecting Aims and objectives • Corporate culture • Type and size of organisation • Age of business • Finance • Risk profile of key stakeholders • Private Vs Public sector organisation External factors affecting Aims and objectives • State of the economy • Government constraints • Presence and power of pressure group Changes Higher Level in corporate objectives & strategy over time. A change in these factors are likely to change the significance of an organisations objectives over time: • Corporate strategy (the tools used to achieve a firms aims and objectives) will subsequently change. • Also business may have already achieved their, objectives therefore they will need to change their targets to create new ones. • Society may have changed their expectations of the business……. Higher Level • • • • • • • • • • Changes in Society’s expectations of business behaviour over time. What was once considered acceptable able can change. Societies have different expectations (minimum wage) Advertising (e.g tobacco) CSR is subjective (what is considered right or wrong varies) Businesses need to review their objectives time after time. Multiculturalism/ equally opportunity/donating profits/pressure groups (cruelty to animals) Unethical firms (backlash) Environmental damage - business needs to respond Societies changing views of what it is socially moral – will change business own CSR. Business views will change overtime to fit in with sociatal norms. • play Grandma’s Trunk Share with the class….‘When I opened grandma’s trunk I found….’ • Keyword • Fact • Skill Learnt so far in business. How to play: • http://www.blog.montessoriforeveryone.com/5-easy-travel-games-for-kids-on-thego.html Plenary Level achieved_____ What do you now know as a result of today’s lesson? What are your areas for improvement? What are you going to do about this?