Introduction to Business

Many Kenyans today engage in many forms of business. In fact, doing business has been seen as source of extra income to the family. Similarly, business schools in our universities have continued to attract many students.

For thousands of years, business existed only at the fringes of society. Society thought little of people in business, and people in business expected little of society. Profit was their only reward because power, social status, and even social acceptability were closed to them. In this context, the idea that making a profit was the only goal of business might have some sense (Solomon & Hanson, 1983: vii).

This module will aid you to go through the course and explore the exciting world of business. We will introduce you to the various activities of business people, which include; accounting, finance, information technology, management, marketing, and operations. You will be able to understand the roles that these activities play in an organization, and how they work together. We hope that by exposing you to the things that business people do, we will be helping you decide whether to engage in business and also what kind of business will be right for you or what area of business you would like to study further.


 

AIMS AND OBJECTIVES OF THE COURSE

AIMS AND OBJECTIVES OF THE COURSE

The general aim of this course is to introduce you to general business management and its environments.

Specifically, by the end of the course, you should be able to:

  1. Demonstrate understanding of the nature and purpose of business;
  2. Demonstrate understanding of the different forms of business ownership;
  3. Evaluate various business environments;
  4. Explain the various business functions;
  5. Analyze the various concepts of Legal and Social Business Environment;
  6. Assess the challenges in running businesses.

LECTURE ONE

HISTORY AND EVOLUTION OF BUSINESS

Introduction
Welcome to our first topic on this unit in Introduction to Business. This lecture shall introduce
you to the historical background and the evolution of business.

Learning Outcomes
By the end of the lecture, you should be able to:

  1. Demonstrate understanding on the History and evolution of business;
  2. Discuss the Nature of business entities;
  3. Explain the Purpose of business
Nature of Business Entities
The term business means different things for different people. Several quick definitions are as
follows:
  1. Business means an occupation, trade or a profession
  2. Operations of trade or industry
  3. A commercial enterprise or establishment
Kibera (1996) defines business as an economic activity which is primarily organized to
manufacture or produce goods and services at a profit. The profit is the difference between sales
revenue and costs.

Purpose of Business
Profit maximization is the greatest rationale for the existence of business. To make a profit,
business must make revenue that exceeds costs. This is done through the production and
marketing of goods and services, which satisfy human needs and wants. Satisfaction of human
needs is important for survival. Some of the basic human needs include food, air, water, clothing
and shelter. Human Wants refer to those desires concerned with the improvement of quality life.
Some of the wants include leisure and self actualization. Ideally, nobody would die from lack of
a Want such as not having a television, swimming pool or radio.
Human needs have been classified differently according to the psychologist, Abraham Maslow
as follows:
  1. Self Actualization
  2. Ego and self esteem
  3. Social and belonging needs
  4. Safety and security needs
  5. Physiological needs
Business stakeholders who include employees, customers, financiers, suppliers and the larger
community expect rewards firm the business which they use in return to satisfy their needs and
wants. If a good satisfies human needs then we say it has an economic utility. Utility is defined
as the ability of a good or service to satisfy human need. Therefore, businesses convert inputs to
outputs that can satisfy human needs and wants which in turn have economic utility.

Summary

In this lecture, you have learnt about the historical background and the evolution of business as well as the nature and purpose of business. You should be able to appreciate the existence of the various business entities within your environment.

1) How does business help in meeting human needs? 2) Explain the purpose of business in any economy

Lecture Two

FORMS OF BUSINESS OWNERSHIP

Introduction
Welcome to our first topic on this unit in Introduction to Business. This lecture shall introduce
you to the historical background and the evolution of business.

Learning Outcomes
By the end of the lecture, you should be able to:
  1. Demonstrate understanding on the History and evolution of business;
  2. Discuss the Nature of business entities;
  3. Explain the Purpose of business
Nature of Business Entities
The term business means different things for different people. Several quick definitions are as
follows:
  1. Business means an occupation, trade or a profession
  2. Operations of trade or industry
  3. A commercial enterprise or establishment
INTRODUCTION TO BUSINESS
Kibera (1996) defines business as an economic activity which is primarily organized to
manufacture or produce goods and services at a profit. The profit is the difference between sales
revenue and costs.


Purpose of Business
Profit maximization is the greatest rationale for the existence of business. To make a profit,
business must make revenue that exceeds costs. This is done through the production and
marketing of goods and services, which satisfy human needs and wants. Satisfaction of human
needs is important for survival. Some of the basic human needs include food, air, water, clothing
and shelter. Human Wants refer to those desires concerned with the improvement of quality life.
Some of the wants include leisure and self actualization. Ideally, nobody would die from lack of
a Want such as not having a television, swimming pool or radio.
Human needs have been classified differently according to the psychologist, Abraham Maslow
as follows:
  • Self Actualization
  • Ego and self esteem
  • Social and belonging needs
  • Safety and security needs
  • Physiological needs
Business stakeholders who include employees, customers, financiers, suppliers and the larger
community expect rewards firm the business which they use in return to satisfy their needs and
wants. If a good satisfies human needs then we say it has an economic utility. Utility is defined
as the ability of a good or service to satisfy human need. Therefore, businesses convert inputs to
outputs that can satisfy human needs and wants which in turn have economic utility.
 

Summary

In this lecture, you have been introduced to various forms of business ownership, forms of partnerships and limited liability companies. You should therefore be able to identify the various forms of business ownership within our country and their formation requirements.

Out of the three forms of businesses, which one would you like to operate and why?

Untitled open question

Lecture Three

ENVIRONMENT OF BUSINESS

ENVIRONMENT OF BUSINESS

Introduction
In the previous lecture, you learnt about the various forms of business ownership. In this lecture,
you will learn about the environment in which these business entities operate. Businesses do not
operate in a vacuum; they operate in an environment. Business environment is the sum total of
all external and internal factors that influence a business. You should keep in mind that external
factors and internal factors can influence each other and work together to affect a business.

Learning Outcomes
By the end of the lecture, you should be able to:

  1. Analyze the internal Environment of business;
  2. Examine the external environment of business.
  3. Analyzing the Business Environment

INTRODUCTION TO BUSINESS
Excellent companies take an outside-in approach to their business operations. This means that
they are constantly monitoring the changing external environments and continuously adopting
their business (internal environment) to the best opportunities. Company managers are tasked
with the responsibility of identifying major changes in the environment. In this lecture, the major
forces in the marketing environment of the company are discussed.

Meaning of the Business Environment
A company’s business environment consists of actors that affect its ability to develop and
maintain successful transactions and relationships with its target customers. They are factors and
forces that affect a company’s ability to operate effectively in providing products and services to
its customers.
Take note that the process of analyzing the environment is also known as
environmental scanning.

Why Scan the Environment?
Environmental scanning is important to a company for a number of reasons. These are discussed
below:

To identify threats spinning from the environment
A threat could be:

  1. A new competitor in a firm’s market;
  2. Price wars with competitors;
  3. A competitor has a new and innovative product or service;
  4. Taxation introduced or increased on a firm’s product or service.

To identify opportunities spinning from the environment and exploiting it to the
firm’s advantage
Opportunities could be:

  1. A developing market such as the internet;
  2. Mergers, joint ventures or strategic alliances;
  3. A new international market;
  4. A market vacated by an ineffective competitor.

To identify the firm’s weaknesses
These are the lack of the firm’s resources that should be converted into strengths. A weakness
could be:

  1. Lack of marketing expertise;
  2. Poor quality goods and services;
  3. Undifferentiated products and services.

To identify the firm’s strengths
These are capabilities (bundles of assets and skills) that can be used to exploit opportunities,
combat threats and overcome weaknesses. A strength could be:

  1. Your specialist marketing expertise;
  2. Quality products;
  3. New innovative products or services;
  4. To develop strategies that can enable a company to cope with the ever changing environment.


Components of the Business Environment
The marketing environment can be divided into two components namely: The internal and the
external environment. These are discussed in this section.

Internal Environment
Internal environment includes all those factors which influence business and which are present
within the business itself. These factors are usually under the control of the business. The study
of internal factors is really important for the study of internal environment. These factors are:

  • Objectives of Business
  • Policies of Business
  • Production Capacity
  • Production Methods
  • Management Information System
  • Participation in Management
  • Composition of Board of Directors
  • Managerial Attitude
  • Organizational Structure
  • Features of Human Resource, etc.

Note that all the above factors do influence the decisions of business.
However, since all these factors are usually under the control of business,
they cannot be wholly included in the business environment


External Environment
External environment includes all those factors which influence business and exist outside the
business. Business has no control over these factors. The information about these factors is
important for the study of the external environment. Some of these factors are those with which a
particular company has very close relationship. However, there are some other factors which
influence the entire business community.

Micro Environment

Micro environment means that environment which includes those factors with which business is
closely related. These factors influence every industrial unit differently. These factors include
customers, suppliers, competitors, public, and marketing intermediaries.

Suppliers
These are business firms and individuals who provide resources needed by the company to
produce goods and services.
Companies must; develop specifications; search for suppliers; qualify them and choose those
who offer the best mix in terms of

  •  quality
  • delivery reliability
  • credits
  • warranties and
  • low costs

Development in the suppliers’ environment can have substantial impact on the company’s
marketing operations. Marketing managers need to watch; the price trends of their key inputs,
and the supply availability like continuity. Marketing managers should avoid over relying on one
source of suppliers.

Business Intermediaries
These are firms that aid the company in promoting, selling and distributing its goods and services
to the final buyers. They include; middlemen; physical distribution firms; marketing service
agencies; and financial intermediaries. These are discussed further.
Middlemen
They are business firms that help the company to provide customers with goods and services as
well as information. Examples include merchant middlemen, who are wholesalers and retailers,
and also agent middlemen, who include brokers, sales representatives.
Physical Distribution Firms
These firms assist the company in stocking and moving goods from their original locations to
their destinations. Examples include warehousing firms and transportation firms. Every company
looks for the most effective models of transportation while balancing such considerations as;
cost, delivery, speed, and safety.
Marketing Service Agencies
Examples of marketing service agencies include; Marketing research firms; Advertising
agencies; Media firms; and Marketing consulting firms. They assist the company in targeting and
promoting its products to the right market.
Financial Intermediaries
Financial intermediaries include; Banks, Credit companies, Insurance companies, etc. These
intermediaries provide financial assistance and or insure risk associated with buying and selling
of products to companies or marketing organizations

Customers
Customers are the people that the company sells their goods to. They are also known as the target
markets. Five types of customer markets exist. These are listed as follows:

  • Consumer markets – individuals and households that buy goods and services for personal consumption;
  • Industrial markets – organizations that buy goods and services needed for producing other products and services for the purpose of making profits and / or achieving other objectives;
  • Reseller markets – organizations that buy goods and services for the purpose of reselling them at a profit;
  • Government and non profit markets – they buy goods and services in order to produce
  • public services or to transfer these goods and services to others who need them;
  • International markets – buyers found abroad who include foreign customers, producers, resellers and governments.

Examples of customer groups include:

  • Banks
  • Personal customer markets
  • Trust department markets
  • Business customers
  • Profit customers – high earner members, like estate agents and stock brokers
  • Importers and exporters.

Take note that each customer group exhibits specific characteristics that
warrant careful study by the seller.

Competitors
A company rarely stands alone in its efforts to serve a given customer market. It is surrounded
and affected by a host of competitors. These competitors have to be identified, monitored and
out-manoeuvred in order to capture and maintain customer loyalty.

Publics
A public is a group that has actual or potential interest in, or impact on a company’s ability to
achieve its objectives. A public can facilitate or impede a company’s ability to achieve its goals.
The wise company takes concrete steps to manage successful relations with its key publics.
Every company faces several important publics. These are listed as follows:

  • Financial publics - financial institutions affect the company’s ability to obtain funds.
  • Examples of financial institutions include banks, investment houses, stock brokerage firms, and insurance companies;
  • Media publics - companies must activate the good will of media organizations, specifically; newspapers, magazines, radio and television stations in order to set more and better media coverage in the form of favourable news features and editorial comments;
  • Government publics - companies need to take government developments into account in formulating marketing plans;
  • Citizen action publics / lobby groups / pressure groups - a company’s marketing practices may be questioned by consumer organizations, environmental groups, minority groups, etc;
  • Local publics - every company faces local publics; for example, neighbourhood residents and community organizations. Companies must deal with community issues, attend meetings, answer questions, and make contributions to worthwhile courses.
  • General publics – a company needs to be concerned with the general public’s attitude towards its products and practices. The public’s image of the company affects its patronage.
  • Internal publics – a company’s internal publics include blue collar workers, white collar workers, managers, etc

Companies should spend time monitoring all its publics, understanding their needs and opinions, as well as dealing with them constructively.

The Macro-Environment
The macro-environment has forces that represent the uncontrollable marketing variables that the
company must monitor and respond to. This environment consists of the larger societal forces
that affect all the actors in the company’s micro-environment. They include:

  • The demographic environment
  • Economic environment
  • The physical environment
  • Technological environment
  • Political / legal environment
  •  The socio-cultural forces/ environment

The Macro and the external Micro-Environment both pose threats and spin opportunities from
the environment. We discuss them next.

Political Factors
The political arena has a huge influence upon the regulation of businesses, and the spending
power of consumers and other businesses. You must consider questions such as:

  • How stable is the political environment?
  • Will government policy influence laws that regulate or tax your business?
  • What is the government’s position on marketing ethics?
  • What is the government’s policy on the economy?
  • Does the government have a view on culture and religion?
  • Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?

Legal Factors
Legal factors include

Legislations

  • The legal system
  • Fiscal and monetary policies
  • Employment legislation
  • Consumer protection laws
  • Pressure groups
  • Foreign trade regulations
  • Environment protection regulation

Economic Factors
Marketers need to consider the state of a trading economy in the short and long-terms. This is
especially true when planning for international marketing. You need to look at:

  • Interest rates
  • Business cycles
  • Money supply
  • Investment levels
  • Balance of payment
  • The level of inflation Employment level per capita
  • Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on

Socio-Cultural Factors
The social and cultural influences on business vary from country to country. It is very important
that such factors are considered. Factors include:

  • What is the dominant religion?
  • What are attitudes to foreign products and services?
  • Does language impact upon the diffusion of products onto markets?
  • How much time do consumers have for leisure?
  • What are the roles of men and women within society?
  • How long are the population living? Are the older generations wealthy?
  • Do the populations have a strong/weak opinion on green issues?
  • Demographics
  • Attitudes
  • Social class
  • Changes in consumer values and lifestyles
  • How much time do consumers have for leisure?
  • What are the roles of men and women within society?
  • How long are the population living?
  • Are the older generations wealthy?
  • Do the populations have a strong/weak opinion on green issues?

Technological Factors
Technology is vital for competitive advantage, and is a major driver of globalization. Consider
the following points:

  • Does technology allow for products and services to be made more cheaply and to a better standard of quality?
  • Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc?
  • How is distribution changed by new technologies; for example, books via the
  • Internet, flight tickets, auctions, etc?
  • Does technology offer companies a new way to communicate with consumers, for example, banners, Customer Relationship Management (CRM), etc?

Natural Environment

Product resources, like Raw materials, Energy resources, Mineral resources, and Water
resources

Climatic conditions, like Seasons and Weather

  • Physical resources, like Topography, Attitude, Waterfalls, and Altitude
  • Pollutions like Air, and Water
  • Natural calamities, like, Floods, Earthquakes, Disease outbreaks, Storms, Landslides, and
  • Volcanic activity

Summary

In this lecture, you have learnt about the internal and external environments in which businesses operates. You should be able to identify business challenges and opportunities that emanate from these environments.

Lecture Four

MANAGERIAL FUNCTIONS

MANAGERIAL FUNCTIONS

Introduction
In the previous lecture, you learnt about the environment in which business operates. In this
lecture, you will learn about the various functions of management in a business enterprise. There
are five functions of management and leadership. They include; planning, organizing, staffing,
coordinating, and controlling. These functions separate the management process from other
business functions such as marketing, accounting and finance.

Learning Outcomes
By the end of the lecture, you should be able to:

  1. Demonstrate understanding of the planning functions of management;
  2. Discuss the organizing function of management;
  3. Analyze the communication function of management ;
  4. Evaluate the control function of management.

Planning as a Management Function
Planning in simple terms is looking ahead. It is preparing for the future. It involves outlining a
future course of action. Planning makes things to happen. Therefore, it is needless to say that in
the absence of planning, things are left to chance. It is unique in that it precedes all the other
managerial functions. It involves deciding certain objectives and formulating the policies and
procedures to achieve them. Effective planning provides answers to questions like; what to do?
How to do it? Who is to do it? When to do it?
Planning is a function performed by managers at all levels. Though every manager plans, the
plans developed by different managers may vary in respect of scope and importance. For
example, plans made by top managers on the one hand, have a wider scope with a focus on the
organization as a whole and normally cover a longer period. On the other hand, plans developed
by middle and lower level managers relate to the divisions or departments and usually cover a
short period. Systematic planning helps in facing the uncertainties of future with less
embarrassment. It helps in making things happen in the expected way.

Organizing as a Management Function
Organizations achieve objectives by using physical and human resources. When people work in
groups, everyone in the group should know what he is expected to achieve and with what
resources. In other words, organizing involves establishing authority and responsibility
relationships among people working in-groups. The manager's task in organizing aims at creating
a structure that facilitates the achievement of goals. Organizing involves:

  1. Determination of activities required to achieve goals;
  2. Grouping of these activities into departments;
  3. Assignment of such groups of activities to a manager;
  4. Delegation of authority to carry them out; and
  5. Provision for coordination both horizontally and vertically in the organization.

The managerial function of organizing makes the performance of the tasks easy. It involves
designing the structure. The resulting structure varies with the task. A large organization with
huge markets needs a different structure compared to a small organization. Similarly, structure of
an organization operating in a stable environment may be different from the one operating in a
dynamic environment. Thus, the size and nature of the activities involved the type of
environment and the overall business strategy, influence the structure.

Directing / Communication as a Management Function
Once plans are made and the organization is created, the focus shifts to the achievement of
objectives. This function is called by various names, which include; directing, leading,
motivating, actuating, and so on. It basically involves directing or leading the activities of the
people. The manager directs the activities of his/her subordinates by explaining what they have
to do and by helping them perform it to the best of their ability. In leading the people, the
manager performs the following three distinct tasks:

  1. Communication: the process of passing information from one person to another;
  2. Leadership: the process by which a manager guides and influences the work of his subordinates; and
  3. Motivation: the act of stimulating the people so that they give their best to the organization.

Leading involves directing, influencing, and motivating employees to perform essential tasks.
Leading is a function predominantly interpersonal in nature. In the organizational context, many
problems arise because of the failure by managers to understand the people, their aspirations,
attitudes, and behaviour as individuals and in groups. If the manager fails in leading the people
towards better performance, any amount of planning and organizing, however effective they are,
may not help the organization.

Controlling as a Management Function

Planning and controlling are two closely interrelated functions in that while plans specify the
objectives to be achieved, control as a managerial function facilitates to know whether the actual
performance is in conformity with set plans so that, in the event of deviations, appropriate
corrective measures can be taken. In the absence of adequate control mechanism, unexpected
changes in the environment may push the organization off the track. Thus, controlling implies
measuring and correcting the activities to ensure that the events conform to plans. That is why
planning and controlling is often described as the ‘Siamese’ twins of management. It involves
four main elements:

  1. Establishing standards of performance;
  2. Measuring the actual performance and comparing it against the standard performance;
  3. Detecting deviations, if any, in order to make corrections before it is too late; and
  4. Taking appropriate corrective measures.

Staffing
Organizing process results in the creation of a structure with various positions. Staffing involves
manning the various positions of the organization. It includes manpower planning, recruiting and
selecting of the right people, training and developing them, deciding financial compensation, and
appraising their performance periodically. There is a debate as to whether staffing function is to
be performed by all managers in the organization or handled by personnel department alone.
However, in general, personnel department performs some processes of staffing only. These
include recruitment and selection, training, salary administration, etc. All managers, on the other
hand, may do performance appraisal.

Summary

In this lecture, you have been introduced to the various functions of management. You have also learnt about the skills that a manager needs, in order to carry out these managerial functions.

Lecture Five

HUMAN RESOURCE MANAGEMENT

HUMAN RESOURCE MANAGEMENT

Introduction
In the previous lecture, you were introduced to various management functions. In this lecture,
you will learn more about the management of human resources in the business enterprises.

Learning Outcomes
By the end of the lecture, you should be able to:

  1. Make a difference between Human resource management and human resource development;
  2. Explain the function of human resource planning;
  3. Discuss recruitment and selection of personnel in the business enterprise;
  4. Examine the various motivation and compensation techniques.

Human Resource Management and Development

Human resource is the function of management that deals with acquisition, retention,
development and the effective utilization of human resources employed by an enterprise. Human
resource is concerned both with the internal and the external aspects within the organization.
Internally, it is concerned with integrating the workforce, motivation, training and expanding the
skills of the employees. This is what is referred to as human resource development. Externally, it
is concerned with labour shortages, trade union policies, educational institutions and the legal
framework.


The Function of Human Resource Manager.
The human resource manager undertakes various tasks and responsibilities such as the following:

  • Advising other managers on the interpretation and the implementation of human resource policies.
  • Analyzing the effect of absenteeism, labour turnover, strikes and employee grievances on productivity and performance.
  • Supporting other departments by providing services related to job description, job analysis, selection, induction programmes, training and development, wage survey, health and safety measures.
  • Ensuring consistency in the application of human resource policies and procedures.
  • Ensuring that the conditions of work are perceived positively by the present and the prospective employees.

1 Classification of Human Resource Manager Functions / Roles
A Employment Role

  1. Manpower planning
  2. Recruitment
  3. Selection
  4. Promotion
  5. Transfers
  6. Termination
  7. Appraisal
  8. Maintaining employee records

Education and Training
i) Induction
ii) Operation
iii) Apprenticeship
iv) Clerical training
v) Supervision
vi) Research and development.

Wages and Salaries

  1. Policy evaluations
  2. Job analysis
  3. iii) Job evaluations
  4. iv) Merit ratings
  5. v) Fringe benefit allocations


Industrial Relations

  1. Policy issues
  2. Grievance procedures
  3. Industrial strive
  4. Staff associations
  5. Joint consultations


Health and Safety

  1. Staff welfare
  2. Social facilities.
  3. Pension scheme

Recruitment and Selection
Recruitment and selection are sets of activities used to attract job candidates with the right
abilities and attitudes. It is a process of generating a pool of qualified applicants for a given job.
In recruitment and selection of employees, a manager may consider two important issues;
sources of recruitments, and the recruitment and selection process

Sources of Recruitment
Firms can use both internal sources and external sources of recruitment. Internal sources refer to
when the organization uses the existing employees by way of promotion. In external sources, the
organisation makes use of outside candidates, consultants or agencies.

Advantages of Internal Recruitment

  1. Creates opportunity for career planning
  2. A source of motivation
  3. Easy assessment of employee suitability
  4. Minimal recruitment cost

Disadvantages of Internal Recruitment

  1. It may lead to inbreeding
  2. It may lead to group thing spill-over
  3. Stimulates unhealthy competition

Advantages of External Recruitment

  1. Offers opportunity to include new ideas through new people
  2. Opportunity to get persons with the best qualifications
  3. Outsiders can effectively implement change
  4. Outside persons have high level of neutrality

Disadvantages of External Recruitment

  1. The process is very costly
  2. The risk of getting unknown persons
  3. Negative impact on the existing personnel

Organizations should balance between the use of both internal and the
external recruitment procedures so as to maximize on the chances of
getting the right person.
Externally the recruitments are done through the following

  • Consultants
  • Employment bureaus such as the ones in Kenya like Manpower, myjobeye.com, etc
  • Staff referrals
  • Head count- head hunting
  • Visits to schools and colleges
  • Participating in career exhibition.
  • Distributing employment brochures

Recruitment and Selection Process
Recruitment and selection of the right person for employment usually follows a thorough
process. Table 1 describes the procedure, the purpose and the information required in each step
of recruitment and selection process.


Manpower Planning
Manpower planning seeks to improve the enterprise ability to improve the organization ability to
achieve its objectives. This is done by developing strategies which are designed to improve the
present and future contributions of the employees. It includes forecasting future manpower
demands as dictated by the environmental changes. Environmental changes that affect the human resource include;

  1. Technological- changes in materials, processes and systems.
  2. Economic-marketing, capital formation
  3. Social- population trends-development.
  4. Political- industrial legislation

Importance of Manpower Planning

  1. It enables planned recruitment at every stage of the organization
  2. It establishes staffing requirements within the organization
  3. It highlights areas of high labour turn over and offers possible solutions
  4. The implications of recruitment processes and promotions are analyzed

The Process of Manpower Planning

  1. The existing situation is analyzed to establish the existing gaps
  2. Assessment is done to establish the future objectives in all the departments
  3. The objectives are broken down into positions to be filled in by the prospective employees
  4. Different types of manpower requirements in terms of the abilities, qualifications and experiences, are identified
  5. Possible promotion candidates are noted and earmarked for specific positions
  6. Careers’ requirements are examined and evaluated, and salaries evaluated to correspond to the job requirements
PROCUDURE PURPOSE INFORMATION REQUIRED
1) Complete job application form.

-Indicates the position

-Provides information for interview

Information for predicating success on the job

2.) Initial screening interview

Quick evaluation of the applicant’s suitability

Information on the experience, salary expectation and willingness to relocate

3) Testing

-Measure the applicant’s skills and ability to learn on the job

Aptitude, practical experiences, psychological and analytical skills

4) Inquiry on applicant’s background.

-Confirmation of truthfulness, accuracy of resume and application form

Confirmation from the referees and former employer.

6) In-depth selection interview.

Find out more about the applicant and verify the results

-Abilities and skills

-Is normally conducted by the panel or section head.

Physical and medical examination.

-Fitness of the person

-Does not cause health risk to others

-Samples and results

-Done by the company’s physician.

Job Offer

-To fill a vacant position

-Completion of employment records

-Salary and benefits.

     


Compensation


Compensation refers to every type of payment(s) that the individuals receive in return for
performing organizational tasks. There are different types of payments. These include:

  1. Direct payments –these are payments that a person receives in form of salary, wage and commission
  2. Indirect compensation – this includes all other financial rewards
  3. Non financial compensation – this includes all other fringe benefits

Summary

In this lecture, you have been introduced to the functions of human resource management in a business enterprise. You have also learnt about the recruitment and selection process as well as the motivation and compensation techniques used by managers in the business enterprise. This lecture has given you a good foundation for other human resource management courses that you will encounter at a higher level of your programme.

Lecture Six

MARKETING CONCEPT IN BUSINESS

MARKETING CONCEPT IN BUSINESS

Introduction
In the previous lecture, you were introduced to the function of human resource management. In
this lecture, you will be introduced to marketing and its various marketing strategies.

Learning Outcomes
By the end of this lecture, you should be able to:

  1. Understand the nature of marketing management;
  2. Analyze the elements of the marketing mix;
  3. Explain the Product life cycle;
  4. Examine the various Strategies used in product life cycle

Marketing Management

Most of us probably consider ourselves rather well informed on the subject of marketing. After all, we watch television commercials and see how advertisers are trying to persuade us to buy products. Many of us have friends who ‘can get it for us whole sale’ or we ourselves may be shrewd shoppers who can ferret out bargains. In short, everybody knows something about marketing. It is on this dangerous base of little knowledge that we begin our study. While most people probably do know a little something about marketing, the word itself has often been misunderstood and used loosely, even by those in the field.

Marketing Concept

As business administrators increasingly recognize that marketing is vitally important to the success of a firm, and as they realize that a business is a marketing organization; an entirely new way of business thinking and business life is evolving. It is called the marketing concept. The concept it has developed as production and engineering oriented firms have changed into marketing oriented structures.

The marketing concept is based on two fundamental beliefs: First; all company planning policies and operations should be oriented towards the customer. Second; profitable sales volume should be the goal of a firm. In its fullest sense, the marketing concept is a philosophy of business which states that the customer’s want satisfaction is the economic and social justification of a company’s existence. Consequently, all company activities in production, engineering and finance as well as in marketing itself must be devoted to first determining what the customer’s wants are, and then satisfying these wants while still making a reasonable profit.

The New Concept of Marketing

As already noted, the new marketing concept replaces, and to some extent reverses the logic of the old one. The two views are contrasted in Table 2. The old concept starts with the firm’s existing products and considers marketing to be the use of selling and promotion to attain sales at a profit. The new concept starts with the firm’s existing and potential customers; it seeks profits through the creation of customer satisfaction; and it seeks to achieve this through an integrated, corporate wide marketing programme.

Table 2: Marketing Concept

The old concept

Selling and Promoting 

Profits through sales volume

The new concept

Customer Integrated

Profits through Customer satisfaction

The new marketing concept holds that firms can gain more by being oriented outward towards the market instead of inward towards the products. In the new marketing concept, the customer is at the top of the organization chart. A company should prefer a franchise over a market to a franchise over a plant. It should look at the company through the customer’s eyes. Instead of trying to market what is easiest for us to make, we must find out much more about what the consumer is willing to buy. In other words, we must apply our creativeness more intelligently to people and their wants and needs, rather than to products.

Marketing Management is the analyzing, organizing planning and controlling of the firm’s customer policies and activities with a view to satisfying the needs and wants of chosen customer groups at a profit. This definition is used for three reasons:

  1. It suggests the three main elements of the modern marketing concept; that is, integrated marketing management to create customer satisfaction at a profit.

  2. It suggests the ‘marketing mix’ idea through its reference to the management of customer policies and activities and the ‘market segmentation’ idea through its reference to chosen customer groups.

  3. It specifies that marketing comprises the administrative activities of analysis, organization, planning and control.

Elements of the Marketing Mix

There are four major elements of marketing mix, which are traditionally used in market communication. These elements are price, place, product, and promotion. These are discussed next.

1 Price

Price is the amount the consumer must exchange to receive the offering (Solomon et al., 2009).

The company’s goal in terms of price is really to reduce costs through improving manufacturing and efficiency. Most importantly, the marketer needs to increase the perceived value of the benefits of its products and services to the buyer or consumer. There are many ways to price a product. Let's have a look at some of them and try to understand the best policy/strategy in various situations.

2 Place

Place includes company activities that make the product available to target consumers (Kotler and Armstrong, 2010). Place is also known as channel, distribution, or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer.

3 Product

Product means the goods-and-services combination the company offers to the target market (Kotler and Armstrong, 2010). For many, a product is simply the tangible, physical item that we buy or sell. You can also think of the product as intangible; a service, for instance. The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an adult (maturity); after a long period as an adult, the plant begins to shrink and die out (decline).

4 Promotion

Promotion includes all of the activities marketers undertake to inform consumers about their products and to encourage potential customers to buy these products (Solomon et al., 2009). Promotion includes all of the tools available to the marketer for marketing communication.

Product Life Cycle

  1. How does the product life cycle fit in your product marketing mix?

  2. What is product development?

All products move through a product life cycle. For this discussion, consider products and services to be interchangeable. Both have life-cycles. Also recognize that any business has its own life cycle.

  1. What is product development's impact on product marketing mix?

  2. How quickly do products move through the life cycle?

You need a thorough understanding of the answers to these questions - and how they relate - when planning your marketing mix.

Your small business marketing strategy must include a product life cycle review.

  1. All products or services move through product life-cycles. Typically, these life-cycles move through four stages; entry or introduction, growth, maturity, and finally, decline.

  2. While some life-cycles can be extremely short (for example, the pet rocks, toys, etc., other product or service life-cycles can last for hundreds of years (paper, printing, etc.).

  3. As a product moves through its life cycle, the marketing approach must be adapted.

All of the information below is based on the product or service being genuinely new to its market (could be available in other markets) and based on the product or service being genuinely good and valued by the market.

 

A Product Life Cycle Stages

Entry or Introduction Stage:

  1. Launch new product.

  2. Develop the market for the product.

  3. Build brand awareness. Advertise.

  4. Trademark or patent the new product if necessary.

  5. Consider your pricing strategy: should it be a low price to quickly gain market share; or a high price if limited competition and high cost to bring to market:

  6. Target Marketing distribution, place or location based on your market research – target the easiest market to enter first; you want to have early and fast wins.

  7. Promotional materials are developed to inform and gain awareness, understanding and acceptance of the product. Focus on an audience that likes to be an early adopter.

Growth Stage:

  1. Focus on growing market share.

  2. Increase brand preference: focus on product features, advantages and benefits.

  3. Product quality must be good. Awareness of quality focus must be a communication message.

  4. As product demand grows, stabilize pricing and ensure that the cost/price relationship is valid and also supported by the market. At this stage (for new products specifically), you will have an advantage over your competitor and price will not be as sensitive as in later stages.

  5. Enter additional markets. Your product and its brand will be gaining recognition and will receive easier acceptance. Demand will increase.

  6. Promotional materials are focused on the broader, more expanded market (and audience).

Maturity Stage:

  1. Small business sales growth starts to slow down. Focus on holding on to market share and making as much profit as possible.

  2. Competitors have caught up to you and your product.

  3. Define and refine what is unique about your product: unique value proposition and strong product differentiation and product positioning (or re-positioning). If possible, and/or necessary, add new, different and unique features and benefits to your product.

  4. Pricing may be impacted by competitive activity. Develop alternative competitive strategy to cutting price for as long as possible.

  5. Distance to market may begin to cost in time and money. Look for alternatives: open a branch closer to the big markets, or the smaller less competitive markets; can the product be sold online – expand your market reach.

  6. Promotional materials are focused on the unique value proposition, new features and benefits and other product differentiation.

Declining Stage:

  1. Your product has become a commodity. Typically at this stage, competition is fierce and you can only continue to win if you are the lowest cost provider.

  2. Consider carefully if you wish to continue with this product if it cannot compete effectively.

  3. Look at ways to reduce product costs.

  4. Look at ways to improve or change the product.

Understand your customers and your competition very well during this stage: Develop your marketing research plan. Is market demand dying? Do your competitive intelligence and analyze your competitors? Can your competitors be more efficient at producing the product than you? Don’t hang on to the product for emotional reasons but also don’t let go of the product too soon.

B Strategies used in Product Life Cycle

How would we prolong the lifecycle of products? Consider extension strategies. There are several ways in which a business can prolong the lifecycle of a product. We discuss them below.

i Price Reductions

This is a very common strategy where prices of goods and services are reduced or more discounts given. Lower prices make the products and service to be accessible to a number of customers who could not have accessed them before. This makes the product to remain in the market for a longer period.

ii Repackaging and Redesigning

This is a widely used extension strategy. Large companies, in particular food producers, will slightly alter a product to make it seem new and attract new attention to the product. An example being a soft drink company producing a limited edition flavour of the product. This renews sales levels and gives the product continuing interest.

iii Launch in New Markets

Along with the other options, companies can also look at new markets for their old products to extend the PLC. A classic example of this would be Toyota’s Qualis, which was close to being obsolete in its major markets worldwide. The car was launched in India and turned out to one of the biggest hits, thus extending its PLC.

iv Promotion

Revised promotional activities such as advertising can help to remind customers about the benefits of purchasing the product. This can help to boost demand, at least for a little while longer.

Summary

In this lecture, you have been introduced to general marketing management process, and the elements of the marketing mix which you should be able to apply in your marketing activities.

Lecture Seven

LEGAL COMPONENT OF BUSINESS ENVIRONMENT

LEGAL COMPONENT OF BUSINESS ENVIRONMENT

Introduction

In the previous lectures, you have learnt about the various forms of business. In this lecture, you will learn about the various laws that regulate business enterprises and the general legal environment in which businesses operate in.

Learning Outcomes

By the end of this lecture, you should be able to:

  1. Explain the various business laws and regulations that affect business operations;

  2. Describe the components of a valid business contract;

  3. Analyze the legal environment of business.

Business Laws and Regulations: Laws Applicable to Business

There are several laws that apply to business entities in Kenya. These are;

  1. Health and safety

  2. Fire precautions

  3. The environmental laws

  4. Employee rights

  5. Building safety

  6. Service provision to the disabled

  7. Intellectual property rights

  8. Fair trading

  9. Operating licences

  10. Insurance

  11. Statutory obligations

Let us talk about them in details.

A Health and Safety

The Employment Act (Cap. 226), 2007 and the regulation of Wages and Conditions of Employment Act (Cap. 229) make rules governing wages, housing, leave and rest, health and safety, the special position of juveniles and women, and termination of employment.

B Fire Precautions

The Factories Act (Cap. 514) deals with the health, safety and welfare of an employee who works in a factory. It is also linked to legislation like the Environmental Management and Coordination Act No 8 of 1999, the Kenya Red Cross Society Act (Cap 256), the Water Act (Cap 372) (revised 2002), and the Grass Fire Act, among others.

C The Environmental Laws

Here we have the Environmental Management and Co-ordination Act, 1999. Every person in Kenya is entitled to a clean and healthy environment and has the duty to safe-guard and enhance the environment.

D Employee Rights

Employees are protected under the following acts in Kenya;

  1. The Employment Act, 2007

  2. The Labour Relations Act, 2007

  3. The Occupational Safety and Health Act, 2007

  4. The Work Injury Benefits Act, 2007

  5. The Labour Institutions Act, 2007

E Buildings Safety

  1. Land Planning Acts

  2. The Local Government Act

  3. Chapter 489 – Building Societies Act

F Services Provision to Persons living with Disability

Persons with disability Act no 14 of 2003. It provides for the rights and rehabilitation with persons with disabilities.

G Intellectual Property

Industrial Property acts dealing with; Patents, Trade Marks, Industrial Designs, Copyright, Utility Models, etc

H Fair Trading

The Restrictive Trade Practices, Monopolies and Price Control Act, Cap. 504 of the Laws of Kenya provide four institutions for the enforcement, administration and settlement of disputes in relation to Competition and Fair Trading.

I Keeping Information about People

  1. The Freedom of Information Bill, 2006-access to information and exemption

  2. Licenses

  3. The investment promotion Act (2000) requires that local investors without investment Certificate register their investments with the Kenya Investment Authority (KIA).

  4. Examples of licenses-Single business Permit Issued under Local Government Act (Cap 265), Trade License Issued under Trade Licensing Act (Cap 497). Stock trader’s license, Dealers license, etc.

J For ICT Businesses

CCK issues licenses to vendors, contractors, engineers, resellers, network operators, Internet and paging service providers, etc. The operators must meet the following conditions:

  1. Must be a registered company in Kenya

  2. The company must have at least 30 percent of its shares owned by Kenyan entrepreneurs

  3. The applicants are required to have qualified workforce in the field of telecommunication engineering

K Insurance

Insurance Act Cap 487 governs the insurance industry and is regulated by the Insurance Regulatory Authority.

L Business Contracts

A contract is a mutual agreement made between two or more persons that is valid and enforceable by law. A contract does not have to be written to be legal. Oral contracts can be enforced if the terms can be established in a court of law. However, oral contracts present problems. It is very difficult to establish what has been agreed upon with an oral contract.

Essential Components of a Contract

1 Agreement

This is the first and most important element of a contract. For an agreement to exist, there must be a reasonably definite understanding between the parties. Agreement occurs under the following conditions:

  1. Making of an offer - a proposal that expresses a desire to enter into a legally binding agreement

  2. Acceptance – this occurs when the party to who an offer has been made agrees to the proposal

  3. The offer and acceptance create a reasonably definite understanding between the parties who are involved in the contract

2 Consideration

This is the second requirement for a legal contract and is always by the referee. What constitutes a consideration? One of the ways in which the courts have tried to answer this question is with the detrimental test. Will the person complaining suffer a detriment (loss or damage) if the contract is not carried out? Has the person already suffered a loss? If the answer is yes, then the courts will hold the existence of that consideration.

3 Contractual Capacity

All parties to the contract must be able to make legally binding agreements. Individuals who have the capacity to contract are known as competent parties. Those who do not have the capacity to contract are classified as insane, intoxicated by drugs or liquor, or under legal age.

4 Legality of Purpose

Another requirement of a contract is legality of purpose. A contract must be legal in its information, purpose and performance. A contract in violation of the law is not enforceable.

5 Reality of Consent

This is missing when the agreement contains fraud, innocent misrepresentation or mistakes.

Fraud is deception with the intent to mislead another person. Sometimes silence can constitute fraud.

Misrepresentation is a false statement or fact. It is made innocently without the intention to deceive others.

 

Summary

In this lecture, you have been introduced to the general laws and regulations that influence business operations. You should be able to appreciate the various legal environments in which business operate in.

Lecture Eight

BUSINESS PLANS

BUSINESS PLANS

Introduction

In the previous lecture, you were introduced to the various legal requirements and legal environment that influence business operations. This lecture will introduce you to business plan and how they are used in business enterprises.

Learning Outcomes

By the end of this lecture, you should be able to:

  1. Understand the importance of business plans;

  2. Explain the uses of business plan;

  3. Describe the steps in the development of business plan.

Elements of a Business Plan

A business plan is a tool for organizing and analyzing information collected by the business person. Elements of a business plan include;

  1. Personal background information

  2. Business description including products and /or services

  3. Location of the business

  4. Analysis of existing competitors

  5. Strategies for success

  6. Financial statements such as sales forecast and expense summary

  7. List of experts to be consulted.

The total business plan should;

  1. Describe the company and products to be made

  2. Describe the market

  3. Describe the marketing strategy.

  4. Describe the management

  5. Describe the financial data.

Developing and Implementing a Business Plan

A business plan assists an entrepreneur in checking if his/ her business is possible. He /she decides if there is need for the product or service to be sold. Questions to be asked include:

  1. Will people buy the product or services?

  2. What other competitors are there at the market place?

The entrepreneur can decide if the material that is needed to make the product can be obtained.

  • If the material costs are high, the cost of the product will be high

  • If the prices for the product are high, then people may not buy from the entrepreneur

1 Implementation

When your plan is complete, you are ready to put it into action. Keep in mind that action is the difference between a plan and a dream. If a plan is not acted upon it has no value. Once a plan is drawn up, the owner manager should examine it before backing it with money. If it is not workable, the entrepreneur should stop forthwith.

The plan should be reviewed by breaking down all the yearly expenses. If any of the costs are too high or too low, then they ought to be changed. After all the adjustments, you will have a projected statement of sales and expenses for the next twelve months.

Consult with your banker or other advisors to identify possible weaknesses in the plan. Identify things that must be done to put the plan into action. What needs to be done will depend on your situation; for example, if the business plan calls for an increase in sales, then additional funds may be needed.

2 Keeping the Plan Current

Once your plan is put into action, watch for changes which can affect its good performance. Stay on toes and adjust the business plan accordingly. For any intervening changes like employees quitting the company, customers changing their tastes and preferences, as well as many other issues like technology, the entrepreneur must plan to account for such changes in the following ways:

  1. Be alert to potential changes, like those regarding sales market and customers;

  2. You must plan against these changes;

  3. Determine what revisions, if any, are needed in your plan.

Importance of Business Plans

  1. It helps the bank to see who will be managing the business.

  2. It helps the entrepreneur to decide if the entrepreneurship will be profitable hence he can put more money into the business.

  3. It helps the entrepreneur in determining any new business idea needed.

  4. It establishes goals by gathering information or data.

  5. It facilitates proper implementation of actions.

  6. It helps in avoiding chance decisions.

  7. It helps in thinking about the future.

  8. It gives purpose for actions in the future.

 

 

Summary

You have been introduced to business planning. You should be able to develop simple business plans and also appreciate the importance of business plans for any business activity.

Lecture Nine

MARKETING SYSTEMS IN MODERN BUSINESS

MARKETING SYSTEMS IN MODERN BUSINESS

Introduction

In the previous lecture, you learnt about business plans and their importance in business. In this lecture, you will learn how to use the internet in modern business especially in marketing communications.

9.2 Learning Outcomes

By the end of this lecture, you should be able to:

  1. Demonstrate understanding of the role of Internet in business;

  2. Explain the meaning and importance of e-Marketing;

  3. Describe how to you can use e marketing in marketing communication.

The Role of Internet in Business

The role of the Internet in business is varied and has come to be of great importance. It can be used to increase effective communication, both internally and externally. Use of the Internet can make it easier to connect with others quickly and more often, in addition to exchanging a wide array of media types. It can be used to communicate purchase information to vendors and by customers to ask questions. The factors that make the role of the Internet in business communication important can also cause conflict, depending on the way the medium is used.

Email is one of the most popular uses of the internet in business communication. It is widely used for both internal and external communications. Email enables users to communicate with each other at any hour and from several locations. It can also be an effective way to keep track of requests, conversations, and other important data as it provides a record of what was communicated.

One of the most significant internal uses of the internet in business communication is the intranet site. This is a website that is only available to the members of a particular organization. It typically serves as both a sort of community bulletin board and a place to access forms, information, and other resources that are necessary or helpful for employees. Most intranet sites are password protected and some even have sections which are only available to certain groups of employees.

An important method of external use of the Internet in business communication is the website. This can be an effective method of communicating with customers, vendors, and business partners. A website can be a sales tool, a resource, or the means by which business can be conducted. It can be used for asking and answering questions; providing updates; and giving readers a detailed picture of a product, service, or organization.

Some roles of the Internet in business communication are less positive. Though the speed with which communication can be sent over the Internet can be useful, it can also lead to complications. This can include errors in documents which are sent so quickly that they cannot be corrected in time to avoid a costly mistake. Another common problem is with an email message, which can easily be sent to the wrong party or group. Miscommunication in email can lead to minor and major conflicts, which can waste time, money, and resources.

e-Marketing

Very simply put, e-Marketing or electronic marketing refers to the application of marketing principles and techniques via electronic media and more specifically the Internet. The terms e-Marketing, Internet marketing and online marketing, are frequently interchanged, and can often be considered synonymous.

e-Marketing is the process of marketing a brand using the Internet. It includes both direct response marketing and indirect marketing elements, and uses a range of technologies to help connect businesses to their customers. By such a definition, e-Marketing encompasses all the activities a business conducts via the worldwide web with the aim of attracting new business, retaining current business and developing its brand identity. When implemented correctly, the return on investment (ROI) from e-Marketing can far exceed that of traditional marketing strategies.

Whether you are a ‘bricks and mortar’ business or a concern operating purely online, the Internet is a force that cannot be ignored. It can be a means to reach literally millions of people every year. It is at the forefront of a redefinition of the way businesses interact with their customers.

1 The Benefits of e-Marketing

e-marketing gives businesses of any size access to the mass market at an affordable price and unlike TV or print advertising, it allows truly personalized marketing. Specific benefits of e-marketing include:

  1. Global reach – a website can reach anyone in the world who has internet access. This allows you to find new markets and compete globally for only a small investment.

  2. Lower cost – a properly planned and effectively targeted e-marketing campaign can reach the right customers at a much lower cost than traditional marketing methods.

  3. Track able, measurable results – marketing by email or banner advertising makes it easier to establish how effective your campaign has been. You can obtain detailed information about customers’ responses to your advertising.

  4. 24-hour marketing – with a website, your customers can find out about your products even if your office is closed.

  5. Personalization – if your customer database is linked to your website, then whenever someone visits the site, you can greet them with targeted offers. The more they buy from you, the more you can refine your customer profile and market effectively to them.

  6. One-to-one marketing – e-marketing lets you reach people who want to know about your products and services instantly. For example, many people take mobile phones and other communication gadgets wherever they go. Combine this with the personalized aspect of e-marketing, and you can create very powerful, targeted campaigns.

  7. More interesting campaigns – e-marketing lets you create interactive campaigns using music, graphics and videos. You could send your customers a game or a quiz – whatever you think will interest them.

  8. Better conversion rate – if you have a website, then your customers are only ever a few clicks away from completing a purchase. This is unlike other media which require people to get up and make a phone call, post a letter or go to a shop, e-marketing is seamless.

Together, all of these aspects of e-marketing have the potential to add up to more sales.

 

Summary

You have been introduced to the general marketing systems. You should be able to appreciate the role of internet in business and apply e-marketing in business operations.

 

Lecture Ten

CORPORATE SOCIAL RESPONSIBILITY

CORPORATE SOCIAL RESPONSIBILITY

Introduction

In the previous lecture, you learnt about marketing systems, the role of internet in business and e-marketing. In this lecture, you will learn about corporate social responsibility of business, as well as the arguments for and against corporate social responsibility.

Learning Outcomes 

By the end of this lecture, you should be able to:

  1. Demonstrate understanding of the meaning of corporate social responsibility;

  2. Evaluate the various strategies in corporate social responsibility;

  3. Explain the role of corporate social responsibility;

  4. Discuss the arguments for and against Corporate Social Responsibility.

Meaning of Corporate Social Responsibility

Corporate social responsibilities (CSR) can be defined as the ‘economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time’. The concept of Corporate Social Responsibility means that organizations have moral, ethical, and philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors and comply with the law.

Corporate social responsibility is related to, but not identical with business ethics. While CSR encompasses the economic, legal, ethical, and discretionary responsibilities of organizations, business ethics usually focuses on the moral judgments and behaviour of individuals and groups within organizations. Thus, the study of business ethics may be regarded as a component of the larger study of corporate social responsibility.

Business Responsibilities to Various Groups

In a broad sense, business owes a lot to various groups such as customers, employees, shareholders, government, and the community at large in which it exists. These groups in the society are called ‘interest groups’ or ‘stakeholder’ in any modern business organization. Let us examine how an organization responds in socially responsible ways to cater to the growing demands of all these interest groups.

1 Responsibility towards the Customers

Production and supply of quality goods and services at an affordable price is the primary responsibility of business. Customer service should be the motto of the business. It involves offering a fair deal to the customer by indulging in ethical business practices. Therefore, in order for every manager to serve the customers in an effective way, they should restrain from:

  1. Making misleading advertisements aimed at deceiving the consumer;

  2. Giving wrong or false information on the product on issues like, the ingredients, quality, origin, etc.;

  3. Entering into collusive agreements with other firms to exploit the customers;

  4. Making false claims of being an authorized dealer or importer of certain goods; and

  5. Giving misleading names to the products, etc.

2 Responsibility towards Employees

  1. Proper selection, training and promotion;

  2. Recognition of the value of human resource;

  3. Maintaining cordial relations with employees;

  4. Recognition and encouragement of constructive unionism;

  5. Fair wage in relation to the cost of living;

  6. Better working conditions;

  7. Initiating appropriate measures for the development of human resource; and

  8. Increase in productivity and efficiency by recognition of merit, by providing opportunities for creative talent and incentives.

3 Responsibility towards Shareholders

Shareholders are the real owners of a corporation. In view of the several practical limitations for them in overseeing the day-to-day operations of the business, an organization must strive to provide:

  1. Security to their funds;

  2. A fair rate of return on their investment;

  3. Correct information about the operations of the company; and

  4. Proper appreciation of the value of their investment in the company by identifying new opportunities that contributes to the growth of business.

4 Responsibility towards Creditors / Suppliers

Creditors or suppliers provide the necessary inputs to the business. Business therefore has certain responsibilities to them. The management can discharge its responsibilities towards these groups by:

  1. Realizing the importance of maintaining good business relations with them;

  2. Meeting the payment obligations timely;

  3. Providing true and correct picture about the financial aspects of the company; and

  4. Helping them grow along with the growth of the company.

5 Responsibility towards Government

Government provides various facilities for the development of business. Infrastructure facilities like roads, telecommunication, transport, etc. Without the government, no business, worth mentioning can conduct its affairs smoothly. Business therefore, must also in turn have the following obligations to the government:

  1. They should act like law-abiding citizens;

  2. They should make timely and honest payments of their taxes and other duties;

  3. They should have compliance with the rules and regulations as stipulated by various laws of the land;

  4. They should supplement the government’s efforts in the developmental activities, etc.

6 Responsibility towards Society at Large

Any business organization can exist as long as it enjoys societal sanction. If it fails to safeguard the interests of the society, the pressure from various segments of the society mounts up. Such a situation eventually leads to the promulgation of various acts by the government. That is why it is always desirable for the business to keep the government at bay. Some organisation managements conduct their affairs in such a responsible way where government’s intervention is not warranted. For instance, the origin of several laws governing the business organizations may be traced back to the failure of business organization in protecting the intensity of the various groups in the society. An organization can act in a socially responsible way by:

  1. Properly deciding the product policies in line with the national priorities;

  2. Preventing the creation of monopolies;

  3. Ensuring hygienic disposal of smoke and waste and other effluents;

  4. Providing to the community accurate information about its working, and

  5. Preserving the national resources of the nation by not indulging in reckless exploitation of the resources.

The Varying Perspectives

In this section, we will make arguments for and against corporate social responsibility. We will begin with the argument for CSR and then finish up with arguments against CSR.

1 Arguments in Favour of Corporate Social Responsibility

One view, held by critics of the corporate world, is that since large corporations create many social problems, they should attempt to address and solve them. Those holding this view criticize the production, marketing, accounting, and environmental practices of corporations. They suggest that corporations can do a better job of producing quality, safe products, and also by conducting their operations in an open and honest manner.

A very different argument in favour of corporate social responsibility is the ‘self-interest’ argument. This is a long-term perspective that suggests that corporations should conduct themselves in such a way in the present as to assure themselves of a favourable operating environment in the future. This view holds that companies must look beyond the short-term, bottom-line perspective and realize that investments in society today will reap those benefits in the future. Furthermore, it may be in the corporate world’s best interests to engage in socially responsive activities because, by doing so, the corporate world may forestall governmental intervention in the form of new legislation and regulation.

Finally, some suggest that businesses should assume social responsibilities because they are among the few private entities that have the resources to do so. The corporate world has some of the brightest minds in the world, and it possesses tremendous financial resources. Wal-Mart, for example, has annual revenues that exceed the annual GNP of some countries. Businesses should thus utilize some of their human and financial capital in order ‘to make the world a better place’.

2 Arguments against Corporate Social Responsibility

The ‘economic’ argument against CSR is perhaps most closely associated with the American economist Milton Friedman, who has argued that the primary responsibility of business is to make a profit for its owners, albeit while complying with the law.

The ‘competitive’ argument recognizes the fact that addressing social issues comes at a cost to business. To the extent that businesses internalize the costs of socially responsible actions, they hurt their competitive position relative to other businesses. This argument is particularly relevant in a globally competitive environment if businesses in one country expend assets to address social issues, but those in another country do not.

Finally, some argue that those in business are ill-equipped to address social problems. This ‘capability’ argument suggests that business executives and managers are typically well trained in the ways of finance, marketing, and operations management, but not well versed in dealing with complex societal problems. Thus, they do not have the knowledge or skills needed to deal with social issues. This view suggests that corporate involvement in social issues may actually make the situation worse.

 

Summary

You have been introduced to the business corporate social responsibility. You should be able to explain the various groups to which business is responsible to, and also appreciate the differing perspectives of corporate social responsibility

 

Lecture Eleven

BUSINESS ETHICS

BUSINESS ETHICS

Introduction

In the previous lecture, you learnt about social responsibility of business, and the arguments for and against corporate social responsibility. In this lecture, you will learn about business ethics, the importance of business ethics and the various professional business ethics.

Learning Outcomes

By the end of this lecture, you should be able to:

  1. Understand the general business ethics;

  2. Describe the importance of Business ethics;

  3. Explain the professional business ethic.

Meaning of Ethics

Ethics refers to the conscious reflection on our moral beliefs and attitudes through the use of normative ethical theories. Business ethics is defined as principles and standards that guide behaviour in the world of business.

General Business Ethics: This part of business ethics overlaps with the philosophy of business; one of the aims of which is to determine the fundamental purposes of a company. These include:

  1. Corporate social responsibility or CSR: these are issues regarding the moral rights and duties between a company and its shareholders. Example include the Shareholder vs. Stakeholder concept;

  2. Ethical issues concerning relations between different companies - hostile take-overs, for instance;

  3. Leadership issues - Corporate governance, as well as political contributions made by corporations.

Professional Ethical Behaviour

Professional ethics covers relation of recognizing business professions. These include the following:

1 Ethics of Accounting Information

  1. Ethics of accounting information - for example, creative accounting, earnings management, misleading financial analysis. Insider trading, securities fraud, bucket shops, FOREX scams - concerns (criminal) manipulation of the financial markets.

  2. Executive compensation - concerns excessive payments made to corporate CEOs. Bribery, kickbacks, and facilitation payments - while these may be in the (short-term) interests of the company and its shareholders, these practices may be anti-competitive or offend against the values of society, for example, Enron.

2 Ethics of Human Resource Management

  1. Covers ethics of human resource management (HRM). For example, those ethical issues arising around the employer-employee relationship, like the rights and duties owed between employer and employee.

  2. Discrimination issues - include discrimination on the bases of age (ageism), gender, race, religion, disabilities, weight, attractiveness, sexual harassment, etc.

  3. Issues surrounding the representation of employees and the democratization of the workplace - union busting, strike breaking.

  4. Issues affecting the privacy of the employee - workplace surveillance, drug testing.

  5. Issues affecting the privacy of the employer - whistle-blowing.

  6. Issues relating to the fairness of the employment contract and the balance of power between employer and employee - slavery, indentured servitude, employment law. Occupational safety and health.

3 Ethics of Sales and Marketing

Marketing, which goes beyond the mere provision of information about (and access to) a product may seek to manipulate our values and behaviour. To some extent, society regards this as acceptable, but where is the ethical line to be drawn?

  1. Pricing - price fixing, price discrimination, price skimming.

  2. Anti-competitive practices - these include but go beyond pricing tactics to cover issues such as manipulation of loyalty and supply chains.

  3. Specific marketing strategies -greenwash, bait and switch, shill, viral marketing, spam (electronic), pyramid scheme, planned obsolescence.

  4. Content of advertisements - attack ads, subliminal messages, sex in advertising, products regarded as immoral or harmful.

  5. Children and marketing - marketing in schools.

4 Ethics of Production

This deals with the duties of a company to ensure that products and production processes do not cause harm. There is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk. These include:

  1. Defective, addictive and inherently dangerous products and services; for example, tobacco, alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping.

  2. Ethical relations between the company and the environment - pollution, environmental ethics, carbon emissions trading.

  3. Ethical problems arising out of new technologies - genetically modified food, mobile phone radiation and health.

  4. Product testing ethics - animal rights and animal testing, use of economically disadvantaged groups (such as students) as test objects.

5 Ethics of Intellectual Property

Knowledge and skills are valuable but not easily ‘ownable’ as objects. Nor is it obvious who has the greater rights to an idea; whether it is the company who trained the employee, or the employees themselves? The country in which the plant grew or the company which discovered and developed the plant’s medicinal potential? As a result, attempts to assert ownership and ethical disputes over ownership arise.

  1. Patent infringement, copyright infringement, trademark infringement.

  2. Misuse of the intellectual property systems to stifle competition - patent misuse, copyright misuse, patent troll, submarine patent.

  3. Even the notion of intellectual property itself has been criticised on ethical grounds.

  4. Employee raiding - the practice of attracting key employees away from a competitor to take unfair advantage of the knowledge or skills they may possess.

  5. The practice of employing all the most talented people in a specific field, regardless of need, in order to prevent any competitors employing them.

  6. Business intelligence and industrial espionage.

6 International Business Ethics

While business ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s. Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Issues and subfields include:

  1. The search for universal values as a basis for international commercial behaviour.

  2. Comparison of business ethical traditions in different countries.

  3. Comparison of business ethical traditions from various religious perspectives.

  4. Ethical issues arising out of international business transactions; for instance, bio-prospecting and bio-piracy in the pharmaceutical industry; the fair trade movement; transfer pricing.

  5. Issues such as globalization and cultural imperialism.

  6. Varying global standards, for example, the use of child labour.

  7. How multinationals take advantage of international differences, for example, outsourcing production (e.g. clothes) and services (e.g. call centres) to low-wage countries.

7 Ethics of Economic Systems

This vaguely defined area, perhaps not part of but only related to business ethics, is where business ethicists venture into the fields of political economy and political philosophy, and focusing on the rights and wrongs of various systems for the distribution of economic benefits.

8 Business and Environmental Ethics

The desire for a clean, safe and ecologically balanced environment is often expressed in sentiment. This is especially so in industrialized countries where an awareness of environmental issues is relatively high and is even gaining recognition in political campaigns. The right to a clean, safe environment is seen as a human right since the absence of such a condition would prevent one form fulfilling ones’ human capacities.

In international business, there are several ethical issues with regard to the environment which arise. This is the disposal of hazardous waste. The export of hazardous waste by more developed countries to the lesser ones is escalating beyond control. The ethical implications and environmental consequences of this trade are hazardous. The disposal of hazardous waste highlight the need for international controls and regulations in the conduct of business in more developed countries.

Importance of Business Ethics

In a world disillusioned with globalization, the importance of business ethics is greater than ever. Business needs to be truly acting in a way which goes beyond purely profit-based motivations, towards a model which works for everyone. An ethical approach is fundamental to sound business practice.

1 Factors Highlighting the Importance of Business Ethics

In the second decade of the third millennium, we can cite four major factors which highlight the importance of business ethics (we define business ethics here).

  1. Long-term growth: sustainability comes from an ethical long-term vision which takes into account all stakeholders. Smaller but sustainable profits long-term must be better than higher but riskier short-lived profits.

  2. Cost and risk reduction: companies which recognize the importance of business ethics will need to spend less protecting themselves from internal and external behavioural risks, especially when supported by sound governance systems and independent research

  3. Anti-capitalist sentiment: the financial crisis marked another blow for the credibility of capitalism, with resentment towards bank bailouts at the cost of fundamental rights such as education and healthcare.

  4. Limited resources: the planet has finite resources but a growing population. Without ethics, those resources are reduced for purely individual gain at huge cost both to current and future generations.

Summary

In this lecture, you have learnt about business ethics. You should be able to identify the ethical issues that pose challenges to business persons in their business activities.