1-Introduction to Operations Management and Productivity

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11 CHAPTER ONE

Introduction toIntroduction toOperationsOperations

Management andManagement andProductivityProductivity

Introduction toIntroduction toOperationsOperations

Management andManagement andProductivityProductivity

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When you complete this chapter, you should be able to:When you complete this chapter, you should be able to:

Define Operations ManagementDefine Operations Management

Describe Operations Management Jobs and CareersDescribe Operations Management Jobs and Careers

Describe the Differences betweenDescribe the Differences between Goods &Goods & ServicesServices

Describe Operations Management Strategy DecisionsDescribe Operations Management Strategy Decisions

Define the Productivity, and compute SingleDefine the Productivity, and compute Single--FactorFactor

and Multiand Multi--Factor ProductivityFactor Productivity

Describe the Business Ethics and Social ResponsibilityDescribe the Business Ethics and Social Responsibility

Learning Objectives


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Operations Management at Hard Rock CafeOperations Management at Hard Rock Cafe

Chapter Outline

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Hard Rock Cafe (HRC)


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The OM techniques are applied throughout the world to virtuallyThe OM techniques are applied throughout the world to virtuallyall productive enterprises.all productive enterprises.

ProductionProduction is the creation of goods and services. Activitiesis the creation of goods and services. Activitiescreatingcreating goodsgoods andand servicesservices take place in all organizations.take place in all organizations.

Regardless of whether the end product is a good or service, theRegardless of whether the end product is a good or service, theactivities that go on in the organization are often referred to asactivities that go on in the organization are often referred to asoperationsoperations, or, or operations managementoperations management..

To create goods and services, all organizations performTo create goods and services, all organizations perform threethreefunctionsfunctions; the importance ingredients not only for production but; the importance ingredients not only for production butalso for an organizations survival:also for an organizations survival:

MarketingMarketing generates demandgenerates demand

Production/operationsProduction/operations creates the productcreates the product

Finance/accountingFinance/accounting tracks how well the organization istracks how well the organization isdoing, pays bills, and collects the money.doing, pays bills, and collects the money.

1.21.2 What is Operations Management?

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Four reasonsFour reasons why we study operations management:why we study operations management:

1.1. oneone ofof the 3the 3 major functions of any organization andmajor functions of any organization andintegrally related to all other business functions (howintegrally related to all other business functions (howpeople organize themselves for productivepeople organize themselves for productive enterprise)enterprise)

2.2. wewe want to know howwant to know how goods &goods & servicesservices are producedare produced

3.3. toto understand what operations managers dounderstand what operations managers do(develop the skills to become such a(develop the skills to become such a manager)manager)

4.4. itit is such a costly part of an organization (ais such a costly part of an organization (a large % oflarge % ofthe revenuethe revenue is spent inis spent in the OM functionthe OM function).).

OM provides a major opportunity toOM provides a major opportunity to improveimproveprofitabilityprofitability andand enhance servicesenhance services..

1.2.11.2.1 What Study Operations Management?


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Good managersGood managers perform basic functions ofperform basic functions of managementmanagementprocessprocess;; planningplanning, organizing, staffing, leading, organizing, staffing, leading, & controlling, & controlling

Operations managers apply thisOperations managers apply this management processmanagement process totothe decisions they make in thethe decisions they make in the OM functionOM function

Operations managers are leaders ofOperations managers are leaders of their companies ortheir companies ordepartments; theirdepartments; their worksworks areare mostmost versatileversatile & expansive& expansive

An operations manager is someone whoAn operations manager is someone who runs the operationsruns the operationsof a business or company on aof a business or company on a daily basisdaily basis

An operations managers purpose is to find out ways byAn operations managers purpose is to find out ways bywhich the company can become morewhich the company can become more productive by:productive by: PreparingPreparing program budgetsprogram budgets Facilitating programsFacilitating programs around companyaround company Controlling the inventoryControlling the inventory Handling logistics Handling logistics Interviewing candidates & supervising employees Interviewing candidates & supervising employees

Successful operationsSuccessful operations managersmanagers havehave a strong sense ofa strong sense ofleadership, alongleadership, along with fast/effective problemwith fast/effective problem--solving abilitiessolving abilities

Another importance aspect of an operations manager isAnother importance aspect of an operations manager isgreatgreat communication skillscommunication skills

1.2.21.2.2 What are the Operations Managers?

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Traditionally, OM has been considered asTraditionally, OM has been considered as plant managementplant managementin ain a manufacturingmanufacturing organization. Today, this is no longer trueorganization. Today, this is no longer true..

There has been an increase inThere has been an increase in the no.the no. of OMof OM people inpeople in thetheservice sectorservice sector, and many have taken jobs in, and many have taken jobs in consultingconsulting..

They also have been given the opportunity to beThey also have been given the opportunity to be supplysupplychain managerschain managers at corporate headquarters.at corporate headquarters.

Operations managers have strong interest inOperations managers have strong interest in technology,technology,quantitative analysis,quantitative analysis, & enterprise control& enterprise control..

As Sales Managers and Marketing Managers,As Sales Managers and Marketing Managers, ProductionProductionandand Operations ManagersOperations Managers often enjoy leading people.often enjoy leading people.

They have anThey have an engineeringengineering--like approachlike approach to businessto businessproblems as evidenced by their interest in the applicationproblems as evidenced by their interest in the applicationof technology and quantitative analysis.of technology and quantitative analysis.

TheirTheir high scorehigh score in enterprise control indicates the fact thatin enterprise control indicates the fact thatthey like tothey like to own a processown a process..

1.31.3 Operations Management Jobs/Careers


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SeveralSeveral skills & attributesskills & attributes are important to success in theare important to success in theoperations environment:operations environment: Technical knowledge Technical knowledge Strong interpersonal skills.Strong interpersonal skills. Leadership Leadership General business knowledge (General business knowledge (multimulti--disciplinary)disciplinary) Strong problem solving abilities ( Strong problem solving abilities (creativity)creativity) Negotiation skills (negotiate effectively with different Negotiation skills (negotiate effectively with different parties)parties) Presentation skills. Presentation skills.

CareersCareers in OMin OM in thein the corporatecorporate environment could potentiallyenvironment could potentiallymean more balanced lifestyle than inmean more balanced lifestyle than in consultingconsulting environmentenvironment..

Although the corporate manufacturing problems canAlthough the corporate manufacturing problems caninterfere with personal plans, there isinterfere with personal plans, there is less travelless travel..

OM tasksOM tasks are often inare often in manufacturingmanufacturing facilities. Promotionfacilities. Promotionmay require relocation tomay require relocation to other facilities.other facilities. The positions inThe positions insupply chainsupply chain exist bothexist both at HQsat HQs & manufacturing facilities.& manufacturing facilities.

OM in theOM in the corporatecorporate environment is not as rewarding as otherenvironment is not as rewarding as otherfields. However, it provides a lot offields. However, it provides a lot of diversity,diversity, powerpower&& influenceinfluence..

AsAs global manufacturingglobal manufacturing becomes more important,becomes more important,international opportunitiesinternational opportunities are becoming fairly common.are becoming fairly common.


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ForFor Master graduatesMaster graduates, OM offers excellent career potential, OM offers excellent career potentialin the short and long term.in the short and long term.

However, it isHowever, it is unlikelyunlikely you will be able to come into ayou will be able to come into aprominent position immediately after graduation.prominent position immediately after graduation.

CompaniesCompanies must trust the judgmentmust trust the judgment of theirof their highhigh--level managerslevel managers-- the positions earned after several years of experience.the positions earned after several years of experience.

Movements in anMovements in an operations functionoperations function can be very rapid,can be very rapid,however, if thehowever, if the performance is strongperformance is strong..

If you feel that OM is where you want to build a career, youIf you feel that OM is where you want to build a career, youmay want to focus all your resources to obtain suchmay want to focus all your resources to obtain suchopportunities right after completing your study.opportunities right after completing your study.

Operations jobs are not limited toOperations jobs are not limited to managing productionmanaging productionlineslines in a factory.in a factory.

As organizations developingAs organizations developing complex &complex & global supply chains,global supply chains,challenging &challenging & exciting opportunities are opening upexciting opportunities are opening up inin SCMSCM..



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How to produce goods and services? There areHow to produce goods and services? There are three importantthree importantfunctionsfunctions; marketing,; marketing, operationsoperations, finance., finance.

OperationsOperations function has important role infunction has important role in producingproducing goods/services.goods/services.

MarketingMarketing has a function tohas a function to generate demandgenerate demand, or at least accept, or at least acceptbookings for a good or service.bookings for a good or service. FinanceFinance has a function tohas a function to tracktrackorganizational performanceorganizational performance, pay bills, and collect money., pay bills, and collect money.

In an enterprise organization,In an enterprise organization, operations functionoperations function performed by aperformed by aparticular sectionparticular section..

1.41.4 Producing Goods and Services

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AA productproduct (good or service) is anything that can be offered(good or service) is anything that can be offeredto a market that might satisfy a want or need. Table 1.1to a market that might satisfy a want or need. Table 1.1shows the differences between goods and services.shows the differences between goods and services.

1.4.11.4.1 Goods versus Services


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Goods:Goods: Tangible productTangible product a physical object such as clothing.a physical object such as clothing. Consistent product definitionConsistent product definition a unique name and image, anda unique name and image, and

consistent in terms of characteristics & quality with low variability.consistent in terms of characteristics & quality with low variability. Production usually separate from consumptionProduction usually separate from consumption a finished good musta finished good must

be produced first before it can be consumed.be produced first before it can be consumed. Can be inventoriedCan be inventoried a finished good can be stored and delivered toa finished good can be stored and delivered to

customers whenever it is required.customers whenever it is required. Low customer interactionLow customer interaction customers cannot interfere during thecustomers cannot interfere during the

production process of a good.production process of a good.

Services:Services: Intangible productIntangible product such as an insurance policy.such as an insurance policy. Produced and consumed at same timeProduced and consumed at same time a massage therapist usinga massage therapist using

touch to manipulate the muscles of the body.touch to manipulate the muscles of the body. Often uniqueOften unique an insurance product benefits are not the same.an insurance product benefits are not the same. High customer interactionHigh customer interaction the customer interaction is high andthe customer interaction is high and

demands uniqueness; this is what the customer is paying for.demands uniqueness; this is what the customer is paying for. Inconsistent product definitionInconsistent product definition may be rigorous as in an insurancemay be rigorous as in an insurance

policy, but inconsistent because the clients may decide the types ofpolicy, but inconsistent because the clients may decide the types ofcoverage.coverage.

Often knowledgeOften knowledge--based.based. FrequentlyFrequently dispersed.dispersed.

1.4.21.4.2 Characteristics of Goods and Services

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Operations managers apply the basic functions of managementOperations managers apply the basic functions of managementprocess (process (planning, organizing, staffing, leadingplanning, organizing, staffing, leading, controlling, controlling))to the decisions they make in the OM function.to the decisions they make in the OM function.

TheThe ten major strategy decisionsten major strategy decisions of OM areof OM are as follows; eachas follows; eachdecision area is discussed in a separate chapter.decision area is discussed in a separate chapter.

(i)(i) Goods and Services DesignGoods and Services Design(ii)(ii) Quality ManagementQuality Management(iii)(iii) Process and Capacity DesignProcess and Capacity Design(iv)(iv) Location Selection StrategiesLocation Selection Strategies(v)(v) Layout Design StrategiesLayout Design Strategies(vi)(vi) Human Resource ManagementHuman Resource Management(vii)(vii) Supply Chain ManagementSupply Chain Management(viii)(viii) Inventory ManagementInventory Management(ix)(ix) Production SchedulingProduction Scheduling(x)(x) Maintenance and ReliabilityMaintenance and Reliability

1.51.5 OM Strategy Decisions


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TheThe creation of goods and servicescreation of goods and services requiresrequires changingchangingresourcesresources into goods and services.into goods and services.

TheThe more efficientlymore efficiently we make this change, thewe make this change, the more productivemore productivewewe are &are & thethe more value is addedmore value is added toto the good/servicethe good/service provided.provided.

Malaysias productivity performance 2010 grew by 5.8%Malaysias productivity performance 2010 grew by 5.8% (Fig.1.5)(Fig.1.5)-- waswas driven mainly bydriven mainly by both manufacturingboth manufacturing (9.4(9.4%) &%) & services (services (4.7%).4.7%).

ManufacturingManufacturing sectorsector recorded a much higher growthrecorded a much higher growth thanthan nationalnationalgrowth of 5.8%growth of 5.8% caused mainly bycaused mainly by improved industrial productionimproved industrial production..

1.61.6 The Productivity

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During 2001During 2001--20102010, the growth in, the growth in Total Factor ProductivityTotal Factor Productivity (TFP)(TFP)was 1.5%;was 1.5%; contribution of TFPcontribution of TFP to Malaysian economic growthto Malaysian economic growthwas 32.9% whilewas 32.9% while capitalcapital contributed 37.7% andcontributed 37.7% and laborlabor 29.4%.29.4%.

AnAn indication that economic growth was fuelled by moreindication that economic growth was fuelled by more capitalcapital--intensive inputsintensive inputs rather thanrather than laborlabor--intensiveintensive productionproduction -- indicatingindicatingthat thethat the country iscountry is moving towards bothmoving towards both investment in state of theinvestment in state of theartart technologiestechnologies && inculcating a knowledgeinculcating a knowledge--based economybased economy..

TFP is anTFP is an important variableimportant variable that must be taken into account inthat must be taken into account indetermining thedetermining the economic growtheconomic growth..

Factors such asFactors such as capitalcapital andand laborlabor are important for a countrysare important for a countryseconomic developmenteconomic development..

Equally important in driving economic progress isEqually important in driving economic progress is continuouscontinuousinnovationinnovation andand productivity enhancementproductivity enhancement..

TFP reflectsTFP reflects initiatives undertaken by firmsinitiatives undertaken by firms, among others, among othersincludeinclude business process innovationsbusiness process innovations such as managementsuch as managementtechniques, effective plant layout, pricing structure, brandingtechniques, effective plant layout, pricing structure, brandingand advancement inand advancement in technologies.technologies.



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Productivity is theProductivity is the ratio of outputsratio of outputs (goods and services) divided(goods and services) dividedby theby the inputsinputs (resources such as labor and capital).(resources such as labor and capital).

The operations managers job is to enhance (improve) this ratio ofThe operations managers job is to enhance (improve) this ratio ofoutputs to inputs.outputs to inputs. Improving productivityImproving productivity meansmeans improving efficiencyimproving efficiency..

Can be achieved inCan be achieved in two waystwo ways; reducing inputs or increasing outputs.; reducing inputs or increasing outputs.

High production may imply high employment, butHigh production may imply high employment, but notnot productivity.productivity.

Increase productivityIncrease productivity cancan improveimprove thethe standard of livingstandard of living..

usedInput

producedUnitsyPoductivitFactor-Single =

(1.1)

SingleSingle--factor productivity (SFP) is a synonym forfactor productivity (SFP) is a synonym for partial productivitypartial productivitymeasure. It relates output to one particular type of resource input.measure. It relates output to one particular type of resource input.

AnAnexampleexample of a singleof a single--factor productivity index isfactor productivity index is labor productivitylabor productivity..


1.6.11.6.1 Single-Factor Productivity

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1.6.11.6.1 Single-Factor Productivity


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MultiMulti--factorfactorproductivityproductivity (MFP)(MFP)includesincludes all inputsall inputs;;also known asalso known as totaltotalfactor productivityfactor productivity(TFP).(TFP).

Outputs and inputsOutputs and inputsare often expressedare often expressedin dollars.in dollars.

It measures theIt measures thechanges in outputchanges in outputper unit ofper unit ofcombined inputscombined inputs;;i.e., the ratio of alli.e., the ratio of alloutputs produced tooutputs produced toall inputs employed.all inputs employed.

1.6.21.6.2 Multi-Factor Productivity

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It is aIt is a challengechallenge to measure theto measure the productivityproductivity inin serviceservice sectorsector..

The productivity of the service sector is difficult to improve forThe productivity of the service sector is difficult to improve fora numbera number of issues:of issues: The productivity is typically labor intensive. The productivity is typically labor intensive. It is frequently focused on unique individual attributes or desires. It is frequently focused on unique individual attributes or desires. Often an intellectual task performed by professionals. Often an intellectual task performed by professionals. Often difficult to mechanize. Often difficult to evaluate for quality. Often difficult to mechanize. Often difficult to evaluate for quality.

ProductivityProductivity in manufacturing sectorin manufacturing sector has been analyzed forhas been analyzed formore than two centuries.more than two centuries. Productivity in the service sectorProductivity in the service sector waswasnot analyzed until at the end of the twentieth century.not analyzed until at the end of the twentieth century.

The application of productivity concept in the service sector isThe application of productivity concept in the service sector ismore complicated than its application in manufacturing.more complicated than its application in manufacturing.

The productivity inThe productivity in manufacturingmanufacturing is analyzed in the scope ofis analyzed in the scope oforganization, but in theorganization, but in the service sectorservice sector this scope is larger andthis scope is larger andinvolves an externalinvolves an external elementelement customercustomer..

Some service organizationsSome service organizations reduce an inputreduce an input element byelement by includingincludingcustomercustomer to their activity and thus boosting service productivity.to their activity and thus boosting service productivity.

1.6.31.6.3 Productivity and the Service Sector


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InIn manufacturingmanufacturing, the, the quality aspectquality aspect is not determined becauseis not determined becauseinput and output are measured by units.input and output are measured by units.

TheThe qualityquality in service sector is very important since customersin service sector is very important since customersoften evaluate a given service not only by its amount.often evaluate a given service not only by its amount.

If only one unit of service is acquired,If only one unit of service is acquired, outputoutput is mostly measuredis mostly measuredonly by the quality aspectonly by the quality aspect.. InputInput is usually determined both by theis usually determined both by thequantity and quality aspects.quantity and quality aspects.

Quantity and quality aspects of productivity areQuantity and quality aspects of productivity are differ in differentdiffer in differentsectorssectors of service organizations.of service organizations.

Input elementsInput elements in thein the service sectorservice sector such as materials, machinessuch as materials, machinesand energy are not as significant as in manufacturing.and energy are not as significant as in manufacturing.

TheThe key elementkey element in service sector isin service sector is laborlabor because it is morebecause it is morepersonnelpersonnel--intensive compared to manufacturing.intensive compared to manufacturing.

OutputOutput inin manufacturingmanufacturing is determined by quantity (units) andis determined by quantity (units) andimproved by increasing the production size (output).improved by increasing the production size (output).

OutputOutput inin service sectorservice sector usually has no high values by the quantityusually has no high values by the quantityaspect; therefore it is mostly enhanced by the challenge to provideaspect; therefore it is mostly enhanced by the challenge to providehigher quality serviceshigher quality services to the customer (to the customer (better satisfactionbetter satisfaction).).

1.6.31.6.3 Productivity and the Service Sector

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Many use the termsMany use the terms ethicsethics && social responsibilitysocial responsibility interchangeablyinterchangeablythough theythough they do not meando not mean the same thing.the same thing.

Business ethicsBusiness ethics relates to an individuals or a groups decisionsrelates to an individuals or a groups decisionsthat society evaluates asthat society evaluates as right or wrongright or wrong, whereas, whereas social responsibilitysocial responsibilityconcerns theconcerns the impactimpact of the entire businesss activities onof the entire businesss activities on societysociety..

Global warming, recycling, and sustainability areGlobal warming, recycling, and sustainability are social responsibilitysocial responsibilityissuesissues; employee misconduct in performing business activities is a; employee misconduct in performing business activities is a

significant concern ofsignificant concern of business ethicsbusiness ethics.. Both business ethics and social responsibility are essential parts ofBoth business ethics and social responsibility are essential parts of

being abeing a good corporate citizengood corporate citizen..

TheThe most basicmost basic ethical &ethical & social responsibility concerns have beensocial responsibility concerns have beencodified bycodified by laws and regulationslaws and regulations that encourage businesses tothat encourage businesses toconform to societys standards, values, and attitudes. At a minimumconform to societys standards, values, and attitudes. At a minimum,,managers are expected to obey all laws and regulations.managers are expected to obey all laws and regulations.

Most legal issues arise as choices that society deems unethical,Most legal issues arise as choices that society deems unethical,irresponsible, or otherwise unacceptable.irresponsible, or otherwise unacceptable.

However, all actions deemed unethical by society areHowever, all actions deemed unethical by society are not necessarilynot necessarilyillegalillegal; both legal & ethical concerns change over time.; both legal & ethical concerns change over time.

1.71.7 Ethics and Social Responsibility


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Business lawBusiness law refers to the laws and regulations thatrefers to the laws and regulations that govern thegovern theconduct of businessconduct of business..

ManyMany problems &problems & conflicts in businessconflicts in business can be avoidedcan be avoided if owners,if owners,managers, employees know more about businessmanagers, employees know more about business law & legallaw & legal system.system.

Business ethics, social responsibility, and laws act as aBusiness ethics, social responsibility, and laws act as a compliancecompliancesystemsystem requiring businesses & employees act responsibly in society.requiring businesses & employees act responsibly in society.

Identifying ethical & social responsible responses is not always clearIdentifying ethical & social responsible responses is not always clear--cut. Among manycut. Among many ethical challengesethical challenges facing operations managers:facing operations managers:

Efficiently developing and producing safe, quality products. Efficiently developing and producing safe, quality products. Maintaining a clean environment. Providing a safe workplace. Maintaining a clean environment. Providing a safe workplace. Honoring community commitments. Honoring community commitments.

Managers must do all of this in an ethical and socially responsibleManagers must do all of this in an ethical and socially responsibleway while meeting the demands of the marketplace.way while meeting the demands of the marketplace.

If operations managers have aIf operations managers have a moral awarenessmoral awareness and focus onand focus onincreasing productivity in a system where all stakeholders have aincreasing productivity in a system where all stakeholders have avoice, many of the ethical challenges will be successfully addressed.voice, many of the ethical challenges will be successfully addressed.

Organization will useOrganization will use fewer resourcesfewer resources, employees will be, employees will be committedcommitted,,market will bemarket will be satisfiedsatisfied, and the ethical climate will be, and the ethical climate will be enhancedenhanced..

1.71.7 Ethics and Social Responsibility

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At itsAt its simplestsimplest, ethics involves, ethics involves learning what is right or wronglearning what is right or wrong, and, andthenthen doing the right thingdoing the right thing, but the right thing is not as straightforward, but the right thing is not as straightforwardas conveyed in business ethics literature.as conveyed in business ethics literature.

Most ethical dilemmas in the workplace are not simply a matterMost ethical dilemmas in the workplace are not simply a matterofof Should I lie to my bossShould I lie to my boss??

Business ethicsBusiness ethics is defined asis defined as the principles and standardsthe principles and standards thatthatdeterminedetermine acceptable conductacceptable conduct in business organizations.in business organizations.

TheTheacceptability of behavioracceptability of behavior in business is determined by customersin business is determined by customers,,competitors, government regulators, interest groups, and the public,competitors, government regulators, interest groups, and the public,as well as each individuals personal moral principles and values.as well as each individuals personal moral principles and values.

Business has found thatBusiness has found that good ethics doesnt happen automaticallygood ethics doesnt happen automatically..

Employees need aEmployees need a shared visionshared vision that results in all employeesthat results in all employeesabidingabiding by the companys code of ethics and policies onby the companys code of ethics and policies onbusiness conduct.business conduct.

Companies useCompanies use benchmarkingbenchmarking, by comparing themselves with, by comparing themselves withothers in their industry, to gain insights about how toothers in their industry, to gain insights about how to improve theirimprove theircode of ethicscode of ethics programs.programs.

1.7.11.7.1 Business Ethics


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Providing theProviding the criteriacriteria for evaluating codes of ethics also assistsfor evaluating codes of ethics also assistscompanies in developing and revising their codes.companies in developing and revising their codes.

Organizations are expected toOrganizations are expected to establish ethical standardsestablish ethical standards andandprovide compliance systemsprovide compliance systems to maintain appropriate conductto maintain appropriate conductwithin all levels of the organization.within all levels of the organization.

It is important to understand thatIt is important to understand that business ethics goes beyondbusiness ethics goes beyondlegal issueslegal issues..

Ethical conductEthical conduct builds trustbuilds trust among individuals and in businessamong individuals and in businessrelationships.relationships.

Establishing trust and confidence is much more difficult inEstablishing trust and confidence is much more difficult in

organizations that have reputations for acting unethically.organizations that have reputations for acting unethically. Ethical issues areEthical issues are not limited to profitnot limited to profit organizations. In governmentorganizations. In government,,

several politicians and some highseveral politicians and some high--ranking officials have beenranking officials have beenforced to resign in disgrace over ethical indiscretions.forced to resign in disgrace over ethical indiscretions.

Learning toLearning to recognize ethical issuesrecognize ethical issues is the most important stepis the most important stepin understanding business ethics.in understanding business ethics.


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An ethical issue is anAn ethical issue is an identifiableidentifiable problem, situation, or opportunityproblem, situation, or opportunitythat requires a person to choose from among several actions thatthat requires a person to choose from among several actions thatmay be evaluated asmay be evaluated as right or wrongright or wrong,, ethical or unethicalethical or unethical..

In business, such a choice often involvesIn business, such a choice often involves weighing monetaryweighing monetaryprofitprofit against what a person considers appropriate conduct.against what a person considers appropriate conduct.

The best way toThe best way tojudge the ethics of a decisionjudge the ethics of a decision is to look at ais to look at asituation from a customers or competitors viewpoint.situation from a customers or competitors viewpoint.

A person often needs several years of experience in business toA person often needs several years of experience in business tounderstand what isunderstand what is acceptable or ethicalacceptable or ethical..

EthicsEthics is also related to theis also related to the cultureculture in which a business operates.in which a business operates.Experience with the culture in which a business operates is criticalExperience with the culture in which a business operates is criticalto understanding what is ethical or unethical.to understanding what is ethical or unethical.

Ethical issues can beEthical issues can be more complex nowmore complex now than in the past. One ofthan in the past. One ofthe principal causes of unethical behavior in organizations isthe principal causes of unethical behavior in organizations isoverly aggressive financial or business objectives.overly aggressive financial or business objectives.

Many ethical issues in business can be categorized in the contextMany ethical issues in business can be categorized in the contextof their relation withof their relation with abusiveabusive andand intimidatingintimidating behavior, conflicts ofbehavior, conflicts ofinterest, fairness & honesty, communications, & business associations.interest, fairness & honesty, communications, & business associations.



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Social responsibilitySocial responsibility is defined as ais defined as a businesss obligationbusinesss obligation toto maximizemaximizeitsits positive impactpositive impact andand minimizeminimize itsits negative impactnegative impact on society.on society.

Many companies are starting to recognize thatMany companies are starting to recognize that providing jobsproviding jobs andandprofitsprofits are not sufficient to be aare not sufficient to be a responsible memberresponsible member of society.of society.

It is important to beIt is important to be socially responsiblesocially responsible; i.e., to work with; i.e., to work with stakeholdersstakeholderssuch as employees, customers, communities, and governments tosuch as employees, customers, communities, and governments tomake sure that the company does its part to minimize negativemake sure that the company does its part to minimize negativeimpacts on society and maximize contributions to importantimpacts on society and maximize contributions to importantissues that are being addressed worldwide.issues that are being addressed worldwide.

There are four dimensions of social responsibility;There are four dimensions of social responsibility; economic,economic,legal, ethical, and voluntarylegal, ethical, and voluntary..

A business whose sole objective is toA business whose sole objective is to maximize profitsmaximize profits is not likelyis not likelyto consider its social responsibility, although its activities are legal.to consider its social responsibility, although its activities are legal.

VoluntaryVoluntary responsibilities are additional activities that may not beresponsibilities are additional activities that may not berequired but which promote human welfare or goodwill.required but which promote human welfare or goodwill.

LegalLegal andand economiceconomic concerns have long been acknowledged inconcerns have long been acknowledged inbusiness, butbusiness, but voluntaryvoluntary andand ethicalethical issues are more recent concerns.issues are more recent concerns.

1.7.21.7.2 Social Responsibility

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Corporate citizenshipCorporate citizenship is the extent to which businesses meetis the extent to which businesses meetthe legal, ethical, economic, and voluntary responsibilitiesthe legal, ethical, economic, and voluntary responsibilitiesplaced on them by their various stakeholders.placed on them by their various stakeholders.

One of theOne of the major corporate citizenshipmajor corporate citizenship issues is the focus onissues is the focus onpreserving the environment.preserving the environment.

Although the concept of social responsibility is receiving moreAlthough the concept of social responsibility is receiving moreand more attention, it is stilland more attention, it is still not universally acceptednot universally accepted..

As with ethics, managers consider social responsibility on aAs with ethics, managers consider social responsibility on adaily basis. It is adaily basis. It is a dynamic areadynamic area with issues changingwith issues changingconstantly in response to societys demands.constantly in response to societys demands.

There is much evidence that it is associated withThere is much evidence that it is associated with improvedimprovedbusiness performancebusiness performance. Consumers are. Consumers are refusing to buyrefusing to buy fromfrombusinesses that receive publicity about misconduct.businesses that receive publicity about misconduct.

A number of studies have found aA number of studies have found a direct relationship betweendirect relationship betweensocial responsibility and profitabilitysocial responsibility and profitability, as well as a, as well as a link betweenlink betweenemployee commitment and customer loyaltyemployee commitment and customer loyalty (two major(two majorconcerns of any firm trying to increase profits).concerns of any firm trying to increase profits).

1.7.21.7.2 Social Responsibility

Documents

1-Introduction to Operations Management and Productivity