Future Macroeconomic Environment and Its Expected Impact on Management

Practice. What Is New in Management?

Marcin SenderskiWarsaw, 14 January 2012

Agenda

1. When firms innovate?2. Macroeconomic landscape and its impact on managers3. Determinant A: Care for the environment4. Determinant B: Ethical conduct & CSR5. Regulation as a conduit of macroeconomic pressure6. Conceptualization attempt7. Bibliography

When firms introduce new management practices?

• Management innovation is the introduction of management practices new to the firm and intended to enhance firm performance

• Typically, professional networks, customers, competitors and consultants are those, who provide important (external) sources of new ideas that can have an influence on the introduction of these practices

• Geographic scope of a company is an important predictor of its propensity to introduce new practices: the more internationally-focused the firm, the more likely it is to view itself as having a global reference group, therefore it is more willing to innovate to prevent falling behind their peers

• For example, when Toyota failed to compete successfully in the U.S. market in the 1950s and discovered the need for a radical new approach, this stimulus, among others, led to the development of the lean production system which derived important cues from the U.S. supermarket industry (Udagawa, 1995).

Source: Mol and Birkinshaw, 2009: 1272

Macroeconomic phenomena impacting managers

1) Lee, 2009: 1119; 3) Steinmann, 2008: 143-144

• Evidence indicate that there is great potential for environmental improvements connected to the span of management practice: innovation capability, organizational learning, human resources, cost savings and competitive advantage1)

• Corporate ethics should be understood as a self-regulation device, intended to support the law in three concrete ways:- By making sure that corporate actions comply with the law- Through efforts to complement national law- By criticizing existing law in order to bring about and support initiatives for reform3)

… unadressed issues of sustainability, resulting in…

… administrative restrictions on growth

Environmental protection concerns

Struggle for ethical standards

Financial crisis

Wasteful exploitation

Innovation race

Regulatory pressure

Prevailing global trends lead to…

Changing environmental mindset of managers

• On the one hand (1996)…- Despite the increased attention that is apparently being paid at the corporate level to

environmental issues, many firms in the study actually ranked environmental issues as the least important factor influencing their business, either at present or during the next ten years. According to this evidence, environmental issues hardly register on the strategic agenda of many firms. This was true even of firms that had adopted a number of environmental management tools1)

• … but on the contrary (2010)…- Traditionally, resource efficiency has not been a large concern for managers, but in

our study there are indications that resource savings and other environment-related costs are becoming more important for the competitiveness of firms2)

• … however, it is not a universal approach:- Many researchers show that size of the firm is crucial: Larger firms (…) are more

likely to find their reputation suffering if they do not perform well on social measures2)

1) Garrod and Chadwick, 1996, pp. 48-49; 2) López-Gamero et al., 2010, p. 970

What are implications for management?

• Green management can play a central role in the optimization of product development processes and new-products themselves, not only in pollution-intensive industries, but also in the high-tech industries (King, 1999; Marcus and Fremeth, 2009)

• Green product innovation performance had a positive influence on financial performance. The implication is that companies which grasp green initiatives can gain increased market share (according to a study cited in Blanchard, 2009)

• Firms operating in countries that are active in tackling environmental problems by implementing repressive policies are likely to face growing regulatory pressure to reduce emissions and increase use of renewable energy, as well as make the required investments to embrace sustainability. Environmental issues are already forming investors’ economic risk assessments and spending decisions

Source: Huang and Wu, 2010: 1560

Case studies: drivers for adopting green management

Source: Lee, 2009: 1115-1116

COMPANY A: KOREA OMYANG(acoustic equipment manufacturer)

COMPANY B: GDS(electronic products manufacturer)

Internal drivers Internal drivers• To reduce the ratio of employee turnover

due to harsh working environment• To solve the wastewater treatment

problem in cone paper process• To reduce environmental costs

• To solve the water quality from the wastewater treatment

• To reduce environmental costs

External drivers External drivers• To comply with stringent

environmental regulations• To respond proactively for customer

„green” demands• To increase „green” competitiveness

for overseas markets

• To comply with stringent environmental regulations

• To increase „green” public image

Environmental law and regulations are widespread

Source: T. Valiere (2010) Catch the Wave – The Coming Onslaught of Enviro-nmental Regulations and Their Impact on the Electronic Industry, http://www.ttiinc.com

‘Hold your breath’, says EPA

Source: http://dancingczars.wordpress.com/2011/09/25/epa%E2%80%99s-absurd-defense-of-its-greenhouse-gas-regulations/epa-says-hold-your-breath/

Ethics: not any more a defensive asset?

• The definition of CSR by the World Business Council for Sustainable Development (1999): “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”

• Resolution of a crisis situation requires thoughtful deliberation, leadership skills and particular attention to ethical decision-making (Maddalena, 2007)

• Corporations need to take the same proactive response to their ethical values as they do to their product positioning. Corporate ethics should not be an afterthought in a corporation’s planning and implementation of TQM (Svensson and Wood, 2005)

Practical perspective:• In all the [four] case studies, poor management, unethical practices, a lack of

engagement with customers and other stakeholders, indifferent or aggressive performances by CEOs and lack of preparedness for crisis communication severely or terminally affected these companies (Watson, 2007: 378-379)

• For some fashion brands, the visibility of environmental management on the market in terms of an eco-label seems to have developed from being a constraint that interferes with marketing the brand to a prerequisite for reducing the risks of damage to the brands’ image (Jørgensen et al., 2010: 375)

What are the sources for developing ethics?

1) Holian, 2006: 1135; 2) Steinmann, 2008: 145

• While standard business ethics texts and programs may provide information that assists with the development of Judgement, this may be necessary but insufficient1)

• While Judgement and Integrity are a good platform on which to build ethics it is also necessary to have the Courage to act on these, and even better to also include Humanity1)

• What corporate ethics requires of the reform of managerial structures is that these structures must allow (…), that the profit motive does not dominate or even repress (…) all endeavors towards thoroughly scrutinizing the means with which a corporation makes its profits (the principle of primacy of corporate ethics)2)

Source: Mol and Birkinshaw (2009)

A transitional pathway toward CSR excellence

Source: Peddle, R. and Rosam, I. (2004) Finding the balance, Quality World, Vol. 15, No. 6, pp. 18-26

Although the CSR is seamless at first sight, there are powerful opponents…Sternberg (2000) argues that there is a human rights case against corporate social responsibility, which is that a stakeholder approach to management deprives shareholders of their property rights

Regulatory reform without ethical reform is not enough?

• Recent developments in the financial services industry, especially those directly connected with the global banking industry, have prompted many shareholders and other financial stakeholders to question the moral obligations of corporations

• However, moral obligations and business ethics are well positioned to serve as an integral and important part of the strategic management process

• Corporate failures such as Lehman Brothers and scandals such as Adelphia Communications, Arthur Andersen, Enron, and WorldCom have done little to build and sustain shareholder and business confidence

• Early proponents of management, such as Barnard, highlighted the need for corporate CEOs to have a sense of moral responsibility

• In fact, in many cases the only safeguard in place in economy is the moral character of the managers (Weitzner and Darroch, 2009: 10)

• Economic innovations, including financial innovations, are not inherently bad – they are ethically neutral, but the need of transparency arises so that the risk of innovation in the system is to be both identified and managed (ibid., 6-9)

Source: McManus, 2011: 214

Why self-discipline is superior to external regulation?

When environmental regulation stems from command-and-control legislation, its influence on managerial perception and proactive environmental management is not significant. On the other hand, when environmental regulation stems from voluntary norms, it has positive effects. (López-Gamero et al., 2010)

Legitimization for self-regulation efforts?

If true, this would mean that managers should forge ethical actions only when they have economic incentives to do so (or they just feel they should do so). Creative solutions and innovations resulting from voluntary acting or introducing self-restraining measures may then lead to mutual gains, both for a company and for its stakeholders.

Core competencies of „new” managers

• Adapting to rapidly changing market conditions and technology shifts, and generating continuous innovation, both of offering and operations, require managerial effort

• The reinvention of management entails simultaneously implementing five fundamental shifts aimed at achieving continuous innovation and disciplined execution. The five transformations required are:- The firm’s goal becomes delighting and engaging customers, which embodies a shift

from an inside-out to outside-in perspective- The role of managers changes from controller to enabler- The mode of managerial coordination switches from command-and-control to

dynamic linking- The values practiced shifts from a single focus on shareholder value to values

relevant to all stakeholders- The communications mode of management changes from command to

conversation• None of the five shifts is new in itself; success, however, requires putting all five shifts

into operation together• As firms such as Apple, Amazon and Zappos have demonstrated, when customers

are delighted through a continuous stream of added value, the gains can be extraordinary

Source: Denning, 2011

Waiting for government policy or being a step ahead?

Source: Cartwright and Craig, 2006: 747

Pathways for aligning corporate governance with global sustainability

Conceptualization

External forces Payoffs

Employee satisfaction

Good publicity

Reinforcing brand’s strength

Channels of influence

Management response

Tangible profits (in pecuniary terms)

Repetitive social & economic crises

Individualism and contestation

Formation of social movements

Institutionalized public discontent

Mindset evolution

Direct external input & advice

Incorporating academic insights

Reconsidering regulatory setup

More focus on CSR

Voluntary self-regulation

New dimension of innovation

New specialties

Bibliography

• Blanchard, D. (2009) Green is the new black, IndustryWeek, 1 March.• Cartwright, C. and Craig, J.L. (2006) Sustainability: aligning corporate governance, strategy and operations with

the planet, Business Process Management Journal, Vol. 12, No. 6, pp. 741-750.• Castka, P. and Balzarova, M.A. (2007) Adoption of social responsibility through the expansion of existing

management systems, Industrial Management & Data Systems, Vol. 108, No. 3, pp. 297-309.• Denning, S. (2011) Reinventing management: the practices that enable continuous innovation, Strategy &

Leadership, Vol. 39, No. 3, pp. 16-24.• Garrod, B. and Chadwick, P. (1996) Environmental management and business strategy: Towards a new strategic

paradigm, Futures, Vol. 28, No. 1, pp. 37-50.• Holian, R. (2006) Management decision making, ethical issues and “emotional” intelligence, Management

Decision, Vol. 44, No. 8, pp. 1122-1138.• Huang, Y-Ch. and Wu, Y-Ch.J. (2010) The effects of organizational factors on green new product success:

Evidence from high-tech industries in Taiwan, Management Decision, Vol. 48, No. 10, pp. 1539-1567.• Jørgensen, M.S., Jørgensen, U., Hendriksen, K., Hirsbak, S., Thomsen, H.H. and Thorsen, N. (2010)

Environmental management in Danish transnational textile product chains, Management Research Review, Vol. 33, No. 4, p. 357-379.

• King, A. (1999) Retrieving and transferring embodied data: implications for the management of interdependence within organizations, Management Science, Vol. 45, No. 7, pp. 918-35.

• Lee, K-H. (2009) Why and how to adopt green management into business organizations?: The case study of Korean SMEs in manufacturing industry, Management Decision, Vol. 47, No. 7, pp. 1101-1121.

• López-Gamero, M. D., Molina-Azorín, J. F. and Claver-Cortés, E. (2010) The potential of environmental regulation to change managerial perception, environmental management, competitiveness and financial performance, Journal of Cleaner Production, Vol. 18, pp. 963-974.

Bibliography

• Maddalena, V. (2007) A practical approach to ethical decision-making, Leadership in Health Services, Vol. 20 No. 2, pp. 71-75.

• Marcus, A.A. and Fremeth, A.R. (2009) Green management matters regardless, Academy of Management Perspectives, Vol. 23, No. 3, pp. 17-26.

• McManus, J. (2010) Revisiting ethics in strategic management, Corporate Governance, Vol. 11, No. 2, pp. 214-223.

• Mol, M.J. and Birkinshaw, J. (2009) The sources of management innovation: When firms introduce new management practices, Journal of Business Research, Vol. 62, pp. 1269–1280.

• Okpara, J.O. and Wynn, P. (2008) The impact of ethical climate on job satisfaction, and commitment in Nigeria: Implications for management development, Journal of Management Development, Vol. 27, No. 9, pp. 935-950.

• Sealy, I., Wehrmeyer, W., France, Ch. and Leach, M. (2010) Sustainable development management systems in global business organizations, Management Research Review, Vol. 33, No. 11, pp. 1083-1096.

• Steinmann, H. (2008) Towards a conceptual framework for corporate ethics: problems of justification and implementation, Society and Business Review, Vol. 3, No. 2, pp. 133-148.

• Svensson, G. and Wood, G. (2005) Corporate ethics in TQM: management versus employee expectations and perceptions, The TQM Magazine, Vol. 17, No. 2, pp. 137-149.

• Udagawa M. (1995) The development of production management at the Toyota Motor Corporation, Bus Hist, 37, pp. 107–19.

• Watson, T. (2007) Reputation and ethical behaviour in a crisis: predicting survival, Journal of Communication Management, Vol. 11, No. 4, pp. 371-384.

• Weitzner, D. and Darroch, J. (2009) Why moral failures precede financial crises, Critical Perspectives on International Business, Vol. 5, No. 1/2, pp. 6-13.