Principles of Classical and Stakeholder Approach - Literature review Example

Introduction Business organization had started in an uncomplicated and understandable process. However, the simpli scenario has come to a point of complexity brought by many factors. Interests, opportunities, and demands are among the factors that urge many organizations today to take the complex state of dealings. This is what had happened to Tesco, a modern corporation that has no choice but to respond the increasing interests, demands and expectations of individual and groups of stakeholders. Tesco is a successful corporation in terms of sales in various product and services. Many controversies had been thrown to Tesco and the most current is about its relationship with the suppliers. The corporation is criticised in terms of its unjust practices with its suppliers despite of imposing a good ethical standards. The corporation needs to take an effective corporate approach just to meet or go beyond the expectations of its stakeholders. Corporate social responsibility (CSR) in view of the firm has different approaches which are put forward by Milton Friedman (Cutler & Nye, 2001, p.27). The main thrust of this paper is to compare the two contrasting approaches: classical approach and stakeholder approach. Also, the common principles behind the two approaches will be defined as well as its process in dealing with the suppliers. Thus, after taking all these considerations, the best corporate approach will be reflected in Tesco suppliers. Comparison between Classical Approach and Stakeholder Approach It has been believed that the cornerstone on the sole purpose of the business originated from an economist Milton Friedman (Makower, 2006). Friedman (1970) stated that the sole purpose of the business is “to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engage in open and free competition without deceptions or fraud.” He argued that the one and only social responsibility of the organization is to increase the financial return of the corporation which consequently sways the way managers do things (Zhu, n.d.). He added that the maximization of profit in the concern of the shareholders of the corporation is the major responsibility of the managers. The clearer understanding on the purpose of the corporation brought about by this approach had made the process simple. The other side of the coin is the stakeholder approach which is more complicated compared to the classical approach (Hage, 2007, p.48). Stakeholder approach is said to be complicated because it is played by many actors called the stakeholders unlike with the classical approach which focuses only on shareholders. It is a fact that the business needs to be profitable but at the same time it should keep its stakeholders satisfied. Wilczek (2008, p.8) defines stakeholder approach as the “desires for consideration of all stakeholders of an organization in the decision-making process.” With this approach, the corporation is being obliged to identify and value the very important interests of its stakeholders (Cruz & Frey, 2009). This approach according to Henn (2009, p.14) pinpoint “that the fact of an organization affects more than the owners of the business.” By the use of its three aspects: descriptive accuracy, instrumental power and normative ability, business operation will be calculated (Cooper, 2004, p.20). Principles of Classical and Stakeholder Approach Classical and stakeholder approach had set of fundamental characteristics that would serve as a framework to strategic management. The established principles of classical approach includes: principles of coordination, scalar principle and function principle (Lingham, 2009). A principle of coordination refers to the unity of action and command among the people of a certain organization which can be accomplished in two principal ways: by organization and by the dominance of an idea (Gulick & Urwick, n.d., p.4). The first way is the sub-division of work according to authority in a direct line manner that must start to the corporate executives down to the labour force. The second way refers to the idea in supremacy to improve the skills and interests of a worker. The scalar principle focuses on the hierarchy concept to have a good organizational structure. Classical approach will intend the corporation in a coherent structure, by entrusting the works of the entire organization to improve efficiency. And lastly, the function principle talks about the span of control by determining the number of subordinates and specialized skills needed in a certain area. Stakeholder approach principles involve the business environment, stakeholder interest, strategic framework, strategic management process, relationships and objectives, and values (“CSR Quest,” n.d.). On the other hand, this approach is basing its principles on the rights and consequences of the corporate structure, namely the principles of corporate effects and corporate rights (Fabe, 2008). The principles of corporate effects hold true based on the theory of utilitarianism which states that every action has predetermined consequences that the corporation must be accountable. While the principles of corporate right centres on the theory of Immanuel Kant which talks about the violation of lawful rights. The corporation is expected to recognize and respect the rights of every person as its constituents. Priorities of Buyer adopting the Classical Approach and Stakeholder Approach If the stakeholders of the corporation without taking the different interests would be mutually satisfied, its wealth-creating capability will increase, while if it fails to do so, the corporation’s financial return will suffer. Suppliers are among the important stakeholders of the company that needs to be satisfied to have a long-term relationship. In this classical approach, competition is relatively present among suppliers because the price level is being controlled by the corporation. Because competition is high, each supplier is expected to cut price just to respond to the demands of the corporation. Tesco negotiates its suppliers in order to give its buyers a fair price, but with the use of this approach the demands of the buyer could not be easily satisfied because of supplier’s innovation (“Tesco,” n.d., p.25). Stakeholder approach differs from the classical approach because it considers the stakeholders view and not the owners alone. This approach wanted to give the suppliers a fair price and in return the deliveries will be on time just to prioritize the buyers of Tesco. The Best Corporate Approach of Tesco to its Suppliers Tesco pushes its suppliers to meet the supplying demand of the buyers. Tesco claims that they are having a good relationship with its suppliers especially in responding with their concerns (“Tesco,” n.d., p.23). It is also affianced with multiple sourcing for it has wide choice of suppliers that is why it is adopting the competitive price from the most competitive suppliers. Between the two views presented, Tesco reflects the classical approach as its corporate approach. Although it looks the preference of its consumers, Tesco is more motivated to have a higher profit among the rest of the supermarket. Conclusion After comparing the two corporate approaches, it is noticeable that each of the two has different foundation. Although the foundation of classical approach is profitability, it is not enough; instead it should consider the satisfaction of its stakeholders. The classical approach shows a clearer understanding about the purpose of the business; however, stakeholder approach on the other hand implies a more realistic reflection. Tesco wanted to remain to be at the top among its competitors in terms of profitability that is why it is adopting competitive sources of suppliers. Reference Lists Cooper, S., 2004. Corporate social performance: a stakeholder approach. England: Ashgate Publishing Limited. Cruz, J.A. & Frey, W., 2009. Three views of CSR. [Online] Available at: http://cnx.org/content/m17318/latest/ [Accessed 16 August 2010]. CSR Quest, n.d. Stakeholder framework. [Online] Available at: http://www.csrquest.net/default.aspx?articleID=13909&heading= [Accessed 16 August 2010]. Cutler, T. & Nye, D., 2001. Whistleblowing and business ethics. In: D. Lewis, ed. 2001. Whistleblowing at work. New Jersey: The Athlone Press, pp. 25-38. Fabe Jr., A., 2008. Stakeholder theory. [Online] Available at: http://ivythesis.typepad.com/term_paper_topics/stakeholder_theory/ [Accessed 16 August 2010]. Friedman, M., 1970. The social responsibility of business is to increase its profits. [Online] Available at: http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html [Accessed 16 August 2010]. Gulick, L. & Urwick, L., n.d. Unit 8: classical approach. [Online] pp. 1-8. Available at: http://www.egyankosh.ac.in/bitstream/123456789/25509/1/Unit-8.pdf [Accessed 16 August 2010]. Hage, M., 2007. A stakeholders concern towards an economix theory on stakeholder governance. Netherlands: Van Gorcum. Henn, S.K., 2009. Business ethics: a case study approach. New Jersey: John Wiley & Sons, Inc. Lingham, L., 2009. Managing business – management. [Online] Available at: http://en.allexperts.com/q/Managing-Business-1088/2009/4/management-12.htm [Accessed 13 August 2010]. Makower, J., 2006. Milton Friedman and the social responsibility of business. [Online] Available at: http://www.worldchanging.com/archives/005373.html [Accessed 13 August 2010]. Tesco, n.d. Tesco main submission to the Competition Commission (CC) inquiry into the UK grocery retailing market. [Online] pp. 1-36. Available at: http://www.tesco.com/talkingtesco/p/inc/StatementofCase.pdf [Accessed 16 August 2010]. Wilczek, T., 2008. The “classical model” for practising human resource management:...or is there a need for an integrated approach including specialised human resource strategies? Germany: Auflage. Zhu, A., n.d. The socioeconomic view vs. the classical view. [Online] Available at: http://factoidz.com/the-socioeconomic-view-vs-the-classical-view/ [Accessed 16 August 2010]. Read More