Business Ethics - Approach towards the Process and Employees - Case Study Example

Business Ethics Table of Contents Table of Contents 2 Introduction: Ethical issues pertaining to the case 3 Approach towards issues 4 Options for actions 5 Legal actions 6 Morality aspects 7 Stakeholder’s response 7 Capitalism crisis 7 Reference List 9 Introduction: Ethical issues pertaining to the case Lavara, a manufacturing company that makes highly technical parts for cars, is considering reducing its costs of production so that the company is able to effectively compete with cheaper producer from China and India. In order to reduce costs the company sought the strategy of reducing quality control measures. Under such a situation the firm faces the following ethical issues: The main ethical issues that are seen to exist in the case of Lavara are: 1) The strategy of the firm is to increase production and reduce the quality control measures so that the firm can effectively control costs. The firms aim with such a strategy is to be able to compete with numerous cheaper producers emerging in countries such as China and India. Reducing the quality might affect the goodwill of the firm in the long run. 2) Due to such a strategy, the number of staff in the quality department was reduced. Hence many employees lost their jobs in this department. This might influence other employees trust in the management and make them feel insecure (Baron, 2003). 3) The measures taken by the company gives a picture about the company’s culture. Lavara shows less concern for its employees and cares more about achieving its profit goals which is not a very ethical approach towards business. If employees do not feel wanted and respected by the firm, it may cause lowering their productivity. A firm that resorts to reducing their work force in order to increase profits loses employee dedication and productivity as they start to believe their employers care less about there well being (Gentile, 2010). 4) The company seems to focus more upon their short term goals. Its strategies might reap some benefits for the short run. However considering the long run, the firm might face the critical issue of low customer preference for its goods due to low quality. The customer complaints might keep rising in the future lowering the firm’s reputation in the market. Since Lavara was known to deliver high standard products, the consumers expect high performance and quality. When this criterion is not met, customers might shift to other brands in the brands (Sonenshein, 2007). 5) Accidents might rise if engine parts are not tested properly. Therefore if Lavara compromises upon inspecting and testing its products, it might lead to hazardous consequences. This may give the general perception that the firm is highly unethical towards crucial responsibilities. Safety is premiere in the automobile sector and requires to be delivered by all the firms operating in this sector. 6) When employees see that the quality control measures have been loosened, they feel less pressure of doing their jobs perfectly. They might take their work more casually and care less about the quality aspect. Since the quality control department is working at a reduced scale, they might ignore or fail to spot and correct mistakes and quality disorders. This may drastically reduce the customer preference towards the products of Lavara (Loe, Ferrell and Mansfield, 2000). Approach towards issues The management has asked Jane to come up with a suitable plan so that the firm is able to reduce costs of production. If Jane’s plan proves to be successful at reducing costs, she is likely to be promoted to the position of senior manager in the coming two years time. Therefore the challenge for Jane is to come up with a suitable cost control program for her department (Quality Control Department) in the most ethical manner possible. The ethical issues that Jane is required to deal with are discussed as follows. Saving a company sometimes comes with a cost. The cost can be losing employees, reduction in quality and losing goodwill. However to survive competition from upcoming firms and to maintain profit levels, a firm sometimes accepts to put up with such negative factors (Crane and Matten, 2007). Although Lavara chose to reduce costs by cutting down on quality control, the firm could have also incorporated reducing costs by changing the grade of raw materials that it uses for manufacturing. Cheaper means of production could have also been a suitable cost cutting option. Developing cheaper supply chain strategies, reducing the internal expenses are other options the firm could have considered. If the firm could have collaborated some of these measures along with quality control, it would have helped reduced the pressure upon the quality department alone to be responsible for cost cutting measures (Mitra, 2012). The critical aspect that comes into focus through this case study is that, can compromising on quality be opted as an ethical way to tackle the problem of cost reduction. Every firm is expected to fulfil certain responsibilities towards the society. One of them is, being able to deliver high quality products. Many firms have been able to successfully reduce their cost of operations through adopting different measures strategically. The firm needs to consider other mechanisms of cost reduction apart from only quality reduction. Also it is not considered to be ethical to bank upon existing high goodwill to sell products of low quality. This keeps consumers hidden from the actual scenario and they get cheated (Mitra, 2012). Layoff of employees in order to reduce costs is a popular measure taken by most firms. Lavara also opted to layoff many of the employees from the quality control department to reduce the head count so that the inspection activities are reduced or slowed down. Layoff of employees in order to reduce a department’s functionality is not an ethical means to control costs (Trevino and Nelson, 2010). This would induce a feeling of fear and insecurity amongst other employees from the same and other departments (Ferrell, Fraedrich and Ferrell, 2011). It would make the employees become less dedicated towards their work as a result of which overall efficiency and productivity of the firm gets reduced. In the long run such a situation is not suitable for a proper work environment (Joyner and Payne, 2002). Hence most firms chose not to reduce head count unless the situation is extremely adverse (Montgomery, 2007). Downsizing may help Lavara to increase its profits in the short run, but Jane is required to consider the long term effects of downsizing. In the long run the reduced number of worker may cause too much work pressure upon the existing low number of employees in the quality control department. High work pressure may affect employee’s health and their concentration on work. Employees may start taking more number of leaves from work, rendering much of the work undone. Hence productivity will fall considerably. Lack of job satisfaction may also develop in the minds of the employees effecting their morale and dedication towards the company (Montgomery, 2007). Jane also needs to consider the effect of her decisions upon the employees. If her decisions are more in support of the management, it might cause employees to lose trust upon Jane as their interests are overlooked. They might even suspect that Jane is being bribed. Hence Jane’s decisions must be justified and acceptable by all interest groups in order to avoid such suspicions (Spence and Rutherfoord, 2003). Options for actions Strategic cost reduction- The cost of operations at the quality department can be reduced significantly by adopting a more strategic plan for quality inspection and testing. Also incorporating other departments for reducing cost of operation might lower the burden upon the quality department singly to reduce costs. The focus would be to develop cost control measures without sacrificing much upon the quality aspect. This would prove to be a more ethical approach. Avoiding layoff- Layoffs are extremely undesirable for maintain a proper working environment as it impacts other employees sense of security. Therefore instead of layoffs the department should consider redeployment of employees to other departments. Since the management proposes to increase the level of output, there will be greater requirement manpower in the production process. Hence employees can be shifted to the production unit from the quality control department. In this way the total manpower requirement in the quality department can be reduced without the employees having to lose their jobs (Christensen, et al., 2007). Transparency- Employees should be aware of the conditions and situations faced by the firm. Only then will they be able to understand the reasons behind the different actions taken by the management. Transparency should be accompanied with an attitude of respect. Employees must be treated as logical and important members of the organization. Employees must be made to understand the fact that layoff measures will be the last resort that the firm will consider to tackle the situation (Spence and Rutherfoord, 2003). Also if certain benefits of the employees are cut down, proper justification needs to given to the employees regarding why the management was encouraged to take such a step (DesJardins, et al., 2009). Engaging workers in idea generation- Employees directly are involved with the production process and have greater knowledge regarding it. Hence their suggestions might prove to be helpful for the management to develop strategies. Employees must therefore be made aware of the situation and they should be encouraged to contribute their ideas to the management. This also helps to develop a sense of belongingness towards the organization in the minds of the employees (Miranda, 2009). Legal actions An important aspect also to be considered in this respect is that the legal consequences that may arise of poor quality of products. The company is engaged in producing highly technical parts for car engines. If these parts are not of high quality it may lead to accidents and loss of lives. In order to avoid such a disastrous consequence, it is important that the company pays adequate attention in maintain the quality of its products (Shaw, Barry and Panagiotou, 2010). Morality aspects The theory relating to deontology and utilitarianism is applicable in this context. The theory of deontology states that harming others regardless of the consequences is wrong. Therefore in the context of Lavara Plc, if downsizing leads to loss of employee morale and productivity, there is no good that is caused to either the company or the employees. Moreover the reduction in quality would also cause disadvantages to the consumers leading to loss of goodwill. Before adopting cost reduction measures it is important that the aspects of morality are considered by her. The theory of utilitarianism states that harming others is acceptable if it causes well being of a large number of people. Jane should come up with solutions that are acceptable to both the management and the employees. she can adopt the principles of rationalization that aims to reduce cost without harming the interest of stakeholders (Gioia, 1999). Stakeholder’s response If Jane develops a strategy by incorporating the above mentioned aspects, it is likely that the top level management would approve it as all of the above discussed aspects are focussed upon reducing costs in the most ethical manner. The strategy is also likely to be accepted by the employees in general as it does not involve losing their jobs. Capitalism crisis Capitalism is many at times criticized upon the fact that it shows little importance towards corporate social responsibility. The core values of capitalism give greater importance to increasing revenues and neglect the well being of employees. Capitalism is often said to pave way towards inequality. However it can be argued that the issue is not with the concept of capitalism, the problem lies with what capitalist focus at. If capitalist firms incorporated an attitude of understanding their employees better and develop a work environment that protects their interests alongside of achieving the organizational goals, the concept of capitalism will be viewed to be less unethical. The goal is to develop the concept of ethical capitalism in organizational functioning (Harrison, et al., 2010). During the financial crisis of 2007, capitalist firms sought help from the government to bail them out of their debt and liquidity issues. Instead they could have revived the economy by allowing investments to come in from other firms and businesses that were stable at that point of time. By seeking help from the government, the capitalist firms had rendered them into high debts which got translated into the society in the form of unemployment and austerity. Hence the profit earning motive of capitalist organization and the way they function has been criticised in many ways. Capitalist firms develop their strategies with less concern for the future. This creates negative impacts upon the society. The capitalist attitude lacks efficiency as it neglects many values. Therefore it has become clear that the real solution for capitalist crisis is to change the class structure of the capitalist firms (Bergman, 2014). Many capitalist leaders are considered to be corrupt who give more importance to money making than to ethics and justice. Reference List Baron, D. P., 2003. Business and its Environment. New Jersy: Prentice Hall. Bergman, S. M., 2014. Ethical Capitalism? Its Worth a Try, The Huffington Post [Online] Available at: [Accessed on 14 April 2014]. Christensen, L. J., Peirce, E., Hartman, L. P., Hoffman, W. M. and Carrier, J., 2007. 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