Contemporary Industry Trends and Issues - Essay Example

In the hospitality industry, as in other industries, today’s managers must cope with a higher degree of complexity than ever before. One of the factors creating this complexity has been a new focus on business ethics. It is no longer enough to avoid obviously unethical business practices; the modern manager is expected to maintain standards of “corporate citizenship” that require sensitivity to a wide range of different public and private interests, while still operating a profitable business. Traditional business ethics simply meant avoiding doing anything unethical (or at least anything so unethical that it would disrupt operations or lead to regulatory fines) while maximizing profits, and thus returning maximum value to shareholders. This type of ethics takes a narrow view of a corporation’s obligations: management owes shareholders the best possible return on their investment, and all the other relationships between a corporation and its workers, its customers, its suppliers, its surrounding community, the environment, and so on, are important only to the extent that they help to give shareholders the maximum income possible. In fact, under traditional business ethics, it is actually unethical for management to promote any other interest, no matter how beneficial to society, at the expense of investors. Of course, even under the traditional system of business ethics, managers knew that they had to take the interests of employees, suppliers, and customers into consideration. Input-output models of business made it clear that since employees and suppliers, along with investors, provided the inputs to a business, and customers provided a business’s revenues, managers needed to maintain functional working relationships with all these groups. However, it was always clear that the interests of suppliers, employees, and even customers were subordinate to the interest of shareholders in maximizing income; and thus managers felt perfectly willing—and even obligated—to “squeeze” the former groups in order to increase income. (A classic example of this is the practice, still fairly common among large companies, of paying small suppliers on a very slow schedule. In effect, the company doing this is writing itself an interest-free loan at the expense of a supplier for whom slow payment is a major hardship; but since the large company can replace the small supplier more easily than the small supplier can replace a large customer, large-company management traditionally had no ethical problems using this technique to increase corporate income.) Newer thinking about business ethics has recognized that while managers certainly need to retain their focus on earnings and creating value for shareholders, they also need to take a broader view of their ethical obligations. The new thinkers have emphasized the concept of the stakeholder—the various groups and individuals who have a legitimate stake in a particular company, even if they have no ownership interest in it. Employees, suppliers, and customers are obviously stakeholders in a company: the company’s success is required for their continued well-being, and of course the company relies on them for its continued success. Stakeholder theory goes far beyond these groups, however; for example, regulatory agencies, local communities, trade associations, labor unions, and sometimes even competitors can all to a greater or lesser degree, be stakeholders in a company. The idea of the stakeholder creates a fundamental shift in attitude on the part of management and, of course, the stakeholders themselves. The traditional relationship between, for example, a company’s management and its labor force was a matter of controlled antagonism: management’s goal was to keep its business running with the lowest possible labor cost and highest possible productivity, and the workers’ goal was to gain the maximum compensation for the minimum effort. But once management and labor recognize that employees are stakeholders in a company, both can come to understand that they have fundamentally common interests. Management will benefit if the workforce is enthusiastic, happy, well trained, and stable; and workers will enjoy better job security, compensation, and job satisfaction if their employer is successful and profitable. The same kind of shift in thinking occurs between management and other stakeholders. The primary stakeholders in a company are obviously those with a direct, material interest in it, such as labor, suppliers, customers, investors, and, of course, management itself. Other stakeholders are less directly involved with the company in question, and thus the relationship between them and the company will be less intense. Because there is no precise rule for determining who is and who is not a stakeholder, there is no way to come up with a definitive list of all the stakeholders in a particular company; rather than a list, perhaps the best metaphor for stakeholders is a cloud, with the company at the center. The recognition that corporations cannot identify a short, simple list of stakeholders has led to the development of the concept of “corporate social responsibility”—the idea that corporations have an obligation to tailor their behavior not only to satisfy a few major stakeholders, but to conduct themselves as “good corporate citizens”, working to promote the welfare of society at large as well as that of specific stakeholders. A “good corporate citizen” obviously must value its workforce, suppliers, and customers, working with them to create cooperative relationships that benefit both sides; but it also must work to benefit the community in which it does business, the environment, and so on. Because there are so many possible ways in which this kind of value system can be expressed, there is no single way of being a socially responsible business, any more than there is a single way to be a socially responsible individual. Corporate social responsibility is particularly important to the hospitality industry. One major reason for this is that guests are not merely purchasing a product from a supplier; they are actually inside the hotel, restaurant, or other facility they are visiting, interacting directly with its employees. Further, guests are exposed to the area around the facilities they visit, and their feelings about the local environment are naturally going to impact their feelings about the facility itself. Thus it is important for hotels, restaurants, and other hospitality enterprises to create an atmosphere in which staff members genuinely care about their guests and want to create a pleasant environment for them, and to work to preserve and enhance the natural and built environment that their guests will experience. Another factor promoting the importance of corporate social responsibility is the ever-increasing worldwide flow of information, particularly via the Internet. Information spread over the Internet allows potential customers to be more aware of local conditions in the various locations they may be interested in visiting, encourages them to be more concerned about events happening far away from their homes, and makes it easy for them to receive and contribute to information about particular destinations, hotels, and companies. This in turn affects their decisions about where to travel, where to stay, where to eat, and what to see. The increasingly contributory nature of many Internet sites (referred to as “Web 2.0”) means that hotels and other service providers no longer have effective control over the information that potential guests use to make their decisions; even professional reviewers are nowadays just one out of many relevant sources of information. The obvious objection to the new emphasis on corporate social responsibility is that it is a distraction at best—particularly since the traditional challenges of making a profit in a competitive marketplace are as intense as ever. If the fundamental responsibility of managers is to operate a business at a profit, can they really afford to worry about being “good corporate citizens” and other “touchy-feely stuff”? The bad news is that today’s hospitality managers may have to focus on corporate citizenship simply as a defensive strategy; in many cases it may no longer be possible to obtain good business results without such a focus, since potential customers and other stakeholders are increasingly aware of corporate social responsibility issues and are more likely to base their decisions on their perceptions regarding the social responsibility of the firms with which they associate. The good news is that—at least according to some organizations and experts who promote corporate social responsibility—an emphasis on social goals beyond the traditional profit motive is actually a good strategy for increasing earnings. According to this view, when stakeholder interests are recognized as such and catered to, businesses can be run more harmoniously and efficiently; with regard to the hospitality industry, one could say that a happy hotel in a happy environment is a profitable hotel. References Baue, William, “Business Ethics' 100 Best Corporate Citizens Outperform S&P 500”, 29 April 2002. Retrieved from http://www.goodcorporatecitizen.com/beinggood.html . Ferrell, O.C., Maignan, Isabelle, & Loe, Terry W., “The Relationship between Corporate Citizenship and Competitive Advantage” (working paper). Retrieved from http://www.e-businessethics.com/orgcitizen1.htm and following pages. Transport Salaried Staffs’ Association, “Corporate social responsibility”, undated. Retrieved from http://www.tssa.org.uk/article-1.php3?id_article=2045 . Wikipedia: “Corporate social responsibility”, http://en.wikipedia.org/wiki/Corporate_social_responsibility , retrieved 22 August 2008. “Stakeholder theory”, http://en.wikipedia.org/wiki/Stakeholder_theory , retrieved 22 August 2008. “Stakeholder (corporate)”, http://en.wikipedia.org/wiki/Stakeholder_%28corporate%29 , retrieved 22 August 2008. “Stakeholder analysis”, http://en.wikipedia.org/wiki/Stakeholder_analysis , retrieved 22 August 2008. Read More