IKEA Business Ethics Dilemma - Case Study Example

10 May 2008 IKEA Business Ethics Dilemma IKEA is an international home retailer dealing with diverse customer target. In this company, ethical problems arise when a man's assignment forces him to emphasize a single job objective--say, maintaining the profit margin on a particular product. But suppose that in order to meet this objective his only alternative is to sacrifice quality. Choices of this kind must be forced upward in the corporation; for--as one assumes increased obligations toward employees and stockholders-profit itself represents an ethical standard. IKEA adopts social corporate responsibility policies in order to meet ethical and moral questions and respond effectively to changing demands and laws. Thus, the main dilemma is how to respond to consumer's social demands and expectations and meet social responsibility in marketing. For IKEA, consumer citizens are pressuring business to achieve higher levels of social and ethical responsibility. Why should corporations, and especially marketers, respond to these new demands Part of the answer lies in business concern with the "threat" of more governmental regulation. This is the argument which goes, "If we don't, government will" (Singer 12). But part of the reason why business is moving to higher levels of social performance is to be found in consideration of the ethics of the situation. Socially responsible behavior on the part of the firm can be justified by standards of rightness as well as of economics and the law. It may be sound business practice, as well as morally right, for a marketer to attempt to meet socially responsible performance standards. The pressures imply the development of rules and standards by which business actions may be judged as "right" or "wrong". In other words, ethical decisions under free enterprise are "moral decisions", impelled by social sanctions, but modified by economics and environmental requirements (Velasquez 45). The growing professionalism in marketing is also stimulating the development and acceptance of pervasive "socially conscious" standards of ethics. Some insights into the changing social and ethical responsibilities of marketing are explored (O'Neill & Hern 129; IKEA Home Page 2008). In IKEA, expenditure of time and resources on such issues is still regarded by some managers as wasteful or as time spent on peripheral issues. However, allocating resources to such issues is no longer a matter of option. These questions are not on the periphery of corporate planning, but an inescapable part of corporate planning and concern. The partial answers existing in accounting-economics terms do not satisfy growing concern with the corporation as a means to a social end--improving the quality of life. The quality of life issue is the major problem confronting business now (Singer 17). Meeting the issue will require management commitment and time, will be costly, and frustrating, but necessary. Corporate presidents can expect to spend more time on the quality of life issues--on consumer/environmental and social concerns--than their predecessors. Management's new task is to balance traditional profit and rate of returns on investment criteria with new definitions of social costs, social purpose, and social conscience (O'Neill & Hern 129). The starting point for socioindustrial progress analysis is not to be found in corporate traditions or corporate history or even industrial history. The starting point is to relate social progress of the corporation to national goals and to the social indicators being developed to evaluate the attainment of these goals (Velasquez 32). This approach sounds like socialism to some. It is not. Social progress was once considered to be a national by-product of economic progress. Society believed that social progress was achieved through continued economic growth and progress. The accumulation of material wealth and affluence is no longer automatically equated with social progress by a growing number of influential Americans. Public policy sees social progress as a goal to be achieved in itself and not necessarily the same as economic progress (Kotler & Lee 23). With the new parity between social progress and economic progress, social progress is seen as a goal to be deliberately sought--by business and other social groups (Carmichael and Drummond 77; IKEA Home Page 2008). Here is where national goals and governmental programs can be useful as indicators of major areas of social concern. IKEA's international goals have business relevance as citizens move toward a social industrial complex. In a social industrial society national goals are increasingly relevant to business policy. Specialists concerned with social indicators are now developing tools and measures to appraise progress towards such goals. Social indicators are tools to be used to measure progress in quality of life areas (Singer 19). They are, as Bauer defined them, statistics, statistical series, and all other forms of evidence that enable us to assess where we stand and are going with respect to our values and goals, and to evaluate specific programs and determine their impact. A social indicator is a describable trait/characteristic/attitude which either is applicable to a substantial segment of the population or has shown evidence of recent change in magnitude or intensity. Over a period of time, it should show changes in magnitude or intensity of the trend being measured and identify the population groups most involved with the change. Hopefully, it should show how the trend being measured interacts with other trends (Kotler & Lee 93). The present state of the art of measuring life quality factors limits our ability to use social indicators. However, this means that a great deal of work is required, not that we ignore the present intangibles. The first step is to measure whatever can be easily measured. The second step is to disregard that which can't be easily measured or give it an arbitrary quantitative value. This is artificial and misleading. The third step is to presume what can't be measured easily really isn't important. This is blindness (Velasquez 44). For IKEA business should confronting quality of life issues is reacting not only to statistics but to not easily measured social value changes. The danger is that business perceives social value changes as another short-term crisis, not as a situation requiring fundamental change in management. One starting point for corporate analyses is to relate its efforts to thinking about national social goals and about the fundamental shifts in the relationships between economic progress and social progress as perceived by influential citizens (Kotler & Lee 23 IKEA Home Page 2008). The common element in the new demands upon business is the departure from strictly economic considerations which have been regarded as appropriate criteria to determine the allocation and use of private resources. This is a direct challenge to the thesis that decisions taken with intent to maximize profits also maximize public benefits (Singer 18). In order to meet changing social and economic requirements, IKEA should adopt a new concept called sociobusiness. Some chief executives think that the issue is whether or not business should give a little more or less money to solving some nonbusiness social problems or hiring more hard-core minorities. Adoption of a sociobusiness concept is no longer a matter of option for our major enterprises if the business is to be relevant to the new social progress concerns and social value changes (Singer 88). The sociobusiness concept offers a conceptual framework for integrating the firm's relationship to its ultimate environment. The sociobusiness concept is an extension of traditional management and marketing concepts with redefinitions of mission, service, consumer, product, and profit. The corporate mission is defined in social system terms of longrun profitable service to the consumer-citizen. Sociobusiness issues are seen as critical and urgent, impacting not only on profits but also being relevant to the survival of the enterprise in society (Frederick 39). IKEA's management recognizes that service to the consumer-citizen requires fulfilling societal and environmental concerns as well as the satisfaction of traditional economic goods and services. Therefore, business programs are evaluated and tested in terms of societal impact as well as traditional balance sheets and profit and loss statements. Products are defined as sociobusiness products, not just as economic goods. Analysis of sociobusiness product policies considers the social effects on the individuals within the corporate system--in larger systems within which the firm operates and with customers. The firm is aware of its role as a molder of social values for both employees and consumer-citizens (Frederick 39). Attitude changes must be made in order for the firm to utilize the new sociobusiness concept in its planning. The importance of social value issues to the survival of the corporation and society must be accepted from the board of directors, through the president's office, down through all levels of the firm. This attitude change is manifested in two major ways, adoption of a new definition of the business in sociobusiness terms and organizational changes. Major changes in the organization structure are being made (Singer 54). This is believed to be the first time a major bank has created such a high post solely for the direction of corporate social responsibility. Specific responsibility areas include, but are not limited to, programs in the fields of consumerism, aspirations of minority groups, and the environmental crisis. The vice president will also chair a committee of key senior officers whose functional responsibilities have a major impact in the bank's social performance (Velasquez 16). In IKEA, this type of appointment will be much more common in the next few years--not only with banks which have been fire-bombed, or manufacturers who have been the special targets of critics, but other firms recognizing it is not altruism but tough-minded management and good business to reconcile profits and social performance in these days of the consumer-citizen. In fact, major companies not now considering such senior appointments are suffering a form of "social myopia" potentially more harmful to long-run corporate welfare than the "marketing myopia". The answer is not simply to broaden the role of the public relations director but to create a new definition of a position of corporate leadership (Frederick 39). For IKEA the sociobusiness orientation will be a long-term one. However, the orientation ultimately involving attitude change at all management levels can be reduced to the annual planning cycle. The annual planning process should begin by looking at the desired kind, quality, and quantity of sociobusiness transactions desired by corporate management. Using the marketing function as an example, there are seven steps in the annual sociobusiness planning process (Frederick 39). The number planning "social goals" was lower than those planning any of the other following numerical goals: sales volume, profit, return on investment, market share, image, and resource accumulation. However, the very fact that some firms included social goals in their planning process indicates that social goal formulation is becoming a part of the total planning process of these firms (Singer 62). The board of directors of major firms could have a public policy or social audit committee. This committee could audit the societal impact of the corporation in the following areas: environmental quality, consumer-citizen welfare, sociomarketing product, personnel policies, military contracting, and sociopolitical influence, and to provide recommendations for future performance. This committee could be composed of both company and public or outside members, and also have a staff of resource people to audit the company's performance in its ultimate environment. More firms will add more minority group representation to the board of directors--including directors charged with representing the consumer interest (Velasquez 92). The second phase of attitude change implementation is in social goal definitions. These goal definitions should follow the pattern of economic goal definitions which includes the desired performance level, determination of responsibility to achieve these goals, the delegation of authority to achieve these goals, and the measurement of goal achievement at the end of the period. The sociobusiness concept may be useful here (Singer 65). In IKEA this cooperation can take place in three areas. The first is the utilization of managerial talent for community purposes. This may involve using company personnel to plan a fund drive, to help with volunteer training programs, or to help with community planning and developing. A second aspect of this cooperation is the voluntary participation by business in the establishment of public-private corporations. These corporations would combine the best of government, that is, public accountability, political capacity, and funding, and the best of business which includes systems analysis, technology, and managerial implementation. These corporations could then work in such problem areas as communications and transportation. Once a social performance audit has been carried out by a firm in order to get ready for outside auditors, and once it has become part of the annual planning and review of performance process, then there will be a demand for some way to compare how the management of the firm sees its social performance and how the outside auditor sees its performance (Singer 63). Both the firm's management and the auditor will have the benefit of measurement against planned goals this year as well as the trend in performance over a series of years (Carmichael and Drummond 37). The auditors might bring a knowledge of the industry to the audit and be able to compare the performance with the other firms making up the industry. A social performance index based upon a market promise/market performance analysis is a way to provide an overall measure to compare the social performance of one corporation with another. The auditor would report the results from an instrument that would measure management's perception of the impact of its market offerings upon each component and each item to be included in the social performance audit (Velasquez 65). The problems of a social performance audit are real. The audit requires objectivity, detachment, tough-mindedness, and persistence. These attitudes may be more important than specific techniques. The alternatives to corporate progress in auditing its own social performance are dismal. It's the old "if we don't, government will" debate. Outside input in social auditing is desirable because the audit must be conducted in terms relevant to the consumer-citizen not just to the corporation. More firms would be well advised to begin gaining experience with consumer consultants, consumer representatives, and with consumer ombudsmen (Singer 62). The idea is now to generate internal initiative for improved social performance. In sum, IKEA has its traditions, its established patterns of performance, its sacred cows in societal policies. Many of these policies have remained for years without serious questioning inside the corporation. All performance areas in the sociomarketing realm must be subjected to searching, critical, systematic, and continuing examination in terms relevant to society, not just to the corporation. In the process, IKEA should accepted policies to change. Outside auditing is necessary to bring about the changes on the scale required by a society in which the issues are in a survival context. Each aspect of sociobusiness performance should be audited separately (Velasquez 93). What is the role of personal conscience in corporate decision making Does managerial craftsmanship and professional expertise provide an important source for ethical judgments The following article develops an ethical hypothesis for corporate decision making, and provides insight into how one firm has responded to its definition of ethical responsibility. Organizational structure, with its system of checks and balances and built-in auditing functions, becomes a less effective control device as you move up the ladder of responsibility. Like personal conscience and personal standards, and like the law and corporate policy, it is an important, but not totally adequate, source of ethical control for the corporate manager. Works Cited 1. Carmichael S., Drummond J. Good business: A guide to corporate responsibility and business ethics. Hutchinson, London, 1989. 2. Frederick, R. (ed.) A companion to business Ethics. Blackwell Publishers, 2002. 3. IKEA Home Page 2008. 4. Kotler, Ph, Lee, N. Corporate Social Responsibility. John Wiley & Sons, 2004. 5. O'Neill, P., & Hern, R., 'A systems approach to ethical problems', Ethics & Behavior, 1, 1991, pp.129-143. 6. Singer, P. Applied Ethics, Oxford, Oxford University Press, 1986. 7. Velasquez, M., Business ethics: concepts and cases. 3rd edn, Prentice Hall, Englewood Cliffs, 1992. Read More