Small Scale Business

By: Idise Chukutem

Small businesses on Dalrymple Street in Greenock, Scotland

A small business (also called mom-and-pop) is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships. The legal definition of "small" varies by country and by industry, ranging from fewer than 15 employees under the Australian Fair Work Act 2009, 50 employees in the European Union, and fewer than 500 employees to qualify for many U.S. Small Business Administration programs.^[2] Small businesses can also be classified according to other methods such as sales, assets, or net profits.
Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: convenience stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing, and online business, such as web design and programming, etc.

                  Size definitions

The legal definition of "small" varies by country and by industry. In the United States the Small Business Administration establishes small business size standards on an industry-by-industry basis, but generally specifies a small business as having fewer than 500 employees for manufacturing businesses and less than $7 million in annual receipts for most non manufacturing businesses .The definition can vary by circumstance – for example, a small business having fewer than 25 full-time equivalent employees with average annual wages below $50,000 qualifies for a tax credit under the healthcare reform bill Patient Protection and Affordable Care Act
In the European Union, a small business generally has under 50 employees. However, in Australia, a small business is defined by the Fair Work Act 2009 as one with fewer than 15 employees. By comparison, a medium sized business or mid-sized business has under 500 employees in the US, 250 in the European Union and fewer than 200 in Australia.
In addition to number of employees, other methods used to classify small companies include annual sales (turnover), value of assets and net profit (balance sheet), alone or in a mixed definition. These criteria are followed by the European Union, for instance (headcount, turnover and balance sheet totals). Small businesses are usually not dominant in their field of operation.

                   Advantages of small business

A small business can be started at a very low cost and on a part-time basis. Small business is also well suited to internet marketing because it can easily serve specialized niches, something that would have been more difficult prior to the internet revolution which began in the late 1990s. Adapting to change is crucial in business and particularly small business; not being tied to any bureaucratic inertia, it is typically easier to respond to the marketplace quickly. Small business proprietors tend to be intimate with their customers and clients which results in greater accountability and maturity.
Independence is another advantage of owning a small business. One survey of small business owners showed that 38% of those who left their jobs at other companies said their main reason for leaving was that they wanted to be their own bosses.^{[citation needed]} Freedom to operate independently is a reward for small business owners. In addition, many people desire to make their own decisions, take their own risks, and reap the rewards of their efforts. Small business owners have the satisfaction of making their own decisions within the constraints imposed by economic and other environmental factors .However, entrepreneurs have to work very long hours and understand that ultimately their customers are their bosses.
Several organizations, in the United States, also provide help for the small business sector, such as the Internal Revenue Service's Small Business and Self-Employed One-Stop Resource.

                      Problems faced by small businesses

Small businesses often face a variety of problems related to their size. A frequent cause of bankruptcy is undercapitalization. This is often a result of poor planning rather than economic conditions - it is common rule of thumb that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses. For example, if the prospective owner thinks that he will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, then he should have no less than $250,000 available. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of undercapitalization.
In addition to ensuring that the business has enough capital, the small business owner must also be mindful of contribution margin (sales minus variable costs). To break even, the business must be able to reach a level of sales where the contribution margin equals fixed costs. When they first start out, many small business owners underprice their products to a point where even at their maximum capacity, it would be impossible to break even. Cost controls or price increases often resolve this problem.
In the United States, some of the largest concerns of small business owners are insurance costs (such as liability and health), rising energy costs and taxes. In the United Kingdom and Australia, small business owners tend to be more concerned with excessive governmental red tape.
Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The mythic assumption is that an expert in a given technical field will also be expert at running that kind of business. Additional business management skills are needed to keep a business running smoothly.
Still another problem for many small businesses is the capacity of much larger businesses to influence or sometimes determine their chances for success.
Being a successful business person, one has to go through mistakes and problems and try to learn from them. Business people know and realize that a mistake is only really a mistake if you don't learn from it, which will make you prone to doing it again. Otherwise when you learn from it, it makes you a better business person. You will never forget what you learned from a mistake and how it made you a better person.

                   Marketing the small business

This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (November 2010)

Finding new customers is the major challenge for Small business owners. Small businesses typically find themselves strapped for time but in order to create a continual stream of new business, they must work on marketing their business every day.
Common marketing techniques for small business include networking, word of mouth, customer referrals, yellow pages directories, television, radio, outdoor (roadside billboards), print, email marketing, and internet. Electronic media like TV can be quite expensive and is normally intended to create awareness of a product or service.

Example of keyword analysis based on market competition.

Many small business owners find internet marketing more affordable. Google AdWords and Yahoo! Search Marketing are two popular options of getting small business products or services in front of motivated Web searchers. Successful online small business marketers are also adept at utilizing the most relevant keywords in their site content. Advertising on niche sites can also be effective, but with the long tail of the internet, it can be time intensive to advertise on enough sites to garner an effective reach.
Creating a business Web site has become increasingly affordable with many do-it-yourself programs now available for beginners. A Web site can provide significant marketing exposure for small businesses when marketed through the Internet and other channels. Some popular services are WordPress, Joomla and Squarespace.
Social media has proven to be very useful in gaining additional exposure for many small businesses. Many small business owners use Facebook and Twitter as a way to reach out to their loyal customers to give them news about specials of the day or special coupons and generate repeat business. The relational nature of social media, along with its immediacy and 24-hour presence lend intimacy to the relationship small businesses can have with their customers, while making it more efficient for them to communicate with greater numbers. Facebook ads are also a very cost-effective way for small businesses to reach a targeted audience with a very specific message.
In addition to the social networking sites, blogs have become a highly effective way for small businesses to position themselves as experts on issues that are important to their customers. This can be done with a proprietary blog and/or by using a backlink strategy wherein the marketer comments on other blogs and leaves a link to the small business' own Web site.
A solid public relations strategy that utilizes speaking engagements, press releases, feature stories, events and sponsorships can also be a very cost-effective way to build a loyal following for a small business.

                         Franchise businesses

Franchising is a way for small business owners to benefit from the economies of scale of the big corporation (franchiser). McDonald's restaurants, TrueValue hardware stores, and NAPA Auto Parts stores are examples of a franchise. The small business owner can leverage a strong brand name and purchasing power of the larger company while keeping their own investment affordable. However, some franchisees conclude that they suffer the "worst of both worlds" feeling they are too restricted by corporate mandates and lack true independence. However, in some chains, such as the aforementioned TrueValue and NAPA, franchises may have their own name alongside the franchise's name.

                     Small business bankruptcy

When small business fails, the owner may file bankruptcy. In most cases this can be handled through a personal bankruptcy filing. Corporations can file bankruptcy, but if it is out of business and valuable corporate assets are likely to be repossessed by secured creditors there is little advantage to going to the expense of a corporate bankruptcy. Many states offer exemptions for small business assets so they can continue to operate during and after personal bankruptcy. However, corporate assets are normally not exempt, hence it may be more difficult to continue operating an incorporated business if the owner files bankruptcy.

                 Certification and trust

Building trust with new customers can be a difficult task for a new and establishing business. Some organizations like the Better Business Bureau and the International Charter now offer Small Business Certification, which certifies the quality of the services and goods produced and can encourage new and larger customers. These services may require a few hours of work, but a certification may reassure potential customers.^{[citation needed]}

           Contribution to the economy

In the US, small business (less than 500 employees) accounts for around half the GDP and more than half the employment. Regarding small business, the top job provider is those with fewer than 10 employees, and those with 10 or more but fewer than 20 employees comes in as the second, and those with 20 or more but fewer than 100 employees comes in as the third (interpolation of data from the following references).The most recent data shows firms with less than 20 employees account for slightly more than 18% of the employment.
Of the 5,369,068 employer firms in 1995, 78.8 percent had fewer than 10 employees, and 99.7 percent had fewer than 500 employees.

                 Sources of funding

Small businesses in Biloela, Central Queensland, Australia, 1949

Small businesses use several sources available for start-up capital:

• Self-financing by the owner through cash, equity loan on his or her home, and or other assets.
• Loans from friends or relatives
• Grants from private foundations
• Personal savings
• Private stock issue
• Forming partnerships
• Angel investors
• Banks
• SME finance, including Collateral based lending and Venture capital, given sufficiently sound business venture plans

Some small businesses are further financed through credit card debt—usually a poor choice, given that the interest rate on credit cards is often several times the rate that would be paid on a line of credit or bank loan. Many owners seek a bank loan in the name of their business, however banks will usually insist on a personal guarantee by the business owner. In the United States, the Small Business Administration (SBA) runs several loan programs that may help a small business secure loans. In these programs, the SBA guarantees a portion of the loan to the issuing bank and thus relieves the bank of some of the risk of extending the loan to a small business. The SBA also requires business owners to pledge personal assets and sign as a personal guarantee for the loan.
Canadian small businesses can take advantage of federally funded programs and services. See Federal financing for small businesses in Canada (grants and loans).

              Business Networks and Advocacy Groups

Small businesses often join or come together to form organizations to advocate for their causes or to achieve economies of scale that larger businesses benefit from, such as the opportunity to buy cheaper health insurance in bulk. These organizations include local or regional groups such as Chambers of Commerce, as well as national or international industry-specific organizations. Such groups often serve a dual purpose, as business networks to provide marketing and connect members to potential sales leads and suppliers, and also as advocacy groups, bringing together many small businesses to provide a stronger voice in regional or national politics.
Small Business Development Centers (SBDCs), operating in each state, provide free and confidential counseling and low-cost training to small businesses.
The largest regional small business group in the United States is the Council of Smaller Enterprises, located in Greater Cleveland.

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MARKETING MIX

Idise c.f            MARKETING MIX

 16th Augt.,2011.

YOUR POSITION

Look at the map

MAP 

253 days before opening.

1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

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INTRODUCTION

Marketing mix allows you to combine all the marketing tools in order to sell your product.

Duration

Lesson: 1 hour

External readings and quiz: 13 hours

Do it yourself: 20 hours

Total: 34 hours

Objectives:

The objectives of this lesson about marketing mix is to give you:

-The tools you need for establishing your detailed marketing plan and forecasting your sales.

1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

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1-CHALLENGE

You have gotten a rough idea about the market situation and the possible positioning of your product. Of course, it's far to be sufficient. Now, you must write your detailed planning. It means that brainstorming is ended and that you have to go to the specifics in examining and checking all the hypothesis you had made in the preceding chapters. You will use the marketing mix.

-Definition: Marketing mix is the combination of elements that you will use to market your product. There are four elements: Product, Place, Price and Promotion. They are called the four Ps of the marketing mix.

Some people think that the four Ps are old fashionable and propose a new paradigm: The four Cs! Product becomes customer needs; Place becomes convenience, price is replaced by cost to the user, promotion becomes communication. It looks like a joke but the Cs is more customer-oriented.

1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

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2-PRODUCT

A good product makes its marketing by itself because it gives benefits to the customer. We can expect that you have right now a clear idea about the benefits your product can offer.

Suppose now that the competitors products offer the same benefits, same quality, same price. You have then to differentiate your product with design, features, packaging, services, warranties, return and so on. In general, differentiation is mainly related to:

-The design: it can be a decisive advantage but it changes with fads. For example, a fun board must offer a good and fashionable design adapted to young people.

-The packaging: It must provides a better appearance and a convenient use. In food business, products often differ only by packaging.

-The safety: It does not concern fun board but it matters very much for products used by kids.

-The "green": A friendly product to environment gets an advantage among some segments.

In business to business and for expensive items, the best mean of differentiation are warranties, return policy, maintenance service, time payments and financial and insurance services linked to the product.

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                3-PLACE-DISTRIBUTION

A crucial decision in any marketing mix is to correctly identify the distribution channels. The question " how to reach the customer" must always be in your mind.

-Definition: The place is where you can expect to find your customer and consequently, where the sale is realized. Knowing this place, you have to look for a distribution channel in order to reach your customer.

In fact, instead of "place" it would be better to use the word "distribution" but the MBA lingo uses "place" to memorize the 4 Ps of the marketing mix!

Important Warning:

The place is not where is located your business but where your customers are. For a retailer it is the same but for a boat producer located in Philippines the real place is the entire world.

Do not confuse positioning and place. Here place means the real physical position of the customer in a geographic area or along a distribution channel.

                 31-Channels

It exists today, with the internet, more channels than in the past but basically, you have to consider three main distribution channels:

-Selling to the customers: Whether you sell by yourself ( as retailer) whether you employ a sales force, you are in these cases in front of the final customer. There are not intermediaries between you and him. Unfortunately, except for the retailer business, this situation is far to be the general case.

-Selling to the retailers: For example, you manufacture the fun boards and you sell them to the Arizona retailers. This practice could be a bit complicated.

-Selling to the wholesalers: There are maybe four or five sport articles wholesalers in Arizona. You sell your fun boards to these big men. On turn the wholesalers sell the fun boards to the retailers which finally sell to their customers.

In the case of Pacific Boat which manufactures its boats in Philippines for customers located in the USA or in Europe, there is not alternative ways. It must sell through some big import export corporate's. Pacific boat has not any contact with its final customers but of course it must know exactly their profile. If the product does not fit to the profile of the final customer, the wholesaler will not buy it.

As you can see, the choice of your distribution channel heavily depends on your product and place in the productive process. If you are in coal mining, do not expect to sell some coal buckets to the final consumer!

The next drawing summarizes the different possible channels: You are represented by the black square, the wholesaler by the maroon one, the retailer by the yellow and the customer by the green!

Real life example:

A commodity is a product such as crude oil, coal, rice, wheat, sugar, copper and so on: Mainly primary products and raw materials. In a commodity market, the products have very few distinguished characteristics.

They are traded in few places like Chicago and London. In the rice market, there are maybe six or seven big traders for the entire world in front of some hundred millions of little producers grouped in cooperatives or primary marketing boards.

The big traders know each other very well and most of the bargain relies on trust.

Nevertheless, inside a type of channel, you keep the possibility to choose between the different wholesalers and retailers. You have to choose the best. It means that your choice must focus on two major facts: the margin and the image.

           32-The margin

You have already gotten an idea about the price which should fit to the customer profile. Let's suppose this price is $100. It is the retail price: the price paid by the final customer.

The retailer takes his margin (or the mark-up). This margin is calculated on the retail price. Suppose, he takes $30. It means that he buy $70 to the wholesaler.

As the wholesaler trades big quantities, his margin is usually lower than those of the retailer: Maybe 15% of the selling price to the retailer. So, he will take $10,5. It means that he has bought $59,5 to you.

Consider now that you support the cost of the shipping from your manufacture to the wholesaler store: For example $9,5. Finally, your factory price is $50 for a product sold $100 to the final customer. In many case, when taxes and new packaging occur at the different levels, the factory price can easily be only one fifth of the final price!

Do not imagine that you have too much choice. Each intermediary fills up a real function and it's not easy to ignore him. For example, you can't sell your fun board straight to the consumer: you should need a massive sales force.

You could also ignore the wholesaler in selling directly to the big retail supermarket. You will save in this case $10,5 but you can expect that the supermarket which usually practices low prices will tell you the following speech " $100 as consumer price is too much. I want to sell that $80. Of course I keep 30% as margin. So I buy it $56 to you "

It could look fair but the number of the supermarkets is higher than those of the wholesalers. It means more shipping and consequently a rise in costs. Instead of paying $9,5 for shipping, you will pay $12. Now what is the result?

Consumer price-------------80

Supermarket selling price----56

Shipping to supermarket-----12

Factory price---------------44

It does not look a good business: $44 instead of 50! You can object that the sales will rise because of the lower price to the consumer but it does not fit with your hypothesis about the customer profile. Anyway, could you afford $44 as your factory price? Is it good to sell your fun board through the supermarket? Is your customer buying in a supermarket or in a fashionable specialized sport shop?

             Real life example:

Periodically, people complain against margins and plead for short distribution channels. These claims often come from the farmers because most of them are blindly ignorant about economic reality.

They regularly try to market their product directly to the consumers but it does not last very long because they quickly register heavy losses.

Some stubborn guys go on with that practice and as a result they can't pay back their loans to the State owned agricultural banks. Finally the bank losses are covered by the taxpayers!

                       33-The image

The place of sale influences the perception of your product. Consequently, you must pay attention to the choice of your outlets: wholesalers and retailers. If you sell products for every one, a mass distribution through the supermarket will be probably the best issue. On the contrary, if you sell fine products, you have to choice fine shops and beautiful people to sell them. In the fun board case, you should have better to emphasize on the image and to look for fashionable shops and people.

You have also to take notice of the share of power inside the distribution channel. As you will be a beginner, do not expect to get too much power! For example, you can ask the retailers to store your product on the first line or in the best situation in the shop. They will probably answer " OK! but I'm going to charge 35% margin instead of 30%". May be it's a fair bargain but is the rise of the consumer price compatible with your previous positioning?

It's quite difficult to list all the occurrences in this matter. Give a chance to your intuition but keep in mind that all these daily decisions must always remain in line with your customer profile.

1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

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                           4-PRICE

Price means the pricing strategy you will use. You have already fixed, as an hypothesis a customer price fitted to your customer profile but you will have now to bargain it with the wholesalers and retailers. Do not be foolish: They know better the market than you and you have to listen their advices.

                           41-Pricing strategies

In fact, you have to choose between three strategies:

-Competitive pricing: If your product is sold at the lowest price regarding all your competitors, you are practicing competitive pricing. Sometimes, competitive pricing is essential. For instance, when the products are basically the same, this strategy will usually succeed.

Remember that the success of competitive pricing strategy depends on achieving high volume and low costs. If your prices are lower than your costs, you are going straight to bankruptcy! To avoid such a mistake, you have to take notice of the break even ratio that you will find below.

-Cost-plus-profit: It means that you add the profit you need to your cost. It is also called cost-orientated strategy and is mainly used by the big contractor of public works. The authority may have access to the costing data and should like to check if the profit added to the cost is not too high.

In fact, this strategy is only good for a business whom the customers are public collectivities or government agencies.

-Value pricing: It means that you base your prices on the value you deliver to customers. For example, when a new technology has a very large success, you can charge high prices to the customer. This practice is also called skimming. It is easy when you are in the introductory phase of the product life cycle.

Value pricing is also common in luxury items. Sometimes, the higher the price, the more you sell: Fashionable clothing or restaurants for snob people. Of course value pricing is limited by the price elasticity as you have already learnt in Economics.

External readings:

About these pricing strategies, click on www.businessplans.org. Click on "business planning resource" and then on "pricing".

See also www.sdrnet.com . Click on "analytical services", then on "exploratory price modeling" and finally on "premium price policy".

In addition, go to: www.ideasformarketing.com and click on the article: "How to develop a product or service pricing". You can also download a free-book on pricing!

The diagram below illustrates how you have to determine your price. You could see that a conflict could arise between your financial objectives ( the expected profit) and your actual costs.

So, you have to calculate your break even ratio.

42-Break even ratio

Suppose you price your fun board $ 1000 to make a competitive pricing strategy. You have some fixed costs which remain constant whatever the number of fun boards you sell: For example your office rent, your secretary and your own salary: Saying $200,000.

To manufacture one fun board, you need $900 in labor and raw material. $900 is the variable cost per unit.

To recover your fixed costs without making any profit you have to sold:

Fixed costs (200,000)/Selling price(1000)-Variable costs(900)=2000.

You have to sell 2000 fun boards just to recover your fixed costs. Now suppose that the total market in Arizona amounts 2000 fun boards per year. Do you believe that you should conquer the entire market despite your five existing competitors? It would seem quite unrealistic!

If you sell 500 fun boards ( 25% of the market) what should be the results:

Receipts: -----500*$1000= $500,000

Variable costs: -500*$900= $450,000

Fixed costs:----------------$200,000

Loss: ---------------------($150,000)

It means that you must charge a higher price: May be $1300. In such a hypothesis, your fixed costs could be recovered:

200,000/1300-900=500

Now suppose, that your competitors offer the same quality, with a price ranking between $1050 and $1250. In this case, it means that your project is not economically sound and that you must review it: Whether the fixed costs, whether the variable cost per unit are to high. In fact, the choice of a pricing strategy depends heavily on the break even analysis.

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                          5-PROMOTION 

Advertising, public relations and so on are included in promotion and consequently in the 4Ps. Sometimes, packaging becomes a fifth P. As promotion is closely linked to the sales, I will mention here the most common features about the sale strategy.

-Definition: The function of promotion is to affect the customer behavior in order to close a sale.

Of course, it must be consistent with the buying process described in the consumer analysis.

Promotion includes mainly three topics: advertisement, public relations, and sales promotions.

-Advertisement:

It takes many forms: TV, radio, internet, newspapers, yellow pages, and so on. You have to take notice about three important notions:

Reach is the percentage of the target market which is affected by your advertisement. For example, if you advertise on radio you must know how many people belonging to your segment can be affected.

Frequency is the number of time a person is exposed to your message. It is said that a person must be exposed seven times to the message before to be aware of it. Reach*frequency gives the gross rating point. You have to evaluate it before any advertisement campaign.

Message: Sometimes, it is called a creative. Anyway, the message must: get attraction, capture interest, create desire and finally require action that is to say close the sale.

Down-earth-advice:

There are some magical words that you can use in any message:

-Your-You--I-Me-My--Now-Today

-Fast-Easy-Cool-New-Fun-Updated-Free-Exciting-Astonishing

-Success-Love-Money-Comfort-Protection-Freedom-Luck.

-Public relations:

Public relations are more subtle and rely mainly on your own personality. For example, you can deliver public speeches on subjects such as economics, geo-economics, futurology to several organizations (civic groups, political groups, fraternal organizations, professional associations)

These speeches will enable you to develop new relationships and their cost is nil !

-Sales promotion:

It includes fair trades, coupons, discounts and are linked to the sales strategy.

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                   6-SALES STRATEGY

 

Sales bring in the money. Salesmen are directly exposed to the pressure of finding prospects, making deals, beating competition and bringing money.

You have first to learn some definitions used by the MBA lingo:

                         61-Definitions:

A lead is a person who has been identified as a prospect.
A prospect is a potential customer.
An account is a customer that often buys from the company.
A national account is a very big customer
An order taking: the customer asks for a product and the vendor sells it. It's usual way to sell candy, soda or to sell tickets for theater.
On the contrary, active selling involves locating customers and persuading them to buy.
Inside sales refers to selling done mainly by phone or by internet. Outside sales involves getting appointment to meet customers at their home. Home cold calling means to phone people you do not know. Hard sell means to use of high pressures upon the prospect.

We have then to distinguish the sale process and the sale organization.

                       62-The sales process:

 

It depends heavily on the buying process. It includes prospecting and persuading.

Prospecting involves finding the leads and presenting the product. After making contact, the salesman must show that the product solves a customer's problem. He must also answer two questions :

- Has the prospect a need or an interest in the product ?

- Does the prospect have the money to buy the product ?

If the prospect does not meet these criteria, you have better to move on to the next prospect !

Persuading and authority are often necessary to close a sale. The salesman's approach is often to rise questions in order to lead the prospect to a logical conclusion : I must buy now. 

 

                    63-The sale organization: 

The two major issues are to recruit salesmen or to organize a franchising or or multi-level market

If you recruit the salesmen:

-You should determine the size of the sales force: It must cover the customer segment. A poor coverage is an invitation to competitors. Remember the production possibility frontier to determine your maximum sales force.

-You should also determine the alignment of the sales force:

Alignment by territory divides the market into geographical areas such as counties or cities and specializes each salesman in an area.

Alignment by product specializes each salesman in a product
Alignment by customer specializes each salesman in a customer (it means that the customer must be a national account).

You can also combine the three alignments.

-You should finally determinate how to motivate the sale force: Sales people can be compensated by commissions, salary or salary plus commission. For a starting business it's more convenient to pay only commissions

If you organize a multi level marketing: Salesmen becomes independent distributors. They operate as contractors. They are encouraged by your company to recruit other distributors. In return, they receive a percentage commission on the sales of their recruits.

There are two benefits from multi-level marketing :You get a large sale force without the expense of full time employees and the distributors work very hard to improve their income.

DRAWING 11

Anyway let to the salesmen a sufficient commission to enable them to manage prospecting and advertising on their territories at their own expenses.

External readings

Go to: http://peerspectives.org . Click on "Defining and serving a market". Then click on "Sales analysis", "Sales cycle", "Sales", "Sales presentation" and "Sales techniques"

                      64-Global connections

Time is coming to emphasize on the logical connections between all these elements.

Low involvement products such as soda, with high price elasticity can afford a competitive pricing and a mass market strategy.

But you have to take notice that competitive pricing implies low costs and a lot of technical progress, that require big investments and big money.

What is more, mass market strategy implies very important budgets in advertising and once again big money.

It is easy to view all the implications. It shows that this strategy fit to important companies.

On the contrary, high involvement product with low price elasticity do not always implies big investments or important expenses in advertising: Value is subjective to the consumer and is not related to the real cost ( fashionable clothing, luxurious perfumes)

But how to convert any product in a high involvement product?

1) The best way is to create a value expressive message about the product. You have to link the product to very high involvement issues. For example : health, social status, youth, success, and so on. This link must be seen by the consumers as a very important characteristic (in fact, this characteristic is only subjective. It just exists in the consumer's mind).

2) A product provides different benefits : For example, a single garment brings you three benefits : it is warm, it is fashionable and it is easy to clean. Underline one of the benefits to create the special value and justify a higher price.

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              Lesson summary:

The four Ps, product, place, price and promotion are the elements of the marketing mix used to establish a detailed and final marketing plan.

After the product which is a paramount, the place is very important because it describes how you reach the consumer and what distribution channel you are going to choose: Margins and image are quite important features in this matter.

According to your product and place , the pricing strategy will have heavy consequences on the promotion campaign and on success or failure of your business as a whole. 

Sales bring in the money. Your sales organization is a core topic .

 1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

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DO IT YOURSELF:

1-You have to describe for your own biz:

- Your distribution channel. Picture it with diagrams.

-Your pricing strategy. Indicate the price you will choose. Indicate at each level the margins and the impact regarding you product image. As a potential customer, ask information's to your future competitors!

-Your advertising program and evaluate your budget for promotion: Collect some estimates from newspapers, Radio and so on.

-Your sale force: How do you pay them (straight commission : which percentage of the price)? Look for your first salesmen. Establish contacts.

-Your projected sales for the twelve months of the first running period and then for the four next years.

2-Estimate the costs of the marketing function:

Take the model of your grid cost drawn up in FW12 (First sketch)

Distinguish the starting and the running period

Distinguish advertisement costs and sales force costs.

-About advertisement: You put the cost of your launching advertisement program in the starting costs. If you envision to advertise on the long run, estimate a yearly budget and post it in the running costs.

-About the sales force: I expect that you will not recruit salesmen during the starting period just for admiring the implementation of the business! Consequently, the sales force costs must mainly appear at the beginning of the running period.

You have to estimate the human costs of the sales force: numbers, qualification, salary, commissions and the consumable costs such as transportation, travels, phones, hostels. Finally, value the equipment costs: vehicles and so on.

3-Insert in your business plan

Open your Plan ware folders and insert these elements in the adequate chapters.

Modify your first sketch according to these results: your forecasted sales are a core element!

Right now, You can estimate the ordered quantity for a given price as well as the required quality, customers service, and so on. Being aware of the demand, you can specify the following points:

- How to improve the product

- How big must be the production : technology. Investment analysis.

- choice and cost of the required staff.

Count about 20 hours for performing these tasks.

 1. Challenge 2. Product 3. Place 4. Price 5. Promotion 6. Sales strategy 7. Do it yourself 8. Coaching

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Ethical issues in Management

Idise Chukutem
 16 August,2011 

ethical leadership, decision-making, and organisations ethical decision-making and leadership are the basis of ethical organisations, corporate social responsibility, 'fairtrade', sustainability, the 'triple bottom line', and other similar concepts This article introduces the concept and reasoning behind ethical leadership and ethical organisations. Ethical principles provide the foundations for various modern concepts for work, business and organisations, which broaden individual and corporate priorities far beyond traditional business aims of profit and shareholder enrichment. Ethical factors are also a significant influence on institutions and public sector organisations, for whom the traditional priorities of service quality and cost management must now increasingly take account of these same ethical considerations affecting the commercial and corporate world. The modern concept of ethical organisations encompasses many related issues including: corporate social responsibility (CSR) - or simply social responsibility the 'triple bottom line' ethical management and leadership 'Fairtrade' globalization (addressing its negative effects) sustainability social enterprise mutuals, cooperatives, employee ownership micro-finance, and well-being at work and life balance, including the Psychological Contract. Any other aspects of good modern leadership, management and organisations which relate to ethics, could be added to the list. Ethics is a very broad area. You will see very many different definitions and interpretations of the concept, and you should feel free to develop your own ideas about ethics in terms of meaning, composition, methods and implications. There are no universally agreed rules of ethics, no absolute standards or controls, and no fixed and firm reference points. This is fascinating given how hugely important ethics have now become in modern life and society.   Spelling note: US English and UK English have different spelling rules for certain ise/ize words like civilisation/civilization; or/our in words like colour/color; nce/nse words like defence/defense, among other isolated differences (e.g., speciality/specialty). Generally UK spelling preference is followed on this website, although ize spellings are also used, chiefly for internet search reasons. When using the materials please change the spelling to suit your local rules and preferences. what is ethical? This explanation attempts to go deeper than the usual descriptions of ethical organisations, because ethics in work and business are both a reflection of and influenced by ethical aspects of life and the wider world. The aim of this article not to tell you what's ethical and what's not. The aim is to help you to determine better for yourself what is ethical and what is unethical. What is ethical anyhow? The short answer is that there isn't an answer. There is no absolute rule of what is ethical and what isn't. Defining what ethical and unethical mean is only a little easier. A simpler broad definition of the word ethical is 'fair'. And 'fair' to fair-minded people, especially those affected by the situation. This is not a scientifically robust definition, but as you will see, when we peel back the layers of what is ethical, it's very difficult to be scientific and firm about what it all means.   New UK Consumer Protection Regulations became effective on 26 May 2008. Businesses selling consumer products/services should be aware of the implications of these new regulations. These practices were previously unethical; now they are illegal. The modern Oxford English Dictionary says: "Ethical - Relating to moral principles or the branch of knowledge dealing with these..." Interestingly the definition continues by way of example: "...Morally correct: Can a profitable business ever be ethical?..." N.B. This is merely an example of the word in use - it's not an opinion - nevertheless it's an example which reflects modern attitudes and the context in which ethical questions now arise which would not readily have done so a generation or two ago. Morals and morality appear commonly in attempts to define what ethical means, although given the difficulties of defining the word morality without using quite subjective terms, this is not terribly helpful. Morality incidentally is defined in the OED as '...principles concerning the distinction between right and wrong or good and bad behaviour..." See what I mean?.. Not especially firm or scientific. More helpfully the OED adds some extra explanation about ethics, summarised thus: Western ethical philosophy can be divided roughly into three types: Virtues such as justice, charity and generosity benefit the person and the person's society. (Largely based on Aristotle's ideas.) Ethics are central to morality - a human duty - based on rational people's respect for other rational people. (Notably supported by Kant.) The guiding principle is based on conduct which produces the greatest happiness or benefit to the greatest number of people. (Referred to as utilitarianism - this might be also be considered 'the greater good' concept.) A single precise definition of ethical is not easy to agree. Moreover to show how ideas change over time, the 1933 Oxford English Dictionary says first of ethics (when seemingly the word 'ethic' was used as an adjective like today's use of the word ethical): Relating to morals 1581. Treating of moral questions or of moral science 1589. Characterized by ethos 1848. This significant definition of ethos is offered, since it suggests the relative component within ethics: "The prevalent tone of sentiment of a people or community..." Extending this theme, in a practical sense, aside from what is covered by law or other clear standards, whether something is considered to be ethical by people (markets, customers, media, etc) is generally a matter of opinion. The same might be said of morality. Both concepts - ethics and morality - are subjective and a reflection of society and civilization, which of course implies that precise meanings will change. Both are relative in time and situation. Certain ethical issues are represented in law, and in this respect are firm, to a point. (See the notes about ethics and law below.) Ethics which are not covered clearly by law are usually a matter of subjective judgement, especially, but not exclusively, by the reasonable majority, whose view is significant in deciding whether something is ethical or not. Such a vague way of judging whether something is ethical is not to diminish the importance of ethical factors. On the contrary. In work and life, opinion - especially large scale opinion - can be more influential than rules and law, notably in relation to markets, publicity, and people's attitudes, which manifest especially in the behaviour of customers and employees. The law can actually have a theoretical or marginal effect, whereas large scale opinion is an unavoidable powerful reality. For example it is unlawful to drive a little faster than the speed limit. But the vast majority of people consider it to be acceptable, and so do it. The UK poll tax of the 1980s was lawful, yet public reaction (much of it unlawful) against it caused the law to be changed. Ultimately people's attitudes are more powerful than law. Law is a reflection of public tolerance and views, not a cause of them (unless to produce a reaction against the law of course). So do not for a moment underestimate the importance of ethical considerations on the basis that they could be subjectively judged and difficult to define in law. Popular public opinion is the sternest most unforgiving measurement of all. ethical business and ethical investment As previously stated, the purpose of this article is not to define or describe ethical business in an absolute sense. The explanation thus far should demonstrate why such a pronouncement is impossible. Ethical business - as other ethical issues - are a matter of individual and collective judgement. It is possible to go so far only in outlining ethical considerations, and to give some modern examples of interpretation which seem generally to be accepted. Ethical investment is a useful aspect for considering ethical business, since large scale investment is ultimately subject to market forces, which largely reflect public opinion. As such ethical investment criteria and examples tend to be a good guide towards ethical attitudes of large sections of people and society, rather than the 'expert' views of leaders and gurus. Ethical investment has been a growing aspect of business investment since the 1970s, although arguably the first types of ethical businesses can be traced back to the Quaker and Methodist movements of the 1800s. Then as now ethical business and investments regard socially responsible activities and aims with far greater priority and emphasis than the traditional profit and free market business approach. Traditional profit-based business models, which arose and came to dominate global commerce from the beginnings of industrialisation, inherently do not require a socially responsible element, other than compliance with the law, and a reflection of public reaction for pragmatic marketing (and ultimately profit) purposes. Ethical business or investment is concerned with how profit is made and how much profit is made, whereas traditional profit-centred free-market based business is essentially only concerned with how much profit is made. Traditional profit-centred business seeks to maximise profit and return on investment with no particular regard for how the profits are made and what the social effects of the business activities are. The ethical approach to business and investment seeks to maximise profit and return on investment while minimising and avoiding where possible negative social effects. In this context 'social' and 'socially responsible' include related factors such as: the environment sustainability globalization effects - e.g., exploitation, child-labour, social and environmental damage anywhere in the world corruption, armed conflict and political issues staff and customers relations - for instance education and training, health and safety, duty of care, etc local community and other social impacts on people's health and well-being Typically the above are interpreted within ethical investment so as to regard the following sectors and activities as being difficult to reconcile with profit and investment. As with other perspectives on this page, this is not a definitive list or set of absolute criteria. It's a set of examples to illustrate typical (modern Western) concerns of ethical investors and ethical business people: tobacco armaments nuclear power animal experimentation oppressive or corrupt national regimes This is not an exhaustive list and is subject to change - as the world changes. As stated, this is not a pronouncement of what's unethical. It's a reflection of current attitudes, which you can use in your own way alongside the other information on this page to develop your own ideas as to what's ethical and what's not. Also as stated, things change with time and situation. For example if technology is developed enabling nuclear power to be safer and less impactful on the future then obviously concerns in this area would reduce and the ethical implications would decrease or disappear. Standards of what is considered ethical change over time, and generally these standards become more humane as humankind develops greater tolerance, awareness, and capacity for forgiveness and compassion. Humankind's - or any society's - capacity for ethical behaviour increases with its own safety and confidence of survival and procreation. Hence the human tendency to become less ethically flexible when under threat. Thus ethical behaviour is a relative judgement, as well as a subjective one. We cannot impose one society's moral code onto another society with different needs and demands. Interestingly what is considered unethical in present times, commonly becomes unlawful in the future. The leading ethical thinking of any time tends to pioneer social and civilization change. And so here lies substantial advantage for corporations and other groups and bodies which anticipate such changes. They adapt quicker, and are seen generally to lead rather than follow. They also manage change more successfully, since they have time to do it. Organisations and institutions which fall behind public ethical expectations find catching up a lot more difficult. ethics and law Many believe that the word ethical equates to lawful, and that by being lawful an organisation or activity is automatically ethical. This is not so. While many things that are unethical are also unlawful, ethics do not equate to law. Many unethical things are entirely lawful (although some can only be tested when/if they get to court). Moreover sometimes the law (of any land) can produce extremely unethical effects. In fact while most unlawful actions will also tend to be unethical, certain situations can contain a strong ethical justification for breaking the law, or changing the law. Notable examples are situations in which the law, or the way law is applied, is considered unethical ('wrong' is the typical description) by sufficient numbers of people to pressure the legal system to change. You can perhaps think of examples when this has happened, and such cases are examples of an ethical viewpoint being ultimately more powerful than the law. Examples of this happening through (Western) history illustrate the tendency for ethical considerations to drive the law: women's suffrage (women's right to vote); the abolition of slavery; and modern human rights and equality legislation are examples of ethical pressures causing change in law. The independence of nations and the break-up of colonial rule are further examples of ethical pressures overwhelming the force of law. Unlawful acts are not always unethical. Ethical acts are not always lawful. Lawful therefore does not equate to ethical, and unethical does not equate to unlawful. Interestingly, the UK Consumer Protection Regulations effective on 26 May 2008 are a good example of unethical business practices becoming prohibited in law. For example it has always been unethical to mislead customers into buying products or services. Now it is illegal to do so (in respect of consumers - here are the implications of the regulations). ethics and religion For many people, ethics and ethical judgements are based on a religious belief. However religion is not a basis for arriving at consistent standards of ethics, any more than the law is. To illustrate the point: A particularly dangerous implication arising from mixing decision-making with religion is the one which provides the decision-maker with a sort of safety net if everything goes wrong. "God will be my judge..." For people who are not religious, or who have a different religious faith to decision-maker, these words are a little disturbing in the context of ethical decision-making. Whose god? Your god? My god? Their god? All gods? The good gods? The collective gods committee? And when? When will (the whatever chosen) god be judging this decision? While the decision is being made? Before the decision is implemented? Immediately after the decision's implementation (when on Earth some serious monitoring, checking and managing needs to be happening)? Far into the future when the decision-maker has expired and gone to whatever version of heaven his (it's generally a man) particular faith promises him? The inference is the latter of course. A bit bloody late in other words. And by what criteria will (the whatever chosen) god be judging the decision? To whose and with precisely what standards are we being asked to agree here? And what will be the results of (whatever chosen) god's decision, especially if it's a mighty god-like thumbs down? What are (the whatever chosen) god's contingencies for putting it all straight again? It's anyone's guess.. Do you see how religion is not a brilliant aid for decision-making. Religion is a personal matter. It has no place in decision-making affecting other people. Worse, using religion as a personal safety net for serious decision-making is a reckless desertion of leadership responsibility. Right-minded people want leaders to take ultimate full absolute responsibility for decisions. They do not want a leader to seek refuge or personal salvation in (whatever chosen) god or heaven or a confession box. This is an additional reason for not mixing religion with leadership and ethical decision-making: too many people simply do not accept the basic premise that a leader can delegate responsibility in such a very strange and unaccountable way. Aside from anything else, if religion were useful in leadership and decision-making then all human organisations would be run by the clergy. Civilization tried that a few thousand years ago and it doesn't work. Please note: If you are religious and believe that religion has a place in leadership and decision-making then you might disagree with this section. If so please understand that I am not berating religion or religious people. I accept that through humankind's existence - especially in the last few hundred years - religion in various forms has often provided an essential code (of ethics arguably) for civilizations and societies to live positively, harmoniously, generously, peacefully, lovingly, etc. I am making a different point, namely: reference to religion, and especially a strong personal faith, is not generally very helpful towards achieving great objectivity, which is vital for ethical decision-making. Moreover religion of certain types can be extremely divisive, which is obviously not useful for decision-making entailing diverse groups of people, as commonly arises in today's increasingly diverse world. examples of unethical behaviours, activities, policies, etc Instead of trying to arrive at a standard or all-encompassing rule of what is ethical, it is helpful to illustrate the depth and variety of ethics through suitable examples. This is an extension of the ethical business investment items listed above, and goes into far greater detail of different behaviours which might often be regarded as unethical. The first category might seem obvious and clear-cut, and actually it's a reasonable starting point for the vast majority of ethical decisions, but this one point cannot be applied exclusively in assessing whether something is ethical or not: anything unlawful in the territory or area covered by such law - is probably unethical. Not always - see ethics and law. Conversely, and more importantly, very many legal activities and behaviours can be extremely unethical. For example, behaviours that are not necessarily unlawful but which are generally considered to be unethical to Western society would now typically include: dishonesty, withholding information, distortion of facts misleading or confusing communications or positioning or advertising manipulation of people's feelings deception, trickery, kidology, rule-bending, fooling people exploitation of weakness and vulnerability excessive profit greed anything liable to harm or endanger people breach of the Psychological Contract - the Psychological Contract represents trust and expectations between people in a relationship - notably within employer/employee relationships, extending to other organizational relationships too - (aside from Psychological Contract theory, specialised theory within Transactional Analysis helps explain this aspect of trust and expectations in human relationships) avoidance of blame or penalty or payment of compensation for wrong-doing inertia-based 'approvals' and 'agreements' (in which action proceeds unless objected to) failing to consult and notify people affected by change secrecy and lack of transparency and resistance to reasonable investigation coercion or inducement harming the environment or planet unnecessary waste or consumption invasion of privacy or anything causing privacy to be compromised recklessness or irresponsible use of authority, power, reputation nepotism (the appointment or preference of family members) favouritism or decision-making based on ulterior motives (e.g., secret affiliations, deals, memberships, etc) alienation or marginalisation of people or groups conflict of interests (having a foot in two or more competing camps) neglect of duty of care betrayal of trust breaking confidentiality causing suffering of animals 'bystanding' - failing to intervene or report wrong-doing within area of responsibility (this does not give licence to interfere anywhere and everywhere, which is itself unethical for various reasons) unfairness unkindness lack of compassion and humanity You will perhaps think of other examples of behaviours or activities which are not necessarily unlawful, but which a reasonable majority of people (especially those directly affected by the activities) would consider to be unfair, unjust or simply wrong and therefore effectively unethical. Most of the above are subject to extent or degree, whereby serious extensive examples are more likely to be unethical than minor transgressions and negligible effects. ethics and public opinion Ethical considerations are not wholly determined by majority view, just as they are not wholly defined by law or religion. Ethics are not a matter of a referendum or vote. Popular opinion alone is an unreliable measurement of what is ethical for several reasons: A poorly informed majority of people - or anyone poorly informed - is not able to make an informed decision about the ethics of a particular decision. The extent to which people are helped to understand longer-term consequences of a situation is also a limiting factor in the value of majority opinion. Democratic decision-making is vulnerable to whim and 'herding' instincts - especially if the national press and other mainstream media have anything to do with it. Leadership - as a function within civilizations - features in the organisation of human systems and societies because people generally accept that many sorts of complex and large scale decision-making are best made by full-time experts working in the areas concerned, rather than such decisions being left to the vagaries of popular inexpert view. This is not to say that people have no right to consultation or a vote on crucial issues (in fact generally people need more involvement in decisions which affect them) - it is more to illustrate that majority view, especially when coloured with apathy or misinformation or prejudice for whatever reason, is not the only basis for deciding what's ethical or not. Popular opinion is a significant factor in the consideration of what is ethical, but it is not the only factor, and the significance of popular opinion in determining ethical decisions will vary according to the situation. 'for the greater good' ethical considerations A significant influence on ethical judgement is the 'flip-side' of whatever situation is under question: the effects of the 'ethical' decision. Upholding an ethical principle might not be sensible if the effect of doing so causes a wider or greater disadvantage. This sort of justification when used for unethical actions and policies, etc., is often referred to as being 'for the greater good'. Such a viewpoint is associated with a 'utilitarianism' approach to ethics. Looking at the flip-side and assessing the 'greater good' implications can be helpful, ideally leading to the facilitation of a compromise solution. Considering the flip-side (or sides) is actually necessary for relatively straight-forward uncontroversial decisions and actions, especially when opinions on all sides can be aired, debated, and understood. However the 'greater good' approach can be a risky angle if used subjectively and proactively, not least because it tempts the decision-maker to play god, and to attempt a god-like appreciation of a wide and complex situation, instead of adopting a less personal and more detached approach. The combination of the following factors in ethical decision-making is rarely effective: risk proactivity (decision-maker instigated) borderline ethical/unethical affecting lots of people. 'The greater good' argument is commonly used to support actions containing these elements, when usually a less risky and aggressive stance is best. Remember a significant inescapable part of ethical actions are the views and needs of the rational majority, of the people affected by the action or decision. If you don't know reliably what these (views and needs) are then you don't understand the flip-side enough to justify anything, let alone a risky borderline decision. Beware of this 'greater good' dimension also when you see it used by others, because the defence of an unethical decision as being "...for the greater good..." is often used cynically and dishonestly. The 'greater good' can be a big trap - especially for anyone prone to subjective high-minded thinking. The 'greater good' angle also illustrates the dilemma aspect within many ethical decisions. Ethics are not clear-cut, especially on a large scale. Ethical leadership in the face of big ethical decisions is characterised by wisdom and objectivity, not by subjective personal belief, worse still when it protected by control mechanisms and the recklessness which often accompanies emotional insecurity, or a strong personal 'faith' or power delusion. Beware the leader for whom the personal victory of the decision appears to be more important than the decision's outcome, whatever the scale and situation - and recognise these tendencies in yourself if they arise. Objectivity is the key to ethics, not personal belief or religion or personal power. Leaders who make decisions subjectively and personally for reasons of building power, reputation and wealth, entirely miss the point about ethics, and their fundamental philosophy (or lack of) effectively prevents any real ethical objectivity. If the motive is wrong, then everything else will be too. ethical objectivity So, law alone is not a basis for ethical decision-making. Nor is religion. Nor is 'the greater good'. And even the rational views and needs of the affected majority are not a basis alone for ethical decision-making. So what is the basis of ethical decision-making? My best suggestion is: Objectivity and fairness are the basis of ethical decision-making. In simple terms this means you must be able to see the other people's points of view. This might seem a simple statement of the bleeding obvious, and it might be, but it is not often practised. True objectivity is quite difficult to achieve, especially for leaders under pressure. Similarly, fairness is difficult to define, let alone apply. Detachment is a huge part of the process. Objectivity is impossible without personal detachment. Fairness cannot begin to be achieved without detachment, since it's about other people, not the leader, nor the leader's supporters and environment. Being ethical is not a matter of evangelizing or imposing your standards and views on other people. (See Transactional Analysis to understand why people behave in this overly paternalistic way.) Being ethical is being fair. Being fair means understanding implications from other people's perspectives - not your own. The more widely and well you appreciate other people's issues and implications, then the easier you will find it to be ethical. Cybernetics is a really useful way to look at objectivity. Objectivity entails understanding how systems work and inter-relate. But systems here means merely the general sense of people and the way life is organised. Systems does not refer to complex mathematics or scientific formulae. Again, it requires you to step back - to detach yourself, resist personal bias and emotion - step back, be objective, adult, mature - fair. Objectivity is a wonderfully potent and extremely flexible ability to pursue. Especially if you can combine it with the ability to facilitate rather than influence. Objectivity is flexible because it can be approached and achieved in so many different ways - intuitively, logically, systematically, creatively - anyone can do it. In the same way that the truth - purity, probity - is available to anyone who cares to look for it. What does ethical objectivity entail? Here are some suggestions of the main angles. The list is not exhaustive - you will see other significant perspectives for different situations. For small local decisions most of the list might not apply. But if your decision has potentially significant effects, consider these different perspectives in striving for as much objectivity as you can. Ethical considerations comprise several variables in one combination or another, if you are striving for real objectivity: The society and/or situation. Short-term and long-term effects. 'The greater good' - the flip-side of the issue; i.e., what are the other options and their consequences - the costs or implications of the choices? Cultural issues. Issues of personal conscience - of those affected - beware of relying on your own ideas of 'faith' or 'belief' or 'what is right', because this will not be the view held by many people affected by your decision. You are not a god, nor an agent of a god. Religious influence and personal beliefs - of those affected, rather than the decision-makers, really, I cannot emphasise this enough. Religion is a subjective belief system. Your own religion is therefore not a basis for objective ethical decision-making. Informed enlightened educated and truly objective views. Majority views. Significant minority views. Unrepresented very small minority views. some principles for ethical decision-making Step back from every decision before you make it and look at it objectively. Use the above list of examples of unethical behaviours as a check-list to see if you might possibly be falling into one of these traps. It's easily done: to get swept along by excitement and urgency; or by apparently demanding expectations, whether self-imposed or otherwise. Aim for objectivity and fairness - not for personal power, 'winning', strategic plotting, high drama, etc. Strive for fairness rather than polarised 'winner takes all' outcomes. Try to facilitate solutions rather than actually deciding and imposing decisions, unless all parties are happy for you to do so. Understand the Psychological Contract and how it applies to your situation. Concepts such as Empathy and the Johari Window are useful in gaining appreciation of other people's situations and feelings, which is central to managing the Psychological Contract. Learn from history and previous situations. Reviewing how previous situations were handled reduces the risks of making daft mistakes: not many things are fundamentally new in this world, despite how unique you believe your situation to be. Also history is a superb store of already invented wheels, which can often save you the time and agonies of trying unsuccessfully to invent a new one. Get the facts from all possible perspectives. Often a challenging issue offers three main options: (a) your instinctive or personal view; (b) a main alternative option; and (c) the commonly under-estimated ever-available third main option of doing nothing. Doing nothing in times of real emergency can be disastrous, but for a very large number of situations doing nothing is the only truly wise way. Doing nothing is not weakness or procrastination if it done in the right way for the right reasons. Understand the long-term consequences. Model or brainstorm the 'what if' scenarios. Again look at previous examples and history. Check the law. In whatever territories are affected by the decision. But do not base your decision wholly on the law. See the ethics and law notes. Consult widely - especially with critical people, and especially beyond your close circle of (normally) biased and friendly advisors, colleagues, friends, etc. You have not properly consulted if you merely seek and obtain confirmation from a tame advisor. After the event such 'consultation' can very easily be interpreted as a conspiracy, in which your 'advisor' is deemed not to have been an advisor but a co-conspirator. Consult especially the people affected by the situation and potential actions, and if using a survey of any sort then ensure the positioning and questions used are balanced and objective, because to be otherwise is unethical in itself. You should even consult about how to frame the survey and wording of the questions if the issue is anything but a minor one. Consider cause and effect in the deepest possible sense. Life and all that surrounds it is one huge interconnected system. If you are making big decisions - or even apparently little fleeting decisions within a potentially big and sensitive environment - these decisions will affect many people and aspects of life, now and especially into the future. Resist the delusion and arrogance that power and authority tends to foster. This is especially important to guard against if you live and work in a protected, insulated or isolated situation, as many large scale leaders and decision-makers tend to do. Being a leader for a long time, or for any duration in a culture of arrogance, privilege and advantage, provides great nourishment for personal delusion. Many unethical decisions are borne of arrogance and delusion. Guard against becoming so dangerous. Beware of justifying decisions according to religious faith. There is nothing wrong with having a religious faith, but there are various risks in leaning too heavily on a god or faith when making serious decisions. See the ethics and religion notes. Aim for solutions and harmony, objectivity and detachment. Facilitate rather than influence. Help, don't sell. Diffuse situations - find common ground - don't polarise or inflame. Whenever you see a big swell of expectation looming (among your immediate team, not those affected by your decision) which is borderline ethical/unethical, remember the ever-available third option to decide clearly and firmly to do nothing, in the right way for the right reason. The best ethical decisions are usually decided by people who are most affected by them, rather than by leaders who don't trust the people. different personalities see ethical organisations in different ways Different people relate to ideas about how to run organisations in different ways. Not everyone readily relates strongly to the principles of corporate integrity, sustainability, the 'Triple Bottom Line', etc. These are essentially idealistic views and as such will mostly appeal to idealistic people. If you are an idealist, remember that not everyone is idealistic. For example, many entrepreneurial personalities are actually more likely to prefer and utilise logical and critical thinking, and relatively dispassionate decision-making, than idealistic principles. These qualities enable entrepreneurs to do what they do well, and most organisations need a good sprinkling of these types of people. These personalities need hard and fast reasons why the triple bottom line and ethics and CSR are important to achieving solid performance outcomes. Process-oriented people; routine-centred, reliable, dependable types, will also not automatically buy in to idealistic principles, because these people are strongly focused on facts and real data, rather than ideas and feelings. These people will often need systemic evidence and predictable processes to assimilate and support idealistic concepts and philosophies. People won't simply buy in to the ethical zeitgeist because they are told to. Therefore when explaining the importance and aims of corporate ethics, consider the audience. People have different strengths and styles, and some need their own reasons for buying in to idealistic aims, outside of idealism itself. Idealists and humanitarians usually have difficulty accepting that processes and financials should be the primary drivers of organisations. By the same token, people who are driven and motivated by concrete thinking and performance outcomes will not naturally accept that organisations should place significant emphasis on idealistic humanitarian philosophies and aims. Aside from explanation and understanding, we must also be careful to manage the mix of organisational obligations. Without efficiency, competitiveness and profit, there'll be no organisation to look after the people and planet. It's a question of balance. As ever we need different people's strengths to be able to achieve this. (And while this is an over-simplification), some people are better taking care of the profit, some the people, and some the planet - but everyone needs to be aware of all three, and the fact that the future great organisations will be the ones whose people can best manage the mix. See the triple bottom line exercise for ideas about getting the ball rolling, if you've not already done so. See also the globalisation debate exercise, designed to help highlight issues and actions. organisational outcomes and benefits from ethical leadership More and more leaders of businesses and other organisations are now waking up to the reality of social responsibility and organisational ethics. Public opinion, unleashed by the internet particularly, is re-shaping expectations and standards. Organisational behaviour - good and bad - is more transparent than ever - globally. Injustice anywhere in the world is becoming more and more visible, and less and less acceptable. Reaction to corporate recklessness, exploitation, dishonesty and negligence it is becoming more and more organised and potent. Employers, businesses and organisations of all sorts - especially the big high profile ones - are now recognising that there are solid effects and outcomes driving organisational change. There are now real incentives for doing the right thing, and real disincentives for doing the wrong things. As never before, there are huge organisational advantages from behaving ethically, with humanity, compassion, and with proper consideration for the world beyond the boardroom and the shareholders: competitive advantage - customers are increasingly favouring providers and suppliers who demonstrate responsibility and ethical practices. Failure to do so means lost market share, and shrinking popularity, which reduces revenues, profits, or whatever other results the organisation seeks to achieve. better staff attraction and retention - the best staff want to work for truly responsible and ethical employers. Failing to be a good employer means good staff leave, and reduces the likelihood of attracting good new-starters. This pushes up costs and undermines performance and efficiency. Aside from this, good organisations simply can't function without good people. investment - few and fewer investors want to invest in organisations which lack integrity and responsibility, because they don't want the association, and because they know that for all the other reasons here, performance will eventually decline, and who wants to invest in a lost cause? morale and culture - staff who work in a high-integrity, socially responsible, globally considerate organisation are far less prone to stress, attrition and dissatisfaction. Therefore they are happier and more productive. Happy productive people are a common feature in highly successful organisations. Stressed unhappy staff are less productive, take more time off, need more managing, and also take no interest in sorting out the organisation's failings when the whole thing implodes. reputation - it takes years, decades, to build organisational reputation - but only one scandal to destroy it. Ethical responsible organisations are far less prone to scandals and disasters. And if one does occur, an ethical responsible organisation will automatically know how to deal with it quickly and openly and honestly. People tend to forgive organisations who are genuinely trying to do the right thing. People do not forgive, and are actually deeply insulted by, organisations who fail and then fail again by not addressing the problem and the root cause. Arrogant leaders share this weird delusion that no-one can see what they're up to. Years ago maybe they could hide, but now there's absolutely no hiding place. legal and regulatory reasons - soon there'll be no choice anyway - all organisations will have to comply with proper ethical and socially responsible standards. And these standards and compliance mechanisms will be global. Welcome to the age of transparency and accountability. So it makes sense to change before you are forced to. legacy - even the most deluded leaders will admit in the cold light of day that they'd prefer to be remembered for doing something good, rather than making a pile of money or building a great big empire. It's human nature to be good. Humankind would not have survived were this not so. The greedy and the deluded have traditionally been able to persist with unethical irresponsible behaviour because there's been nothing much stopping them, or reminding them that maybe there is another way. But no longer. Part of the re-shaping of attitudes and expectations is that making a pile of money, and building a great big empire, are becoming stigmatised. What's so great about leaving behind a pile of money or a great big empire if it's been at the cost of others' well-being, or the health of the planet? The ethics and responsibility zeitgeist is fundamentally changing the view of what a lifetime legacy should be and can be. And this will change the deeper aspirations of leaders, present and future, who can now see more clearly what a real legacy is. other ethical decision-making ideas The UK Institute of Business Ethics suggests a simple 'test' for ethical decision-making in business (see their website for their version). Adapted below it is applicable to all decisions in all types of organisations and in life as a whole. It's a remarkably easy test to apply. Try it next time you have to make a decision: transparency - am I happy to make my decision public - especially to the people affected by it? effect - have I fully considered the harmful effects of my decision and how to avoid them? fairness - would my decision be considered fair by everyone affected by it (consider all stakeholders - the effects of decisions can be far-reaching) If you can honestly answer Yes to each of the above questions then you are likely to be making an ethical decision. If you have any doubt about saying Yes to any of the questions then you should think about things more carefully. Maybe there is an entirely different and better solution - there often is. If you can't decide how to answer these questions, seek input from someone who has strong ethical principles, and who owes you nothing. Especially do not ask anyone to advise you about difficult decisions if they owe you some sort of allegiance. Leaders can sometimes be blinded by their own feelings of self-importance, and more dangerously can believe that the leader's job requires them to shoulder the burden of decisions which cause anguish and suffering, or worse. Believing that leadership carries some sort of right to take risks with other people's well-being is nothing more than arrogant delusion. A strong feature of good leadership is knowing when, and having the strength, to find another way - the ethical way. stakeholders and ethical organisations If we consider fully what a modern ethical organisation is, we must inevitably take a far wider view in defining modern stakeholders. A modern definition of 'stakeholder' is broader than the conventional ideas about shareholders, investors and partners, etc. A modern definition of a stakeholder is any group which has an interest in, involvement with, dependence on, contribution to, or is affected by, the organisation. Individuals are stakeholders too of course, but for practical reasons most organisations will necessarily view stakeholders as groups, and for the purposes of this explanation the term 'stakeholder' here also means a stakeholder group. A stakeholder is any group of people who could lose or gain something because of the actions of the organisation. This is especially relevant in the context of ethics, corporate responsibility, sustainability, etc. In fact every person on this earth is arguably a stakeholder in every organisation on this earth. It's not acceptable to dismiss or deny a group as a stakeholder on the basis that the relationship is too difficult to measure. If the group is affected by the organisation then it's a stakeholder and the group's needs must be considered. Thus the organisation acknowledges its full responsibilities. The question is then one of type and degree - in other words the needs of each stakeholder, and the extent of the effect of the organisation on each stakeholder. So a good modern stakeholder model or analysis would be one which recognises all of the stakeholder and then identifies a relationship (needs and interests, etc), and also shows a degree of impact for each stakeholder. Such an analysis can be helpful in training and development, and is arguably also essential in strategic planning and decision-making. Some impacts might seem small, but if the size of the stakeholder group is very large then the overall impact might be considerable. By accepting that stakeholders are represented by a far wider range of people and groups than conventionally applied, we effectively expand and liberate the appreciation of what organisational (and leadership and management) responsibility really is, and how far it extends. For example, a villager in deepest Africa is a stakeholder in all UK organisations given their (our) effect on the world's natural shared resources and the natural world as a whole. Children yet to be born on the other side of the world are stakeholders of any organisation given that its activities use, deplete, spoil, (or preferably instead) protect, enhance, and improve the resources and quality of life available to future generations. Failure to recognise these more distant and less obvious groupings as 'stakeholders' is what has enabled organisations to ignore their wider responsibilities both to local communities and to the rest of the world beyond. Stakeholders can be found in any or all of the following groups depending on the type of organisation. Below are examples of stakeholder groups, including conventional 'investor' stakeholders, and more modern stakeholder ideas. Remember, a stakeholder is any group that is affected in one way or another by the activities of an organisation. shareholders trustees guarantors investors funding bodies distribution partners marketing partners licensors licensees approving bodies regulatory authorities endorsers and 'recommenders' advisors and consultants (yes, these people have something at stake too) employees - staff, managers, directors, non-executive directors customers suppliers the local population (community) the regional general public national general public international communities humankind Many of these groups would not conventionally be considered to be stakeholders, but think about it: each of these groups could have an interest in and could be affected by the activities of an organisation. If a connection is not easy to see and understand it doesn't mean the connection doesn't exist. Given that this sort of modern stakeholder perspective produces such a wide-ranging and extensive list of stakeholder groups, it's essential to apply (for any given situation) some method of evaluating and expressing relative stakeholder interests and needs, and also to measure and show the varying significance of the stakeholder relationships; the degree of impact or dependence. Logically, this can be achieved via some sort of 'weighted analysis', designed to assess, analyse, compile and prioritise all stakeholder needs for any given organisation and operating scenario. This is not a precise science, but again, the difficulty in measuring the impact is no excuse for denying the existence of the relationship, the stakeholding, and the organisational responsibility for the stakeholder group concerned. Below is a suggested basic template for this purpose, which you can adapt for your own situation. stakeholder analysis template stakeholder group effect/interest/expectation/ needs/rights/quantification  % significance or weighting priority or ranking shareholders       trustees       guarantors       investors       funding bodies       distribution partners       marketing partners       licensors       licensees       approving bodies       regulatory authorities       endorsers and 'recommenders'       advisors and consultants       employees - staff, managers, directors, non-executive directors       customers       suppliers       the local population (community)       the regional general public       national general public       international communities       humankind       This is not a precise science. You'll need to adapt this for your own purposes so that it helps you to identify your stakeholder groups, their needs and expectations and rights, perhaps some sort of quantification or value indicator, a relative weighting, and then maybe a ranking or a priority, or a linkage to strategic planning and decision-making. Each of the example categories above might need to be broken down into sub-sections or shown as more precise descriptions which relate to the organisation concerned. Using a stakeholder analysis like this helps to identify an organisation's full responsibilities, not just the obvious conventional investor requirements to produce a profit and return on investment. In the modern world an organisation's obligations extend far beyond these traditional financial aims. If you are in doubt as to stakeholder expectations and needs, ask them what they are. Fundamentally this is all about understanding and respecting the needs of others, and as far as possible incorporating them into the philosophy, the aims, the processes, and the activities of the organisation. ethical leadership and management model Below is a modern model for management and leadership in the 21st century. It's an interpretation of the 'personality' of good ethical modern management and leadership. As such it's not a process or technique - it's an attempt to characterise good modern ethical management and leadership. P4 (PPPP) Purpose, People, Planet, Probity (or Purity or Principles). The four cornerstones of sustainable success in any modern business venture, and a maxim for today's management and organisational philosophy. (Probity means honesty, uprightness - it's from the Latin word probus, meaning good). 'Purpose' is an apt replacement for 'Profit' and thus makes the acronym appropriate for use in not-for-profit organisations. Profit-focused corporations can of course substitute 'Profit' for 'Purpose'. This model is not a process or technique - it's the character or personality of a good ethical organisation, (or manager or leader). The aim of all good modern organisations is to reconcile the organisational purpose (whether this be profit for shareholders, or cost-effective services delivery, in the case of public services) with the needs and feelings of people (staff, customers, suppliers, local communities, stakeholders, etc) with proper consideration for the planet - the world we live in (in terms of sustainability, environment, wildlife, natural resources, our heritage, 'fair trade', other cultures and societies, etc) and at all times acting with probity - encompassing love, integrity, compassion, honesty, and truth. Probity enables the other potentially conflicting aims to be harmonised so that the mix is sustainable, ethical and successful. Traditional inward-looking management and leadership skills (which historically considered only the purpose - typically profit - and the methods for achieving it) are no longer sufficient for sustainable organisational success. Organisations have a far wider agenda today. Moreover, performance, behaviour and standards are transparent globally - the whole world can see and judge how leaders and organisations behave - and the modern leader must now lead with this global accountability.   (This P4 model is not to be confused with the traditional Four P's of Marketing which is a different thing. For attribution purposes this model was created by Alan Chapman and first published on this website in April 2006.) ethics information Fairtrade (not to be confused with other organisations using the same name - be wary) Institute of Business Ethics (UK) Institute of Business Ethics (US) Triple Bottom Line (Wikipedia) Sustainability (Wikipedia) Sharon Stoerger's Business Ethics Resources and Links (US-based ethics resources listing) Corporate Responsibility Coalition (CORE) SustainAbility Consultancy (Founder John Elkington is generally regarded as having first coined the 'Triple Bottom Line' term.)

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