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Introduction

‘Environment’ is one of the more popular words in the management lexicon, most generally understood to be referring to ‘something outside’. But common usage today often interprets the Environment (with or without the capital ‘E’) as referring to the planetary ecosystem. On that basis the Environment includes such things as global warming, the state of the ozone layer, deforestation and the means of energy generation. Organisations need to coexist with their environment, responding to that which they experience from it and being responsible for that which they export into it. This unit will focus upon the interactions between the commercial environment and the green environment, looking at attempts to reconcile the two by moving towards a more ethical environment.

Learning Outcome

After studying this unit you will:

understand the need for organisations to acknowledge the influence of their environments and the impact that they in turn as organisations have on those environments.

1.1 Globalisation

1 The commercial environment

1.1 Globalisation

Globalisation is something we tend to take for granted, mostly in the form of the remarkably low prices we pay for our consumer goods. When the first pocket calculator was launched in the UK in 1972, it cost £79 plus tax, an amount close to the average monthly take home pay.

Ten years later came the original IBM PC. Replete with a 4.77 MHz processor, 64kB RAM, a 12″ monochrome monitor (and an optional floppy disk drive!), it carried a UK price tag in excess of £1500, at that time a figure of the order of 3 months’ take home pay.

By 2006, a ‘typical’ desktop PC might feature a 3 GHz processor, 1GB of RAM, a 17″ colour screen and an 80GB hard disk drive, and cost less than £500 (by now, rather less than the average UK gross weekly wage). A basic 4-function calculator is almost cheap enough to be given away with a packet of cornflakes.

There are many factors influencing this dramatic reduction in ‘real’ prices. Yes, the technology has advanced in quite spectacular fashion, and yes, total production volumes allow for significant economies of scale, but a quick glance at the back of the average mobile phone, DVD player or digital camera will reveal something crucial. It probably says ‘Made in China’.

Figure 1: The Sinclair Executive pocket calculator, c1972

Figure 2: The original IBM PC, c1981

Box 1 An American icon

There was a time in the history of rock ‘n’ roll when every aspiring young British guitarist lusted after the (American-made) Fender Stratocaster. In 1965 they cost 185 Guineas (£194.25), which was then approximately 4 months average take-home pay. They were understandably pretty rare in the UK. The Japanese have a long history of manufacturing musical instruments, and by the mid-1970s were beginning to build themselves something of a name for ‘replica’ guitars, in effect shameless copies of US originals including the venerable Fender Strat. Needless to say, Japanese-made Strats were much cheaper than an American original and were relentlessly improving in quality, so much so that eventually Fender bought one of the Japanese companies involved and so was born the Squier brand. In the immediate aftermath of the purchase, with US-made originals typically costing upwards of £600, a Fender Squier Stratocaster could be had for less than a third of that price (coincidentally £185, by now less than 3 weeks take home pay). What was even more impressive was the quality. Many professional musicians, including several household names, would gig with their ‘cheap’ Squiers, whilst their old US-made originals were now deemed too expensive for life on the road and were seldom seen outside the studio. (For those interested in such things, early US-made Strats can now reach prices in excess of £10,000, more if they have a ‘big-name’ association.)

Interestingly, the process did not stop there. Due to a combination of acknowledged high quality and the international value of the yen, the price of Japanese instruments began to rise, and so Fender/Squier started looking for a cheaper manufacturing base. They quickly found one in the emerging ‘Tiger Economies’ of South-East Asia. Manufacture of the cheaper instruments in the range was moved to Korea, and yes the initial response to these products was that they were not really to the same quality as their Japanese forbears. But then the quality was seen to improve and the cycle started all over again. Currently the cheapest Squier Stratocasters are made in China, with other price-points in the Fender range being manufactured in Korea, Mexico, and Japan, with full US-manufacture now reserved for expensive ‘hand-built’ models from the Custom Shop range.

Figure 3: A Fender Stratocaster

The moral of the story is intended to be that, almost whatever it is, if you are in a medium or high wage economy then for the foreseeable future there will always be someone, somewhere, who can make it cheaper. Even with highly efficient factories there were just too many infrastructural overheads (health provision, education and welfare arrangements, pension schemes and the like) for established Western economies to compete on price.

Early responses to this trend were visible at least as far back as the 1980s when the UK tilted away from its traditional manufacturing base and towards a service economy. More recently it was discovered that many services are just as amenable to delivery from elsewhere. Although the UK might legitimately claim to have ‘invented’ the call-centre, telephone calls for customer service and support are increasingly likely to be answered by somebody in not just a different country but even a different time zone.

1.2 Offshoring

1 The commercial environment

1.2 Offshoring

The premise is straightforward. Given modern telecommunications capability, it matters little where telephone support is based. India, with a large population of English-speaking graduates and low (by Western standards) wage rates is an obvious choice. The significant cost-savings look very attractive to many organisations.

Figure 4: A call-centre

Early examples of this practice of ‘offshoring’ were not without their well-publicised problems. In 2004 Norwich Union proposed to move 7000 UK call-centre jobs to India by 2007, much to the fury of the Trade Unions, but were persuaded to scale back their initial plans by a less-than-enthusiastic customer response. In 2003 Dell computers in North America were famously forced to discontinue offshored support for their PC customers in the wake of widespread complaints about the quality of support on offer. Nevertheless, the lessons of history suggest that the quality will rise more quickly than the cost.

In the UK in particular, the disappearance of call-centre jobs is an emotive topic. Much of this ‘industry’ is located in places like Scotland, the North East, the North West and South Wales, areas where many of those involved had already endured the disappearance of traditional smokestack industries less than a generation earlier.

Not everybody has immediately jumped on the offshoring bandwagon:

The Royal Bank of Scotland, having conducted a successful pilot, nevertheless ‘concluded that the best outcome for our staff, shareholders, and customers is to employ people in the countries in which we operate’ (Financial Times, 17 October 2003). Similarly, Halifax Bank of Scotland (HBOS) has stated, ‘The call-centre operator is the voice of the company … It's a big enough challenge to ensure that all of our people in the UK are aware of changes in everyday issues, without having to worry about an operation that is 3,000 miles away’ (Financial Times, 12 January 2004). For the Alliance and Leicester, the decision was related to security concerns regarding exporting ‘potentially lucrative financial information to low wage countries’ (Herald, 25 February 2004). The Nationwide Building Society, in announcing substantial investment in its existing UK call-centres, underlined its strong links with local communities (Banking Business Review, 13 January 2004).

(Bain and Taylor, 2004)

For the moment at least, the very real cost savings available from offshoring customer support need to be balanced against other considerations.

Software development is another industry where the location of the work is relatively immaterial; due to the nature of the product, delivery costs are effectively zero and hence the work will be done at whichever location can achieve the required quality at the cheapest cost. Even relatively bespoke services such as gents' tailoring can now be provided using laser-technology in London, detailed specifications transmitted to Hong Kong and finished suits delivered to your home.

A detailed examination of these phenomena in purely economic terms is beyond the scope of this unit; it would need to consider such things as local wage-rates, working conditions and infrastructure-driven social overheads through international exchange rates and tariff agreements to the cost of compliance with environmental legislation. The overall lesson is however clear; globalisation would seem here to stay and the need to work ‘smarter’ seems unavoidable.

Activity 1 Offshoring

What aspects, if any, of the business of your organisation are currently offshored? What aspects might be amenable to offshoring? What costs and benefits are involved – especially beyond the more readily quantifiable?

2.1 The response of business

2 The green environment

2.1 The response of business

For most of human history, our influence on the planet has been small (i.e. sustainable). The waste produced by our presence has traditionally been dealt with by a process of dilution; burying things, or perhaps dumping them in the ocean, was a viable proposition because we were few and the land and the oceans were vast. Mankind was a minor perturbation on the planetary ecosystem. But with change as the ever-present factor, we grew in both numbers and influence.

In the last century, the population of the planet has risen from approximately 1.65 billion to somewhere in excess of 6.5 billion. In that time, we have witnessed the arrival of the motor car and the aeroplane, and usage of both is accessible to an increasing number of those people. The human race is now in a position to have a major influence on its environment. Global warming is possibly the most pressing problem, with most arguments now concerning not whether, but by how much, and the question becomes how to deal with the problem. Energy considerations seem to be paramount. How much do we consume? How should it be generated? What will happen if developing economies become as profligate with it as are the more ‘advanced’ nations?

At some very basic level, there are three ways in which businesses can respond to the green imperative. They can adopt environmentally friendly policies as a matter of belief, as a conscious piece of niche marketing or because they are required to do so by regulation.

Popular examples of the first are not hard to find; Ben & Jerry's, The Body Shop, the Co-operative Bank all started as organisations that ‘wore their heart on their sleeve’ – for them their values and beliefs were a major part of what they do, and to do otherwise would be unthinkable. But Ben & Jerry's is now part of Unilever and The Body Shop has recently been acquired by the L'Oréal group; how will the new owners handle their acquisitions?

Figure 5: Under new management

The idealistic might argue that the smaller organisation will somehow ‘infect’ the larger, to the point where the parent will exhibit the values of the new acquisition. The more cynical may claim that the original values of the smaller will be lost inside the giant multinational. Ultimately brand-management may come to the rescue and the names, and at least some of the values, will be preserved within a sub-brand; for the new parent to do otherwise might sacrifice the customer value so expensively acquired.

Hence the second possible response: niche marketing. As more and more people come to the conclusion that they would like to do (or to be seen to do) something more helpful to the environment, so businesses will emerge to cater to such a demand with some sort of ‘caring capitalism’. Many organisations such as Dow Chemical, Johnson and Johnson and Ecover find value in being seen to make their contribution to the environment. Many others are painfully aware of the consequences of getting it wrong: the shipwreck of the Exxon Valdez in Alaska, Shell's disposal of the Brent Spar Oil platform and the Union Carbide plant disaster at Bhopal.

It might reasonably be argued that both of these ‘voluntary’ approaches to environmental friendliness are perturbations. To really make a difference is almost certainly the province of government (or rather governments, given that transnational agreement is needed in the globalised business environment).

Activity 2 Environmental responsibilities

Does your organisation have a policy regarding its environmental responsibilities? To what extent is its behaviour consonant with its espoused beliefs?

2.2 Regulatory initiatives

2 The green environment

2.2 Regulatory initiatives

Box 2 Political will

‘We know the solution: sustainable development. The issue is political will.’

Prime Minister Tony Blair, World Summit on Sustainable Development, Johannesburg, 2 September 2002

Two aspects of the business and sustainable development debate became abundantly clear at the Johannesburg World Summit. First, there has been enormous progress in the business world since the widespread ignorance and disinterest that reigned ten years ago. Business leaders have grasped the overwhelming importance of sustainable development and are grappling seriously with the implications for their businesses – although a long tail of also-rans also exists. Second, the boundary between business and government responsibilities has blurred and needs to be redefined. Leading businesses understand their responsibilities, but governments have shirked many of theirs, often citing the benefits of voluntary business action over the ‘negative impact’ of government intervention.

(Cowe and Porritt, 2002)

To a large extent the response of business is still at the margins of what is required. Some may be unwilling to adopt certain behaviours for fear that competitors could gain a competitive advantage by not doing likewise. This then becomes the legitimate province of governments; to attempt to achieve the metaphorical ‘level-playing field’ or to judiciously ‘tilt’ the playing field to achieve the desired end.

It has been argued that the business of environmental performance is too important to be relegated to a sidebar in the annual report. By adopting a purely commercial response, couched in terms of the trading of allowed levels of carbon dioxide emissions, an environmentally friendly organisation, it is claimed, can profit by selling its unused allowances on the open market. The actual mechanics of the process are made more complex by the need to consider indirect ‘supply chain’ effects, in effect making organisations responsible for the emissions of their suppliers and customers as part of a total process.

At the time of writing, the system seems to be experiencing a few teething problems, not least in terms of the market price of the tradable allowances. Nevertheless the authors’ major contention seems to be borne out; by bringing explicit consideration of carbon dioxide emissions to the fore, forcing companies to recognise their overall contribution and offering a means to reduce the problem to familiar ‘bottom-line’ considerations, the whole issue is moved healthily up the agenda for both boardrooms and customers.

3.1 Codes of conduct

3 The ethical environment

3.1 Codes of conduct

One of the principles of the European Union Emissions Trading System discussed by Schultz and Williamson (2005) is that an organisation accepts responsibility for the performance of their suppliers. In an age where multinational corporations are able to reduce the production costs of their goods and services by offshoring it to whoever can meet the specification at the lowest cost, what responsibility do they have for the conditions under which production actually occurs?

One of the first cases to reach the general consciousness was the working conditions in various Asian factories used to produce trainers for, amongst others, Nike. Allegations of sweatshop conditions (low wages, 70-hour plus working weeks, working practices dangerous to life and limb and no trade unions) sat uneasily with price tags of £100 or even more. Did the customer care, and if so by how much?

Figure 6: A Nike trainer

It is doubtful whether anyone would argue for a 37.5 hour working week and UK labour-rates. Not only would this severely distort the local labour market, but the business would simply go elsewhere and the jobs would vanish. Equally, few western consumers would be totally comfortable with the idea of unsafe working conditions such as unguarded machinery. Between these limits however, the debate rages, and most of it reduces to difficult judgment calls. How do you arrive at a ‘fair’ wage or a ‘reasonable’ working week? Such decisions must take some account of local norms. What about child labour? Should it be forbidden below the age of sixteen? Fourteen? Twelve? Is Trade Union membership a universal right or should we take care before exporting western custom and practice into a different culture?

Compliance with some sort of agreed minimum standards seems to be a realistic aspiration (although reaching such a consensus is a non-trivial problem), followed by the gradual evolution of precise conditions in accordance with public opinion. To this end, Nike have invoked their Code of Conduct.

Box 3 Nike Code of Conduct

NIKE designs, manufactures, and markets products for sports and fitness consumers. At every step in that process, we are driven to do not only what is required by law, but what is expected of a leader. We expect our business partners to do the same. NIKE partners with contractors who share our commitment to best practices and continuous improvement in:

Management practices that respect the rights of all employees, including the right to free association and collective bargaining.
Minimising our impact on the environment.
Providing a safe and healthy work place.
Promoting the health and well-being of all employees.

Contractors must recognise the dignity of each employee, and the right to a work place free of harassment, abuse or corporal punishment. Decisions on hiring, salary, benefits, advancement, termination or retirement must be based solely on the employee's ability to do the job. There shall be no discrimination based on race, creed, gender, marital or maternity status, religious or political beliefs, age or sexual orientation.

Wherever NIKE operates around the globe we are guided by this Code of Conduct and we bind our contractors to these principles. Contractors must post this Code in all major workspaces, translated into the language of the employee, and must train employees on their rights and obligations as defined by this Code and applicable local laws.

In terms of such things as the working week and child labour, Nike are quite specific …

Child labor

The contractor does not employ any person below the age of 18 to produce footwear. The contractor does not employ any person below the age of 16 to produce apparel, accessories or equipment. […] To further ensure these age standards are complied with, the contractor does not use any form of homework for Nike production.

[…]

Hours of work/overtime

The contractor complies with legally mandated work hours; uses overtime only when each employee is fully compensated according to local law; informs each employee at the time of hiring if mandatory overtime is a condition of employment; and on a regularly scheduled basis provides one day off in seven, and requires no more than 60 hours of work per week on a regularly scheduled basis, or complies with local limits if they are lower.

(Source: www.nike.com)

The difficulties of monitoring such arrangements should not be underestimated. It will cost Nike to implement any realistic monitoring, and the local producer will have an economic incentive to limit costs by cutting corners.

Nevertheless, Nike has responded to criticism and the outcome of a protracted lawsuit by their resumption in 2005 of annual Corporate Social Responsibility (CSR) reports. Offering a new level of transparency, this now lists the names and locations of all the factories that produce Nike-branded products and at least indicates a willingness to be called to order in such matters.

3.2 CSR reporting

3 The ethical environment

3.2 CSR reporting

We mentioned earlier three reasons for environmentally friendly behaviour, effectively deriving from personally held values, niche marketing or regulatory pressure. To a large extent the same holds true for ethical behaviour.

Some organisations have a long tradition of good citizenship, ranging from the UK social housing of Bourneville or Port Sunlight, through to community involvement schemes from such as Xerox and IBM. Financial sponsorship of good causes, whether that be artistic endeavour or deprived communities, is not uncommon. The motivation behind such activity is sometimes more difficult to divine. Many people will look from the outside and see window dressing designed to deflect accusations of unrestrained capitalism. However, people on the inside often reflect that it gives them the opportunity to ‘put something back’ (and those companies that donate the time of their employees invariably comment favourably on the personal development it provides).

Niche marketing in this context implies selling a product or service, one of whose primary selling features is an ethical attribute. Such things range from Fairtrade coffee to ethical investment portfolios and represent an attempt at product innovation in directions aimed to increase the benefit the both customer and the people who work in such organisations.

Box 4 Fairtrade

The FAIRTRADE Mark is an independent consumer label which appears on products as an independent guarantee that disadvantaged producers in the developing world are getting a better deal.

For a product to display the FAIRTRADE Mark it must meet international Fairtrade standards. These standards are set by the international certification body Fairtrade Labelling Organisations International (FLO).

Producer organisations that supply Fairtrade products are inspected and certified by FLO. They receive a minimum price that covers the cost of sustainable production and an extra premium that is invested in social or economic development projects.

Fairtrade Labelling was created in the Netherlands in the late 1980s. The Max Havelaar Foundation launched the first Fairtrade consumer guarantee label in 1988 on coffee sourced from Mexico.

Today FLO co-ordinates Fairtrade Labelling in more than 20 countries including the UK.

(Source: www.fairtrade.org.uk)

Ethical investment is something of a growth industry with recent estimates of as much as £5 billion invested in 2006 (source: www.business.guardian.co.uk). Cautiously defined as any investment practice that stipulates ethical behaviour of the target companies, it has emerged as more than just a fringe activity largely due to the major influence of pension funds in investment decisions. Public sector pension funds in particular are increasingly likely to require ethical behaviour from any company in which they invest.

Activity 3 Premium prices for ethical products?

How much of a premium would you be prepared to pay for goods and services that offered some sort of guarantee of the conditions under which they were provided? How much should your organisation be prepared to pay (and who should decide the answer to this last question)?

Whereas financial reporting of public companies is hugely circumscribed by convention and regulation, CSR reports are as yet effectively unregulated. They will understandably reflect the sector of the organisation concerned – after all a chemical plant is unlikely to perceive its role in quite the same way as a merchant bank – but will also reflect the image the organisation wishes to portray.

Each respondent totally rejects the ideas of standardised reporting as not being suitable to their own industry (or firm). They listen to the points of view of NGOs and social auditors but reserve the right to report on what they feel is most relevant to their situation.

(Knox and Maklan, 2004)

It would seem likely that, given the plethora of requirements against which a CSR report could be judged, little real progress will be achieved until Governments decide that some form of standardisation is required. Given that any such regulatory initiative is likely to be poorly received as an ‘unwarranted intrusion’, we might wonder if the lead might have to come from pathfinder organisations. After all, these are the organisations who stand to lose most if their very real efforts are not recognised as distinctive from those of their less well-performing competitors. On this basis, the so-called ‘level-playing field’ might be in everyone's best interest.

4 Environmental factors and organisations: review

The primary thrust of this unit has been to emphasise the need for all organisations to acknowledge the influence of their environments and, in turn, the impact of organisations on their context. We have argued that the commercial environment is characterised primarily by the growing trend toward globalisation. To a much greater extent than ever before we live in a global village where goods and services will be produced wherever they can be provided at the least cost. Consumers in the West in particular are getting used to the idea of products being available for almost unbelievably low prices.

Business responses to the ‘green’ environment seem to be at something of a ‘tipping point’, with successive estimates of the severity of the problem seeming to indicate ‘sooner’ and ‘worse’. There are plenty of examples of enlightened behaviour but the degree of adjustment being achieved seems more akin to reducing the rate of acceleration than actually hitting the brakes.

The ethical environment does seem to be developing, but the transition model that seems to apply to emerging economies would suggest that the export of western ‘norms’ will lag behind the growing industrialisation for the foreseeable future.

None of the above is meant to sound in any way fatalistic. All three environments are changing, and human activity is the agent of change in every case. Organisations make choices, people make choices. Humanity has grown to the point where it can make major changes to its environment, it now needs to decide what those changes should be.

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References

Bain, P. and Taylor, P. (2004) No Passage to India? UK Unions, Globalisation and the Migration of Call Centre Jobs, Work, Employment and Society Conference 1–3 September 2004, Manchester.

Cowe, R. and Porritt, J. (2002) Government's Business: Enabling corporate sustainability. London: Forum for the Future.

Knox, S. and Maklan, S. (2004), ‘Corporate Social Responsibility: Moving beyond Investment towards Outcomes’, European Management Journal, 22, 5 (October).

Schultz, K. and Williamson, P. (2005) ‘Gaining Competitive Advantage in a Carbon-constrained World’, European Management Journal, 23, 4, August 2005.

Acknowledgements

The content acknowledged below is Proprietary (see terms and conditions) and is used under licence.

All other materials included in this unit are derived from content originated at the Open University.

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