Week 2 Discussion – Ethical Models

Please respond to the following:

  • As a small business owner, discuss what you would do to meet the ethical goals of your company. According to your course textbook, there are several ethical models a business owner can use to help determine how ethical a choice is; that is The Golden Rule, Utilitarianism, Universalism, and Billboard Principle. Select one of these models that you would implement in your business and explain why you selected that specific modelCopyright 2021 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

    Chapter Three Small Business Environment: Managing External Relations


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    The Environment of Small Business

    The environment is all of the forces outside the firm or the entrepreneur.

    Setting up a boundary within that environment gives the firm an organizational identity.

    A key element of its organizational identity is its organizational culture.

    A set of shared beliefs or basic assumptions that demonstrate how things are done.

    Organizational culture also includes common, accepted ways of dealing with problems and challenges.

    Bootstrapping techniques are generally part of a start-up’s culture and used when resources are in short supply.

    The environment is also at the core of exchange in the BRIE model – buying, selling, and trading across the firm’s boundary.


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    Figure 3.1: The Organization’s Environment

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    Sources: Adapted from Angelo Kinicki and Brian K. Williams, Management: A Practical Introduction (New York: McGraw-Hill, 2009), p. 73; Brad Feld, Startup Communities: Building an Entrepreneurial Ecosystem in Your City (Hoboken, NJ: Wiley, 2012).


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    Elements of the Small Business Environment

    The external environment is everything outside the firm’s boundary.

    Components that directly relate to your firm performing its basic business tasks are called the task environment.

    The even larger part of the environment is the general environment and consists of seven sectors, such as the economic sector.

    The internal environment are those directly involved in the organization.

    Owner, employees, and board of directors.

    Some groups may be considered internal or external, depending on the entrepreneur.

    The entrepreneurial ecosystem is an important, helpful group for the entrepreneur.

    If a group becomes too familiar, you may miss trends.

    If so, look to professional and trade magazines for your industry.


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    Environmental Scanning for Small Businesses

    Low-cost, fast ways to monitor the environment include:

    Using trade press for trends.

    Asking customers, suppliers, and other groups for their thoughts on future trends.

    Keeping note of things that bother you about how work is done and look to improve.

    Use a custom feed of news.

    Use a “real options” approach and establish benchmarks, timetables, and a formal review process for decisions.

    Another key scanning ability is to find the six types of resources.


    Relational – social capital.



    Intellectual, or Human.


    A successful start-up needs some of each type of resource.

    Determine what you have.

    Look for what you lack.


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    Skills for Managing Relations with the Environment

    After gathering knowledge of the environment, scanning and analyzing, apply that knowledge to help launch and grow your small business.

    Two approaches to managing relations with the environment, what is called external relations:

    Building legitimacy.

    Developing your networks.

    The goal is to manage external relations in order to create social capital, the major component of “goodwill.”


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    Building Legitimacy

    Legitimacy lies in the impressions/opinions of customers, suppliers, investors, or competitors.

    Gaining legitimacy is challenging for a new small business, but very difficult for those seen as “different.”

    Building legitimacy is a major goal of an existing business that has gone through significant change.

    Achieving legitimacy means building trust among customers and other key groups.

    Three forms of legitimacy: based on people, based on product, and based on your organization.


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    Table 3.1: People-Based Legitimacy Indicators

    Remember, the owner is the business and the most important element of social capital.


    Make sure your employees work in the best, friendliest, and most professional way to help build the business.

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    Table 3.2: Product-Based Legitimacy Indicators

    Many owners think the most important source of legitimacy comes from understanding the product/service.

    If customers do not understand it, the company is unlikely to succeed.

    The goal is making sure the customer knows about the details of the product and has company assurance to back it up.

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    Table 3.3: Organization-Based Legitimacy Indicators

    Whatever gives customers confidence in the quality and survivability of the firm helps sales and increases trust.

    Good codes of ethics reflect the owner’s passion, the culture of the firm, and three classes of ethical standards:

    Employees should be dependable citizens.

    Do not do anything that will harm the organization.

    Be good to customers.

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    Developing Your Networks

    Your personal network are people you encounter in your everyday life, while your social network are people you know online.

    Knowing how to grow and sustain each is a key skill.

    Both forms are a way to work trust, reciprocity, and long-term relationships into your daily business operations.

    They help build your company’s expertise.

    The key is building a network of people who trust each other and reciprocate help and advice.

    In both types, you seek to build your reputation.


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    Developing Your Personal Networks

    Sources for network connections include: family, friends and neighbors, kids, your bank, customer contacts, school, hobbies, business associations, other organizations (religious, civic, community, political), work, and small business support organizations.

    Not all contacts are equal.

    The PSED shows information is the leading type of help requested.

    The most powerful connections are face-to-face meetings.

    Mutuality is the idea and action of each person helping the other.

    Building social capital is called personal networking.

    You can use your contacts list or a customer relationship management (CRM) software to organize your contacts.

    The goal is to make sure you keep track of your social and business contacts to keep relationships fresh.


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    Developing Your Social Networks

    Social networking expands the personal network.

    The challenge is deciding which platforms and strategy to use.

    The key is realizing where your target customers already are.

    A B2C firm may use Facebook, YouTube, or Instagram, among others.

    For a B2B firm, LinkedIn is the top platform.

    Many owners have their business on multiple platforms.

    Regardless of the site or sites you use, there are four best practices.

    Make it easy for people to contact you.

    Take the initiative to ask others on the network to link with you and then help them out online.

    Find and link up with network mavens then help out when you can.

    Keep at it – successful online networking requires consistent involvement.


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    Skills for Making the Right Decision

    The entrepreneur will make all sorts of decisions, now and in the future.

    Thinking ahead of time about some decisions and situations can help you prepare yourself, and your firm, for the future.

    There are three areas where this is particularly important.

    Handling a crisis.

    Achieving sustainability.

    Making ethical decisions.


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    Handling a Crisis

    Quickly admit you’re in trouble.

    Get to the scene as soon as possible – show accountability.

    Communicate facts you know to employees, customers, and suppliers.

    Have one person as the spokesperson – best if owner.

    Separate crisis management from everyday management.

    Deal with the crisis quickly.

    Managing crisis is a difficult but necessary skill – the SBA advises:

    Plan to stay in business – use a disaster plan.

    Talk to your people.

    Protect your investment.

    The best way to manage a crisis is to plan ahead.

    In the middle of a crisis, stay calm, take care of the people involved, and keep people informed.


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    Achieving Sustainability

    Sustainable entrepreneurship identifies (or creates) and then exploits opportunities to make a profit in a manner that:

    Minimizes the depletion of natural resources.

    Maximizes the use of recycled material.

    Improves the environment.

    Or achieves any combination of these outcomes.

    Sometimes called green entrepreneurship.

    Entrepreneurs can manage a firm’s impact on the environment.

    Recycle everything you can.

    Perform a “green audit,” which is needed to obtain ISO 14001 certification.

    Consider specializing in LEED certified construction if you are in the construction industry.

    Similarly, green retailing is a growing segment.


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    Making Ethical Decisions

    We consider ethics in whether a decision is good or bad.

    An ethical dilemma occurs when personal values conflict.

    When defining the moral problem, consider: who will be hurt, who will benefit, what do you owe others, and what do others owe you.

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    Source: Adapted from LaRue T. Hosmer, The Ethics of Management, 6th ed. (Boston: McGraw-Hill/Irwin, 2008).


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    Making Ethical Decisions – Generating Ethical Options

    Caveat emptor is often the line of rip-off artists and frauds.

    When generating ethical options, consider these proven philosophies.

    Am I treating others the way I would want to be treated?

    It’s the Golden Rule.

    Is my solution the best thing for the most people over the long term?


    What if everyone did what I want to do?


    What if my decision were advertised on a billboard?

    The billboard principle.


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    Making Ethical Decisions – Implementing and Monitoring

    If you have to negotiate, be ready to talk about your BATNA.

    Remember, there are costs to unethical behaviors.

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    Source: T. Thomas, J. Schermerhorn Jr., and J. Dienhart, “Strategic Leadership of Ethical Behavior in Business,” Academy of Management Executive (May 2004), p. 58.


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    Making Ethical Decision – Integrating Lessons

    An entrepreneur can integrate these lessons into their business structure.

    Craft codes for legitimacy, networking, customer service, sustainability, crisis management, and ethical decision making.

    Discuss expectations when hiring employees, subcontractors, or service providers.

    When external relations lapses occur, if not a major offense, use it as a learning experience and again bring up your expectations.

    When counseling about external relations issues, do not get emotional, be specific and consistent.

    Remember, you are a role model.


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    Figure 3.1: The Organization’s Environment – Text Alternative

    This graphic depicts the environment in a series of three concentric rings. The outer ring is the general environment, the middle ring is the task environment and the inner ring is the internal environment. The general and task environments comprise the external environment.

    The general environment is made up of seven sectors: technological, sociocultural, ecosystem/infrastructure, demographic, political-legal, international, and economic.

    The task environment is comprised of unions, the public, the business community, and the entrepreneurial ecosystem. Each of these groups, other than the unions, is comprised on members who may be considered either internal or external depending on how the entrepreneur decides. The public group includes interest groups and the media, but social networks, customers, family/friends, and professional trade associations may be considered internal. The business community is comprised of competitors and lenders, but allies, partners, subcontractors, distributors, and suppliers may be considered internal. The entrepreneurial ecosystem includes universities, governments, other entrepreneurs, and large businesses, but supporters, investors, mentors, and advisors may be part of this group that is considered internal.

    Finally, the internal environment is comprised of the board of directors, owners, and employees but include any of the group members mentioned in the task environment that that entrepreneur chooses to include in the internal environment.

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    Table 3.1: People-Based Legitimacy Indicators – Text Alternative

    The table shows seven aspects of your workers that builds either more legitimacy or less legitimacy: goodwill, public recognition, product/service name recognition, public reviews, business network membership, organizational size, and attire.

    Having well-known or well-regarded owners, employees, supporters, or spokespeople builds more goodwill legitimacy, while the lack of such individuals means the company holds less legitimate goodwill.

    The public recognition indicator of a more legitimate business means the firm, owner, or employees receive awards or make notable achievements outside the business, while a less legitimate firm has little or no public recognition.

    More legitimate firms sell brand-name merchandise or services and have a strong product/service name recognition, while less legitimate firms sell non-brand-name merchandise or services.

    More legitimate firms have more reviews on rating sites, while less legitimate firms have less public reviews.

    The business network membership indicator means a more legitimate business has memberships in trade organizations, while less legitimate firms do not.

    A more legitimate firm’s organizational size means it has employees, while a less legitimate firm has no employees.

    Finally, the attire indicator holds that a more legitimate business has employees in uniforms or business attire, while less legitimate firms allow employees to wear casual attire.

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    Table 3.2: Product-Based Legitimacy Indicators – Text Alternative

    The ten indicators of product-based legitimacy are: customer assurance, experiential supports, customer service, quality standards, environmental friendliness, certifications, testimonials, intellectual property, industry leadership, and media product/service visibility.

    Customer assurance. A more legitimate firm has publicly stated guarantees, bonding, try-before-you-buy policies, and return policies, etc., while a less legitimate firm has no such publicly stated policies.

    Experiential supports include offer documentation or demonstration in a legitimate firm, lacking in a less legitimate company.

    Legitimate firms provide customer service live or online, and less legitimate firms provide neither.

    More legitimate firms meet or exceed quality industry standards and less legitimate firms fail to meet those standards.

    Legitimate firms show concern for environmental friendliness by using recyclable materials, demonstrating green design, or having a low carbon footprint, while less legitimate firms show no such concerns.

    More legitimate firms are show certifications a less legitimate firm lacks, such as ISO certification, a Baldrige Award, being a minority or women-owned business, or having professional licensing.

    The testimonials indicator shows a more legitimate firm presenting testimonials from satisfied customers and less legitimate firms provide no such information.

    Legitimate firms own intellectual property such as trademarks, service marks, patents, or copyrights, while a less legitimate firm has no such holdings.

    A more legitimate firm shows industry leadership by setting technological or service standards adopted by competitors. A less legitimate firm uses or provides common technologies or services.

    Finally, a more legitimate company achieves visibility for its products/services through interviews, articles, placements, or columns in print or electronic media. A less legitimate firm provides little or no visibility.

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    Table 3.3: Organization-Based Legitimacy Indicators – Text Alternative.

    The table lists sixteen indicators: internet presence, firm name, media organization visibility, history, time commitment, hours of operation, days of operation, phone line, legal form, physical setting, public listings, internet identity, graphic design, partnering, dealer network membership, and code of ethics.

    A more legitimate firm has an internet presence on several platforms and a less legitimate firm is present on a few, or no internet platforms.

    A legitimate firm owns and uses its name as its domain name, while less legitimate companies use their name in a .com form.

    Legitimate firms achieve organizational visibility through interviews, articles, or columns in the media, less legitimate firms do not.

    A legitimate firm has a history and less legitimate firms are new.

    The time commitment is full-time in legitimate firms and part-time in less legitimate companies.

    The legitimate firm has set days and hours of operation and less legitimate firms have sporadic and sparse days and hours of operation.

    Legitimate firms have a dedicated phone line, less legitimate firms share a personal line.

    The legal form of the business – a corporation or LLC – provides more legitimacy than a sole proprietorship or partnership.

    The physical setting of a more legitimate firm is a commercial site, while a less legitimate firm is a home-based business or one with no physical location.

    Legitimate firms are listed in several business directors, less legitimate firms are only in the white pages.

    More legitimate firms have an internet identity for their email, a less legitimate firm uses public email.

    Graphic design is professionally done in a more legitimate firm and personally done in a less legitimate company.

    Legitimate firms partner with known businesses and less legitimate firms partner with unknown businesses or there is no partnering.

    More legitimate firms are an authorized dealer or agent, and less legitimate firms are unauthorized.

    Finally, legitimate firms adopt their industry’s code of ethics, or create their own, and display the code. Less legitimate firms have not adopted a code of ethics.

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    Making Ethical Decisions – Text Alternative

    The first step is to define the moral problem.

    The second step is to generate alternatives that meet your ethical, legal, and economic goals.

    The third step is to implement the best solution and monitor the situation.

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    Making Ethical Decisions – Implementing and Monitoring – Text Alternative

    This graphic shows business costs ranging from level one to level three.

    Level one costs include government fines and penalties.

    Level two costs include administrative and audit, legal and investigative, remedial education, corrective actions, and government oversight.

    Level three costs, the highest costs, include customer defections, loss of reputation, employee cynicism, lost employee morale, employee turnover, government cynicism, and government regulation.

    The costs in general range in a spectrum from less damaging costs, which get more executive attention (level one costs) to more damaging costs, which get less executive attention (level three costs).

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