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Business ethics is the application of ethical behaviour in a business context. Ethical (trustworthy) companies are better able to attract and keep customers, talented employees, and capital. Acting ethically in business means more than just obeying laws and regulations. It also means being honest, doing no harm to others, competing fairly, and declining to put your own interests above those of your employer and coworkers. In the business world, you’ll encounter conflicts of interest: situations in which you’ll have to choose between taking action that promotes your personal interest and action that favors the interest of others. Corporate social responsibility refers to the approach that an organization takes in balancing its responsibilities toward different stakeholders (owners, employees, customers, and the communities in which they conduct business) when making legal, economic, ethical, and social decisions. Managers have several responsibilities: to increase the value of owners’ investments through profitable operations, to provide owners and other stakeholders with accurate, reliable financial information, to safeguard the company’s assets, and to handle its funds in a trustworthy manner. Companies have a responsibility to pay appropriate wages and benefits, treat all workers fairly, and provide equal opportunities for all employees. In addition, they must guard workers’ safety and health and to provide them with a work environment that’s free from sexual harassment. Consumers have certain legal rights: to use safe products, to be informed about products, to choose what to buy, and to be heard. Sellers must comply with these requirements. Business people face two types of ethical challenges: ethical dilemmas and ethical decisions. An ethical dilemma is a morally problematic situation in which you must choose competing and often conflicting options which do not satisfy all stakeholders. An ethical decision is one in which there’s a right (ethical) choice and a wrong (unethical or downright illegal) choice.
The main participants in a business are its owners, employees, and customers. Every business must consider its stakeholders, and their sometimes conflicting interests, when making decisions. The activities needed to run a business can be divided into functional areas. The business functions correspond fairly closely to many majors found within a typical college of business. Businesses are influenced by such external factors as the economy, government, and other forces external to the business.
An entrepreneur is someone who identifies a business opportunity and assumes the risk of creating and running a business to take advantage of it. The three characteristics of entrepreneurial activity are innovating, running a business, and risk taking. A small business is independently owned and operated, exerts little influence in its industry, and has fewer than one hundred employees. An industry is a group of companies that compete with one another to sell similar products. There are two broad types of industries, or sectors: the goods-producing sector and the service-producing sector. Once you decide to start a business, you’ll need to create a business plan—a document that identifies the goals of your proposed business and explains how it will achieve them.
Managers coordinate the activities identified in the planning process among individuals, departments, or other units and allocate the resources needed to perform them. Typically, there are three levels of management: top managers, who are responsible for overall performance; middle managers, who report to top managers and oversee lower-level managers; and first-line managers, who supervise employees to make sure that work is performed correctly and on time. Management must develop an organizational structure, or arrangement of people within the organization, that will best achieve company goals. The process begins with specialization—dividing necessary tasks into jobs; the principle of grouping jobs into units is called departmentalization. Units are then grouped into an appropriate organizational structure. Functional organization groups people with comparable skills and tasks; divisional organization creates a structure composed of self-contained units based on product, customer, process, or geographical division. Forms of organizational division are often combined. An organization’s structure is represented in an organization chart—a diagram showing the interrelationships of its positions. This chart highlights the chain of command, or authority relationships among people working at different levels. It also shows the number of layers between the top and lowest managerial levels. An organization with few layers has a wide span of control, with each manager overseeing a large number of subordinates; with a narrow span of control, only a limited number of subordinates reports to each manager.