MGT497 Assignments 1-4 & Final

APPENDIX 1 Social Responsibility and Management of Technology and Innovation

This appendix discusses social responsibility and managing technology and innovation. In recent years, societys expectations of business have changed. Society expects that firms will act in the public interest rather than focus on maximizing profits at any cost. The expectations that firms will act to benefit society will continue in the future and in fact will be expected to become even stronger.1 As a result the social issues surrounding either internal innovation or externally obtaining technology will increase both the complexity of technology management and the impact on firm performance. Thus, by considering social issues, managers may not only impact the firms value creation in the short term, but also over the long term as they will create value by increasing the firms reputation and limiting potential future legal liabilities.

   Initially, this appendix discusses three broad social issues that impact the firm—sustainability of the environment, corporate social responsibility, and the ethics of leaders and individuals. These are all critical to the firms ability to add value for its shareholders as well as contribute value to other stakeholders. The appendix then concludes with a discussion of the use of social issues analysis in key managerial decisions, including choosing which technology-based projects to undertake.

THREE BROAD SOCIAL RESPONSIBILITY ISSUES

It is noted above there are three issues that broadly impact a firms social responsibility—sustainability of the environment, corporate social responsibility, and ethics of leaders and individuals. The purpose of the strategic process view of MTI is to add value to the firm—in both the short-term and in the long-term. Part of adding value is developing processes and products that are sustainable not only for the organization but also for society.

figure A1.1 Social Issues in Management of Technology and Innovation

Consideration of such issues is critical for technology-focused firms because there is often a regulatory void for such firms. Laws and rules typically lag innovation. Right now (2009) the explosion in nanotechnology applications is outpacing the regulatory process. For nanotechnology firms, it is important to understand the ethical issues that surround that technology if such firms are to avoid potentially negative impacts later. For such firms, if each firm acts in a socially responsible manner the firm will be less likely to find it has created some legal liability or acted in a way that hampers the firms growth as the regulatory environment begins to be established.2 Figure A1.1 shows the three levels at which ethical issues must be considered—society, corporate, individual. It also shows the three areas that most dramatically impact technology-focused firms—sustainability, corporate social responsibility, and ethics. We will next examine these three issues in more depth.

Sustainability

Sustainability for a firm is a pattern of resource use that is designed to meet organizational and human needs while preserving the environment so that these needs can be met in the present, as well as in future generations. Technology has been used to solve a myriad of problems for society, but it has also caused some problems. Some of the problems now being faced by the world include increasing energy needs as more technology becomes more widely available throughout the world, transportation overload with the increase of cars and other vehicles, plus increased demands on natural resources. Each of these areas has implications for the environment. The ability of the ecosystem of the Earth to sustain the changes in carbon emissions (from fossil fuels), the chemical waste from production of computer parts, and the stripping of old growth rainforests are all part of the sustainability question that faces business managers as members of the more global community. More and more countries and individuals are asking for and even demanding accountability for such outcomes.

   Environmental sustainability is, as a result, becoming a key social concern for business. In the past, many business firms viewed their social responsibility as supporting economic growth. However, today technology foresight is also becoming an expected part of innovation and technology management. Technology foresight demands that the firm not only understand what the new product or process can do for the firm immediately or for the societys immediate employment, but also what the product or process will do to the environment over time. As a result investing resources in sustainability can create value for the firm. This value includes not only a better reputation which attracts customers but also decreased legal liability. (See Figure A1.2.) Thus, a technology- and innovation-focused firm must not only create value for shareholders and economic growth but also consider a richer set of social concerns than ever before.

   Therefore, organizations that are trying to manage technology and innovation, sustainability requires that the managers of the firm have a strategy for continuing to be a positive influence in the general environment. This strategy should include five basic tenets:

• Make use of the best available science. Because of secrecy issues and fear of industrial spying, some organizations handcuff their scientists by limiting their interaction with other scientists. In areas such as biotechnology and other science-related areas of new product development, such secrecy has a downside: failure to learn from others or to share with others in important realms. This failure to learn from others can prevent the understanding of potential negative impacts on society. As a result there is a balance that must be found between secrecy and helping the entire society move forward with new innovations.

• Protect, maintain, and rehabilitate ecosystems. A firms carbon footprint is the amount of carbon dioxide that is associated with the production

figure A1.2 Costs and benefits from sustainability and CSR

and distribution of its product or service. It is possible for a firm to reduce its carbon footprint in a number of ways some of which are very simple, for example, changing light bulbs to more energy efficient lighting, and reducing paper use by relying more on electronic communication. New products should be developed while evaluating the impact the product will have on resources of society.

• Base use of resources on strategic plans that are well thought out and implemented in a responsible way. Sustainability should be part of the overall strategic management process of the organization. If the goal of sustainability is actively stated and pursued, then it is more likely that processes and products will be developed that reflect that goal. The strategic focus on sustainability should be integrated into the very first strategic steps of the firm.

• Control for new processes and products that emerge during testing phases to ensure sustainability. Firms should not start worrying about sustainability issues after the introduction of the process or product. Too often technology gets implemented without testing for or thinking about its environmental impact.

• Make trade-offs as necessary. Such trade-offs should reflect societal values and should be made in an open, transparent manner. If the trade-offs are made in such a manner, it is likely that the first four tenets are being considered also.

   To illustrate such trade-offs, H&M is a Swedish clothing and cosmetics retailer that has a wide ranging code of conduct that conforms to the various conventions of the United Nations. H&M requires that the actions of its suppliers conform to this same code. Included in this code are issues that could reasonably be expected for a retailer like H&M such as a ban on child labor, discrimination, and forced labor. However, the firm also requires compliance with environmental legislation. Even though with the code H&Ms efforts there have been increased efforts in the environment, the firm has not been able to make the impact it or others desire in the worldwide cotton-production industry. H&M does not deal with these cotton growers. Cotton uses high levels of water consumption and is heavily fertilized which can damage many sensitive environments. H&M has made a trade-off—it seeks to improve this industry as best it can remotely but at the same time the firm cannot walk away from buying cotton at a reasonable price.3 Thus, the firm must make trade-offs to move sustainability forward while still making a profit for its shareholders.

   As the firm evaluates technology for sustainability, there are indicators that can be considered to help direct decision making. Sustainability indicators provide knowledge on the interplay between the environment, society, and economic activities. Building strategic indicator sets around sustainability typically examines questions such as:

• What is it we are doing here? (descriptive indicators of sustainability)

• How does what we are doing matter to the firm, shareholders, and stakeholders? Are we reaching, or at least moving toward, desired sustainability goals? (performance indicators around sustainability)

• Are we getting better at what we are doing? (efficiency indicators that indicate less energy or input usage)

• Do we understand what is happening in the industry overall and how does this affect our sustainability efforts? (policy effectiveness indicators)

• Is the society better off because of our sustainability activities? (total welfare indicators)

• What can we do to improve what we are doing and what should we do next? (looking to the future for sustainability)

   At a more global level there are several key areas that the responsible firm needs to examine to determine if its management of technology and innovation is reflective of environmental, social, and economic sustainability:4

• Intergenerational equity – providing future stakeholders with potential that matches or exceeds todays stakeholders.

• Decoupling economic growth from environmental degradation – managing economic growth to be more resource responsible and less toxic to the environment as a whole.

• Integrating environmental, social, and economic concerns when developing policies about sustainability.

• Maintaining and enhancing the adaptive capacity of the environmental system through good corporate citizenship and by avoiding irreversible damage to future generations.

• Avoiding unfair costs on vulnerable populations by actions such as exploiting natural resources in economically underdeveloped areas.

• Accepting global responsibility for environmental effects that occur because of decisions and actions within the organization.

   The management of a sustainable course of action requires that the firm accept the notion of corporate social responsibility in which the firm recognizes it has a responsibility to the broader society. The next section will address this critical issue.

Corporate Social Responsibility

Corporate social responsibility (CSR) is where an organization has a built-in, self-regulating mechanism that monitors and ensures its adherence to law, ethical standards, and positive behavioral norms. However, it is important to recognize that CSR involves more than just ensuring that the law is followed. The law is the minimum but insufficient standard of corporate behavior. The socially responsible firm embraces positive behavioral norms. Thus, they need to recognize the impact of their activities on the environment, consumers, employees, communities, stakeholders, and all other members of the public sphere that matter and should be managed. This is especially true in the introduction of new technologies (both processes and products) as well as the acquisition of technology from external sources. Furthermore, CSR promotes that the proactive position of the public interest is important to business. In addition, firms should be good corporate citizens by encouraging community growth and development, and by eliminating practices that harm the public, regardless of legality. Essentially, CSR is the inclusion of public interest into corporate decision-making. It is how the firm addresses the general environmental sustainability by practices and processes within the firm.

   If the organization puts resources to work in a socially responsible way, then it should expect several positive outcomes for the firm and society. These outcomes include that the firm can expect better employee relations; new product, process, and market development; and less liability. For society, an excellent corporate citizen can enhance the quality of life for the community and the firms employees. (See Figure A1.2.)

   However, CSR is not without its critics. The critics say that CSR is a distraction from the fundamental economic role of business and as such has no place in the firms strategic-action portfolio. Milton Friedman, the famous Nobel economics laurate, is the best-known proponent of this view. His arguments on focusing on economic factors are similar to that we saw in sustainability when individuals argue that providing jobs should be the focus. Other critics imply that firms who tout their good citizenship are trying to make themselves look good and do not add value with their CSR activities. These criticisms are not unfounded but the belief here is that over the long term CSR will provide value to the firm, its shareholders, and the society.

   The concerns for the firm in the management of technology and innovation in a corporate social responsibility manner revolve around four areas of interest: employees, suppliers, customers, and the community. (See Figure A1.3.)

figure A1.3 CSR in the Firm

The firm has many decision points that can be very complex. For example, if a firm wants to lower the costs of manufacturing, it may consider moving production facilities to a lower labor-cost country. The CSR issues are multiple:

• What happens to the current employees?

• What are the labor laws of the other country?

• What will be the reaction of customers?

• How will the community in which the factory is located react to the shutdown of the current factory?

• Will supplies be available in the new locale? How does the moving of the factory affect the suppliers employees?

• Is part of the potential cost savings in the new location due to lower environmental standards?

• If so, what standards should the firm follow?

• A myriad of questions that are relevant to these areas can be generated related to the specifics of any firm.

   To understand the variety of issues a firm should account for how its actions affect the internal and external social environment. In Chapter 2, we discussed financial analysis using accounting data; here we expand these measures to include social accounting. Social accounting is a concept that describes the how, what, and why of social and environmental effects of a firms actions on internal and external stakeholders. This is a relatively new concept and requires innovation and thought on the part of the corporation as it pursues its economic activities. Thus, the firm seeks to place measures on the costs and benefits of its actions to a wide range of stakeholders in social accounting.

   Most companies that want to be seen as socially responsible and have undertaken social accounting have discovered the following:

• There is a need to link CSR reporting to financial and strategic reporting.

• Much of the information needed is readily available, but processes need to be modified to develop and present a social accounting report.

• Surprisingly, cost savings usually emerge. Also, linking CSR to strategic reporting heightened awareness of other potential cost savings.

   The benefits of launching a corporate social responsibility program include more directed strategic thinking for the future, building reputation and trust with stakeholders, as well as managing product and market development. The steps for launching a CSR program are:

• Clearly state a set of principles so that employees understand the values, goals, and what are desired outcomes including performance.

• Identify core competencies for corporate social responsibility needs that are facing the firm.

• Organize task forces and teams with CSR responsibilities for each of the identified key areas.

• Include CSR concerns in the decision-making process along with variables such as price, quality, and delivery. This helps to create social accountability for actions.

• Monitor and report on actions and achievements so that patterns of success and failure can be tracked. The firm will need this feedback if it is to improve.

• Be transparent and obtain stakeholder feedback.

• Evaluate CSR as an ongoing strategic initiative in the firm.

   One firm that has made a firm commitment to CSR is Ben & Jerry s. In fact, they file a Social and Environmental Assessment Report just as they file SEC required documents. They have a Social Mission Statement as well as product and economic missions. Their Social Mission is:5

To operate the company in a way that actively recognizes the central role that business plays in society by initiating innovative ways to improve the quality of life locally, nationally and internationally.

It is enacted with three ongoing goals:6

1. Use our Company to further the cause of Peace and Justice.

2. Harmonize our global supply chain and ensure its alignment with our Company values.

3. Take the lead promoting global sustainable dairy practices.

   Obviously, for Ben & Jerry s, CSR is a basic corporate value that they have embraced and maintained throughout their 30-year history. While we talk about corporate social responsibility, CSR has little effect on strategy if individuals and leaders within the organization are not committed to ethical behavior. The next section addresses the issues of ethical considerations in the management of technology and innovation.

Ethics

The third domain of social responsibility is ethics. Arthur Freedman, PhD, a consulting psychologist who specializes in organization development, believes ethics is informed by values. He outlines a hierarchy in which an understanding of morality (right or wrong) informs values (preferences), which in turn inform ethics. Thus, he sees ethics as part of the entire system of the person. Freedman goes on to state that ethics are a set of standards that govern behavior. In the management of technology and innovation, there are many potential ethical concerns. The obvious concerns deal with the impact of new products and processes on others, but within the organization there are several important issues that need to be considered.7

   As we look at ethics here, we will discuss first causes of unethical behaviors in general. Then, we will examine how innovation and creativity can lead to ethical conflict and how changes in stakeholder expectations can influence the processes within organizations. Finally, we will discuss how the firm can help individuals act more ethically.

   The reasons given for unethical behavior within organizations are many. The ones that are most related to management of technology and innovation includes:

• The evaluation systems that are in place for firms and individuals are typically focused on short-termism or the results needed now.

• The difficulty to translate strategic goals into operational reality.

• Rationalization of individuals that things will be fine and that their actions have no impact.

• The pressures from external stakeholders.

   What is ethical in one part of the world may not be ethical in another part of the world. As markets expand and companies move operations to other countries, managers may find themselves in conflict with personally held value systems as well as images of what is socially responsible. It is up to the firm to communicate what it views as ethical. If the firm establishes its foundation for ethical standards no matter where the firm operates then it is those values that should be upheld. For example, it may be acceptable in many parts of the world to discriminate against women. However, a firm can establish a standard that its firm does not discriminate against women. As a result the local standard may allow something that the firm does not.

   Organizational practices need to establish and support compliance goals around ethical processes, including such processes as selection, training, and rewards and recognition. Here are several practical ideas to help leaders who wish to build an ethical organization:8

• Implement training programs. Most organizations require that every employee attend ethics training of some sort because firms want employees who understand that ethics is an important business aspect. The unethical behavior of one employee can cost the firm dearly.

• Make ethics a part of business strategy. Firms with ethics programs have a code of conduct that supports employees in making ethical decisions. In addition, questions, policies, and practices related to ethics and compliance need to tie to the business plan and organizational vision.

• Measure ethics performance. Make ethics a leadership competency that is measured as part of the companys performance management system. It is well known that the biggest influence on ethical behavior is the behavior of the supervisor. Therefore, for a firm that wants its employees to act ethically,

• Supervisors must model integrity, which means doing the right thing versus doing the most expedient thing.

• Managers should lead by example.

• Ethical issues should be investigated and resolved swiftly.

• Officers of the company should advance ethical behavior by making sure that policies and practices are aligned to support an ethical culture.

• Invest resources. Nothing speaks louder about managements concern for ethical issues than dedicating resources to ethics training and oversight.

• Communicate regularly. Another way that firms make ethics tangible is to use technology such as: anonymous, 1-800 phone lines to report questionable practices; whistleblower hotlines; published codes of conduct; and cards that display company values. It is important to share ethical practices with stakeholders such as customers, investors, suppliers, and community members.

• Tap into your company's grapevine. The grapevine can be used effectively without getting into specifics of a situation. When rules are broken, and there are appropriate consequences, it is important that they be communicated to the company at large. This will reinforce the importance of ethical conduct throughout the firm.

   Of these general guidelines, the most influential is the behavior of the leader. The leader of the organization sets the tone. It is true for Ben & Jerry s and it is true for TOMS Shoes. Founder Blake Mycoskie started TOMS Shoes after spending time in Argentina. Many of the children he saw had no shoes. Because they had bare feet they were denied schooling and were susceptible to Mossy Foot. After some investigation, Mycoskie found that this was a common problem in many countries of the world. He started a shoe company to make simple shoes. When a pair is purchased by a customer, another pair is given to a needy child. TOMS Shoes has made shoe drop-offs in the United States, Argentina, Ethiopia, South Africa, Haiti, as well as other countries. In addition, Mycoskie has developed processes to make shoes with renewable or recycled materials. As a result of Mycoskie s focus on doing things right, TOMS has been recognized by many as a successful model of socially responsible entrepreneurship. TOMS plans to give away 1 million pairs of shoes by the end of 2012.9

   Unique Issues for MTI. These general guidelines for ethical considerations in the firm are important, but the management of technology and innovation has ethical concerns that can be unique. When developing technology internally, the firm is encouraging creativity among its employees. There are four problematic areas of creativity/innovation that can raise serious ethical issues.10 These are:

• Breaking the rules and ignoring standard operating procedures. Often innovation will involve the breaking of rules and operating procedures but it must be asked which rules are acceptable to ignore, when, how far can the deviation go, and who can initiate such actions.

• Challenging the way things are done and those in authority. Challenging the way things are is also often associated with innovation but in the process other issues should be raised. For example, is the new way at least as ethical relative to all stakeholders as the old process?

• Creating conflict and competition. Conflict and competition are often associated with innovation but firms need to examine how they create such conflict and what are the trade-offs in the standards of the company that it may create.

• Taking risks. Risk taking is also associated with innovation but what types of risks are acceptable and how does the firm ensure that it does not lead to actions that violate the firm s ethical standards is important for the firm to clearly establish.

   Because creativity requires thinking in different ways, those in creative areas of the firm, like R&D, may find themselves in conflict with the norms of the firm. When individuals are expected to be creative, the firm needs to encourage a strong sense of individual values that are not out of line with the organizational value system. Managing innovative people requires the firm to develop a shared vision, clearly communicate expectations, and develop leaders/ managers that are able to foster understanding about ethical issues, conflicts of interest, and the values of the firm.

   For those firms involved in obtaining technology from external sources through alliances, mergers, acquisitions, and joint ventures, the ethical issues are also critical. The same behaviors should be expected from leaders of any firm in the allied or acquired firm. As noted earlier, ethical behavior involves more than obeying the letter of the law. Thus, the two organizations may both meet the law but have very different ethical standards. This can cause potential for conflict between the two parties. There is a rich set of similar ethical issues that firms must consider as they pursue the external acquisition of technology. For example, if a firm acquires another firm and wishes to obtain new technology, it may be that the firm focuses so much on the technology it forgets the social impact of the merger. The ethical issues associated with the external acquisition of technology through such mergers will be discussed more in Chapter 7, however, it suffices to say now that there are a rich set of issues that are involved in such a complex activity as an alliance or a merger.

   The areas where ethics most often involve the management of technology and innovation are product development and intellectual property. Ethical concerns in product development or continuation deals with the expectation that a company will ensure that its products and production processes do not cause harm. Some of the more acute dilemmas in this area arise because there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility. The degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk. Examples of such changes that developed as technology helped us gain a better understanding of risks include, tobacco products, mobile phone radiation, and pollution. Knowledge and skills are valuable but not easily possessed. It is sometimes difficult to determine who owns intellectual property—the company or the employee themselves. As a result, attempts to assert ownership and ethical disputes over ownership arise. Examples include patent misuse, employee raiding, and industrial espionage.

Strategies for Ethically Building Value-Added

Firms increasingly are under pressure to act in a transparent, responsible manner while pursuing profitability and innovation. The management of technology and innovation is an area where these demands are particularly intense within the firm. Figure A1.4 illustrates the progression of a firm from mere compliance with what society demands—obeying the law—to truly creating new value through balancing social, environmental, and economic sustainability. The creation of new value is characterized by newness of products, services, processes, alliances, markets, and business models. But the creation of value in this manner has not changed for the organization in recent years although the rules on how to do it have. To insure sustainable value and long-term growth and survivability, the firm should:

figure> A1.4 Adding value through responsible corporate behaviors.

• Harness innovation for good of society.

• Put human resources, human capital, and customers at the center of consideration.

• Spread economic growth and opportunity; not oppression.

• Engage in new ways of doing business.

• Be performance driven in social, environmental, and economic aspects.

• Develop managers/leaders who are ethical and socially responsible.

• Pursue purpose beyond profit.

   When a firm partners its technology with its social venturing like Ben & Jerry s and TOMS, it finds itself doing things in a new way. If done well, the result is cost savings, revenue generation, economic prosperity for future generations, and a better quality of life for the firm and its stakeholders.

SUMMARY

This appendix has examined the social issues that are part of the management of technology and innovation within the firm. Such information is critical to the application of MTI. Without a clear understanding of the firm s values in sustainability and ethical considerations, management may be pursing goals that are either unrealistic or contrary to the needs and wants of society in its technology and innovation efforts. This can be damaging to the firm. This text is unique in that it stresses a strong social understanding as a key part of the strategic management of technology and innovation. Too often, texts and MTI professionals ignore the social aspects of technology and innovation. However, without a strong understanding of these issues, not only can the MTI effort fail but so, too, can the firm as a whole.

EXERCISES

Audit Exercise

In Chapter 2, we discussed assessments of the external and internal environments as well as the strategic process. If you were the CEO of a firm pursuing an internal innovation strategy, how would you assess the areas of sustainability, CSR, and ethics within your organization? Some can be assessed using financial data, some can be assessed using other information that should be present in the organization, and some assessments can be based on experience.

   What did you learn about trying to develop this type of an assessment for determining a firm s strategic direction in the MTI arena? Are there other areas of assessment that should be considered?

Case Study

Find a large company in which you are interested. Once you have identified the company, find its industry and its major competitors. Then find the following:

1. Where the focal company ranks in responsibility toward its various stakeholders?

2. How does the firm s level of social responsible actions affect its bottom line?

3. What innovative actions have been taken in the industry/organizations to improve its reputation?

All of this information should be available online.

   What would you say about the technology and innovation responsibilities of the focus company and its managers in its environment? Explain your answer with information from your analysis.

KEY TERMS

corporate social responsibility 73

ethics 76

social accounting 75

sustainability 70

technology foresight 71

NOTES

1. Bielak, D. S. Bonini and J. Oppenheim. 2007. CEOs on strategy and social issues. McKinsey Quarterly, December, 8–12.

2. Lee, R. and P. Jose. 2008. Self-interest, selfrestraint and corporate responsibility for nanotechnologies: Emergine dilemmas for modern managers. Technology Analysis & Strategic Management, 21(1), 113–125.

3. Svensson, G. 2009. The transparency of SCM ethics: Conceptual framework and empirical illustrations. Supply Chain Management: An International Journal, 14(4), 259–269.

4. Stanners, D., P. Bosch, A. Dom, P. Gabrielsen, D. Gee, J. Martin, L. Rickard, and J. Weber. 2007. Frameworks for Policy Integration Indicators, for Sustainable Development, and for Evaluating Complex Scientific Evidence. In Sustainability Indicators: A Scientific Assessment, edited by T. Hak, Be. Moldan, and A. Dahl, Island Press: 2007.

5. http://www.benjerry.com/company/sear.

6. ibid.

7. Kubal, D., M. Baker, and K. Coleman. 2006. Doing the right thing: How today s leading companies are becoming more ethical. Performance Improvement, 45(3), 5–8.

8. Ibid.

9. http://www.tomsshoes.com/

10. Baucus, M., W. Norton, D. Baucus, and S. Human. 2008. Fostering creativity and innovation without encouraging unethical behavior. Journal of Business Ethics, 81, 97–115.

(White 69)

White, Margaret A., Garry Bruton. The Management of Technology and Innovation: A Strategic Approach, 2nd Edition. South-Western, 2014-08-04. VitalBook file.

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