Mbm 208 unit i handsout


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Mbm 208 unit i handsout

  1. 1. Section-ISystems thinking: • Systems Thinking is any process of estimating or inferring how local policies, actions, or changes influences the state of the neighboring universe. It is an approach to problem solving that views "problems" as parts of an overall system, rather than reacting to present outcomes or events and potentially contributing to further development of the undesired issue or problem. • Systems thinking is a framework that is based on the belief that the component parts of a system can best be understood in the context of relationships with each other and with other systems, rather than in isolation. The only way to fully understand why a problem or element occurs and persists is to understand the part in relation to the whole. • Standing in contrast to Descartess scientific reductionism and philosophical analysis, it proposes to view systems in a holistic manner. Consistent with systems philosophy, systems thinking concerns an understanding of a system by examining the linkages and interactions between the elements that compose the entirety of the system. • Systems thinking attempts to illustrate that events are separated by distance and time and that small catalytic events can cause large changes in complex systems. Acknowledging that an improvement in one area of a system can adversely affect another area of the system, it promotes organizational communication at all levels in order to avoid the silo effect. Systems thinking techniques may be used to study any kind of system — natural, scientific, engineered, human, or conceptual.The concept of a system:Both systems thinkers and futurists consider that: • a "system" is a dynamic and complex whole, interacting as a structured functional unit; • Energy, material and information flow among the different elements that compose the system; • a system is a community situated within an environment; • energy, material and information flow from and to the surrounding environment via semi-permeable membranes or boundaries • systems are often composed of entities seeking equilibrium but can exhibit oscillating, chaotic, or exponential behavior. • A holistic system is any set (group) of interdependent or temporally interacting parts. Parts are generally systems themselves and are composed of other parts, just as systems are generally parts or holons of other systems.The systems approach:The Systems thinking approach incorporates several tenets: 1
  2. 2. • Interdependence of objects and their attributes - independent elements can never constitute a system • Holism - emergent properties not possible to detect by analysis should be possible to define by a holistic approach • Goal seeking - systemic interaction must result in some goal or final state • Inputs and Outputs - in a closed system inputs are determined once and constant; in an open system additional inputs are admitted from the environment • Transformation of inputs into outputs - this is the process by which the goals are obtained • Entropy - the amount of disorder or randomness present in any system • Regulation - a method of feedback is necessary for the system to operate predictably • Hierarchy - complex wholes are made up of smaller subsystems • Differentiation - specialized units perform specialized functions • Equifinality - alternative ways of attaining the same objectives (convergence) • Multifinality - attaining alternative objectives from the same inputs (divergence) ENVIRONMENT INTERFACE AND ANALYSIS 1. Outer environment (macro environment)There are some factors in the lives of organizations that affect them, but they don’t haveany control over them (much like in our own life). We can define three major areas, butthese are just the large groups, they just give a general outline.Political-legal environment:The effects of this are quite visible. Just think of the effect of changing taxes, or raisinginterest rates. If the legal system, pushed by politics lowers he acceptable emissionrates, companies may have to invest in new equipment or close down.Technological state (R+D):Technology can bring millions to one company and take millions from another.Organizations on the frontier usually experience a boom, with many following, but somerivals may go bankrupt. A good manager has to be aware of change and embracetechnology to gain an edge on competition.Social-Cultural environmentThis is a very important but also very diverse category. Think of a company in China anda company in Hungary. A Hungarian company only has to produce for a potential marketof about 10 million. A Chinese company has a potential market of 1.3 billion., which is130 times as much! That alone is a huge difference, and we haven’t even touchedcultural differences. For example in India, McDonalds probably wont sell anyhamburgers made from beef because they don’t eat that there. A manager has to keepall these in mind when leading an organization! 2. Outer microenvironment 2
  3. 3. This is the environment that an organization can influence. It may not be able to correctall flaws in the microenvironment, but it has a much better control over it than the macroenvironment. The microenvironment consists of seven larger parts:EmployeesOrganizations have to find the right people for each job. This means finding some highlyspecialized people and generally trained workers. Organizations are limited by theirmoney supply and the constraints of the general workforce.Owners and the boardThe investment mood is a primary question for every organization. A positive moodmeans funds, while a negative mood means extra costs. It is important that the ownersare satisfied with the company, but this doesn’t always mean large profits have to beshown all the time. Many companies can choose between keeping profits and investingthem. It is the manager’s job to balance the aims if the company and the owners(although many times this can be the same).ConsumersAnother important goal of the company is to keep the consumers happy. Today,competition is so large that for every product, there are ten of the same, but differentbrands. Organizations recognize that it is in their own interest to keep consumers happy.ContractorsThe inputs of organizations are supplied by its contractors. Depending on size thecontractors may race to keep the organizations happy, but it may happen vice-versa.The main objective here is sustaining a well oiled input supply system.CompetitionCompetition, or rather the observation of it, is important if the company wants to keep itsposition on the market. It is also possible for organizations to buy a part of theircompetition, or they can try to outsmart them.Financial organizationsTheir effect is possibly the most visible. For example, the exchange rate differencebetween two banks could mean millions of extra loss or profit. Their guarantee may beneeded for large projects, but aside all that, the most important thing is that they insurefunctionality day to day.The governmentGovernments may have a direct or indirect effect. They may subsidize, giving moneydirectly to the organizations. They can also give extra tax-refunds or they may punishunlawful behavior 3. BUSINESS AS INTERNAL ENVIRONMENT SYSTEM:A business system at the organizational level is a dynamic evolutionary entity because itoperates in a more dynamic business environment. It behaves as an open but complexsystem which gets resources from the environment and supplies its services to theenvironment. There are different layers of environmental interactions- some are close 3
  4. 4. and internal in nature whereas others are external entities. External forces may gobeyond national to regional to international to universal levels. These externalenvironmental forces provide opportunities or threats to the business operations. Everybusiness unit tends to grasp the available opportunities and face the threats that emergefrom the surrounding business environment.I. InputsBusiness system inputs involve primarily Land, Labor, Capital, as well as Management.These contribute to the structuring of the business and are involved in movementsacross the businesss boundary. Structural arrangements and processes must becreated to receive and deal with such inputs, determining which are important and howthey should be tackled.The inputs for business can be broadly represented by: • Entrepreneurial thought • Capital • Market information • Technology (tools, machines, methods) • HR CapabilitiesII. Conversion/ Transformation Processes 4
  5. 5. Transformation Processes are system arrangements and mechanisms - human andtechnical - which are designed and implemented to realise the businesss purposes.They may be • Functional/ Transformational • Information-based, • Service based • Regulative and control-oriented.Inputs are processed (transformed) to produce outputs (Goods, Services, Profits, Image,Result) which others within the system or external to the system appreciate and value.Thus we may seek to study the decision-making and creative processes of a businessorganisation of performing transformation.III. OutputsSystem outputs result from the internal operational and transformational processes ofthe organization. The outputs may be • Physical and Non-physical (goods, services, profits, image etc.) or may also be - • Conceptual (Ideas, influences, information-based outputs)These outputs flow from the business into the external environment where they arereceived by concerned "stakeholders". Within an organizational system and sub-systems, the outputs from one sub-system e.g. production become the inputs to anothere.g. marketing and sales.3.2. BUSINESS AS EXTERNAL SYSTEM:NOW, In order to achieve business Integration, management must not only conceive ofany business as a internal ‘system’ but more as ‘external system’ that coordinates thecomponents of the external environmental system (Social, Technological,Demographics, International, Natural etc.) with that of the Internal business systems(Internal processes, resources and strategies). Once such system integration isaccomplished, one can rest assured of sailing smoothly along and amidst the dynamicchanges of business environment. Hence, there is a greater need of looking at‘Business’ or for that matter any socio-economic system from a systems-perspective. Asit can be easily realized that improving the efficiency of individual components such asmaterial inputs, conversion process or even external variables is useless if the efficiencyof the individual function throws the total system out of balance. The systems thinkingthus helps decision makers to take holistic view of the business problem and situation inorder to arrive at effective set of probable solutions.Three Levels of Organizational EnvironmentIn order to perform an environmental analysis, one must thoroughly understand howorganizational environments are structured. For purposes of environmental analysis, onecan divide the environment of the organization into three distinct levels: Internalenvironment, operating environment (Micro), and general environment (Macro). 5
  6. 6. • The internal environment consists of organizational strategies, resources (HR, Capital, Technological, marketing etc.) , policies and structure. • The micro environment consists of different types of stakeholders - customers, suppliers, creditors, Intermediaries, Media, Social groups, competitors . • The macro environment consists of factors which are beyond the control of the business STEP – (Social, Technological, Economical and Political), demographical, natural, international.Changes in the micro environment will directly affect and impinge on the firms activities.Changes in the macro environment will indirectly affect the business but will nonethelessaffect it. For example, a change in legislation such as the smoking ban indirectly affectspubs and restaurants.This form of environmental analysis looks at the external or macro businessenvironment. It helps in examining the impact of each of these factors (and theirinterplay with each other) on the business operation and policy making institutions. Theresultant insight would facilitate taking advantage of opportunities and to make aptdecisions for mounting threats while preparing business and strategic plans of short,medium and short term.These factors dont operate in a vacuum, and many structural changes in business resultfrom changes in the nature and direction of these environmental variables. For instance,although trade policies are generally decided by the legal-political establishment of acountry, they also can be viewed though the prism of socio-cultural, technological andeconomic considerations prevailing in a country. Like in the case of European Union,though it appears to be a political decision on the face of it and basically the politicalleadership of those 16 nations (Euro is the single currency shared by (currently) 16 ofthe European Unions Member States, which together make up the euro area) drove theintroduction of the euro currency but the impacts include economic factors: cross-borderpricing, European interest rates, bank charges, price transparency and so on. Othereconomic factors include exchange rates, inflation levels, income growth, debt & savinglevels and consumer & business confidence.The social angle is that Euro is the currency of the 329 million people who spread acrossthe 16 euro-area countries and it also makes very good economic and political sense.The framework under which the euro is managed makes it a stable currency with lowinflation and low interest rates, and encourages sound public finances. A single currencyis also a viable complement to the single market which makes it more efficient. Using asingle currency increases price transparency, eliminates currency exchange costs, oilsthe wheels of the European economy, facilitates international trade and gives the EUgovernment and people a more powerful voice in the world stage. The size and strengthof the euro area with all its regilatory agencies, people and econoic enterprises alsobetter protect it from external shocks, such as oil price crisis, political uncertainty, socialsecurity or other such turbulence in the world markets. It gives the entire Europe atangible and intangible symbole of their european indentity of which they can beincresingly proud of. The Macro Environment- MatrixMacro environmental scanning thus, involves analyzing: 6
  7. 7. • Economic • Technological o GDP/ PCI- per capita income o Innovation o Economic growth o Acquisition & Absorption o inflation rate (CPI, WPI) o Transfer of Technology/ o Flow of capital Diffusion o Exchange rates o Industrial productivity o Trade policy o Manufacturing processes o Industrial Policy o New products and services o Global Trends • Political-Legal • Socio-Cultural o Political climate o Demographic factors o Forms of Government o Materialism/ Individualism o Political stability and risk o Role of Family • Legal o Religion o laws o Language o Regulatory Mechanism o Social class and Structures o Legal Activism o Custom & Value system Natural/ Ecological o Natural resources o Ecological Health and Balance o Global Conventions & Programs3.3. P-E-S-T-N Interface:Set of these environmental factors is mostly referred by five major factors Political-legal,Economic, Socio-cultural, Natural and Technological. This is on account of thepervasiveness of the global impact which directly affects these four sectors more thanany other. Fast paced technological innovation, evolution of developing economies,growing dominance and spread of multinational companies and aggressive global andregional trading alliances have made the world business a global trend. In this way,effect of international environment in the selective four major components of generalenvironmental factors is natural.The organization is a productive system. It interacts with its environment, drawing certaininputs from the environment and converting these to outputs that are offered to theenvironment. The attainment of its preferred state is dependent on the efficiency withwhich the firm carries out this production process.In order to analyze a system it is necessary to establish the relationships between thesystem and its environment. The organizations environment is itself a higher order 7
  8. 8. system composed of its own subsystems. The five major subsystems in the environmentare 1. Economic system; 2. Technological system; 3. Socio-cultural system; 4. Politico-legal system. 5. Natural/ Ecological SystemThe influence of these major factors must be taken into account when studying theintrinsic and extrinsic dynamics of business environment.At the individual organizational level, in order to cope with the environment in andaround, the firm must therefore be able to cope with the dynamics the economic systemwhich defines the functionality of its procurement and marketing of economic resourcesor capabilities. To acquire technical capability, a firm should concentrates primarily onthe transformation processes and hence, interact with the technological system of theenvironment. It has to then, interacts with the socio-cultural system to decide about theissues concerning personnel and public relations function of the firm. For the purposesof internal-external control and regulations, it also interacts with the politico-legal system.And, very importantly, particularly in the current context of global climatic crisis, a firmmust be responsive and sensitized enough to meet out and mitigate the challengesposed by the natural environment.It must be reiterated here that although in the popular press, the environmental scanningusually refers just to the macro environment, but it can also include market, industry andcompetitor analysis, consumer analysis, product innovations, and the companysinternal environment. Scanning these macro environmental variables for threats andopportunities requires that each issue be rated on two dimensions. Section-IIBusiness: Conversion Process (A Systemic Approach)__________________External Environemnt & Influences____________________________ 8
  9. 9. In order to achieve business Integration, management must conceive of any business as a ‘system’ thatcoordinates the components of the external environmental system (Social, Technological, Demographics,International, Natural etc.) with that of the Internal business systems (Internal processes, resources andstrategies). Once such system integration is accomplished, one can rest assured of sailing smoothly alongand amidst the dynamic changes of business environment. Hence, there is a greater need of looking at‘Business’ or for that matter any socio-economic system from a systems-perspective. As it can be easilyrealized that improving the efficiency of individual components such as material inputs, conversion processor even external variables is useless if the efficiency of the individual function throws the total system out ofbalance. The systems thinking thus helps decision makers to take holistic view of the business problem andsituation in order to arrive at effective set of probable solutions.Business Environment:An environment can be defined as anything which surrounds a system. Therefore, the businessenvironment is anything which surrounds the business organisation or business system. It affectsthe decisions, strategies, processes and performance of the business.Environmental analysis is the study of the organizational environment to pinpoint environmentalfactors that can significantly influence organizational operations.1Why Environmental Analysis?Environmental analysis will help understand what is happening both inside and outside anorganization and to increase the probability that the organizational strategies developed willappropriately reflect your organizational environment.Three Levels of Organizational EnvironmentIn order to perform an environmental analysis, one must thoroughly understand howorganizational environments are structured. For purposes of environmental analysis, one candivide the environment of the organization into three distinct levels: Internal environment,operating environment (Micro), and general environment (Macro). • The internal environment consists of organisational strategies, resources (HR, Capital, Technological, marketing etc.) , policies and structure. • The micro environment consists of different types of stakeholders - customers, suppliers, creditors, Intermediaries, Media, Social groups, competitors . 9
  10. 10. • The macro environment consists of factors which are beyond the control of the business STEP – (Social, Technological, Economical and Political), demographical, natural, international.Changes in the micro environment will directly affect and impinge on the firms activities. Changesin the macro environment will indirectly affect the business but will nonetheless affect it. Forexample, a change in legislation such as the smoking ban indirectly affects pubs and restaurants.Environmental scanning:Environmental scanning is a concept from business management by which businesses gatherinformation from the environment, to better achieve a sustainable competitive advantage.To sustain competitive advantage the company must also respond to the information gatheredfrom environmental scanning by altering its strategies and plans when the need arises.There are three ways of scanning the business environment: • Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis • Periodic scanning - Studies done on a regular schedule (say, once a year) • Continuous scanning - (also called continuous learning) - continuous structured data collection and processing on a broad range of environmental factorsMost commentators feel that in todays turbulent business environment the best scanning methodavailable is continuous scanning.This allows the firm to act quickly, take advantage ofopportunities before competitors do, and respond to environmental threats before significantdamage is done. Process:Major Scanning Techniques: • Interpretive structural scanning • DELPHI • Morphological analysis • Scenario Building • Modeling & Simulation • The Delphi method is a very popular technique used in Futures Studies. It was developed by Gordon and Helmer in 1953 at RAND. It can be defined as a method for structuring a group communication process, so that the process is effective in allowing a group of individuals, as a whole, to deal with a complex problem.It uses the iterative, independent questioning of a panel of experts to assess the timing, probability, significance and 10
  11. 11. implications of factors, trends and events in the relation to the problem being considered. Panelists are not brought together but individually questioned in rounds. After the initial round, the panelists are given lists of anonymous answers from other panelists which they can use to refine their own views.• Morphological analysis is a technique developed by Fritz Zwicky (1966, 1969) for exploring all the possible solutions to a multi-dimensional, non-quantified problem complex. As a problem structuring and problem solving technique, morphological analysis was designed for multi-dimensional, non-quantifiable problems where causal modeling and simulation do not function well or at all. Zwicky developed this approach to address seemingly non- reducible complexity. Using the technique of cross consistency assessment (CCA), the system however does allow reducing the number of possible solutions through the elimination of the illogical solution combinations in a grid box. The technique involves mapping options in order to attain an overall perspective of possible solutions. A Fish bone diagram could be cited here as a method to arrive to key problem-solutions or cause-effects.• Scenarios are one of the most popular and persuasive methods used in the Futures Studies. Government planners, corporate strategists and military analysts use them in order to aid decision-making. The term scenario was introduced into planning and decision-making by Herman Kahn in connection with military and strategic studies done by RAND in the 1950s. It can be defined as a rich and detailed portrait of a plausible future world, one sufficiently vivid that a planner can clearly see and comprehend the problems, challenges and opportunities that such an environment would present. A scenario is not a specific forecast of the future, but a plausible description of what might happen. Scenarios are like stories built around carefully constructed plots based on trends and events. They assist in selection of strategies, identification of possible futures, making people aware of uncertainties and opening up their imagination and initiating learning processes. One of the key strengths of the scenario process is its influence on the way of thinking of its participants. A mindset, in which the focus is placed on one possible future, is altered towards the balanced thinking about a number of possible alternative futures.• Simulation and modelling are computer-based tools developed to represent reality. They are widely used to analyse behaviours and to understand processes. Models allow demonstration of past changes as well as the examination of various transformations and their impact on each other and other considered factors. They can help to understand the connections between factors and events and to examine their dynamics. Simulation is a process that represents a structure and change of a system. In simulation some aspects of reality are duplicated or reproduced, usually within the model. The main purpose of simulation is to discern what would really happen in the real world if certain conditions, imitated by the model, developed. Although modelling and simulation became even more popular with the development of computing technology, application of these techniques have certain limits. Models represent a simplification of a system that is being examined; therefore the results need to be carefully considered. As the complexity of real systems increases models need to be more and more complex to represent the reality most accurately. In result, they may become increasingly difficult to understand and to be operated. Their complex nature can cause problems with using and managing results.• Application of systems science in business has lately emerged as an exciting area of applied research. It has been an exercise which mainly aims to study the asymptotic behavior of complex business systems. One of the branches of applied system science through formal modeling and simulation is “System Dynamics”. This approach lies in modeling complex real world systems as flow rates and accumulations linked by information feedback loops involving delays and non- linear relationships. System Dynamics modeling and simulation as a decision-support tool, allows managers to mathematically try out various options to see how they might play out over time, and test the sensitivity of results to changes in key variables. For a business decision maker, the goal 11
  12. 12. is to leverage this added understanding to design and implement more efficient business processes and policies. • On the other hand, in the area of soft computation based dynamic modeling researches, artificial neural network-popularly coined as ANN or NN (Neural Nets) has also emerged as a computational model based on biological neural network. Also referred as Neuromorphic systems, artificial neural networks (ANNs) are an attempt at mimicking the patterns of the human mind. An artificial neuron is simply an electronically modeled biological neuron (Figure 1) and the framework of ANN consists of an interconnected group of such artificial neurons that processes information using a connectionist approach to computation. • • Figure 1: Artificial Neuron • Soft computational neural research has set to be an expanding and interdisciplinary field bringing together mathematicians, physicists, neurobiologists, brain scientists, engineers, computer scientists and quite lately so, business analysts. Seldom has a field of study coalesced from so much individual expertise, bringing a tremendous momentum to neural network research and creating many challenges.Business System Dynamics:System dynamics can take credit for being the first branch of mathematical research that can effectivelyinvestigate complex and non-linear business scenarios and suggest solution optimization. Its tools prove tobe a powerful, yet simple and cost-effective methodology for developing deep insights in the working ofvarious kinds of systems and providing management flight simulators for policy design and process-integration based on the optimum solutions generated through the calibrated computer models. Thepurpose of modeling and simulation is to mimic any business system under study so that its future behaviorcan be understood and controlled in the desired direction and since nonlinear dynamical systems do nothave exact analytical solutions, their behavior can only be determined through simulation.Most modern-day system dynamics software packages allow a system dynamicist to create a model byplacing icons (stocks, flows, feedback links, etc.) on an electronic piece of paper displayed on a computerscreen, and connecting them together with the computer’s mouse. While this is occurring, the softwareautomatically generates equations that correspond directly to each of the icons. The stock icon in thefollowing figure, for example, corresponds directly to a mathematical equation that tells a computer how tocalculate the amount that has flowed into it during a particular period of time. STOCK INFLOW Figure 3: A Typical SD-ConstructIn general terms, this equation is: Stockt = Stock(t-DT) + DT * Flow(t-DT) -> t 12
  13. 13. System dynamics construct of Innovation dynamics:In the present work, dynamic and interactional relationships have been traced in the form of innovationsystem variables in order to first construct a system dynamics model with the intent to generate simulationresults for their later integration with appropriate neural architect.Now, looking at the complexity and the inherent dynamics of industrial innovation process, decisionmaking in managing innovation in a corporate entity is fairly tough and challenging. In addition tonumerous interactions with the exogenous environmental variables, the complexity gets compoundedonce we interrelate various internal or local variables pertaining to product or process innovations in acompany. In the present study, various system variables have been identified and classified with respectto their nature and pattern of influence that they exert over other variables of an innovation system (Table1). The subsequent stock-flow diagram has been constructed using system dynamics framework(inclusive of feedback loops with varying polarity) to reflect their interdependencies and impact dynamism.Further, a simulation graph has been generated over a dynamic time-track of 25 years based on themathematically defined interrelations. This gives out the first impression into the dynamic consequencesof decision-actions in managing innovation and allows testing different innovation strategies under analterable decision-pretext. Table 1: Stock-Flow variables Stock Flow • Innovation (INNOV) • Development (DEV) • Organization Resources (RES) • Abandonment (ABND) • Development rate (DR) • Decline rate (DCR) • Resources per team(RPT)The following model (Figure 8) basically explores how an organization develops (DEV) and abandons(ABND) innovations at varying rates of development (DR) and Decline (DEC) by consuming vitalorganizational resources deployed to the organizational innovation teams (RPT). 13
  14. 14. INNOVATION INNOV DEV ABND + + - + + RESOURCES - - ~ DR DEC RPT Figure 8: Feedback based Business Innovation System 1: INNOV 2: DEV 3: ABND 4: DR 5: RPT 1: 500 2: 175 3: 4: 1 5: 50 1 1: 250 1 2: 89 3 3: 4: 1 5: 25 5 2 2 1 4 4 4 4 1: 0 1 2: 2 3 3: 3 3 4: 0 5 2 3 5 5 5: 0 1.00 7.00 13.00 19.00 25.00 Page 1 Y ears 2:10 PM Thu, Jan 01, 2009 DY NAMIC SIMULATION (INNOVATION) Section IIISocial Accounting & Auditing:Social accounting and auditing is a way of measuring and reporting on an organisationssocial and ethical performance. An organisation which takes on an audit makes itselfaccountable to its stakeholders and commits itself to following the auditsrecommendations. • Social accounting (also known as Social and Environmental Accounting, Corporate Social Reporting, Corporate Social Responsibility Reporting, Non- Financial Reporting, Sustainability Accounting) is the process of communicating 14
  15. 15. the social and environmental effects of organisations economic actions to particular interest groups within society and to society at large. • Social accounting is commonly used in the context of business, or corporate social responsibility (CSR), although any organisation, including NGOs, charity and government agencies may engage in social accounting. • Social accounting emphasises the notion of corporate accountability. D. Crowther defines social accounting in this sense as "an approach to reporting a firm’s activities which stresses the need for the identification of socially relevant behaviour, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques."[2] • Social accounting is often used as an umbrella term to describe a broad field of research and practice. The use of more narrow terms to express a specific interest is thus not uncommon. Environmental accounting may e.g. specifically refer to the research or practice of accounting for an organisations impact on the natural environment. Sustainability accounting is often used to express the measuring and the quantitative analysis of social and economic sustainability.Purpose of Social AccountingSocial accounting challenges conventional accounting, in particular financialaccounting, for giving a narrow image of the interaction between society andorganisations, and thus artificially constraining the subject of accounting.Social accounting, a largely normative concept, seeks to broaden the scope ofaccounting in the sense that it should: • concern itself with more than only economic events; • not be exclusively expressed in financial terms; • be accountable to a broader group of stakeholders; • broaden its purpose beyond reporting financial success.It points to the fact that companies influence their external environment (both positivelyand negatively) through their actions and should therefore account for these effects aspart of their standard accounting practices. Social accounting is in this sense closelyrelated to the economic concept of externality. • Social accounting offers an alternative account of significant economic entities. It has the "potential to expose the tension between pursuing economic profit and the pursuit of social and environmental objectives".[3] The purpose of social accounting can be approached from two different angles, namely for management control purposes or accountability purposes.Business Ethics: • Business ethics is a form of applied ethics that examines ethical principles and moral or ethical problems that arise in a business environment. 15
  16. 16. • In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher- emission vehicles). • Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations (e.g. BPs "beyond petroleum" environmental tilt).SOCIO-CULTURAL ENVIRONMENT:Social organisationSocial organization refers to the ways in which people relate to one another, form groups andorganize their activities, teach acceptable behavior and govern themselves. It thus comprises thesocial, educational and political systems of a society.The exporters ability to communicate depends to some extent, on the educational level of theforeign market. If the consumers are largely illiterate, advertising materials or package labels mayhave to be adapted to the needs of the market. In this regard, however, a company marketingbaby food in a certain African country put the picture of a smiling child on the outside of the jar.The local resident assuming there were preserved babies inside, avoided the product! In addition,there are unspoken signals which identify cultural differences, from certain taboos to less obviouspractices like the time taken to answer a letter. In some societies, for instance, an important issueis dealt with immediately; in others, promptness is taken as a sign that the matter is regarded asunimportant, the time taken corresponding with the gravity of the issue.In a culture where great importance is attached to the family unit, promotional efforts should bedirected at the family rather than the individual. The size of the family unit differs from one cultureto another. It can range from the nuclear family, i.e. mother, father, and children, to the extendedfamily which includes many relatives and whose role is to provide protection, support andeconomic security to its members. In the extended family, characteristic of developing countries,consumption decision-making takes place in a larger unit and purchasing power patterns may bedifferent from those evident in western cultures.In any society, certain occupations carry more prestige, social status and monetary reward thanothers. In India, for example, there is a strong reluctance amongst people with universityeducation to perform menial tasks using their hands, even answering the telephone. In manycountries, including France, Italy and Singapore, financial independence is considered essentialfor occupation-related prestige. In Japan, however, the majority of university-educatedprofessionals tend to prefer working for large multinational firms than for themselves. 16
  17. 17. Social organisation is also evidenced in the operation of the class system, e.g. the Hindu castesystem and the grouping of society members according to age, sex, political orientation, etc.Religious beliefs, attitudes, values, space and timeWhile language, material culture, aesthetics and social organisation are outward manifestationsof a culture, it is a societys religious beliefs, attitudes and values that dictate the behaviour of itsmembers.Religious beliefsA religious system refers to the spiritual side of a culture or its approach to the supernatural.Western culture is accepted as having been largely influenced by the Judeo-Christian traditions,while Eastern or Oriental cultures have been strongly influenced by Buddhism, Confucianism,Taoism and Hinduism. Although very few religions influence business activities directly, theimpact of religion on human value systems and decision-making is significant. Thus, religionexerts a considerable influence on peoples actions and outlook on life, as well as on the productsthey buy. In certain part of the world, such as Latin America, the influence of religion extendseven beyond the individual or family and is manifested in a whole communitys deep involvementin, and devotion to, the church.A societys religious belief system is often dependent on its stage of human or economicdevelopment. Primitive tribesmen tend to be superstitious about life in general while people intechnologically advanced cultures seem to have dismissed the notion of traditional religiousworship and practice in favour of a more scientific approach to life and death.To disregard the significance of religious beliefs or superstitions evident in a potential exportmarket could result in expensive mistakes.The failure to consider specialised aspects of local religions has created a number of difficultiesfor firms. Companies have encountered problems in Asia when they incorporated a picture of aBuddha in their promotions. Religious ties are strong in this area, and the use of local religioussymbols in advertising is strongly resented - especially when words are deliberately or evenaccidentally printed across the picture of a Buddha. One company was nearly burned to theground when it ignorantly tried such a strategy. The seemingly minor incident led to a majorinternational political conflict remembered for years.(Source : D.A. Ricks, Big business Blunders)AttitudesAttitudes are psychological states that predispose people to behave in certain ways. Attitudesmay relate, for example, to work, wealth, achievement, change, the role of women in theeconomy, etc.Western cultures, for example, value individualism and promote the importance of autonomy andpersonal achievement needs. In contrast, in many eastern and developing countries, there is astrong sense of collectivism and the importance of social and security needs. For instance, theHindu religion imparts a type of work ethic that considers work central to ones life but maintainsthat it must be performed as a service to others, not for ones own personal achievement.Stereotypes are sets of attitudes in which one attributes qualities or characteristics to a person onthe basis of the group to which that person belongs. An international businesspersons tendency 17
  18. 18. to judge others by his or her personal and cultural standards instead of attempting to understandothers in the context of their unique historical, political, economic and social backgrounds could,for example, be termed an undesirable attitude.ValuesValues are judgements regarding what is valuable or important in life, and they vary greatly fromone culture to another. People who are operating at a survival level will value food, shelter andclothing. Those with high security needs, on the other hand, may value job security, status,money, etc. From its value system, a culture sets norms, i.e. acceptable standards of behaviour.Pepsodent reportedly tried to sell its toothpaste in regions of south-east Asia through a promotionwhich stressed that the toothpaste helped enhance white teeth. In this area, where some localpeople deliberately chewed betel nut in order to achieve the social prestige of darkly stainedteeth, such an ad was understandably less than effective. The slogan "wonder where the yellowwent" was also viewed by many as a racial slur.Some time ago, an American lost a major contract in Greece because he did not appreciate theGreek concept of time. The Greek executive could not understand the Americans insistence onsetting time limits on the length of their business meetings - he and his colleagues were preparedto spend as much time in discussion as they felt was necessary. The American also insisted thatthe senior managers involved in the transaction be responsible only for working out the generalprinciples of the deal, with the actual details being left to subordinates. Suspicious that thisrepresented a lack of commitment on the part of the American, the Greek called off the deal.Many factors continuously produce cultural changes in a society - new technology, populationshifts, availability of scarce resources and changing values regarding the role of education orwomen. Culture is thus dynamic, and exporters, particularly those involved in international traveland marketing, need to regularly assess what new products and service needs have beencreated, who the potential buyers and users are, and how best to reach them. 18
  19. 19. Non-linearity in Business:Case:LanguageLanguage is central to the expression of culture. Within each cultural group, the use of wordsreflects the lifestyle, attitudes and many of the customs of that group. Language is not only a key tounderstanding the group, it is the principal way of communicating within it.A language usually defines the parameters of a particular culture. Thus if several languages arespoken within the borders of a country, that country is seen to have as many cultures. In Canada,for instance, both English and French are spoken; in Belgium, French and Flemish; while in SouthAfrica there are 11 official languages with a number of other African languages also spoken by thepopulation. In addition, there are often variations within a language - different dialects, accents,pronunciations and terminology may distinguish one cultural group from another, e.g. English-speaking South Africans, the British, Americans and Australians.Learning some of the subtleties of a language can assist greatly in avoiding confusion:Several brief examples of mistranslated English idioms or expressions can be cited to illustratehow often blunders have been made. One European firm certainly missed the point when ittranslated the expression "out of sight, out of mind" as "invisible things are insane" in Thailand.There is also the story of the phrase "the spirit is willing, but the flesh is weak" being translatedto "the liquor is holding out all right, but the meat has spoiled". And consider, finally, atranslation of "Schweppes Tonic Water" to the Italian "ii water". The copy was speedilychanged to "Schweppes Tonic" because il water" idiomatically indicates a bathroom.(Source: D A Ricks, Big Business Blunders) The importance of being able to understand other languages cannot be over-emphasised - this isparticularly relevant when executives travel abroad and are negotiating with people of differentlanguage groups. Because English is the predominant language of business in the western world,people with English as a home language are usually reluctant to learn foreign languages and tendto expect others to converse with them in English. In contrast, European and Far Easternbusinesspersons have been willing to learn and converse in the language of their trading partners,leading inevitably to a better understanding and better rapport between the parties concerned. Ifexporters do not speak the language of the country they plan to visit, they should at least establishthe extent to which their own language is spoken there and, if necessary, engages the services ofan interpreter during discussions or negotiations. 19If promotional material needs to be prepared in a foreign language, it is important to ensure thatnone of the meaning is lost or distorted when the information is translated. Thus, translationsshould be undertaken within the country concerned or at least by a native of the country inquestion.
  20. 20. LONDON: Looking for high returns on your investments? Follow the new moon,says a new study. A team of 14 senior market analysts from across five majorfinancial centres of Macquarie Securities scrutinised data from 32 leading indicesover several decades and found the two days on either side of the new monthrepresent most of the positive returns on equity markets for next four weeks.“Using data since 1988 for a wide variety of indices, it is quite clear that a strongNREGA: From accounts to accountabilityThe Hindu, December 6,2008Bank payments alone are not an adequate protection against corruption in NREGA.The ghost of corruption has haunted many public interventions in India, and the NationalRural Employment Guarantee Act (NREGA) is no exception. Bank payments of NREGAwages were recently introduced on a mass scale, and projected as a foolproof remedyagainst corruption. Recent evidence, however, suggests that the banking system itself isnot above corruption — corrective steps are urgently needed.Rush to bank paymentsThe main technique of embezzlement in public employment programmes, includingNREGA, is to fudge the “muster rolls” (attendance sheets): fake names or inflatedattendance figures are entered in the muster rolls, and middlemen pocket the difference.This used to be possible, indeed very simple, because of the cloud of secrecy thatsurrounded the muster rolls. The NREGA sought to change that based on a range ofsafeguards, starting with the transparency of muster rolls. For instance, NREGA musterrolls are supposed to be available at the worksite and filled there every day in thepresence of the workers, giving them an opportunity to check the details at any time.Similarly, payment details from the muster rolls are supposed to be entered in theworkers’ “job cards”, enabling them to monitor these payments.Another factor that facilitated corrupt practices in the past was that the same person oragency was in charge of maintaining muster rolls and paying the wages. Since bothfunctions were in the same hands, fudging muster rolls was both easy and profitable. Theseparation of these two functions is a powerful safeguard against embezzlement. Evenbefore NREGA, this was the norm on drought relief programmes in Rajasthan. There,muster rolls were prepared by Gram Panchayat functionaries with the help of the “mate”(worksite supervisor), whereas wages were paid by the patwari (a Panchayat levelemployee of the revenue department). This makes it harder to siphon off funds byfudging muster rolls, unless the different actors collude with each other.The need to separate payment agencies from implementation agencies was an importantargument for the recent introduction of bank (or post office) payments of NREGA wages.There are other good reasons for introducing bank payments. For instance, paying wages 20
  21. 21. directly into the workers’ accounts reduces the risk of harassment by payments officials.Further, it encourages saving habits and the use of bank facilities.However, there are also significant drawbacks with bank payments. The coverage ofbanks and post offices in rural India is still patchy, which means that labourers have totravel some distance to collect their wages (as opposed to getting cash in hand in theirown village). In some states at least, bank payments have been associated with delays inthe disbursement of wages, as the relevant transactions work their way through thesystem. There is also a danger of women being excluded, if bank accounts are opened inthe names of men only, as has happened in some districts.From a long-term perspective, the payment of wages through banks is probably a move inthe right direction. However, the transition to bank payments has been made in a veryrushed and haphazard manner. And the results have often been sobering. The Deogharsocial auditA social audit of 17 NREGA works in five Gram Panchayats of Karon Block in DeogharDistrict (Jhardhan), conducted on 12-16 October 2008, unearthed some alarming factsrelated to bank payments. Briefly, the loot is far from over: funds are siphoned offthrough manipulated bank accounts of NREGA workers, in collusion with bank staff. InDeogarh, banks are rapidly being integrated in the system of corruption.Consider the case of the construction of two NREGA wells in Ranidih Panchayat: one onKoka Baori’s land and the other on Paane Hembrahm’s. Both were approached by thePanchayat Sevak, who offered to get a well constructed on their land. Once the well wassanctioned, a contractor took charge (an infraction under the Act). When cheques arrivedin the name of the beneficiaries, they were asked to collect it from the bank and hand itover to the contractor to pay for material costs.As far as wage payments were concerned, it was a simple matter for the contractor. Twoyears earlier, he had kindly opened bank accounts for many NREGA labourers (oftenwithout their knowledge), with a little help from the rather cooperative staff of theDeoghar-Jamtara Central Cooperative Bank. The contractor and Panchayat Sevakmanufactured muster rolls with wages adding up to the labour component sanctioned forthe wells. Whenever money is transferred to the labourers’ accounts, the trio of bankofficials, contractor and Panchayat Sevak step in: they coolly pocket the excess moneyafter giving their due to the labourers who actually worked. Most of the labourers wespoke to said that they had never been to the bank, and that they were paid in cash at theworksite by the contractor.While other banks in the area did not have the audacity to indulge in such open loot, theirpractices were not entirely above board either. In some cases, we heard that labourers hadbeen made to sign withdrawal slips in bulk at the time of opening their bank accounts, tofacilitate proxy withdrawals later on. In the case of Allahabad Bank and Vananchal Bank,bank officials said that labourers came in person to withdraw their wages, but usuallyaccompanied by men who “do not look like labourers”. These men, believed to be the 21
  22. 22. contractors’ cronies, stand outside the bank and force the labourers to hand over theexcess money that has been claimed in their name. For us, this story was a nightmarecome true: one year earlier, a master (or rather mistress) contractor in Orissa had told usthat if bank payments of NREGA wage were introduced, “the contractors will becomedacoits.”Magic bullet or shot in the foot?How typical Deogarh’s experience is we do not know. But this experience certainlyshows that bank payments alone are not an adequate protection against corruption. Infact, in Jharkhand’s anarchic environment (not unique to Deogarh), they have evenfacilitated embezzlement in several ways. First, while all NREGA-related documents(e.g. muster rolls, job cards, measurement books) are supposed to be in the publicdomain, it is not clear whether banks are going to accept this principle for their ownrecords, including the details of NREGA accounts. Meanwhile, the rush to bankpayments has led to reduced transparency by withdrawing key documents from publicscrutiny.Second, payments through banks and post offices introduce new players into thecorruption game — the staff of these institutions. It is not clear how these officials (whoare often employees of the Central government, rather than of the State governments orPanchayati Raj Institutions) are to be held accountable for NREGA-related matters. Theytend to be more difficult to “catch” than other functionaries such as the Panchayat Sevakor Gram Rozgar Sevak.Third, embezzlement of wages paid though bank accounts typically requires theinvolvement or cooperation of the labourers themselves, in one way or another.Labourers generally have a stake in blowing the whistle against corruption, but when theybecome part of the nexus of corruption, this voice is effectively silenced.Last but not least, bank payments have led to an alarming neglect of other transparencysafeguards. For instance, muster rolls are no longer signed by workers at the time of wagepayment, since wages are paid directly through banks. In fact, in Deogarh we found thatmuster rolls had been reduced to a naked attendance sheet, without any payment details.The only person who signs is the person who fills the muster roll in the first place, andhis or her “supervisor”, often acting in collusion. Apparently, a similar setback ishappening in Rajasthan. This is unfortunate since Rajasthan had largely stamped out theembezzlement of NREGA wages based on more “conventional” safeguards such as thetransparency of muster rolls.This is not to say that the transition to bank payments should be reversed. But thistransition certainly requires great caution (including strict monitoring of banks and postoffices), and must be combined with strict enforcement of all the transparency norms.The Central government seems to regard bank payments as a “magic bullet” againstcorruption, but the bullet is in danger of ending up in its own foot. 22