The Ten-Day MBA 4th Ed. Page 7

  Place—How best to reach segment? Channel mathematics, draw channels

  Exclusive, selective, intensive distribution? Fit with product?

  Who has the power?

  How to motivate the channels?

  Promotion—What is the buying process? How are $’s targeted to buying-process goals?

  Push or pull strategy?

  Media—type, measure, message?

  Dealer incentives?

  Consumer promos—coupons, contests?

  Price—What strategy? Skim, penetrate?

  Seek volume or profits?

  Perceived value, cost-plus pricing?

  How does price relate to the market, size, product life cycle, competition?

  5. Evaluate the Economics

  Break even in units.

  Fixed Cost/(Selling—Variable Cost). Include fixed marketing and promo costs in fixed costs of the plan!

  Relate break even to relevant market.

  What is the payback period? Exclude sunk costs!

  Are goals reasonable? Attainable?

  KEY MARKETING TAKEAWAYS

  The 7 Steps of Market Strategy Development

  1. Consumer analysis

  2. Market analysis

  3. Competitive analysis

  4. Distribution channel analysis

  5. Develop the marketing mix

  6. Determine the economics

  7. Revise

  Need Categories—All the possible uses of a product or service

  The Buying Process—The stages of making a purchase

  Product Involvement—The importance of a product to the consumer

  Segmentation Variables—Ways to divide the population to find a profitable target

  Relevant Market—The portion of the market that is interested in your product

  Product Life Cycle—The birth-to-death (and possibly rebirth) life cycle of a product

  SWOT Analysis—Competitive analysis of strengths, weaknesses, opportunities, and threats

  Perceptual Mapping—A multivariable picture of a product and its competitors

  Channel Margin Mathematics—Each level in the distribution takes a margin of the selling price it charges to the next level of distribution

  The Marketing Mix of the 4 P’s—Product, place, promotion, and price

  Distribution Strategies—Exclusive, selective, and mass market

  Channel Power—Who in the distribution chain dictates the terms of the relationships

  Advertising Measures—Reach, frequency, GRP, TRP, share of voice. Buy wisely.

  Pricing Strategies—Cost plus, penetration, value pricing, skimming

  Break Evens—The volume of sales needed to recover the fixed cost of marketing plan

  Day 2

  ETHICS

  Ethics Topics

  Relativism

  Stakeholder Analysis

  Unlike most topics in the MBA curriculum, which have remained fairly consistent for decades, ethics is a new area. What appeared at first to be only a trendy elective course has now become institutionalized as part of the core MBA curriculum at Harvard, Wharton, and Darden. With the criminal convictions of insider traders in the 1980s, business schools took notice and jumped on the ethics bandwagon in the 1990s. In the new century, the collapses of Enron, WorldCom, and Arthur Andersen; Bernie Madoff’s Ponzi scheme; the subprime mortgage frauds; and the revelations of accounting fraud have kept ethics on the front burner.

  Ethical dilemmas make for a lively classroom discussion. It was revealing to see my fellow students deal with controversial topics. My “politically astute” classmates would play it safe and take the ethical high ground before teachers and peers. My more insecure classmates would not participate at all. Others would express just what they thought, no matter how politically “incorrect” it may have sounded. I fell into this last group. But I must admit, I took many unpopular positions just to liven up the class discussion. In any case, ethics is a good topic for speaker forums and great fodder for articles and dissertations. Since ethical problems often have no definitive answers, the area will remain fertile academic ground for years to come.

  “WELL, THE DISCUSSION HAS APPARENTLY TURNED TO BASIC BUSINESS ETHICS, AND I MUST CONFESS TO BEING OUT OF MY DEPTH.”

  The purpose of ethics in the MBA curriculum is not to make students model corporate citizens. Rather, the intention is to make students aware of the ethical implications of business decisions. Through casework and role-playing, students confront ethical dilemmas similar to those they will face in the workplace.

  The top business schools train their future champions of industry to deal with any challenge. You name the “hot” topic, we thrashed out the issue in class:

  Environmental issues—pollution, toxic waste dumping, animal rights

  Corporate restructuring—layoffs

  Employee privacy issues—AIDS, drug testing

  “Diversity” issues—race, ethnicity, gender, and sexual orientation

  Sexual harassment

  Conduct of multinational corporations (MNCs)—bribery

  Other—antitrust actions, predatory pricing, insider trading

  THE SOCIAL RESPONSIBILITY OF BUSINESS

  Talk about ethics rests on the assumption that businesses ought to adhere to a socially responsible approach to decision making called the social responsibility approach. Proponents of this approach believe that corporations have societal obligations that go beyond maximizing profits. Business schools encourage students to adopt this “politically correct” philosophy. It is argued that because corporations are so powerful, they have an obligation to assume social responsibilities. Corporations should be managed for the benefit of their stakeholders: their customers, suppliers, employees, and local communities, as well as their owners. Corporate leaders bear a fiduciary responsibility to all stakeholders.

  Flying in the face of the “politically correct” philosophy espoused at most institutions is a competing school of thought led by Milton Friedman of the University of Chicago. Friedman believes that business’s sole duty is to make profits. “Businesses are in the business of maximizing shareholders’ value by a prudent use of scarce organizational resources, as long as the activities of the business are within the letter of the law.” In Friedman’s view, it is up to government to determine what the laws should be. A profitable business benefits society by creating jobs, increasing the standard of living of its owners and its employees. Corporations pay the taxes that support government’s social action. Although Friedman is exalted as one of the defenders of capitalism in economics courses, my school tended to discourage his views when it came to ethics class.

  Two major topics are taught in the ethics curriculum: relativism and stakeholder analysis. Relativism examines why we often ignore ethics in our decision making, while stakeholder analysis provides a structure with which to confront ethical decisions.

  RELATIVISM

  The proponents of relativism hold that we can’t decide on matters of right and wrong, or good and evil. Things are rarely black or white. There are so many shades of gray. Relativism proposes that ethics are “relative” to the personal, social, and cultural circumstances in which one finds oneself. Relativists are not torn by ethical dilemmas since they do not believe that truth can be discovered through soul-searching. Professors teach relativism so that students may guard against it. To understand relativism, you need to recognize its four forms:

  Naive Relativism

  Role Relativism

  Social Group Relativism

  Cultural Relativism

  Naive relativism holds that every person has his or her own standard that enables him or her to make choices. No one can make a moral judgment about another person’s behavior. So many variables affect behavior that an outsider cannot possibly be privy to all the elements that went into making a decision. Therefore, an executive at Similac is not equipped to make a moral judgment regarding the actions of the chief executive officer (CEO) of Nestlé, w
hose corporation was accused of possibly selling harmful baby formula in developing countries.

  Role relativism distinguishes between our private selves and our public roles. These public roles call for a “special” morality that we separate from the individual making the choices. The president of a fishing company may personally dislike the incidental killing of dolphins in his company’s tuna nets, but as an executive, he must not let his feelings interfere with the best interests of the company.

  Social relativism is akin to naive relativism. People refer to social norms to render ethical judgments. “Industry practices,” “club rules,” “professional codes of conduct,” and “accepted practices” are the cop-outs of the social relativist. In the produce industry, it is “industry practice” to ignore child labor laws and employ small children to work in the field and miss school.

  Cultural relativism holds that there is no universal moral code by which to judge another society’s moral and ethical standards. If a whole culture holds certain beliefs, how can an outsider sit in judgment? “When in Rome . . .” The concept of cultural relativism becomes more important as companies compete globally. Multinational corporations often follow local laws and customs that may violate ethical standards in their home countries. Discussions about apartheid revolved around issues of cultural relativism. Adopting a cultural relativist philosophy, a multinational corporation might have justified its participation in South African gold and diamond mining activities despite the employment of “slave” labor in the mines.

  In some instances U.S. corporations and citizens are barred from adopting the host country’s business practices. In some countries it is ordinary business practice to pay bribes to get favorable treatment from businesses and government. The Foreign Corrupt Practices Act of 1977 outlaws overseas bribery.

  The relativism concepts provide MBAs with an awareness of and a way to guard against inaction on ethical and moral issues. They provide a framework to go beyond currently held beliefs and patterns of behaviors. These concepts are also great conversational ammunition when MBAs get together on social occasions.

  Other Ethical Frameworks. Relativism is not the only philosophical framework with which to approach ethical decisions. There is also natural law, utilitarianism, and universalism. Natural law serves as a guide to some who believe that the “right” thing to do is revealed in nature or the Bible. Utilitarianism holds that an action is justified if it provides the greatest benefit for the greatest number of people. Finally, universalism propounds that any action is condonable if the motive behind the action is good, since the results of a person’s actions are so often not in his or her control.

  STAKEHOLDER ANALYSIS

  Although there are no magic formulas for solving ethical dilemmas, it is helpful to have a framework with which to organize your thoughts. Stakeholder analysis provides you with the tools for weighing various elements and reaching a decision.

  As a first step a list should be made of all potentially affected parties, then an evaluation of all the harms and benefits that a particular action will have on those involved. The next level of analysis ought to determine each of the affected parties’ rights and responsibilities. Employees, for instance, have the right to a fair wage and safe working conditions, but they also have the responsibility to be productive for the company. In a typical stakeholder analysis the list of potentially affected parties might look like this:

  The Decision Maker

  Executives, Board of Directors

  Customers—and the industry in which they operate

  Shareholders, Bondholders

  Suppliers—and their industry

  Employees—and their families

  Government—federal, state, and local and their agencies

  Special Interest Groups—industrial, consumer, environmental, political, unions

  The Affected Community

  The Environment—“sustainability”—plants, animals, natural resources

  Future Generations (an MBA favorite)

  Competitors

  Lawyers and the Courts

  Obviously, the list could be much longer. At the analysis stage the list is narrowed to the significant players, then a situational analysis is performed, and eventually a decision is reached. In order, these are the steps:

  1. Get the main cast of characters.

  2. Determine the harms and benefits to each player.

  3. Determine their rights and responsibilities.

  4. Consider the relative power of each.

  5. Consider the short- and long-term consequences of your decision alternatives.

  6. Formulate contingency plans for alternative scenarios.

  7. Make a judgment.

  If you are interested in walking through the steps outlined above, take out a recent copy of Time or browse Google News and pick a topic with an ethical aspect. With a piece of paper, jot down the main characters along the top, then along the side, place the words “Harms and Benefits” first, and below that “Rights and Responsibilities.” Now you have the framework with which to attack the moral dilemmas of the day—MBA style.

  As an example, you might choose the debate regarding the need to preserve the habitat of the spotted owl by reducing logging on federal lands. The stakeholder analysis grid would look like that below.

  You may disagree with the way in which I have framed this issue, but with ethics there is no “right” way. People can approach a situation differently and feel other stakeholders need to be represented. In this situation, at the very least, a timber company executive ought to consider the stakeholders before clear-cutting the owls’ woods. With the tools of stakeholder analysis an MBA can tackle the issue of endangered owls as well as other ethical issues and make thoughtful and informed decisions. Corporations often do their own stakeholder analyses and publish them as corporate social responsibility (CSR) reports.

  SPOTTED OWL ISSUE IN A STAKEHOLDER FRAMEWORK

  THE SARBANES-OXLEY ACT OF 2002

  As a result of the corporate scandals of the late 1990s and early 2000s, Congress was forced to legislate ethics in corporate America. The system of government regulation and private self-regulation was inadequate. The hall of shame includes Tyco, Xerox, Qwest, Sunbeam, WorldCom, Adelphia, Enron, Global Crossing, HealthSouth, ImClone and Credit Suisse First Boston, and Arthur Andersen. Other international scandals centered on rogue traders left alone to amass millions of dollars of trading losses. This rogues’ gallery included Nick Leeson at Barings ($1.2 billion loss), Yasuo Hamanaka at Sumitomo ($1.8 billion loss), and John Rusnak at Allfirst ($750 million loss).

  Where employees, accountants, and lawyers intend to do wrong, no amount of legislation will stop them, but Congress felt that it would at least make it more difficult and send a message to others to think twice. The new provisions of the Sarbanes-Oxley Act (SOX or SARBOX) and related agency regulations that became effective in 2005 include four broad categories of new rules:

  Financial Accounting Rules

  Audit committee must consist solely of independent directors and at least one financial expert.

  Chief executive officers (CEOs) and chief financial officers (CFOs) must certify that their financial statements fairly present the financial condition and results of the company.

  The SEC has the power to establish the new Public Company Accounting Oversight Board to end failed industry self-regulation.

  Internal Control Rules

  CEOs and CFOs must certify the working system of internal controls over financial reporting.

  Outside auditors must attest to and report on management’s evaluation of the strength of its system of internal controls.

  Section 404 requires annual audits for larger corporations.

  Executive Ethical Conduct Rules

  Public companies must adopt a code of ethical conduct for their most senior executive and senior financial officers.

  Public companies cannot make loans to their executive officers or directors. />
  CEOs and CFOs can be required to return compensation if financial statements are restated due to “material noncompliance” with reporting requirements.

  Officers, directors, and other “insiders” are prohibited from trading company stock during pension-fund blackout periods.

  New protection from executive retribution for whistle-blowers on corporate misdeeds.

  Ethical Conduct Rules for Related Parties

  New professional responsibilities for lawyers.

  New conflict-of-interest rules for financial analysts.

  In addition to these rules, public companies listed on the New York Stock Exchange (NYSE) and the NASDAQ have many additional listing standards that address the lack of corporate governance standards that were not addressed by the Sarbanes-Oxley Act.

  The internal controls systems to control fraud and corruption that the Sarbanes-Oxley Act requires are complex and expensive to audit. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) prepared a comprehensive study of corporate internal controls called the “Internal Control-Integrated Framework.” The Securities and Exchange Commission (SEC) accepts it as the approved framework for corporate officials, auditors, and compliance professionals to use to comply with Sarbanes-Oxley.

  An excellent framework to implement a comprehensive system of internal controls is contained in Scott Green’s Manager’s Guide to the Sarbanes-Oxley Act. This book provides compliance officers a practical methodology called the Control Smart Approach to integrate the multivolume COSO framework into action:

  1. Identify the possible threats from within and outside the organization.

  2. Identify all the processes within your company.

  3. Identify the vulnerable process gaps with control assessment tools.