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 Descartes's 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: Interdependence of objects and their attributes - independent elements can

never constitute a system

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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 have any control over them (much like in our own life). We can define three major areas, but these 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 raising interest rates. If the legal system, pushed by politics lowers he acceptable emission rates, 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 some rivals may go bankrupt. A good manager has to be aware of change and embrace technology to gain an edge on competition.

Social-Cultural environment This is a very important but also very diverse category. Think of a company in China and a company in Hungary. A Hungarian company only has to produce for a potential market of about 10 million. A Chinese company has a potential market of 1.3 billion., which is 130 times as much! That alone is a huge difference, and we haven’t even touched cultural differences. For example in India, McDonalds probably wont sell any hamburgers made from beef because they don’t eat that there. A manager has to keep all these in mind when leading an organization!

2. Outer microenvironment

This is the environment that an organization can influence. It may not be able to correct all flaws in the microenvironment, but it has a much better control over it than the macro environment. The microenvironment consists of seven larger parts:

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EmployeesOrganizations have to find the right people for each job. This means finding some highly specialized people and generally trained workers. Organizations are limited by their money supply and the constraints of the general workforce.

Owners and the boardThe investment mood is a primary question for every organization. A positive mood means funds, while a negative mood means extra costs. It is important that the owners are satisfied with the company, but this doesn’t always mean large profits have to be shown all the time. Many companies can choose between keeping profits and investing them. 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 different brands. 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 the contractors 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 its position on the market. It is also possible for organizations to buy a part of their competition, or they can try to outsmart them.

Financial organizationsTheir effect is possibly the most visible. For example, the exchange rate difference between two banks could mean millions of extra loss or profit. Their guarantee may be needed for large projects, but aside all that, the most important thing is that they insure functionality day to day.

The government Governments may have a direct or indirect effect. They may subsidize, giving money directly to the organizations. They can also give extra tax-refunds or they may punish unlawful behavior

3. BUSINESS AS INTERNAL ENVIRONMENT SYSTEM:

A business system at the organizational level is a dynamic evolutionary entity because it operates in a more dynamic business environment. It behaves as an open but complex system which gets resources from the environment and supplies its services to the environment. There are different layers of environmental interactions- some are close and internal in nature whereas others are external entities. External forces may go beyond national to regional to international to universal levels. These external environmental forces provide opportunities or threats to the business operations. Every business unit tends to grasp the available opportunities and face the threats that emerge from the surrounding business environment.

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I. Inputs

Business system inputs involve primarily Land, Labor, Capital, as well as Management. These contribute to the structuring of the business and are involved in movements across the business's boundary. Structural arrangements and processes must be created to receive and deal with such inputs, determining which are important and how they should be tackled.

The inputs for business can be broadly represented by:

Entrepreneurial thought Capital Market information Technology (tools, machines, methods) HR Capabilities

II. Conversion/ Transformation Processes

Transformation Processes are system arrangements and mechanisms - human and technical - which are designed and implemented to realise the business's purposes. They may be

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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 business organisation of performing transformation.

III. Outputs

System outputs result from the internal operational and transformational processes of the 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 are received by concerned "stakeholders". Within an organizational system and sub-systems, the outputs from one sub-system e.g. production become the inputs to another e.g. marketing and sales.

3.2. BUSINESS AS EXTERNAL SYSTEM:

NOW, In order to achieve business Integration, management must not only conceive of any business as a internal ‘system’ but more as ‘external system’ that coordinates the components 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 is accomplished, one can rest assured of sailing smoothly along and 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 easily realized that improving the efficiency of individual components such as material inputs, conversion process or even external variables is useless if the efficiency of the individual function throws the total system out of balance. The systems thinking thus helps decision makers to take holistic view of the business problem and situation in order to arrive at effective set of probable solutions.

Three Levels of Organizational Environment

In order to perform an environmental analysis, one must thoroughly understand how organizational environments are structured. For purposes of environmental analysis, one can divide the environment of the organization into three distinct levels: Internal environment, operating environment (Micro), and general environment (Macro).

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 .

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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 firm's activities. Changes in the macro environment will indirectly affect the business but will nonetheless affect it. For example, a change in legislation such as the smoking ban indirectly affects pubs and restaurants.

This form of environmental analysis looks at the external or macro business environment. It helps in examining the impact of each of these factors (and their interplay with each other) on the business operation and policy making institutions. The resultant insight would facilitate taking advantage of opportunities and to make apt decisions for mounting threats while preparing business and strategic plans of short, medium and short term.

These factors don't operate in a vacuum, and many structural changes in business result from changes in the nature and direction of these environmental variables. For instance, although trade policies are generally decided by the legal-political establishment of a country, they also can be viewed though the prism of socio-cultural, technological and economic 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 political leadership of those 16 nations (Euro is the single currency shared by (currently) 16 of the European Union's Member States, which together make up the euro area) drove the introduction of the euro currency but the impacts include economic factors: cross-border pricing, European interest rates, bank charges, price transparency and so on. Other economic factors include exchange rates, inflation levels, income growth, debt & saving levels and consumer & business confidence.

The social angle is that Euro is the currency of the 329 million people who spread across the 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 low inflation and low interest rates, and encourages sound public finances. A single currency is also a viable complement to the single market which makes it more efficient. Using a single currency increases price transparency, eliminates currency exchange costs, oils the wheels of the European economy, facilitates international trade and gives the EU government and people a more powerful voice in the world stage. The size and strength of the euro area with all its regilatory agencies, people and econoic enterprises also better protect it from external shocks, such as oil price crisis, political uncertainty, social security or other such turbulence in the world markets. It gives the entire Europe a tangible and intangible symbole of their european indentity of which they can be incresingly proud of.

The Macro Environment- Matrix

Macro environmental scanning thus, involves analyzing:

Economic o GDP/ PCI- per capita income o Economic growth

Technological o Innovationo Acquisition & Absorption

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o inflation rate (CPI, WPI)o Flow of capital o Exchange rates o Trade policyo Industrial Policyo Global Trends

o Transfer of Technology/ Diffusion

o Industrial productivity o Manufacturing processes o New products and services

Political-Legalo Political climateo Forms of Governmento Political stability and risk

Legal o laws o Regulatory Mechanismo Legal Activism

Socio-Cultural o Demographic factors o Materialism/ Individualismo Role of Familyo Religiono Languageo Social class and Structures

o Custom & Value systemNatural/ Ecological

o Natural resourceso Ecological Health and Balanceo Global Conventions & Programs

3.3. 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 the pervasiveness of the global impact which directly affects these four sectors more than any other. Fast paced technological innovation, evolution of developing economies, growing dominance and spread of multinational companies and aggressive global and regional trading alliances have made the world business a global trend. In this way, effect of international environment in the selective four major components of general environmental factors is natural.

The organization is a productive system. It interacts with its environment, drawing certain inputs from the environment and converting these to outputs that are offered to the environment. The attainment of its preferred state is dependent on the efficiency with which the firm carries out this production process.

In order to analyze a system it is necessary to establish the relationships between the system and its environment. The organization's environment is itself a higher order system composed of its own subsystems. The five major subsystems in the environment are

1. Economic system; 2. Technological system;

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3. Socio-cultural system; 4. Politico-legal system.5. Natural/ Ecological System

The influence of these major factors must be taken into account when studying the intrinsic and extrinsic dynamics of business environment.

At the individual organizational level, in order to cope with the environment in and around, the firm must therefore be able to cope with the dynamics the economic system which defines the functionality of its procurement and marketing of economic resources or capabilities. To acquire technical capability, a firm should concentrates primarily on the transformation processes and hence, interact with the technological system of the environment. It has to then, interacts with the socio-cultural system to decide about the issues concerning personnel and public relations function of the firm. For the purposes of 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 firm must be responsive and sensitized enough to meet out and mitigate the challenges posed by the natural environment.

It must be reiterated here that although in the popular press, the environmental scanning usually refers just to the macro environment, but it can also include market, industry and competitor analysis, consumer analysis, product innovations, and the company's internal environment. Scanning these macro environmental variables for threats and opportunities requires that each issue be rated on two dimensions.

Section-II

Business: Conversion Process (A Systemic Approach)

__________________External Environemnt & Influences____________________________

In order to achieve business Integration, management must conceive of any business as a ‘system’ that coordinates the components of the external environmental system (Social, Technological, Demographics, International, Natural etc.) with that of the Internal business systems (Internal processes, resources and

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strategies). Once such system integration is accomplished, one can rest assured of sailing smoothly along and 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 easily realized that improving the efficiency of individual components such as material inputs, conversion process or even external variables is useless if the efficiency of the individual function throws the total system out of balance. The systems thinking thus helps decision makers to take holistic view of the business problem and situation 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 business environment is anything which surrounds the business organisation or business system. It affects the decisions, strategies, processes and performance of the business.

Environmental analysis is the study of the organizational environment to pinpoint environmental factors that can significantly influence organizational operations.1

Why Environmental Analysis?

Environmental analysis will help understand what is happening both inside and outside an organization and to increase the probability that the organizational strategies developed will appropriately reflect your organizational environment.

Three Levels of Organizational Environment

In order to perform an environmental analysis, one must thoroughly understand how organizational environments are structured. For purposes of environmental analysis, one can divide 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 .

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 firm's activities. Changes in the macro environment will indirectly affect the business but will nonetheless affect it. For example, 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 gather information from the environment, to better achieve a sustainable competitive advantage. To sustain competitive advantage the company must also respond to the information gathered from 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)

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Continuous scanning - (also called continuous learning) - continuous structured data collection and processing on a broad range of environmental factors

Most commentators feel that in today's turbulent business environment the best scanning method available is continuous scanning.This allows the firm to act quickly, take advantage of opportunities before competitors do, and respond to environmental threats before significant damage 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 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

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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 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.

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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 effectively investigate complex and non-linear business scenarios and suggest solution optimization. Its tools prove to be a powerful, yet simple and cost-effective methodology for developing deep insights in the working of various 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. The purpose of modeling and simulation is to mimic any business system under study so that its future behavior can be understood and controlled in the desired direction and since nonlinear dynamical systems do not have 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 by placing icons (stocks, flows, feedback links, etc.) on an electronic piece of paper displayed on a computer screen, and connecting them together with the computer’s mouse. While this is occurring, the software automatically generates equations that correspond directly to each of the icons. The stock icon in the following figure, for example, corresponds directly to a mathematical equation that tells a computer how to calculate the amount that has flowed into it during a particular period of time.

INFLOW

STOCK

Figure 3: A Typical SD-Construct In general terms, this equation is: Stockt = Stock(t-DT) + DT * Flow(t-DT) -> t

System dynamics construct of Innovation dynamics:

In the present work, dynamic and interactional relationships have been traced in the form of innovation system variables in order to first construct a system dynamics model with the intent to generate simulation results for their later integration with appropriate neural architect.

Now, looking at the complexity and the inherent dynamics of industrial innovation process, decision making in managing innovation in a corporate entity is fairly tough and challenging. In addition to numerous interactions with the exogenous environmental variables, the complexity gets compounded once we interrelate various internal or local variables pertaining to product or process innovations in a company. In the present study, various system variables have been identified and classified with respect to their nature and pattern of influence that they exert over other variables of an innovation system (Table 1). 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 the mathematically defined interrelations. This gives out the first impression into the dynamic consequences of decision-actions in managing innovation and allows testing different innovation strategies under an alterable decision-pretext.

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Table 1: Stock-Flow variables

Stock Flow Innovation (INNOV)

Organization Resources (RES)

Development (DEV)

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 vital organizational resources deployed to the organizational innovation teams (RPT).

INNOV

+DEV

-ABND

DR

RPT

~

DEC

RESOURCES

+

++

--

INNOVATION

Figure 8: Feedback based Business Innovation System

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DYNAMIC SIMULATION (INNOVATION)

Page 11.00 7.00 13.00 19.00 25.00

Years

1:

1:

1:

2:

2:

2:

3:

3:

3:

4:

4:

4:

5:

5:

5:

0

250

500

3

89

175

0

1

1

0

25

50

1: INNOV 2: DEV 3: ABND 4: DR 5: RPT

1

1

1

12

2

2

23

3

3

3

4 4 4 4

5

55 5

Section IIISocial Accounting & Auditing:

Social accounting and auditing is a way of measuring and reporting on an organisation's social and ethical performance. An organisation which takes on an audit makes itself accountable to its stakeholders and commits itself to following the audits recommendations.

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 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 organisation's impact on the natural environment. Sustainability accounting is often used to express the measuring and the quantitative analysis of social and economic sustainability.

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Purpose of Social Accounting

Social accounting challenges conventional accounting, in particular financial accounting, for giving a narrow image of the interaction between society and organisations, and thus artificially constraining the subject of accounting.Social accounting, a largely normative concept, seeks to broaden the scope of accounting 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 positively and negatively) through their actions and should therefore account for these effects as part of their standard accounting practices. Social accounting is in this sense closely related 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.

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. BP's "beyond petroleum" environmental tilt).

SOCIO-CULTURAL ENVIRONMENT:

Social organisation

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Social organization refers to the ways in which people relate to one another, form groups and organize their activities, teach acceptable behavior and govern themselves. It thus comprises the social, educational and political systems of a society.

The exporter's ability to communicate depends to some extent, on the educational level of the foreign market. If the consumers are largely illiterate, advertising materials or package labels may have to be adapted to the needs of the market. In this regard, however, a company marketing baby 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 obvious practices like the time taken to answer a letter. In some societies, for instance, an important issue is dealt with immediately; in others, promptness is taken as a sign that the matter is regarded as unimportant, 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 be directed at the family rather than the individual. The size of the family unit differs from one culture to another. It can range from the nuclear family, i.e. mother, father, and children, to the extended family which includes many relatives and whose role is to provide protection, support and economic 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 be different from those evident in western cultures.

In any society, certain occupations carry more prestige, social status and monetary reward than others. In India, for example, there is a strong reluctance amongst people with university education to perform 'menial' tasks using their hands, even answering the telephone. In many countries, including France, Italy and Singapore, financial independence is considered essential for occupation-related prestige. In Japan, however, the majority of university-educated professionals tend to prefer working for large multinational firms than for themselves.

Social organisation is also evidenced in the operation of the class system, e.g. the Hindu caste system and the grouping of society members according to age, sex, political orientation, etc.

Religious beliefs, attitudes, values, space and time

While language, material culture, aesthetics and social organisation are outward manifestations of a culture, it is a society's religious beliefs, attitudes and values that dictate the behaviour of its members.

Religious beliefs

A 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, the impact of religion on human value systems and decision-making is significant. Thus, religion exerts a considerable influence on people's actions and outlook on life, as well as on the products they buy. In certain part of the world, such as Latin America, the influence of religion extends even beyond the individual or family and is manifested in a whole community's deep involvement in, and devotion to, the church.

A society's religious belief system is often dependent on its stage of human or economic development. Primitive tribesmen tend to be superstitious about life in general while people in technologically advanced cultures seem to have dismissed the notion of traditional religious worship and practice in favour of a more scientific approach to life and death.

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To disregard the significance of religious beliefs or superstitions evident in a potential export market could result in expensive mistakes.

The failure to consider specialised aspects of local religions has created a number of difficulties for firms. Companies have encountered problems in Asia when they incorporated a picture of a Buddha in their promotions. Religious ties are strong in this area, and the use of local religious symbols in advertising is strongly resented - especially when words are deliberately or even accidentally printed across the picture of a Buddha. One company was nearly burned to the ground when it ignorantly tried such a strategy. The seemingly minor incident led to a major international political conflict remembered for years.

(Source : D.A. Ricks, Big business Blunders)

Attitudes

Attitudes are psychological states that predispose people to behave in certain ways. Attitudes may relate, for example, to work, wealth, achievement, change, the role of women in the economy, etc.

Western cultures, for example, value individualism and promote the importance of autonomy and personal achievement needs. In contrast, in many eastern and developing countries, there is a strong sense of collectivism and the importance of social and security needs. For instance, the Hindu religion imparts a type of work ethic that considers work central to one's life but maintains that it must be performed as a service to others, not for one's own personal achievement.

Stereotypes are sets of attitudes in which one attributes qualities or characteristics to a person on the basis of the group to which that person belongs. An international businessperson's tendency to judge others by his or her personal and cultural standards instead of attempting to understand others in the context of their unique historical, political, economic and social backgrounds could, for example, be termed an undesirable attitude.

Values

Values are judgements regarding what is valuable or important in life, and they vary greatly from one culture to another. People who are operating at a survival level will value food, shelter and clothing. 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 promotion which stressed that the toothpaste helped enhance white teeth. In this area, where some local people deliberately chewed betel nut in order to achieve the social prestige of darkly stained teeth, such an ad was understandably less than effective. The slogan "wonder where the yellow went" 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 the Greek concept of time. The Greek executive could not understand the American's insistence on setting time limits on the length of their business meetings - he and his colleagues were prepared to spend as much time in discussion as they felt was necessary. The American also insisted that the senior managers involved in the transaction be responsible only for working out the general principles of the deal, with the actual details being left to subordinates. Suspicious that this represented a lack of commitment on the part of the American, the Greek called off the deal.

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Many factors continuously produce cultural changes in a society - new technology, population shifts, availability of scarce resources and changing values regarding the role of education or women. Culture is thus dynamic, and exporters, particularly those involved in international travel and marketing, need to regularly assess what new products and service needs have been created, who the potential buyers and users are, and how best to reach them.

Language

Language is central to the expression of culture. Within each cultural group, the use of words reflects the lifestyle, attitudes and many of the customs of that group. Language is not only a key to understanding 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 are spoken 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 South Africa there are 11 official languages with a number of other African languages also spoken by the population. 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 illustrate how often blunders have been made. One European firm certainly missed the point when it translated 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 translated to "the liquor is holding out all right, but the meat has spoiled". And consider, finally, a translation of "Schweppes Tonic Water" to the Italian "ii water". The copy was speedily changed 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 is particularly relevant when executives travel abroad and are negotiating with people of different language 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 tend to expect others to converse with them in English. In contrast, European and Far Eastern businesspersons 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. If exporters do not speak the language of the country they plan to visit, they should at least establish the extent to which their own language is spoken there and, if necessary, engages the services of an interpreter during discussions or negotiations.

If promotional material needs to be prepared in a foreign language, it is important to ensure that none of the meaning is lost or distorted when the information is translated. Thus, translations should be undertaken within the country concerned or at least by a native of the country in question.

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Non-linearity in Business:

Case:

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 major financial centres of Macquarie Securities scrutinised data from 32 leading indices over several decades and found the two days on either side of the new month represent 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 strong

NREGA: From accounts to accountabilityThe Hindu, December 6, 2008

Bank payments alone are not an adequate protection against corruption in NREGA.

The ghost of corruption has haunted many public interventions in India, and the National Rural Employment Guarantee Act (NREGA) is no exception. Bank payments of NREGA wages were recently introduced on a mass scale, and projected as a foolproof remedy against corruption. Recent evidence, however, suggests that the banking system itself is not above corruption — corrective steps are urgently needed.

Rush to bank payments

The main technique of embezzlement in public employment programmes, including NREGA, is to fudge the “muster rolls” (attendance sheets): fake names or inflated attendance 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 that surrounded the muster rolls. The NREGA sought to change that based on a range of safeguards, starting with the transparency of muster rolls. For instance, NREGA muster rolls are supposed to be available at the worksite and filled there every day in the presence 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 the workers’ “job cards”, enabling them to monitor these payments.

Another factor that facilitated corrupt practices in the past was that the same person or agency was in charge of maintaining muster rolls and paying the wages. Since both functions were in the same hands, fudging muster rolls was both easy and profitable. The separation of these two functions is a powerful safeguard against embezzlement. Even before 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 level

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employee of the revenue department). This makes it harder to siphon off funds by fudging muster rolls, unless the different actors collude with each other.

The need to separate payment agencies from implementation agencies was an important argument 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 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 of banks and post offices in rural India is still patchy, which means that labourers have to travel some distance to collect their wages (as opposed to getting cash in hand in their own village). In some states at least, bank payments have been associated with delays in the disbursement of wages, as the relevant transactions work their way through the system. There is also a danger of women being excluded, if bank accounts are opened in the 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 in the right direction. However, the transition to bank payments has been made in a very rushed and haphazard manner. And the results have often been sobering. The Deoghar social audit

A social audit of 17 NREGA works in five Gram Panchayats of Karon Block in Deoghar District (Jhardhan), conducted on 12-16 October 2008, unearthed some alarming facts related to bank payments. Briefly, the loot is far from over: funds are siphoned off through manipulated bank accounts of NREGA workers, in collusion with bank staff. In Deogarh, banks are rapidly being integrated in the system of corruption.

Consider the case of the construction of two NREGA wells in Ranidih Panchayat: one on Koka Baori’s land and the other on Paane Hembrahm’s. Both were approached by the Panchayat Sevak, who offered to get a well constructed on their land. Once the well was sanctioned, a contractor took charge (an infraction under the Act). When cheques arrived in the name of the beneficiaries, they were asked to collect it from the bank and hand it over to the contractor to pay for material costs.

As far as wage payments were concerned, it was a simple matter for the contractor. Two years earlier, he had kindly opened bank accounts for many NREGA labourers (often without their knowledge), with a little help from the rather cooperative staff of the Deoghar-Jamtara Central Cooperative Bank. The contractor and Panchayat Sevak manufactured muster rolls with wages adding up to the labour component sanctioned for the wells. Whenever money is transferred to the labourers’ accounts, the trio of bank officials, contractor and Panchayat Sevak step in: they coolly pocket the excess money after giving their due to the labourers who actually worked. Most of the labourers we spoke to said that they had never been to the bank, and that they were paid in cash at the worksite by the contractor.

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While other banks in the area did not have the audacity to indulge in such open loot, their practices were not entirely above board either. In some cases, we heard that labourers had been made to sign withdrawal slips in bulk at the time of opening their bank accounts, to facilitate 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 usually accompanied by men who “do not look like labourers”. These men, believed to be the contractors’ cronies, stand outside the bank and force the labourers to hand over the excess money that has been claimed in their name. For us, this story was a nightmare come true: one year earlier, a master (or rather mistress) contractor in Orissa had told us that if bank payments of NREGA wage were introduced, “the contractors will become dacoits.”

Magic bullet or shot in the foot?

How typical Deogarh’s experience is we do not know. But this experience certainly shows that bank payments alone are not an adequate protection against corruption. In fact, in Jharkhand’s anarchic environment (not unique to Deogarh), they have even facilitated embezzlement in several ways. First, while all NREGA-related documents (e.g. muster rolls, job cards, measurement books) are supposed to be in the public domain, it is not clear whether banks are going to accept this principle for their own records, including the details of NREGA accounts. Meanwhile, the rush to bank payments has led to reduced transparency by withdrawing key documents from public scrutiny.

Second, payments through banks and post offices introduce new players into the corruption game — the staff of these institutions. It is not clear how these officials (who are often employees of the Central government, rather than of the State governments or Panchayati Raj Institutions) are to be held accountable for NREGA-related matters. They tend to be more difficult to “catch” than other functionaries such as the Panchayat Sevak or Gram Rozgar Sevak.

Third, embezzlement of wages paid though bank accounts typically requires the involvement or cooperation of the labourers themselves, in one way or another. Labourers generally have a stake in blowing the whistle against corruption, but when they become 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 transparency safeguards. For instance, muster rolls are no longer signed by workers at the time of wage payment, since wages are paid directly through banks. In fact, in Deogarh we found that muster 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, and his or her “supervisor”, often acting in collusion. Apparently, a similar setback is happening in Rajasthan. This is unfortunate since Rajasthan had largely stamped out the embezzlement of NREGA wages based on more “conventional” safeguards such as the transparency of muster rolls.

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This is not to say that the transition to bank payments should be reversed. But this transition certainly requires great caution (including strict monitoring of banks and post offices), and must be combined with strict enforcement of all the transparency norms. The Central government seems to regard bank payments as a “magic bullet” against corruption, but the bullet is in danger of ending up in its own foot.

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