Inter-Organizational Studies -
Practitioner Post
"When does Ethical Code
Enforcement Matter in the Inter-Organizational Context? The Moderating Role of Switching Costs"
The purpose of this article is to objectively examine the
effect of a supplier's enforcement of ethical codes, and whether this ethical
activity motivates buyers to continue in business with them. The authors seek to determine whether the
presentation of a strong ethical image, in accordance with signaling theory, pays real-world dividends in the form of
continuation of customer contracts.
They also study the mitigating effects of costs; particularly whether
the strong ethical image is less important when high costs or other barriers
are likely to prevent the customer from changing suppliers.
I believe this article is important because it examines the
delicate balancing act in the reality of business in today's world. Never has it been more important for
businesses to hold themselves to the highest standard of ethical behavior. The
modern emphasis on socially responsible business practices in an era of instant
worldwide communication highlights just how important reputation has
become. But at the same time, costs are
always a factor. Often, the factor. This article tries to scientifically examine
the balance, and make recommendations for successfully balancing the two.
Within the scope of the study the authors found that ethical
behavior matters in today's business landscape.
The results suggest that the enforcement of ethical codes is an
important factor to establishing trust
and commitment from buyers. When
companies make a visible commitment to ethics, starting at the top levels of
management down through the ranks, their customers take notice and the study
data reflects a positive result on the continuation of the business
relationship. Interestingly, the authors
also found that the perception of ethical behavior is less important when the
supplier has a strong economic advantage.
If there are substantial costs involved in switching to a different
supplier study data shows that, predictably, the ethical strength of the firm
has less of an effect on the outcome.
Also, the authors find, just the "perception" of ethical
behavior shows the same positive effect regardless of whether the supplier
truly behaves in quantifiable ethical
ways.
The practical implications of this study are clear. It is very important for businesses to
develop and enforce a code of ethical behavior, starting from the top. It is equally important to effectively
demonstrate this commitment to existing and potential customers. And, ultimately, economic realities are at
play in every supplier/customer relationship.
Firms must continue to operate efficiently and offer their customers the
best of both service and pricing if they hope to remain competitive.
Cited
Colwell S, Zyphur M, Schminke M. When does Ethical Code
Enforcement Matter in the Inter-Organizational Context? The Moderating Role of
Switching Costs. Journal Of Business Ethics [serial online]. November
15, 2011;104(1):47-58. Available from: Business Source Complete, Ipswich, MA.
Accessed July 20, 2012. http://libproxy.uhcl.edu:2057/ehost/pdfviewer/pdfviewer?sid=aa15bb3d-8791-47d9-a076-fed358a074d2%40sessionmgr112&vid=1&hid=126
Can you post the link to this article? I find it funny that the perception of ethics plays the same role as actually being ethical. The first thing that comes to mind is Enron, since they were charitable in their community although they were as corrupt as can be. It doesn't surprise me though that the primary concern of companies is to seek the supplier that is best for them financially, regardless of their ethical practices. It doesn't seem right, but it doesn't surprise me since the primary goal of business is profits.
ReplyDeleteJosh, my first thought was Enron, too. I'm sure lots of people did business with Enron because they actually had an ethics code which was founded on respect, integrity, communication, and excellence, and they actually looked like an ethical company on the outside. We all know now how "ethical" that company really was. I think it's hard to know if a company is truly ethical, after the Enron fiasco, at least at the surface level. An ethical company must have leaders who set examples for the rest of the company employees down the line. Enron was corrupt from the top. I think most companies today are trying to be more transparent in their activities because of Enron so as to assure their customers of their commitment to ethical behavior. The public is more aware of companies' ethics now than it was in the past.
ReplyDeleteI am amazed that the study shows that the illusion of being ethical has the same outcome as truly being ethical.But in today's economy, I guess if you're getting a much better price from one supplier than from another, you would be inclined to stay with that supplier, and not probe too deeply into the supplying company's ethical standards, as long as the supplier is delivering on the agreement. Just hope you're not dealing with another "Enron". It is the company leaders' job to find that balance between being an ethical company, having an ethical reputation with customers' respect and trust, and keeping the bottom line profitable. Interesting article!
This is a good post. I've noticed that people choose ethical companies when the price is right. Although there is a lot of talk in the media and in textbooks about how ethical behavior is crucial to business success because the public is demanding it more, I think America in general has become pretty complacent with unethical behavior. There is always a media outcry when an unethical fiasco is uncovered, and as soon as the headlines stop working to draw attention to the publisher, the status-quo is resumed. Businesses with too much power who lobby the government and get away with too much. I am totally for more ethical companies, and a more ethical government, but I think in terms of the general public, ethics are a "high class" problem; people only care when they can afford to.
ReplyDeleteAnd for Enron, wouldn't they be the epitome of an ethical illusion having the same effects of actually being ethical? The same could be said for Arthur Anderson in their later years. Enron gave the illusion of high ethical practice and the media went crazy praising them -- even though in reality they were completely corrupted.
When a company has integrity it helps all the employees make the right decision. The company I work for is huge on integrity. The company I work for would rather not make as much money than see a customer unsafe. It is one of the reasons the company I work for has been so succesful over the last 50 years.
ReplyDelete