CONTENTS in peak of its success at

2 BODY 5-22
Starbucks was established in 1971 by three local businessmen to sell high quality whole beans coffee. In 1981 when Howard Schultz visited the store he plan to build a strong company and expand high quality coffee business with the name of Starbucks. Starbucks air is to provide high quality of coffee to its consumer and aim to achieve product innovation, retail expansion and provide service quality for long term.

Starbucks open its first coffee store in Seattle, Washington. In 1990 Starbucks expand its headquarters in Seattle and also build a new roasting plant. In 1990s Starbucks opens 60 retails shops in United Kingdom. At the end of 2000s Starbucks total branches was 3500. Coffee is one of the rapidly growing industry in this world due to its business strategy. According to national coffee association, USA 49% of American age 18 and more drink coffee beverage every day. Coffee industry was in peak of its success at the end of 1990s.

Target market means to select one or more market segment and product position. Starbucks also focus on consumer habits and share its speciality of coffee with the buyers. In the end of 20th century there are many changes in market that helped Starbucks getting successful. The most important change of the last twenty, thirty years is the changes of economic policies over the world. Starbucks target market was 18 years to 24 years young professional because they are not yet been loyal with coffee industry. Starbucks strategy comprises to locate its stores at picky places such as the first floor of blocks of offices, underground main entrance and urban areas. Starbucks sales totally depends on company operate retail stores and certified retail operations, Starbucks sells coffee and tea products through many others channels like distribution targeting restaurants, hotels, colleges and universities and other work places. According to Fleisher & Bensoussan (2002) Starbucks target market was wealthy, upper class and educated who are agree to pay high prices of Starbucks due to its high quality and customer service.

Starbucks’ rate of expansion accelerated in the early 2000s: after opening about 1,200 new stores each year from 2001 to 2004, the company added nearly 1,700 new outlets in 2005, pushing the chain past the 10,000 unit mark. About 1,150 of the units opened in 2005 were located in the United States, bringing the domestic total to 7,300. Even this figure did not represent a saturated market, as Starbucks was now aiming to eventually have 15,000 stores in the U.S. market alone. It also expected to eventually increase its international outlets from the approximately 3,000 that were operating in late 2005 to 15,000. Starbucks debuted in continental Europe in 2001 when stores were opened in Switzerland and Austria, and further new territories were entered in each of the following years: Oman, Indonesia, Germany, Spain, Mexico, and Greece in 2002; Turkey, Chile, Peru, and Cyprus in 2003; Paris, France, in 2004; and Jordan in 2005. In addition, the Starbucks unit in Japan was taken public in 2001. During this same period, the company’s revenues skyrocketed, surging from $2.17 billion in 2000 to $5.39 billion in 2005. Net earnings increased more than fivefold, from $94.6 million to $494.5 million.

Starbucks mission statement: Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow. The following six guiding principles will help us measure the appropriateness of our decisions: Provide a great work environment and treat each other with respect and dignity. Embrace diversity as an essential component in the way we do business. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. Develop enthusiastically satisfied customers all of the time. Contribute positively to our communities and our environment. Recognize that profitability is essential to our future success.

Strategic management is the management of an organization’s resources to achieve its goals and objectives. Strategic management involves setting objectives, analyzing the competitive environment, analyzing the internal organization, evaluating strategies and ensuring that management rolls out the strategies across the organization. At its heart, strategic management involves identifying how the organization stacks up compared to its competitors and recognizing opportunities and threats facing an organization, whether they come from within the organization or from competitors. Strategic management is a continuous process that evaluates and controls the business and the industries in which an organization is involved; evaluates its competitors and sets goals and strategies to meet all existing and potential competitors; and then reevaluates strategies on a regular basis to determine how it has been implemented and whether it was successful or does it needs replacement.

Starbucks realized early on that motivated and committed human resources were the key to the success of a retail business. Therefore the company took great care in selecting the right kind of people and made an effort to retain them. Consequently, the company’s human resource policies reflected its commitment to its employees.
Starbucks relied on its baristas and other frontline staff to a great extent in creating the ‘Starbucks Experience’ which differentiated it from competitors. Therefore the company paid considerable attention to the kind of people it recruited. Starbucks’ recruitment motto was “To have the right people hiring the right people.”
Starbucks hired people for qualities like adaptability, dependability and the ability to work in a team. The company often stated the qualities that it looked for in employees upfront in its job postings, which allowed prospective employees to self-select themselves to a certain extent.
Having selected the right kind of people, Starbucks invested in training them in the skills they would require to perform their jobs efficiently. Starbucks was one of the few retail companies to invest considerably in employee training and provide comprehensive training to all classes of employees, including part-timers.

Looking at a six year period ratio ; growth analysis of Starbucks’s financials from 2008 to 2013, we can see that the revenue growth of the company has experience a drop of -5.9% during the 2008/09 recession but from then on, Starbucks posted a healthy revenue growth of from FY2010 to FY2013 with posting a great growth of 13.7% in FY2012 and currently posted revenues $14.9 billion for FY2013. The operating income margins have increase substantially from 4.9% in FY2008 to a high of 15% in FY2012. Starbucks posted an operating loss in FY2013 and this resulted in a operating margin of -2.2% for that year and the main reason for that is due to a litigation
charge of $2.8 billion to Kraft Foods for terminating an agreement with them. This charges is treated as extraordinary event and therefore should be discounted from the overall healthy operational performance of Starbucks. Starbucks ROE and ROA have been impressive with 29.2% and 17.8% respectively for FY2012.

Looking at Starbucks efficiency ratios, Starbucks has gained significant operational efficiency with impressive asset and inventory turnover ratios with a low of 1.51 and 5.4 respectively for FY2013. But its interesting to note that the company’s cash conversion cycle has increase to high 54.7 in FY2013, which is where Starbucks should concentrate on to reduce to attain higher efficiency. Starbucks boasts good financial health with low debt/leverage with a debt/equity ratio of 0.29 for FY2013 and maintains decent current and quick ratios.

The various important elements or factors of the Starbucks Company can be examine, understand and identify by using PESTLE analysis.

Political Factor:
Globalisation has resulted in the change in various pattern of doing business all over the world. Now a days many companies find it very difficult to survive and last on their available domestic market only. Taking into account the various countries political background and studying other related issues, Starbuck manage to expand its business and today it has knowledge of almost all countries political pattern.

Economic Factor:
Economic factor plays a vital role for this company because Starbucks coffee is considered as a luxury product. If the interest rate increases, then it directly affects the Starbucks and their suppliers various investment plans. This may result in decrease in the sales and which ultimately affects expansion of the business.

Social Factor:
Starbucks should undertake some techniques or policies that help them to identify their potential local customers and encourage them to come to the stores as frequently as possible.

Technological Factor:
Today technology is used everywhere. Considering the benefits of advance technology every company is trying to incorporate it wherever possible. Starbucks also uses the advantage of technology. In 1998 Starbucks has launched its website. It uses latest coffee machines in its stores. In some of its stores internet facility is also provided within the stores.

Legal Factors:
Different countries has different laws and as Starbucks has its stores in various countries the company should know all the laws related to product restrictions, trade, health, employment and also safety regulation laws. It should also be aware of religious laws of the particular country in which they are doing business. Starbucks should take care that they do not break any laws, rules and regulations of any country in which they are doing their business.

Environmental Factors:
Starbucks should also pay attention towards the various factors related to environment such as pollution, disposal of waste, planning permission, etc. The company should apply some techniques which should be eco-friendly. As far as possible the company should try to use the material that is recyclable.

At present Starbucks has become brand name for the coffee all over the world. Most of the credit goes to its marketing strategies which focus mainly on satisfying customer’s needs and their expectations. The credit also goes to their employees and other staff members. Starbucks Company also takes care of their employees and considers them as the business partners.

Brand strategy
Branding has been one of the pivotal elements of Starbucks strategy over many years. The company has invested significantly in creating a standardised look and feel of its stores, merchandise and food and drinks. The Starbucks Siren logo is one of the most recognisable logos in the world. The global expansion strategy has a key objective of recreating the Starbucks experience in every new country the company enters. This essentially results in a similar kind of experience in its stores, whether it is located in New York, New Mexico, Moscow, Tokyo or Shanghai.

The brand strategy, as mentioned before, focuses in detail on the experience the store creates. This has always been the cornerstone of the company’s philosophy and values. In the United States, where the company estimates that majority of its stores will become drive through, it has embraced stunningly appealing design principles to create stores out of unused shipping containers. Interiors of stores are continuously spruced up through clever and artistically appealing ways of using definite materials, lighting arrangements etc. In its international stores, the strategy is around localising some of the store elements but still staying true to the Starbucks experience.

The first strong indication that Starbucks is planning to move its focus beyond coffee and into other beverages and food products was when the company logo was redesigned in 2011 to remove the words “coffee” and “Starbucks”. This logo is in use till date and is one of the most visual and recognisable elements of the company.

The company’s brand strategy has kept pace with time and has evolved to take advantage of new and emerging customer engagement platforms. The company operates a website called, where customers can leave ideas for the company to expand and improve its products and customer experience, improve engagement with the community and enhance social responsibility. This is akin to the emerging methodology of “crowd-sourcing” in the field of innovation.

The brand has a sizable social media and digital presence, which has received renewed focus in recent years. This has been driven by the need to better engage with customers and also be visible on platforms where target or future customers spend time online. The brand has an active Facebook page, a Twitter account, Instagram page, a Google+ community, a Pinterest page and a video channel on YouTube. In 2015, Starbucks collaborated with Duracell Powermat to roll out wireless charging in its UK stores, thereby adding to the customer experience and bringing digital innovation into its stores.

The brand invests heavily and believes strongly in mobile marketing. It has embraced digital innovation by developing and rolling out a Starbucks app for paying for products, tipping baristas, earning and redeeming rewards. It currently has 13 million Starbucks Rewards members, approximately 9 million mobile paying customers and more than USD 6 billion loaded onto prepaid Starbucks Cards in North America in 2016 alone. Besides its success in using technologies like QR codes, coupon downloads and virtual gift cards in its promotional campaigns, Starbucks has leveraged on Artificial Intelligence to allow customers to place their orders via voice command or messaging interface through the mobile app. This has resulted in a tangible increase in customer engagement, reflected by a 20% increase in Starbucks Rewards member spend.

Porter Five Force Analysis
This Five Forces analysis (based on Porter’s model) of external factors in Starbucks Coffee’s industry environment reveals the most significant issues facing the company. Success potential is based on how Starbucks positions its business to address or overcome these five forces.

From the bargaining power of suppliers to the potential threat from the substitutes, the tool is used to analyse all the forces that can have an impact on the competitive position of a business firm. Especially, this analysis becomes highly relevant in the global environment and in the case of large firms. Following is an analysis of the five forces that influence the competitive position of Starbucks in the industry:
Threat of new entrants: moderate
The threat of new entrants for Starbucks is moderate. The barriers are not very high and the initial investment to start a coffee brand is not high either. The level of saturation in the industry is moderately high. New entrants can compete with brands like Starbucks at local level. However, their possibility of being successful remains low to moderate. Starbucks has grabbed a large market share based on its infrastructure, efficiency and product quality. Still, switching costs being low, the new brands can attract customers using lower prices. So, the threat of new entrants remains. However, it gets mitigated to a large extent by brand image, market share and other factors like brand loyalty. An important factor that gives the Starbucks brand a competitive edge is its access to raw materials and suppliers. Based on its size, scope and ability to pay, Starbucks has access to better quality coffee and a larger number of suppliers globally. All these factors act to moderate the level of threat posed by the new entrants. The threat has increased to some level due to the entry of McDonalds in this line through McCafe.

Threat of Substitutes: Moderate to high
The number of substitute products for the Starbucks brand coffee is high. From juices to tea and alcoholic as well as non-alcoholic beverages there are several substitutes available in the market. There are pubs and restaurants that provide both good ambience and quality products. Another source of threat in this area are the homemade products that the consumers can make at home. Apart from it the switching costs are negligible. These all factors make substitute products a moderate to big threat. Still, there are some factors that moderate this threat to some extent. Apart from the premium quality coffee, excellent customer service and a great ambience, Starbucks also sells premium packaged coffee and coffee makers. Premium quality and brand loyalty moderate the threat of substitutes to some extent.

Bargaining power of buyers: Moderate to low
The bargaining power of buyers in case of Starbucks is moderate to low. The size of individual purchases is small and so single buyers do not hold enough influence. Apart from it the coffee brand has a diverse customer base. Its customers are mainly quality sensitive and willing to pay higher prices for premium quality products. Still, the prices cannot be excessively high because customers watch for such trends and would start switching. Moreover, the product mix of Starbucks is diverse. Based on all these factors the power of buyers remains low.

Bargaining power of suppliers: low to moderate
Suppliers can exert only low to moderate pressure on Starbucks. The brand has its own supplier diversity policy that it uses to select the suppliers. Ethical sourcing is another major policy at Starbucks. The brand sources Coffee ethically from several parts of the world. It is also growing with the coffee farmers directly that has helped it gain higher control over its supply chain. It eliminated the mediators and started sourcing from the farmers directly. Starbucks has developed great relationships with both tea and cocoa farming communities to educate them, about better cocoa farming practices and to help them derive maximum profits from it. All of this has worked to reduce the clout of the mediators and the suppliers. Moreover, the number of suppliers is high and Starbucks has plenty of room to exercise choice. So, its excellent supply chain management in the last decade has reduced the bargaining power of suppliers and brought it low.

Competitive rivalry: Moderate to high
The intensity of competitive rivalry in the industry is moderate to high. It is because there is monopolistic competition in the industry and the number of firms competing for market share is high. The entry and exit barriers are small. The main factor that moderates the competition for Starbucks is its market share. It has the highest market share followed by Dunkin and McCafe. However, the premium quality and product based differentiation that Starbucks uses also give it some edge over its competitors. However, the industry has matured and growth rate has moderated as a high number of players are competing for market share. Still, overall there is always space in this industry for new players, which adds to the intensity of competition in it. Based on all these factors the intensity of competition against Starbucks remains moderate to high.

This analysis shows that Starbucks has been able to moderate the competitive threat against it based on premium quality of its products as well as quality of customer service. Apart from it, the global coffee brand has excellently managed its supply chain which has reduced their bargaining position. The Porter’s five forces analysis of Starbucks shows that the brand has remained strong against competitive threats by virtue of its core competencies.
Overall, the strength of the five forces discussed as a part of this analysis is moderate. Starbucks has acquired some excellent competencies and built a strong brand that gives it a competitive advantage in the industry and moderates these forces.

SWOT Analysis
Starbucks Coffee Company stands as the biggest coffeehouse business in the world. The firm’s competitive advantage is based on its strengths, as shown in this SWOT analysis. In SWOT analysis, business strengths are evaluated to determine the ability to address weaknesses, opportunities and threats. This SWOT analysis of Starbucks Coffee presents the internal factors and external factors significant to the firm. Even though Starbucks is already a strong global brand, various factors threaten the business. As such, the firm must innovate its approaches to overcome these threats. The result of this SWOT analysis shows that Starbucks is strong, but it constantly faces major threats in various markets around the world.

Starbucks must be doing something right if they manage to take home billions of dollars every year, after expenses. What’s more, the profits seem to keep growing from year to year! Here are some of their greatest strengths:
Quality, profitability and ethicality: Starbucks have established themselves as a premium coffeehouse chain, despite their huge worldwide presence comparable to that of most fast food chains. Their products are of excellent quality, seemingly environmentally friendly, and relatively consistent between locations. As a result, they can afford to charge customers high prices, which most people are willing to pay. Not only does this mean large profits, but also has them globally recognised as one of the best coffee shop chains.

Efficiency and reinvestment strategy: Most of the profits that this company makes go straight back into expanding the business. This is evident in the ever-increasing number of locations that Starbucks boasts. It’s clear that this corporation has a well-planned growth strategy, which seems to be working well for them.

Employee treatment: Starbucks is known for treating its hundreds of thousands of employees very well, and has previously been listed as one of Fortune’s Top 100 Places to Work For.

Like every company, Starbucks does have some weaknesses.
The most important are:
High price point: While their high price point was a strength in the previous paragraph, it is also a weakness. The hefty price tags on some of their products (starting even with their most basic coffee options) deter plenty of customers who might otherwise make Starbucks a part of their daily lives. While their premium quality and good ethical values might be attractive, some just don’t have that much money to spend on a cup of coffee.

A lack of overly unique products: While Starbucks might be known for their frappucinos, pumpkin spice lattes, and big chocolate chip cookies, they don’t exactly have the most unique market. Plenty of other coffee shops, chains or otherwise, provide similar products and only lose out to Starbucks’ big name.

This multinational coffee chain does have several opportunities for the future, though, which are as follows:
Global expansion: While Starbucks does have many coffeehouses across the globe, most of them are located within the US. There are plenty of regions where profitably branching out is a possibility, including India, Central Europe, and some regions in Africa.

Introducing new products and co-branding: Starbucks products would be welcomed in supermarkets across the world, something which has already begun. Selling their own branded products in stores other than their own would be a great way to maximise the value of their big reputation. They also have the opportunity to team up with other companies and co-brand — imagine the introduction of Starbucks products in McDonald’s Restaurants (something which will quite possibly never happen)!
As a company, Starbucks does have a few threats which need addressing if they want to keep growing and remain the world’s leading coffeehouse chain. They are as follows:
Fierce competition from cheaper alternatives: Dunkin’ Donuts and McDonald’s are two other huge multinational companies which directly compete with some of the products that Starbucks sells. While these companies don’t pride themselves entirely on their coffees and teas, they offer products of a similar quality for a fraction of Starbucks’ prices. Who can tell what consumer forces will favour in the future?
A specific market: Starbucks’ success can be partially attributed to the popularity of coffees, teas and convenient snacks in today’s society. If consumers were to shift away from these products (perhaps one day relying on caffeine pills instead of caffeinated beverages), it would leave Starbucks struggling to stay afloat. They are also very prone to feeling the effects of rises in coffee, tea, and dairy product prices.

Those are all of the major points in this SWOT analysis of Starbucks. To conclude, if they can play their cards right, this company’s massive brand and large capital should help to carry them through any turbulence that the future might present. As with any company, a clever approach to learning, developing, and evolving should cement their survival. For now though, Starbucks has plenty of opportunities to take, and a few threats to deal with.

Strategy formulation is a process that deals with determining the appropriate course that will be followed in order to achieve the objectives of the organization and eventually accomplish the purpose of the organization. The strategy formulated should not only help in realizing the goals, objectives and vision of the organization but should also be in conformity with the environmental analysis (Daft ; Marcic, 2008). In strategy formulation, any firm can use a variety of tools including resource-based model, porter’s model for industry analysis, business portfolio analysis, SWOT analysis and critical question analysis (Kotelnikov, 2001). It is advisable that a firm uses a combination of several tools to come up with the most effective strategy. With a strategy being formulated, the managers of a firm are able to determine the much they can go in terms of benefiting their customers. It is also possible to measure the progress of the strategy and thus be able to determine the times when the strategy is hard to sustain (Burdett, 2010).

Starbucks firm is a company that is in the food industry and therefore all its strategies should be geared achieving the objective of the firm which should be providing quality and health food products to its customers. An effective strategy formulation has to undergo four steps and two other for the implementation process since it cannot be effective unless it is implemented (Reardon, 2009). The first step is that of analyzing the current situation of the firm. The managers of Starbucks have to analyze the current situation of their firm. They have to know where they are at the moment of the strategy formulation through the use of SWOT analysis. All the company’s strengths, weaknesses, opportunities and threats should be determined so that it is easy for the management to determine the situation of the firm (Ulwick, 2000).

One of the players in the coffee sector is the Starbuck Company. Starbuck is aware of the stiff competition from other players in the industry; hence it is well prepared to handle it. According to Neelankavil and Rai (2014, p. 148) to determine and understand the situation of the firm in the beverage industry, it is significant to examine quantitatively and qualitatively the current marketing strategy. Effective analysis of strengths, weaknesses, threats and opportunities of Starbucks will highlight its negative and positive feedback.

Starbucks has achieved a lot to assist the firm not only grow but also expand into an international business powerhouse that it is today. It employs a strategy called quality differentiation, which makes it focus on pleasing its clients. Starbucks introduced the Digital Network and wireless Internet with the objective of providing its customers with a better experience (Mourdoukoutas 2013, p. 1). The firm also wanted to boost its sales and improve on its previous financial performances. They hold on the premises that if customers stay longer at the cafeteria, they are likely to purchase more food, beverages. Also, since Starbucks has a variety of online stores due to partnership with Digital Network, customers have the option to purchase music. The firm will sell its music and other kinds of media via its wireless Internet. For example, following the introduction of the wireless Internet, the firm’s sales increased by 4%. Therefore, the wireless Internet is one of the key assets to the company (Koch 2001, p. 352).

Another major strategic asset is the firm’s entry into the India market. India is characterized by middle and upper classes and growing economy. Therefore, the company will be able to attract more Indian clients to the specialty coffee. The country has more propensity for the firm’s products as it is becoming more industrialized. The Chinese community has started to embrace the trendy styles (Paryani, 2011, p. 5).

The coffee shop also gained entry into China and focused on growth potential that the country enjoys in terms of sales. With growth in China, the firm would be able to compete with McDonald as it expands its business. Presently, China aims to be the biggest coffee market leading other nations such as the United Kingdom, Canada, and Japan. This is a vivid indication that the firm would witness a significant rise in profit. Additionally, the company adopted a transnational strategy, which has enabled it to achieve a lot.

To clearly understand how the firm is performing in the industry, it is important to examine the statistics. Starbucks has experienced fluctuations in stock price. In 2007, the firm’s stock price was $35. Consequently, in 2009, it reduced to $10 and in 2011 it was $30. The 2009 and 2008 economic crisis impacted negatively on the firm’s stock price (Haskova, 2015, p. 13). The best lesson from the mentioned is that Starbuck handled the loss. Presently, the firm has focused on ensuring that its stock price remains high. Even though the company’s stock price reduced during the financial crisis, its net revenue remained stable. The firm’s profit shot from $78 to $10 billion between 2006 and 2008. However, in 2007 the profit was reported at $9.8 billion and increased to $10.7 billion two years later. The economic crisis that impacted on many companies and made them incur losses did not dampen the firm’s revenue. Citing Koch (2001, p. 353), if a company that can pull through the strongest financial crisis and reports stronger stock price, is a clear indication that it can survive in any form of financial storms. The coffee shop has also continued to expand in the last years. Despite facing different challenges, it has maintained its growth and revenue.

Starbucks biggest growth is in its International segment. The emerging markets of Brazil, India, China, South Africa and Mexico with a growing middle-class population continue to offer significant opportunities to add new stores and serve more customers. Starbucks has already made significant inroads into the Chinese market but there still is a lot of untapped potential growth in these markets.

Starbucks should grow in these emerging markets by winning locally Starbucks must remain relevant to the customer in order to grow in these markets, and its management teams should have the freedom to operate within their overall framework to tailor store format, introduce local product mix and price points to the needs, lifestyles and tastes of each individual market/community.
Under Starbucks international strategy, it should transfer its core competencies and capabilities country to country and then gradually build profit drivers in several countries as it continues its global expansion in an organic way. Starbucks has great growth opportunities in Tea and Fresh Juice products mix. They should build up these
products along the same line of their core coffee products. Also as consumer tastes and lifestyle shift towards more snacks and beverages options, Starbucks should tailor its menu’s and expand to give more healthy product offerings in its mix.

Coffee beans are a significant input into Starbucks value chain and there have been wide fluctuations in the market prices of high quality coffee beans. Starbucks could mitigate this price volatility risky by implementing an effective hedging strategy like future contracts to lock in their estimated quantity inputs at a low swing price so that the future costs can be managed to a greater extent.
Lastly, Starbucks should create a more business and technology friendly atmosphere in its stores. With the advent of the Internet and the ever increasing array of
electronic products capable of accessing it, there has been an increasing shift in consumer’s work locations from office buildings to home offices. With this shift and
natural human psychological needs, Starbucks is allotted an opportunity to cater to these
consumers working out of the home by providing meeting space for rent. These meeting
spaces should be accompanied with the addition of free wireless Internet access throughout every Starbucks store and printers accessible to the customers, which are
color capable and reasonably priced.

4.0 References
Textbook of BBA 4001 Coursework
1. Business organizations have four responsibilities economic, legal, ethical, and discretionary. Explain it carefully.

a)Economic responsibilities of a business organization’s management are to produce goods and services of value to society so that the firm may repay its creditors and shareholders.
b)Legal responsibilities are defined by governments in laws that management is expected to obey. For example, U.S. business firms are required to hire and promote people based on their credentials rather than to discriminate on non-job-related characteristics such as race, gender, or religion.
c)Ethical responsibilities of an organization’s management are to follow the generally held beliefs about behavior in a society. For example, society generally expects firms to work with the employees and the community in planning for layoffs, even though no law may require this. The affected people can get very upset if an organization’s management fails to act according to generally prevailing ethical values.

d)Discretionary responsibilities are the purely voluntary obligations a corporation assumes. Examples are philanthropic contributions, training the hard-core unemployed, and providing day-care centers. The difference between ethical and discretionary responsibilities is that few people expect an organization to fulfill discretionary responsibilities, whereas many expect an organization to fulfill ethical ones.

2. Please describe the utilitarian approach, individual rights approach and justice approach.

a)Utilitarian approach:
The utilitarian approach proposes that actions and plans should be judged by their consequences. People should therefore behave in a way that will produce the greatest benefit to society and produce the least harm or the lowest cost. A problem with this approach is the difficulty in recognizing all the benefits and the costs of any particular decision. Research reveals that only the stakeholders who have the most power (ability to affect the company), legitimacy (legal or moral claim on company resources), and urgency (demand for immediate attention) are given priority by CEOs. It is therefore likely that only the most obvious stakeholders will be considered, while others are ignored.

b)Individual rights approach:
The individual rights approach proposes that human beings have certain fundamental rights that should be respected in all decisions. A particular decision or behavior should be avoided if it interferes with the rights of others. A problem with this approach is in defining “fundamental rights.” The U.S. Constitution includes a Bill of Rights that may or may not be accepted throughout the world. The approach can also encourage selfish behavior when a person defines a personal need or want as a “right.”
c)Justice approach:
The justice approach proposes that decision makers be equitable, fair, and impartial in the distribution of costs and benefits to individuals and groups. It follows the principles of distributive justice (people who are similar on relevant dimensions such as job seniority should be treated in the same way) and fairness (liberty should be equal for all persons). The justice approach can also include the concepts of retributive justice (pun-ishment should be proportional to the offense) and compensatory justice (wrongs should be compensated in proportion to the offense). Affirmative action issues such as reverse dis-crimination are examples of conflicts between distributive and compensatory justice.


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