Is ethics profitable - Essay Example

due Is Ethics Profitable? In a business setting, there are various stakeholders including shareholders, customers, and clients. In this respect comes the issue of ethics in a business, and its implications of legal and business decision making. There is a belief that ethical business practices only contribute to extra expenditures to a business. On the other hand, enforcing business ethics contributes to customer satisfaction, and the result is increased profitability and business performance. On a broader perspective, ethics may be profitable or non-profitable to a business. This study paper seeks to explore the subject of ethics and the extent to which it is profitable and non-profitable to a business. In the general context, ethics refers to the moral standards by which individuals judge behavior, and it is usually summed up in the ideology, “do to others what you would have them do to you”. From a business point of view, ethics refers to the moral statutes and guidelines governing the business world. Business ethics are the moral guidelines which direct the way businesses make decisions (Heskett et al. 12). The constantly changing competitive environments in the business world forces businesses to find new methods to counter the competition as opposed to the so-called traditional ways. These traditional methods included better products, more services, or lower prices. In the contemporary world, business firms are responding to these competition challenges by introducing partnerships and more mutual relationships with their customers and other stakeholders in the business. In the last years, there have been discussions regarding ethics practices in business firms. The general assumption of this subject is that firms need to do what is morally right for their customers as well as their employees. However, the common practice in the business field is that of unethical and illegal activities. Most organizations are yet to understand or realize the financial impact of high ethical standards in business firms (Heskett et al. 34). According to most businesses in the present world, ethical practices impose an unnecessary financial constraint. Tax evasion and underpaid personnel comprise unethical but, nonetheless, appealing practices. From this perspective, it seems that profits and ethics have an inverse relationship. Managers and directors of businesses assume that ethical practices and programs are very expensive activities. This means that ethical practices have no positive impacts on the profitability of business firms. In this case, this ideology suggests ethics as not being profitable to a business organization. It seems that companies with ethical practices record low or constant profits, and hence, most managers still rely on the traditional modes of improving profit levels of an organization. On a more positive aspect, ethics improves the profit levels of a business firm through various ways. Examples from the business field indicate that there is a positive correlation between a firm’s activities, ethical behaviors, and the firm’s bottom line outcomes. The reputation of a business in terms of ethical business activities can be a major source of competitive advantage in the business segment. The most important ways in which ethics contributes towards profitability of a company is through the minimization of the cost of business transactions, construction of a foundation of trust with stakeholders, and maintenance of social capital. More so, high standards of a firm’s ethics contribute towards an internal environment of successful teamwork amongst employees which, in turn, impact the profit levels. According to various studies, companies viewed as ethical by company stakeholders, for instance, employees, public, customers, and suppliers, enjoy several competitive advantages. These competitive advantages in the business community include higher levels of commitment, higher levels of efficiency in operations, and increased levels of perceived product quality (Bowie 15). Ethical practices lead to higher levels of commitment and loyalty from employees, increased customer loyalty and retention which, in turn, positively impact the firm’s financial performance. Companies like Southwest Airlines, America Express, and Ritz- Carlton Hotels have been in the lead in the business community because of strong relationship that exists in their ethical behaviors and profitability performance (Heskett et al. 30). The three companies exhibit a high level of customer loyalty, employee loyalty, and employee and customer satisfaction. Talented employees who find satisfaction in their jobs have loyalty to their employer/firm and are far more productive in delivering high levels of quality service to the customers. High levels of service to the customers increase the customers’ perception of the organization, and this is customer satisfaction. Repeated purchases and referrals of additional customers is an indication of high level of customer loyalty and satisfaction to the organization. This will, in turn, impact the profitability of the firm positively. Ethical behaviors of organizations increase the satisfaction of customers in different aspects which are pertinent to the levels of performance. Customers seek satisfaction in the context of physical goods, the organization from which the products was obtained, and the employees of the firm. Relationship between ethics and profitability of an organization involves high levels of trust between the parties concerned. Customers develop perceptions of trust in firms through contact with organizational agents since these are the contacts that actually represent the organizations to the customers. The ethical practices the companies’ agents possess will be what the customers will use in creating perception/attitude towards the business (Bowie 16). Ethical behaviors build a firm’s reputation through five definitive steps. The first one is the calculative step whereby the customers calculate the costs of the organization cheating the customer. In the event the cost of being caught prevails over the benefits of cheating, then the customers will choose the honest path of the organization. The next step is the prediction process where the customers acquire an attitude to companies based on the past interactions. The third step involves the credibility element of trust in the organization and the fourth process refers to customers’ interpretation of organization’s intentions. The last step involves a customer developing trust in an organization through third parties. These are individuals who have had earlier interactions with the said organization (Heskett et al. 36). In conclusion, there are companies which still uphold the unethical business practices as they believe they will not be discovered. This is evident from the several ethical lapses among businesses. It is clear that out of the four components of customer value-price, results, process quality, and customer access cost, ethics possesses a strong impact on customer’s perception of the organization. Ethical behavior of a business will strongly impact the customers’ perception of the business, and this will affect the profitability level of the firm. Companies with ethical behaviors will definitely increase the profitability and reputation of the business. Ethics in a business, from a customer’s point of view, involve the firm’s capability to deliver on any promises made to the customers, agents and other company contacts’ response to customers, and that the agents, too, can deliver to customers’ needs in time. In addition to the above, ethics in a business enables the customers to identify tangible outcomes from using the business products. Business ethics is the backbone for all customer loyalty and retention which impact positively the development and growth of the business. Customers will maintain business relationships with those companies which have high standards of business ethics. Customer loyalty and retention can be seen through high customer purchases that generate higher levels of revenue. Repetitive purchases from customers equally lead to higher revenues for the concerned parties. This school of thought supports the application of ethical behaviors in business operations as it has positive impacts. Works Cited Bowie, N. E. Companies Are Discovering the Value of Ethics. Connecticut: McGraw-Hill/Dushkin, 2000. Print. Heskett, J.L., Sasser, E.W., and L. Schlesinger. The Service Profit Chain. New York: The Free Press, 1997. Print. Read More