Ethical Issues In Operations Management Commerce Essay

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Ethics in the business sector especially in the operations management is getting more popularity. Ethics is concerned about the rules of human behavior and considers whether or not there is any objective right or wrong. The study of ethics is divided into certain divisions which include descriptive morality, ethical theory, and applied ethics. In business, the concept of ethics is present for thousands of years now. The purpose of this research is to explore the body of knowledge with regards to ethics in operations management. Three questions are presented to set directions as follows: (1) what are ethical issues faced in operations management; (2) how do companies resolve ethical issues in their operations management; and (3) does ethical behavior within the operations function need management. Operations management refers to the approach of managing, designing, improving, and operating business processes or systems that are focused on producing or delivering goods and services. A review of literature about the operations management and the ethical issues within it is conducted to obtain answers to the research questions which are presented by the end part.

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Chapter I


Ethics is a term which refers to moral philosophy that focuses on the aspects of good life and the difference between better and worse. Ethics is concerned about the rules of human behavior and considers whether or not there is any objective right or wrong. Furthermore, ethics is concerned about the foundations of moral principles and how it evolved. Vee and Skitmore (2003) listed three things that contitute ethics as follows: (1) ethics refers to a system of moral principles which serves as a basis for judging actions as right or wrong; (2) ethics refers to the rules of conduct which illustrates a particular accetable group of human actions; and (3) ethics refers to moral principles of an individual. Considering the definition of ethics, it can be deemed that its main objective is to guide the society on deciding what is good from bad and what is better from worse which is also referred to as normative ethics. This may be done in a general way or may address certain ethical issues only. Another form or ethics is termed as metaethics wherein the meaning of ethical language is analyzed to identify their true meaning. Simply speaking, the true meaning of referring to something as a moral act or a right act is analyzed.

The study of ethics is divided into certain divisions which include descriptive morality, ethical theory, and applied ethics. The first division which is termed as descriptive morality refers to ethics which is based from the actual principles, customs, beliefs, and practices of the society. Cultural facts differ from certain societal groups to another around the world and these forms as the basis for their acts and what they believe should be right. Second division of ethics is ethical theory which refers to the understanding and justification of moral concepts, principles, and theories. Final division is applied ethics which is focused on the ethical issues in the society. This report belongs to the applied ethics division since its objective is to obtain an understanding on ethics in business and the ethical issues in operations management and how may these be resolved. To achieve this objective, some basic concepts on ethics shall first be discussed followed by its relation to the business world specifically in operations management. Moreover, a literature review shall be conducted to examine the common ethical issues that occur in operations management and how these are faced by the business sector and other concerned societal groups. This report is expected to add in the body of knowledge which is concerned about ethics in the workplace with discussions that connect the three mentioned division of ethics. Its significance shall be seen in a way that it examines the ethical trends and changes that occur in the business sector from the traditional era to the modern era. Research questions that will serve as guides for the paper are as follows: (1) what are ethical issues faced in operations management; (2) how do companies resolve ethical issues in their operations management; and (3) does ethical behavior within the operations function need management.

Some examples of ethical considerations in operations management decisions include customer safety, employee safety, materials recyclability, waste disposal, pollutions, repetitive tasks, stress in workplace, restrictive company cultures, employment policies, fluctuations in working hours, consumption of energy, energy efficiency, implications of plant location, closure, and vertical integration on employment, impact of process location on environment, and exploitation of resources. The next section shall present a literature review of the ethical issue in operations management that actually existed in the business sector and how are they resolved. It shall provide an overview of the ethical issues in the real world to offer a better understanding of the phenomenon.

Chapter II

Literature Review

Businesses in today’s world are faced with the pressure of having to comply with the ethical standards to ensure their continued market penetration without risk of being stripped out of the limelight. Businesses face this challenge through their own corporate social responsibility. In this review, the literature regarding the ethical issues in operations management is explored. Articles wrote by authors who focused on the topic of ethics in operations management are identified. Subtopics to be considered are the ethical issues that exist and challenge the operations management, the ethical leadership of an operations manager, their ethical decision-making, how the operations managers ethically influence the people under them, and how ethics in operations management can boost the morale and integrity of an organization as a whole. This review is structured to analyze ethics in operations management through a deeper examination on the mentioned subtopics and findings are considered in the end.

Ethical Reasoning

Ethical views differ from one society to another due to the differences in religion. People more often take their religion as the basis for their ethical reasoning since religions present a certain standard for morality. For example, Christians are guided by the Ten Commandments found on the Bible. Other religions are also guided by their own religious books like the Koran and Bhagavad Gita which teaches what people ought to do. Models for good or moral acts are also established in some religions like the Saints or holy people. Despite the fact that the society seem to have grown with the tradition of basing their ethical standards with their own religions, philosophers believe that ethics can stand alone without religious grounds. In philosophy, ethics base its analysis on what is right or wrong on reasoning and experience rather than incorporating religious standards and teachings. This fact also articulates that people who have valid ethical views or ethical standards of living are not only those that belong to any religious sector but also those that do not believe to any religion at all. Moreover, the challenge for religious ethics is the idea that something is referred to as ethical because it is approved by God which makes it arbitrary. Ethics should be independent and saying that something is right or wrong should not be based on someone’s approval. For this reason, a person should learn to have his own skill of moral reasoning. The goal of philosophical ethics is to deal with ethical issues without regarding to any religious views.

Ethics is evaluative. This means that referring to an act as either a rightful act or a wrongful act is equivalent to judging or evaluating it. However, it is not enough just judge or evaluate something. A judgment should be supported by certain norms or reason. Furthermore, it is not acceptable to say that a conclusion is given just because the speaker feels that way. A speaker who evaluates something is expected to explain deeper why he delivered such conclusion or attitude. Giving justifications to certain ethical conclusion is essential to ethics. A person’s reasoning may be based from a prior experience regarding the said conclusion. Reasoning may not always be rational of objective since everyone can admit that in every decision making done, emotions and feelings always interfere. A person can conclude that say because he might have experienced the emotions that are accompanied in that certain situation.

Ethical evaluation has several domains including action, consequences, character, and motive. In evaluating a certain situation, the actions of either the parties involved constitute either right or wrong deeds. When concluding who of the parties is right, it is necessary that a person know the meaning of the term “right.” Right actions are those that are permissible including those that are obligatory and optional while wrong actions are those that are not permissible. Another domain of evaluating an ethical situation is the analysis of the consequences. An action is considered right if the results are positive while it is considered wrong when the consequences are otherwise negative. This is studied in teteological ethics which is beyond the scope of this report. Another area of ethical evaluation is the analysis of character of the doer of an action. People with bad character traits usually has negative outlook on life and are likely to act in a way harmful to others. Last domain if ethical evaluation is the motive or intention behind an action. These ethical evaluation domains shall guide this report in analyzing the reasons behind ethical issues that exist in business.

Ethics in Business

Ethics in business is not a new trend. In fact, it is already present for over four thousand years now. With the changing trends in the business world, the society is getting more concerned about the corporate responsibility of businesses. Debates have also been conducted focusing on the social issue of poverty among the workers and the corresponding responsibility of the employers about the issue. Even in the ancient times, issues on ethics in business can be observed just like in the teachings of Aristotle about the harmful effects of the gaps that exist between the economical utilization of goods and the profit making objective of many merchants. At present, the rise of the concept of corporate social responsibility among the business sector constitutes corporate initiatives of integrating several ethical aspects such as establishment of codes of conduct, environment management system measures, health and safety in the workplace, compliance to financial reporting standards, certifications schemes, company partnerships with community groups, and support for projects that are aimed for community development.

There are several factors for the demand of the society for business ethics as a corporate responsibility. Some of these include the changing social role of corporate entities, globalization, developments in technology, and moral authority democratization. In the past, the responsibility or regulating all aspects of social life rests in the hands of the government. However, with the evolution of time, some duties are being moved from the government to the other sectors of the society including the individuals, the social groups, and the business sector. With this trend, corporate entities are required to establish their own self-regulation policies especially that the government has recognized the fact that fully controlling the business sector is not always an efficient way of influencing corporate behavior. Increased pressure is put on the business sector about the possible consequences of their policies on the society.

Globalization is another driving factor for the society’s demand of business ethics among the business sector. Currently, many businesses enter the international market and corporations tend to invest worldwide since this gives them more opportunities to grow. However, with the trend of entering in different foreign markets, there are complex things to consider including ethics. Customs and traditions in foreign lands differ from each other and some business practices that may be acceptable to one nation may not be accepted in the same sense in another. Businesses are often expected to adapt with the customs and values of the foreign land that they are trying to penetrate. Pressure on company’s corporate social responsibility is high since there is still no firm and effective supervision governing the international business behavior.

Developments in technology seem to be a great source of questions of morality. Technology at the current time is considered advanced and it provides a way for people to experience things that are thought to be impossible before. Technological development brings convenience to the society and contributes to the establishment of a kind of life that is better than before. Ethics come to picture as the society examines the real consequences of technology to the way of life. The effect of technology to the world is complex and the government has not enough capacity to handle the issues accompanying it which makes it necessary for the business sector to take actions on whatever consequences their own technology may bring.

In the past, moral authority often rests among a few groups in the society including the Church, the government, and the theorists. At present, the opinions of the mentioned authorities are now considered as a regular opinion which can be aligned with the opinions of a regular entity. The power and control they once had over judging and handling ethical issues has faded and now there is a democratization of moral authority. This again puts pressure on the business sector to manage their ethical affairs seriously since everyone seem to have the authority to criticize their business practices are compliance to ethical standards. Businesses are compelled to open their policies to the public when questioned about their business ethics. Moreover, with the intrusion of media, the businesses are more exposed to public which makes them susceptible to any ethical criticism.

The relationship of a business to its stakeholders is the primary concern of business ethics. Stakeholders may include all the entities that have interest on a company or are influenced by the company such as the shareholders, the customers, the employees, suppliers, competitors, the government, and others. Seeking business strategies that will consider the interest of all the stakeholders is not an easy task for a company but an important mission of every manager and all the high ranking company officials. Like any other company managers, operations manager has one of the most important duties of handling decision making processes regarding ethics in operations management.

Ethics in Operations Management

To obtain a better understanding of operations management, it is necessary to define what operations mean. Operations refer to the portion of business which is responsible for the production of goods and services. Operations management therefore refers to the approach of managing, designing, improving, and operating business processes or systems that are focused on producing or delivering goods and services. In other words, operations management involves the process of converting a set of inputs into outputs (Hassin, 2009). The term operations management originated from the concept of productions management used in the past which refers to the process of converting raw materials into finished products. However, with the evolution of time, the term expanded to production and operations management to integrate the operations in the servicing industry until currently, it is now termed as operations management.

The main objective of the operations management is to ensure that products and services are delivered to customers at best quality but at lowest costs. Some huge organizations have separate operations management departments that do operations activities while some companies do not have, but regardless of this fact, all organizations have operations endeavors and every organizational member is involved in operations in some way. A company’s operations management function is headed by the operations manager who has the primary duty of managing resources involved in operations. Some of the areas of decision making that are included in the duties of a company’s operations management are formulation of operations strategy, setting of operations performance objectives, configuring process types, ensuring prompt service, layout design, planning for long-term capacity, facility location, technology to be adopted, designing of products and services, designing processes, and employee motivation.

Business activities which are considered as operations include manufacturing, supply, transport, and service. Manufacturing activity involves the conversion of raw materials to final products which are eventually sold to customers. Supply is another business activity which involves the change of ownership of a certain physical good from the company to the customer. This is a usual business activity among the companies in the retail distribution industry. Third business activity described as included in operations is transport. This refers to the process of transferring of goods from one place to another. Finally, service is an operations activity which involves changing of the condition of the customers. Operations of a certain company may not only be limited to only one of the mentioned activities. For example, a company which manufactures a certain product also supplies the same to the end customers. In this company, several operations management activities involved are manufacturing, supply, and transport.

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Different organizations belonging to different industries adopt operations strategies that fit their businesses. However, some approaches adopted by different organizations in their operations strategies tend to be common and similar to each other. Certain requirements for an effective operations strategy include appropriateness, comprehensiveness, coherence, consistence, credibility, and ethicality. Appropriateness refers to the alignment of the operations strategy with the company’s competitive strategy. This is especially necessary when operations strategy is formulated for the purpose of connecting the company’s operations to its goal of developing a competitive edge over the competitors. An operations strategy is also required to be comprehensive where all aspect of operations is tackled. Operations management is included in a company’s complex process of business and achieving excellent performance which makes it necessary for every strategy to deal with every aspect of operations rather than limiting tactics on minor operational decisions. Furthermore, it is not enough that operations strategy be comprehensive, it must also be coherent. Every element of the strategy which refers to specific operations function must point to the same direction for the strategy to be effective. From period to period, operations strategy may be modified but one important thing is noted, it should be consistent through time. Credibility is another factor for an effective operations strategy. It is important that every strategic goal is realizable to maintain credibility. A strategic objective which the operations management failed to achieve may give a negative impact on the strategy and the employees may be discouraged to support it subsequently. Finally, an effective operations strategy should be ethical. An operation strategy may have consequences after its implementation which makes it necessary to be formulated based of ethical standards.

The role of ethics in operations management is important especially in world-class operations and it should be considered in corporate responsibility. This claim is based on the fact that most of the ethical issues in businesses originate from the operations level. Another reason for importance of ethics is the ethical consequences that arise from the strategy of some companies to obtain cost advantage by outsourcing. Ethics in operations management is concerned on the way how profit is obtained rather than on the quantity of profit which is considered enough. The tension is between profits and the responsibilities of the company.

Steenkamp (2010) described operations management as a management function which receives least attention and understanding. Aspects in operations are often left to the engineers and other concerned professionals or especialists. The term is not even used among the organizations in the servicing industry. Realizing this gap, it is important to understand that operations management should be taken into consideration since it is one of the functions that helps an organization to create and increase its value. Ethical issues comes with the importance of understanding operations management.

Ethical dilemmas refer to a certain situation or issue wherein a decision has to be made to adopt one of the two equally urgent yet incompatible alternatives (Mirwoba, 2009). One popular ethical issue discussed in the literature regarding operations management is opportunism. This issue has been a topic of many empirical studies conducted to focus on business and management field. Opportunism is considered in the literature as an unethical behavior which refers to the abuse of opportunity. In company operations, managers or other professionals involved are vulnerable to unethical choices due to plentiful number of opportunities which may be abused. Some of the factors that drive professionals to engage in unethical behaviors are the pressures brought by the demands for cost reduction and unrealizable strategic objectives. One area of operations which is faced with an increased vulnerability of engaging to unethical behavior is the procurement since the employee assigned in this process handles a significant amount of company resources (Carter, 2000). Furthermore, the procurement process has an increased exposure to the external environment of a certain organization which makes it possible for easy conduct of an unethical act. This is not beneficial to the organization since its reputation is in jeopardy since the employee assigned in the procurement process acts in behalf of the organization as a whole when dealing with third parties.

The empirical and conceptual research history of ethics in the procurement process of a business is affluent. The procurement activity within business operations is also the subject of another article by Ho (2012). The importance of ethics in managing business operations is stressed out in the article. Ethics is an essential requirement in order to build and maintain a good relationship between a business entity and other parties included in the conduct of its operations such as the suppliers. The procurement function in a business organization is critical for the achievement of business goals since. An organization’s effective operations depend on the effective performance of the purchasing function while achieving global competitiveness depends on effective operations. It is therefore important that ethics is integrated in the whole process to ensure good relationship to suppliers and eventually to satisy the needs and wants of the customers. One ethical challenge by procurement officers is the situation where many suppliers compete and offer different favors and gifts just to create a business deal. In many situations, the relationship of the procurement officer not only to the supplier but also to his employer may also be affected. More ethical challenges include having to exagerate the problem of either the buyer or the supplier in order to obtain a business deal, offering preferential treatment to certain parties, allowing certain personalities to interfere with business deals, engaging in reciprocity, and seeking and providing information of different qoutes from different competitors either in a fair or unfair manner.

Bribery is another requently mentioned ethical issue in the literature (Vee & Skitmore, 2003). Bribery refers to the act of offering payments, goods or opportunities in exchange for something favorable. Accepting gifts is not a bad act but the situation tells whether it is unethical. When in operations, accepting gifts from people who have direct influence on the operations functions maybe considered as unethical expecially when the person being gifted and have the ability to satisfy the interest of the gift giver. Other ethical issues to consider in operations are breach of confidence, negligence, and fraud.

The establishment of a code of conduct within an organization can greatly help operations especialists to decide on a certain ethical issue. Everyday, everyone are faced with the need to decide on a certain ethical issue. Organizations are faced with the pressure of having to demonstrate to the public their ability to decide correctly on an ethical issue. Organizations need to maintain a good reputation and the public trust to ensure their existence on the market. In order to achieve this, it is important for an organization to develop their own ethical code of conduct to guide every employee to decide correctly and to instill discipline among them.

Ethical leadership is seen as an important factor to instill ethics in a certain organization (Monahan, 2012). In the literature, ethical leadership is increasingly studied relevant to the operations of organizations. Many articles relating to the role of unethical behaviors in the failure of great companies take the example of Enron where thousands of employees were harmed due to the unethical actions of a few executives. Not only were the employees harmed but the ethical controversy also influenced other external factors such as the confidence of the public over the financial systems and the emergence of more strict government legislations. The increasing number of companies being involved in many ethical controversies which even brought them down made it possible for the others to realize the importance of integrating ethics in managing company operations in order to ensure profitability. Companies are more and more aware of this trend and have started to take actions to redirect their strategic plans to include ethical strategies in their paths to success. However, this move is never an easy way since in the current business environment where every company strives for international penetration or globalization and competition is getting tougher, ethical considerations are getting complex and extensive too. In this situation, ethical leadership in a company is needed to be headed by a charismatic leader (Mackie, Taylor, Finegold, Daar, & Singer, 2006).

In two studies mentioned by (Monahan, 2012), it was revealed that one problem among organizations that concerns ethics is the lack of ethical leadership. Employees often do unethical actions or misconducts due to their lack of trust over their company leaders and the situation is even worsened by the poverty and weak economy. Furthermore, survey results support the idea since a significant percentage of employees were observed to question themselves is ethics even exists within their own organizations. Actually, having to follow the standards is an easy task. However, everythings gets complicated when ethical dilemmas arise and there is no one in the organization to take responsibility. This prompted the need of every organization to have an ethical leader.

Managing ethical behavior not only within operations management but within an organization as a whole is one of the nost pervasive and complex challenge of modern companies (Stead, Worrell, & Stead, 1990). There are three theories introduced in the literature which describe ethical leadership (Plinio, 2009). These theories include transformational leadership, servant leadership, and authentic leadership. The first theory states that a leadership transforms both the leader and followers through increasing the level of conducts and aspirations. The second theory, on the other hand, states that the leader should possess the character of devotion to change the ethical views of the followers. Finally, the third theory states that ethics comes from every individual through being true to themselves. Ethical character within an organization will not be achieved unless every member develops their own ethical character within themselves. Every member of an organization should have the choice of analyzing their inner character in every mistakes done, career setbacks that occur, and failures on their jobs. In other words, every organizational leader should develop their integrity to foster ethics.

Harris, Sapienza, and Bowie (2011) mentioned in their article the decision-making process of managers. Individual differ in ethical decision-making. In fact, those that belong to the business world even have greater differences than those that do not. The differences may be due to different influences such as socio-cultural factors.

Decision-making in a certain ethical situation is really a dilemma. This is especially true when the operations manager is required to choose between two alternatives which are unfavorable. This can be considered a tough challenge for the person in the situation. In some cases, ethical dilemmas may be impossible to resolve due to reasons like disintegration of value system. In today’s world when every company aims for globalization, companies are faced with conflicting issues between the company objective of profitability and their corporate social responsibility. Ethics in the global market is complicated, so is the decision-making that operations managers have to face.

The literature proposes theoretical concepts regarding ethical decision-making including relativism, moral imperialism, and universalism (Mirwoba, 2009). Relativism refers to the principle that a company should follow the ethical standards and norms of the country where they do business. Companies, therefore, follow different sets of ethical standards depending on the culture of a certain nation. This can be unfavorable to a business since there is no constant standard that employees should remember. A company cannot establish its definite ethical standards since cultures in other nations may be conflicting. Complexity occurs when operations in home market differ from the operations done in foreign markets. In the theory of moral imperialism, things are done in the opposite way of relativism. Moral imperialists argue that individuals should retain their own ethical views even when doing business in foreign lands. Ethics applied in operations in the home market is done the same way in other company branches even in global markets. Some authors, however, argue that the mentioned theories can both serve as bases for an ethical decision making where a certain alternative is chosen considering the norms in the foreign market and the company standards. In the theory of universalism, universal guidelines are considered. These often include fundamental human rights issues, environmental protection, consumer protection, and basic freedoms. This foundation of code of ethics is the most advantageous to many corporations since serious mistakes in actions and uncertainties in operations may be avoided.

Most of the discussions focused on the operations management in private corporations which are profit-oriented. However, ethical issues not only occur in profit-oriented companies but also with non-profit corporations (Robinson & Yeh, 2007). The challenge of strict compliance to ethical standards among the non-profit corporations is driven by the attempt of doing the right things. Furthermore, non-profit organizations are inclined to achieving their social goals rather than maximizing profits. When people encounter the concept of soc


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