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Kybernetesmerald Article: Enterprise ethical climate changes over life cycle stages

JernejBelak,Matja~Mulej

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Enterprise ethical climatechanges over life cycle stages

Jernej Belak and Matjaz MulejFaculty of Economics and Business, University of Maribor, Maribor, Slovenia

Abstract

Purpose Life cycle stages may see, result from, and/or cause, changes in culture and climate asthe right-brain attributes of both managers andtheir co-workers. A four-stage model is used to perceivethese possible changes. Findings are tested in Slovenian enterprises. Differences per stages may becrucial andshould therefore beknownto managers/owners. Based on thecasestudyresearch, this paperaims to suggest that enterprise awareness of importance of ethical climate can be of essential meaningforits long-termsuccess.The purpose of this paper is to discover differences in enterprise ethicalclimatein different enterprise life cycle stages and to identify their importance for active ethical climate care bythe enterprises.

Design/methodology/approach In this paper, the qualitative research is applied. The researchcognitions on ethical climate are discussed in application of the dialectical systems theory.

Findings The paper finds that there are some differences in enterprise ethical climate for enterpriselife cycle stages and indicates a significant presence of the rule, law and code and instrumentalethical climates. Movement towards a more bureaucratic method of enterprise functioning, as anenterprise moves from the pioneer stage towards the stage of turn-over, was also found.

Practical implications This paper gives us some insights in the state of ethical climate inSlovenian enterprises. In a frame of practical implications, a further research should be done to show

which measures of such ethical climate implementation should be used to stimulate the enterprisesinnovative behaviour in accordance with the state of enterprises life cycle stage.

Originality/value The available literature does not provide for a similar research of linkagebetween the ethical climate and enterprises life cycle.

Keywords Cybernetics, Business ethics, Organizational innovation, Systems theory, Slovenia

Paper type Research paper

1. IntroductionOne speaks much more about knowledge management than about values/culture/ethics/norms,which result from theright rather than left brain hemisphere and influencehow knowledge is directed and applied (Potocan and Mulej, 2007a, b, c; Mulej, 2007a, b).This situation reflects the usual lack of requisitely holistic (systemic) thinking ofspecialists. In the functioning of enterprises all stakeholders matter and each group ofbusiness participants has its own interests (Kajzer et al., 2008), not knowledge only

(Thommen, 2003). Lack of interest consideration of and by any interest group may causeconflict, which has to be resolved, if the enterprises aim is to survive and be successful(Belak and Kajzer, 1994; Belak, 2005). Stakeholders interests develop and change intime, as enterprises change and develop. There is an extensive body of literature on theconcept of organizational life cycle, which attempts to model the stages that enterprisespass through, as they evolve from start-up to mature enterprises (Pumpin and Prange,1991; Bleicher, 1994, 2004; Fueglistaller and Halter, 2005).

In economic science, the biological life cycle was used for describing and explainingthe developmental and growth changes of enterprises. Several authors refer to variouslife cycle stages of enterprises within which they then describe different enterprise

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characteristics and problems. Pumpin and Prange (1991), as well as other authors,argue that no uniform management model exists as an answer to problems ofenterprises in different life cycle stages.

While opinions on the number and nature of specific stages in a life cycle differ, it isclear that organizational challenges and managerial approaches vary as the enterpriseevolves (Morris et al., 2002). These developments would also seem to have ethicalimplications, although little research has been done to address the relationship betweenlife cycle stages and enterprise ethics.

Since science recognizes the fact that an enterprise passes through different lifecycle stages, and that life cycle stages differ in terms of management systems, formalstructures, control systems, documentation of transactions and number of proceduralhurdles (Morris et al., 2002), our main research problem was focused on differences inenterprise ethical climate as one of the most important business ethics impact factor.The present paper considers the fact that there are several elements and factorsimpacting the enterprises ethical behaviour such as enterprises core values, enterpriseculture, formal and informal measures of business ethics implementation (Kaptein,1998; Belak, 2008), not enterprise climate only.

The first part of this contribution therefore deals with the argumentation of theenterprise life cycle phenomena. In the second part, the importance of the enterpriseethical climate is argued, and in the third part the empirical research and the researchcognitions are presented. Before them, we will briefly present how this research hasbenefited from the application of the Dialectical Systems Theory (DST).

2. The general and the dialectical systems theoriesIn our understanding of the General Systems Theory (Bertalanffy, 1968, edition 1979),the most crucial sentences read: [. . .] systems theory originally intended toovercome current over-specialization (exposure of these words by bolding is ours,M. Mulej) [. . .] (Bertalanffy, 1968, edition 1979, p. VII); General systems theory, then, isscientific exploration of wholes and wholeness which, not so longago, were consideredto be metaphysical notions transcending the boundaries of science (Bertalanffy, 1968,edition 1979, p. XX). Aswe see inEncyclopaedia (Francois, 2004), most authorsof variousversions of systems theories and cybernetics have not overcome the currentover-specialization. This may solve many problems rather the one of crucialoversights resulting along with deep insights due to over-specialization. Hammond(2003) studied the history of systems theory and found that the fathers of both systemstheories and cybernetics used to work on an interdisciplinary basis.

Three decades earlier the same problem was detected by Mulej (1974, 1979) and Mulejet al. (2009). His response was labeled the dialectical system. The ancient Greek word forinterdependence was used dialectics (Britovsek et al., 1960). For wholeness of insightsand action (Drack and Apfalter, 2007), all attributes of the object under investigationwould have to be considered, which is impossible to attain inside a single selectedviewpoint that the narrow specialist tend to apply (tacitly and mostly). Hence, a system,i.e. network of all viewpoints of all different specialists is needed, which reaches beyondthe human capacity. Thus, the dialectical system is defined as a system, i.e. network ofall crucial viewpoints, which enables the requisite holism (Mulej, 2007b). TheBertalanffys crucial aim to fight important oversights has thus become attainable by

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the DST much more than by most other versions of systems theory and cybernetics.DST supports also informal systemic thinking and requisitely holistic behaviour.

In the case of investigation reported about in this contribution, the requisite holismis met by the synergy of the enterprise life cycle approach and the enterprise ethicalclimate viewpoint.

3. Enterprise life cycle approachThe application of the biological life cycle model to economic science and practice is arelatively new phenomenon. Fueglistaller and Halter (2005) refer to Grabowski andMueller(1975), who developed the Life Cycle Theory (Lebenszyklustheorie) in the 1970s.According to Fueglistaller and Halter (2005) and Korallus (1988) was the author whoimportantly contributed to this area, likewise Pumpin and Prange (1991), Rosenbauer(1995) and Kemmetmuller and Schmidt (1995). An especially significant role indeveloping the enterprise life cycle among these authors was played by works of theco-creators of the St Gallen Model of Integral Management Bleicher (1994, 2004),Pumpin and Prange (1991) and Fueglistaller and Halter (2005).

Pumpin and Pranges (1991) concepts of the enterprise life cycle described in theirlatest work have been used by various Slovenian scientists and researchers. Puc ko(2003) and Duh (2002), in particular, derived from it important discussions andresearch. With the application of ideas from these enterprise developmental models,Duh (2003) developed her own developmental model of family enterprise.

Cathomen (1996 in Fueglistaller and Halter, 2005) differentiates between

organizational and technology life cycles. He categorizes the organizational life cycleinto: life cycle of products, organizations, branches and industries, as well as resourcepotentials. His concepts focus on the establishment/beginning and aging of enterprisesand organizations, which in time change from entrepreneurial to bureaucraticorganizations. In technology life cycles, the author (Cathomen 1996 in Fueglistallerand Halter, 2005) differentiates between: the life cycles of technologies, systems, costsand processes. In his classification, the author proposes a combination of economic andmanagerial ideas, as well as ideas about the enterprise life cycle (the enterprises partsystems, and its environment).

With the life cycle concept, the life of an enterprise is presented, making allusions toits growth and development a business changes qualitatively and quantitatively.Most authors explain both terms in combination with an enterprise life cycle andcombine these phenomena in their models of enterprise developmental cycle.

In his model of enterprise development, Bleicher (1994) distinguishes six

developmental stages. Each stage has its own context at the end of every stage, theenterprise faces specific problems. If the crisis at the stage transition is not managedcorrectly, theenterprisecan regressto a previous stageor even reach thestage of decline and,consequently, bankruptcy.During the firstthree developmentalstages,the enterpriseis capable of developing from its own strengths these are called the stages of internaldevelopment (Bleicher, 1994). In the authors opinion, further enterprise development ispossible only by acquisition of and in cooperation with other enterprises, and commonexploitation of business opportunities; hence, we can speak of external enterprisedevelopment. In the last developmental stage, enterprise shrinks and consolidates afterunsuccessful external development, or it divides into specific parts. At every


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developmental stage, its management faces specific problems that are reflected at thenormative, strategic and operative management levels.

Thommen supplemented Bleichers developmental model with the components ofstrategy, structure, and culture of an enterprise at a certain developmental stage. InThommens opinion, it is not only strategic decisions but that also develop the businesslife cycle. An enterprise witnesses changes in its structure and culture when passingthrough various developmental stages. For example, in small enterprises where thefounder (pioneer) has a strong impact on management, stakeholders, and businessstrategy, the enterprise can act in a very flexible manner (Thommen, 1997).

Pumpin and Prange (1991) developed their model of business development within theframework of the St Gallen concept of integral management. They distinguish fourenterprise configurations, which are suitable for describing an enterprisesdevelopmental stages. Pumpin and Prange (1991) named these stages pioneer,growing, mature, and enterprise in turn-over. In the authors opinion (Pu mpin andPrange, 1991), enterprise development is defined by its use of business opportunities.The enterprise should always exploit environmental and internal change, from whichnew business opportunities occur. Since business opportunities follow their own lifecycle, which in the end leads to the stage of decline, it is essential for an enterprise tosearch for and discover new business opportunities (Duh, 2002).

4. Enterprise ethical climateEthical climate concepts remain popular as a means of understanding theright-brain-based ethical atmosphere in enterprises. For the purpose of our

discussion, we will use ethical climates as identified by Victor and Cullen (1988). Intheir opinion, an institutional normative system can be considered as an element ofculture, although enterprise culture is more comprehensive and includes the patterns ofbehaviour, artefacts, ceremonies and special language. Observers of organizationalethical climate discuss only those organizational norms that concern practices andprocedures with ethical consequences in only a segment of their organizational culture.

To describe the difference between enterprise culture and climate, Grover and Enz(2005) argue that climate is an informal, attitudinal categorisation of the ethical context.They also claim that enterprise culture refers to the artefacts and representations of theethical beliefs of the enterprise. Furthermore, the distinction between ethical culture andclimate helps to clarify in what way the enterprise rules of conduct make a difference.Culture has a manifestation, and it has a strongerimpact on the observedethical behaviourin enterprises that have codes of ethical conduct, as well as other formal measures ofbusiness-ethics implementation, compared to those with no codes. In contrast to culture,

ethical climate is composed of subjective, shared beliefs about the ethical position of theenterprise, andhas a strongerinfluence in enterprises with no code of conduct or anyothermeasures of business ethics implementation (Grover and Enz, 2005). Agarwal and Malloy(1999) considers enterprise culture as a broader term, and defines ethical climate as ashared set of norms, values and practices of enterprise members regarding appropriatebehaviour in the workplace.

Several researchers have focused on understanding the factors that influence ethicalbehaviour in enterprise. Various ethical decision-making models propose that ethicalbehaviour is influenced by a combination of individual characteristics such as valuesand cognitive moral development, and contextual factors such as reward systems,

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rules and codes (Ferrel et al., 1989). The researchers argue that although the individualcharacteristics have strong importance in enterprises ethical behaviour the researchershould put emphasis on the role of contextual factors, which seem to have strongerimportance from the practical perspective because managers have more control overthe work environment that they do over individuals values or moral development(Trevino, 1990; Trevino and Ball, 1992; Trevino et al., 1998, 2000).

In the scientific theory, ethicalcontext of enterprises behaviour has been representedmostly by two multidimensional constructs: ethical culture and ethical climate (Trevino,1990; Trevino et al., 2000; Victor and Cullen, 1988). These two constructs were mainly

developed independently and were based on slightly different assumptions andliteratures. Although both constructs havebeen theoretically associated with individualethical behaviour, empirical support for these relationships is lacking (Trevino et al.,1998). This can be also the reason for the number of further unresolved issues such as:are measures of enterprise culture end enterprise climate addressing the same ordifferent aspects of the ethical context? Do enterprise culture and climate predict thesame or different outcomes as attitudes, behaviours (Trevino et al., 1998)?

The above-stated questions are origin of the organizational studies literature aboutthe relationship between enterprise culture and enterprise climate, and the relationshipbetween these context variables and attitudes and behaviour (Kopelman et al., 1990).Denison (1996) proposed an important thesis that differences between culture andclimate literatures are differences of theoretical roots, perspective and preferredmethodology rather than differences of substance.

Several other scientists argue that important difference between enterprise culture

and enterprise climate exists. In Moran and Volkweins (1992) opinion enterpriseclimate is an enduring characteristic of an enterprise. By contrast, culture is a highlyenduring characteristic of an enterprise where it evolves slowly. In their opinion,culture is, in a sense, a record of a social units interpretation of its history and thereforedepends on the existence of a known past of considerable duration. Climate evolves outof some of the same elements as culture but it is, in terms of enterprise realities,shallower in that it both forms more quickly and changes more rapidly.

Bothenterprise culture and enterprise climate refer to aspects of an enterprises contextthat are thought to influence attitude and/or ethical behaviour (Trevino et al., 1998). Forbetter understanding, these two constructs their authors proposed their metaphoricexplanation. The term climate suggests meteorological climate and qualities such astemperature,humidity, wind, and other atmospheric conditions that can affect individuals(e.g.feelings), although it is unclear exactly what theeffects will be (Trevinoetal., 1998).In

contrast, the culture evokes from rules, codes, rewards, leadership, rituals and stories sense-making devices that more explicitly guide and shape behaviour (Smircich, 1983).Climate may therefore characterizeenterprises in terms of broad normativecharacteristicsand qualities that tell people what kind of enterprise this is essentially what theenterprise values are.Therefore,enterprise climate is likely to be associated withattitudes,but may influence decision making and behaviour only indirectly (Gaertner, 1991).Enterprise culture on the other hand, characterizes the enterprise in terms of formal andinformal control systems (e.g. rules, reward systems and norms) that are aimed morespecifically at influencing behaviour (Trevino et al., 1998). In such manner, the authors(Trevino et al., 1998) also argue that there is a strong relationship between enterprise


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culture and enterprise climate. For example, a culture that supports ethical conductthrough codes of conduct is likely to be related to a climate that values rules and laws.

For the purposes of our research on enterprise ethical climate, we used methodologydeveloped by Victor and Cullen (1988) who describe the enterprise climate as perceptionsthat are psychologically meaningful molar descriptions that people can agreecharacterize a systems practices and procedures. Further on, the authors argue thatthe prevailing perceptions of typical organizational practices and procedures that haveethical content constitute the ethical work climate. In their opinion, ethical climate isconceptualized as a general and pervasive characteristic of an organization, affecting abroad range of decisions. Ethical climate, therefore, informs/influences members of theorganizationwhat one can do and what one ought to do regarding thetreatment of others.The authors believe that climate types represent perceived norms of an organization orgroup with an ethical basis.

Victor and Cullen (1988) developed a two-dimensional theoretical typology of ethicalclimates (as shown in Figure 1). The first dimension represents the ethical criteria usedfor organizational decision making. The second dimension represents the locus ofanalysis used as a referent in ethical decisions. Cross-tabulation of the two dimensionsresults in nine theoretical ethical climate types.

Based on the ethical criterion and locus of analysis, Victor and Cullen (1988) arguethat five major types of ethical climate occur in enterprises, the:

(1) caring climate, where employees are expected to act in a way which is best forall enterprise stakeholders;

(2) rules climate, where employees must obey rules and procedures determined

by the enterprise;

(3) law and code climate, where employees are expected to respect and obey thelaw as well as codes and professional standards;

(4) instrumental climate, where fulfilment of individual interests is in focus; and

Figure 1.Theoretical ethical climateypes

Locus of analysis

Individual Local Cosmopolitan

Egoism

Self-interest Company profit Efficiency

Benevolence

Friendship Team interest Social responsibility

Ethicalcriterion

Principle

Personal morality Company rules and

procedures

Laws and

professional codes

Source: Victor and Cullen (1988, p. 104)

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(5) independence climate, where employees are expected to follow their ownmoral beliefs in their decision making.

5. Research methodologyFor our research on enterprise ethical climates, we chose a multiple case study researchmethodology (as shown in Figures 2 and 3). Bell (1993) defines this methodology as anumbrella with common characteristics of focusing research attention on certainspecific examples or phenomena. Case study research is defined by Yin (1993, 1999) asempirical research into contemporary phenomena in the real environment. The main

purpose of such a methodology is to obtain an idea about the real and reciprocalfunctioning of variables or events. As such, the case study research method enables theresearcher to focus on certain specific phenomena in a quest to define the reciprocalprocesses that are fundamental in their meaning for other research methods such assurveys, interviews, focus groups, experiments, analyses of archive data, etc. In ourresearch, we carried out face-to-face interviews, which were based on pre-designedquestionnaire. The interviews were made with the owners/managers of 17 Slovenianenterprises and took 2.5 hours on average.

In our research, we examined enterprises in various life cycle stages. Life cycle stageof an enterprise was defined in the first part of the questionnaire, our first construct,following the methodology developed by Pumpin and Prange (1991). As shown inAppendix 1, in the first part their methodology defines the characteristics of each lifecycle stage (pioneer, growth and maturity stage and the phase of turn-over). In thesecond part, the data gathering were performed in order to define the life cycle stage of

the enterprise examined.As proposed by Yin (2003), we used a multiple case study approach in our research,

where replication logic was possible (see case study design shown in Figure 2). In ourresearch, we examined enterprises in various life cycle stages. Life cycle stage of anenterprise was defined in the first part of the questionnaire, our first construct,following the methodology developed by Pumpin and Prange (1991). Using thereplication logic, we were able to confirm specific findings in a frame of differententerprise life cycle stages, where we examined quantitative (the age of enterprise, size,etc.) as well as qualitative (management behaviour, and its attitudes towards problems,

Figure 2.Empirical multiple case

study design

Select cases

Design data

collection

protocol

Conduct 1st case

study

Conduct 2nd case

study

Conduct

remaining case

studies

Write individual

case report

Write individual

case reports

Write individual

case report

Draw cross-case

conclusions

Modify theory

Develop policy

implication

Write cross-case

report

Develop theory


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the enterprises organizational structures, mission, strategic program, culture, etc.)characteristics (see also Appendix 1) of the examined enterprises.

To determine the ethical climate of the examined enterprises, we used themethodology developed by Victor and Cullen (1988). Questionnaire items representedeach of the theoretical climate types (as shown in Appendix 2). Respondents were askedto indicate on a six-point Likert-type scale how accurately each of the items describedtheir general work climate. The six-point scale had the following verbal anchors:completely false 0, mostly false 1, somewhat false 2, somewhat true 3, mostly

true 4, completely true 5. Thecombination of thehighest values of the ethicalcriteriaand lociof analyses showed the ethical climate of the enterprises. The highest summaryresults under a certain climate type defined the ethical climate in the enterprise, asshown in the example in Table I.

6. Research findings6.1 Life cycle stageThe life cycle stage of these enterprises was determined by using the methodologydeveloped by Pumpin and Prange (1991). In our research, we examined the enterprises

Figure 3.Methodologies andesearch constructs usedn the empirical research

C2: Ethical climate of the enterprises examined

C1: Life cycle stage of enterprises examined

Assessing the ethical climate using the methodology developed

by Victor and Cullen (1988)

Life cycle stage of enterprises observed determined by using

Puempin and Prange's (1991) methodology of life cycle stage

Note: C = research construct

Case study research: developed questionnaire consisted of 2 research constructs,

answered by owners/managers of 17 Slovenian enterprises in face to face interviews

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that were classified in four various enterprise life cycle stages, as shown in Tables IIand III.

Our research examined, three (17.65 per cent) enterprises in the pioneer stage, eight(47.05 per cent) in the growth stage, and three (17.65 per cent) in the maturity stage ofthe enterprise life cycle as well as three (17.65 per cent) enterprises in the turn-overstage. We performed our interviews in two (11.7 per cent) micro, two (11.7 per cent)small, five (29.4 per cent) medium, and eight (47.2 per cent) large enterprises, classifiedon the basis of the Slovenian Companies Act.

6.2 Type of ethical climate

In the frame of an ethical climate examination, our case study research followed themethodology developed by Victor and Cullen (1988). As shown in Table IV and

Climate type Sum value

Caring 30Law and code 10Rules 7Instrumental 5Independence 7

Table I.Example of ethical

climate in an enterprise

Enterprise Size Life cycle stage

A Small PioneerB MediumC LargeD Micro GrowingE LargeF MediumG LargeH LargeI Medium

J MediumK MediumL Micro MatureM SmallN LargeO Large Turn-overP Large

R Large

Table II.Enterprise distribution

by size and life cycle

stage

Life cycle stage Percentage

Pioneer 17.65Growing 47.05Mature 17.65Turn-over 17.65Total 100

Table III.Distribution of research

sample by enterprise lifecycle stage


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Figure 2, in these particular enterprises, our research showed all five types of ethicalclimate as defined by the authors (Victor and Cullen, 1988).

Our research shows (Figure 4) that in enterprises A, B and C, a caring ethical climateprevailed. As we can observe from Figure 4, the characteristics of a rule ethicalclimate also have a strong impact on enterprises B and C.

In Figure 5, we can observe the research findings showing that the law and codeethical climate hasthe strongest impacton enterprises in thegrowth stage of thelife cycle.In the enterprises D and F, this type of climate prevailed; on the other hand, in enterprisesE, G and J, a combination of law and code and rule ethical climate was found.

Figure 4.Pioneer enterprises inerms of their ethical

climate

0

1

2

3

4

5Caring

Rules

Law&codeInstrumental

Independance

AB

C

Enterprise A B C D E F G H I J K L M N O P RLife cycle stage Pioneer Growth Mature Turn-over

Ethical climate c c/r c/r l l/r l r/l r/i c/l l/r c/r r/l i l/r r/l r/l/i r/l/i

Notes: c caring climate; r rules climate; l law and code climate; i instrumental climate; in independence climate

Table IV.Examined enterprisesand ethical climate

Figure 5.Growing enterprises inerms of their ethical

climate

0

1

2

3

4

5D

E

F

G

H

I

J

K

CaringRules

Law&code

Instrumental

Independance

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In enterprise H, the rule climate prevailed; however, enterprise K showed the presenceofthe care and rule ethical climate types in combination.

In the case of enterprises L and N, a strong combination of rule and law and codetype of ethical climate can be observed as shown in Figure 6. In enterprise M, theinstrumental type of ethical climate was dominant.

In enterprises O, P and R, a combination of rule and law and code type of ethicalclimate prevailed, while enterprise P showed strong characteristics of aninstrumental ethical climate (Figure 7).

As shown in Figure 8, our case study research showed, that in most pioneerenterprises, a combination of care and rule ethical climates was present. Pioneer

enterprises expect their employees to react and act in the way best for all enterprisestakeholders. On the other hand, the research showed that it is very important forpioneer enterprises that their employees follow the rules and procedures set by theenterprise.

In the case of growing enterprises, the research results reveal that the enterprisesimplement a combination of rule and law and code ethical climates, which impliesthat following the rules and procedures determined by the enterprise as well as respectfor law and professional standards play an important role.

Figure 7.Enterprise in turn-overphase in terms of their

ethical climate

0

1

23

4

5Caring

Rules


IndependanceO

P

R

Figure 6.Mature enterprises interms of their ethical

climate

0

1

2

3

4

5L

MN

Caring

Rules

Law&code

Instrumental

Independance


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For mature enterprises and enterprises in turn-over, our research indicated asignificant presence of the rule, law and code and instrumental ethical climates.Enterprises in the maturity stage of their life cycle emphasized the importance of rulesand procedures as well as legal frames and professional standards. In the framework ofthe instrumental climate, our case study reflects a high level of its importance for thefulfilment of individual interests.

7. Concluding commentsAs the answer to our main research question, we must note that our study showed somedifferences in enterprise ethical climate per enterprise life cycle stages. Our research

indicated movement towards a more and more bureaucratic method of enterprisefunctioning, as an enterprise moves from the pioneer stage towards the stage ofturn-over. This pattern of functioning can also indicate a lower level of connectionbetween co-workers, top-management and employees, as well as less loyalty, anchoringof enterprise values and norms, and capacity for innovative behaviour, which can beconsidered as one of the key success factors in business. Our research raises importantissues regarding the enterprises in mature stage or turn-over stage, which are neitherable to tolerate differences among employees as well as between all stakeholders norprepared to stimulate or use the individuals talents in accordance with the enterprisesvisions, missions and policies. The alienation between top management and employeescan have an important further implication such as alienation between the enterprise andits environment, which can make enterprise incapable of efficiency and effectiveness.Several authors also argue (Diener and Seligman, 2004) that thebasis forcreative work istrust among employees. Furthermore, by various authors trust is considered as the

constitutional element of enterprises ethical behaviour and constitutional basis forenterprises ethical climate (Victor and Cullen, 1988; Kaptein, 1998). Theabove-mentioned enterprises should therefore implement all measures, institutionalas well as structural, which would foster and supporttrust in their enterprises. Thus, theclimate can provide for innovative behaviour.

The research cognitions about the enterprise climate type can be supported also bythe research cognitions about the enterprise culture type (Belak, 2008). Those researchfindings show that, through the life cycle stages, enterprises make a transition from aclan culture, where a very personal and familiar way of functioning can be observed,towards a hierarchy culture, where formal structures and procedures are in focus.

Figure 8.

Ethical climateby life cycle stages

0

1

2

3

4

Caring

Rules


IndependancePioneer

Growing

Mature

Turn over

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Besides, the dependency of an enterprises culture type on its life cycle stage, theresearch indicated that the culturestrength depends on the life cycle stage, as well. In theenterprise life cycle transition (from pioneer enterprise towards the enterprise inturn-over), the culture strength changes from strong towards weak, as well. Theresearch results showed that pioneer and growing enterprises are more successful inimplementing the enterprises norms, values, vision, mission and strategic goalsthrough the entire management and governance process (from the owners through thetop and middle management to the operational level of the enterprise) than are matureenterprises and enterprises in turn-over. These results also reveal that the pioneer andgrowth enterprise culture is more compatible with the culture of the environment wherethey function than the culture in mature enterprises and enterprises in turn-over.

In terms of the DST (Mulej et al., 2008, and earlier, since 1974) the research findingssay that the managers of the case-research enterprises do not attain the requisiteholism in mastering the novelties in ethical climate that show up over their life-cyclephases. A consequence may be their need to recover from success (Whittaker and Cole,2006), or even failure, because they do not consider ethics as a factor of the deeprather than surface competitiveness (Fujimoto, 2006). Less narrowly economic viewsof the enterprise success basis might help (Potocan and Mulej, 2007a, b, c; Potocan et al.,2005). This managers attitude may be very general.

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Appendix 1. The enterprise life cycle stage diagnosis by Pumpin and Prangesmethodology

Agree Disagree5 4 3 2 1

Elements of a pioneer enterpriseA focus on new business opportunities XThe enterprise is radically innovative XThe enterprise is young XThe turn-over is low XA low number of employees XA low number of consumers XBetween the top management and the operational divisions,there is max. one level of management

X

At the top is the entrepreneur ownerX

The top management is very interested in details ofbusiness functioning (all-rounder)

X

The top management has personal contacts with almostevery customer

X

The power of decision making is centralized and veryintuitive

X

Authoritarian-patriarchal management style using directoral directions to every employee, manager giving thedirections

X

No formal organizational elements (organigrams, adescription of the working place)

X

Employees spontaneously rewarded by the manager inperson and orally, as an alternative to financial rewards fora job well done

X

No standardization of products or processes, an individual

approach toward satisfying customer demands

X

A low level of employee specialization XInventors or super sellers at the top XThe amount of capital is high enough only to satisfy thelegislation

X

The level of self-financing is from 1:3 to 1:5 XTotal 0 1 3 4 11

Elements of a growing enterpriseEnterprises business opportunities are mostly at thegrowth stage

X

(continued)Table AI.

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Rather less radical innovation in focus than multiplicationof successful concepts and activities

X

Innovations used are mildly radical: new products aresimilar to previous ones

X

Breakthrough with the basic business activity to newmarkets and new regions

X

Turn-over; the numbers of employees and customersincrease rapidly

X

Thinking of enterprise expansion at all levels, focusing onthe interests of every stakeholder

X

The management and innovators can become wealthy bybeing personally successful and innovative (participating inthe profit)

X

The enterprise management consists of the representativesof various business areas and branches

X

Personal contact between enterprise management and thekey customers is still present

X

The leadership type is delegation of responsibility X3-4 hierarchy levels XImplementation of only a few formal organizationalinstruments, the presence of organigrams, the descriptionsof working places are limited to essential elements

X

Enterprise shows a functional structure that is in its furthergrowth transforms into a divisional structure

X

Formal communication structure has developed, uniformleadership is still in operation

X

Product standardization, sub-activities are abolished XA growing number of employees and equipmentspecialization

X

Initiating the service cores/departments (market research,planning and legislation/taxes) that used to be hired fromoutside

X

X

Total 1 7 6 3 1

Elements of a mature enterpriseEnterprises business opportunities are mostly at the stageof maturity (harvest, following, etc.)

X

Cash flows are very good and stable XA slow transition into stagnation in the frame of theturn-over

X

Branch benchmarking shows that the enterprise is old andlarge

X

The top management has almost no connection with thecore or the base of the enterprise

X

Financial specialists and lawyers dominate the top of theenterprise

X

Focus on ROI and efficiency is greater than followingqualitative goals

X

(continued) Table AI.


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Formal (written) communication is used instead of informal(oral) communication

X

An environment of mistrust, control and formalresponsibilities are emphasized

X

Working manuals as the instrument of standardization andcontrol, impatience towards a negative attitude

X

Balanced salary structure, a low level of innovativebehaviour support

X

Matrix structure XA wasteful multi-level planning system XMany commissions XParticipative type of leadership XBattles for power on a managerial level (mostly hidden) XDiscussion ob business decisions between internal andexternal interest groups

X

The level of self-financing is about 1:1 XTotal 5 6 2 4 1

Elements of an enterprise at the turn-over stageEnterprises business opportunities are mostly in the stageof turn-over or decline

X

Decline in cash flow and consequent negative cash flow XDecline in turn-over XOnly sub-innovations in the context of old products X

Over-capacity, the competition is taking over theenterprises market share, constant price lowering

X

One-sided focus on expenses (costs) XHigher number of product recalls, superficial errordismissal, product quality level decrease

X

Brain-drain XImprovement in cash flow and turn-over is always onagenda for the next year

X

A short-term orientation (one to two years), setting onlyshort-term goals and business activities, tactical reactions tocompetitors

X

The regulation and governmental protection (subventions,donations, etc.), shaping of the branch cartels and trusts

X

The top management has been in place for several years;therefore they are elderly

X

Battles between individual leaders for their own survival in

the enterprise, mutual accusations

X

Unclear directions to employees, interference of superiors,concerned employees

X

Powerful authority groups XUnfinished paper work XEnterprises isolation from its environment XLarge projects XTotal 1 1 5 4 7Table AI.

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The total score of the above-revealed enterprises characteristics gives us the opportunity todefine the life cycle stage of the enterprise.

Considering the characteristics of the exemplar enterprise, we can conclude that it is in transitionfrom the growth to the maturity stage of its life cycle. The positive characteristics of a pioneerenterprise are slowly moving into the background, and pioneer spirit is not so strongly present inthis enterprise any more. On the other hand, this particular enterprise is financially stillwell-positioned, meaning that there are no evident characteristics of an enterprise in turn-over.This particular enterprise should pay attention to the brain drain problem, which can causeserious problems in future enterprise functioning. Considering the above results, themanagement should take the following steps:

(1) Consciously, motivate pioneer entrepreneurial spirit (e.g. with the implementation of anentrepreneurial program).

(2) Strengthen the external activities of the management (connections and contacts withcustomers, paying visits to employees during execution of their jobs, etc.).

(3) A consciously intensified search for new business opportunities in the frame of anenterprises core activity.

(4) Steps in the frame of an organizational structure (perhaps the implementation ofdecentralized, autonomic units).

(5) Overly, bureaucratic managerial instruments should be removed.

(6) Analysis of the enterprises total costs could help in organization.

Appendix 2. The enterprise climate diagnosis following the methodology developedby Victor and CullenPlease answer the following in terms of how it really is in your enterprise and not how you wouldprefer it to be. In your answers, give values from 0 completely false to 5 completely true.

Care

1. (BL) What is best for everyone in the company is the major consideration here:

0 1 2 3 4 5

2. (BL) The most important concern is the benefit of all people in the enterprise as a whole:

0 1 2 3 4 5

3. (BI) Our major concern is always what is best for the other person:

0 1 2 3 4 5

4. (BI) In this enterprise, people take care of each others interests:

0 1 2 3 4 5

Pioneer elements Growth elements Maturity elements Turn-over elements

5 pt 0/0 1/5 5/25 1/54 pt 1/4 7/28 6/24 1/43 pt 3/9 6/18 2/6 5/152 pt 4/8 3/6 4/8 4/81 pt 11/11 1/1 1/1 7/7Total 31 58 64 39 Table AII.


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5. (BC) In this enterprise, it is expected that you will always do what is right for the customersand public:

0 1 2 3 4 5

6. (EC) The most efficient way is always the right way in this enterprise:

0 1 2 3 4 5

7. (EC) In this enterprise, each person is, above all, expected to work efficiently:

0 1 2 3 4 5

Law and code

8. (PC) People are expected to comply with the law and professional standards over and aboveother considerations:

0 1 2 3 4 5

9. (PC) In this enterprise, the law or ethical code of their profession is the major consideration:

0 1 2 3 4 5

10.(PC) In thisenterprise, people areexpectedto follow legal or professional standards strictly:

0 1 2 3 4 5

11. (PC) In this enterprise, the first consideration is whether or not a decision violates the law:

0 1 2 3 4 5

Rule

12. (PL) It is very important to follow the enterprises rules and procedures here:

0 1 2 3 4 5

13. (PL) Everyone is expected to follow the enterprises rules and procedures:

0 1 2 3 4 5

14. (PL) Successful people in this enterprise go by the book:

0 1 2 3 4 5

15. (PL) People in this enterprise strictly obey the company policies:

0 1 2 3 4 5

Instrumental

16. (EI) In this enterprise, people protect their own interests above everything else:

0 1 2 3 4 5

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17. (EI) In this enterprise, people are mostly out for themselves:

0 1 2 3 4 5

18. (EI) There is no room for ones own personal morals or ethics in this enterprise:

0 1 2 3 4 5

19. (EI) People are expected to do anything to support the enterprises interests, regardless ofthe consequences:

0 1 2 3 4 5

20. (EI) People here are concerned with the enterprises interests to the exclusion ofeverything else:

0 1 2 3 4 5

21. (EI) Work is considered substandard only when it damages the enterprises interests:

0 1 2 3 4 5

22. (EI) The major responsibility of the people in this enterprise is to control costs:

0 1 2 3 4 5

Independence

23. (PI) In this enterprise, people are expected to follow their own personal and moral beliefs:

0 1 2 3 4 5

24. (PI) Each person in this enterprise decides for themselves what is right and wrong:

0 1 2 3 4 5

25. (PI) The most important concern in this enterprise is each persons own sense of right andwrong:

0 1 2 3 4 5

26. (PI) In this enterprise, people are guided by their own personal ethics:

0 1 2 3 4 5

About the authorsJernej Belak was born on 7 December 1976 in Maribor, Slovenia. He is an Assistant at TheDepartment for Strategic Management and Enterprise Policy at the Faculty of Economics andBusiness, University of Maribor, Slovenia. He is also a Director of non-profit institution MEREvrocenter for Management and Development. In his master and doctoral dissertations, he dealt


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with the problems of business ethics and its implementation. Embracing this topic, he publishedseveral articles and attended various scientific conferences. Jernej Belak is the correspondingauthor and can be contacted at: [email protected]

Matjaz Mulej was born on 20 January 1941 in Maribor, Slovenia. He was married having twoadult children living healthy in Maribor, Slovenia. He was retired from the School of Businessand Economics, University of Maribor, Maribor, as Professor Emeritus of Systems andInnovation Theory. He has been published more than 1,100 publications in 40 countries(IZUM Cobiss, 08082). He is a Visiting Professor abroad for 15 semesters. He is a author of theDST (see Francois, 2004, International Encyclopedia) and innovative business paradigm forcatching-up countries. He is a Member of New York Academy of Sciences (1996), EuropeanAcademy of Sciences and Arts in Salzburg (2004), European Academy of Arts, Sciences and

Humanities in Paris (2004). He is the President of the International Federation for SystemsResearch (with 35 member associations), Many Who is Who entries. He finished his MA inDevelopment Economics and Doctorates in Systems Theory and Management.

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