IBM and the business ethics

Table of Content

1.. THE COMPANY

2.. THE BACKGROUND

3.. IBM’s POLICY

3.1. The maker
3.2. The global corporate culture
3.2.1. The social quality
3.2.2. The environmental quality
3.2.3. The economic quality

4.. THE CONCLUSION

APPENDIX

BIBLIOGRAPHY

1. THE COMPANY

In 1921 the Computing-Tabulating-Recording Co. changed the company’s name to International Business Machines Corporation- IBM was born. Under the first president, Thomas J. Watson Sr., IBM increased significantly its business and reached net earnings of $ 2 million in 1924. The driving force of the company’s success has always been an innovative product, which could make the business life easier. By doing so, electric typewriters have been introduced in the 1930s and remained the flagship product in the next ten years. After the World War II IBM kept its innovation focus, as well, producing, for instance, the first data storage devices (hard disk), which soon became the industry standard. Since the 1960s the company has switched its strategy more to the mainframe production and developed a product named “System/360”, a network of small and large computers, which could be used by all companies regardless of their industry. Because of the emphasis on central computer stations, IBM received the nickname “Big Blue” during this time. Finally, in the 1981, the first IBM PC was introduced, which was a breakthrough in the electronics business.^[1]

Big Blue was always and continues to be a pioneer in the electronic business and consequently dominates the market, although competition in this industry became fierce. Besides, not only IBM’s products have been always innovative but also its management strategy - the employee focus, the environmental concern, or the philanthropic activities. This mixture of the achievement and the employee/environment orientation allowed the company to persist in business for over 80 years.

Currently, under the leadership of Samuel Palmisano, IBM employs over 380,000 people in over 160 countries around the world. The revenues account to around $ 100 billion
each year, which is more than some countries receive. Concerning this, IBM can be seen as global player, which has a significant impact on the business environment in multiple aspects.

2. THE BACKGROUND

The globalization process is the main shaping force in today’s business. Mostly affected by this force are multinational companies (MNCs), like IBM. Based on the consciousness that they have to compete on a global marketplace, these companies extended and continue to extend their business into different countries, seeking a comparative advantage. Referring to the management and marketing literature^[2] a company can pursue a differentiation strategy or a low-cost strategy in order to distinguish its products from the ones of the competitors. However, the main pressure lies currently on the cost part since many companies lowered their expanses significantly by locating their production facilities in low- wage countries, like for instance China or Mexico. At this point the question arises, how far is a company willing to go in order to lower its costs. Since various corporations engage in questionable operations, like children work or ecological dumping, a public debate arose, regarding the social responsibility of MNCs.

A universal definition of the term “social responsible” cannot be found and for that reason the most managers interpret it in a different way. Concerning this, every responsible company leader has his or her own trade-off between the benefits for the company and the harm wrought by the company’s operations. Nevertheless, one should keep into consideration that the influence of some MNCs on the living standards or the environment can be even bigger in some cases than the influence of some governments, since these are often willing to change laws only to attract the MNC to settle their facility in a particular location. Concerning this, the companies’ social responsibility has a great importance because the operations of a single MNC affect the environment in a greater extent than ever before.

From the theoretical point of view, one can assess the scope of the social responsibility by using Caroll’s classic model. This model illustrates “the relationships among the social issues involved, the categories of social responsibilities, and the four levels of philosophy of reaction, or responsiveness: reaction, defense, accommodation, and proaction.”^[3] Every single company implements its own specific combination in this model.

3. IBM’s POLICY

The definition as a “multinational company” is adequate to IBM since the company is doing business in more than 160 countries and is one of the most known companies in the world. Concerning this, it can be said that Sam Palmisano’s company embodies the globalization process and its policies can be seen as trend-setting for other companies. The management of IBM is aware of its model function and implements a policy, which shows a great involvement in social responsibility aspects, simultaneously not giving up its profitability focus. Creating a link to the theoretical framework, the IBM policy can be identified as a proactive philosophy, taking additional efforts to satisfy discretionary responsibilities.

According to Helen Deresky, the “issues of social responsibility (of MNCs- A.S.) continue to center on the poverty and lack of equal opportunity around the world, the environment, consumer concerns, and employees’ safety and welfare.”^[4] Based on the information derived from official IBM sources the company’s objectives include all five categories.

3.1. The maker

IBM was founded back in 1921 and during the over 75 years of business the company’s strategy has altered several times. However, IBM’s former CEO Lou Gerstner Jr., who adjusted IBM’s policy to the new needs of the 21st century marketplace, has performed the last and possibly most significant strategy change. In the beginning of the 90’s IBM situation was really serious because Big Blue missed to adjust to the new market conditions and the increased demand for small, private computers. The situation was so difficult that some analysts predicted an early bankruptcy of the biggest IT firm. After becoming the CEO in 1993, Lou Gerstner Jr. did not only carry out a substantial organizational restructuring but also prepared the company for the future. This preparation included a strong emphasis on the company’s R&D sector and its social responsibility activities. The former CEO recognized early the needs of a global development: “As a global corporate citizen and leader in information technology, we believe we have a responsibility to apply our resources, our technologies, and most importantly, our minds to help protect our planet and make our world a cleaner, safer, better place.”^[5] The inclusion of, for instance, environment protection policies going beyond any legal requirement was questioned by the opponents of Lou Gerstner’s strategy due to IBM’s unstable financial situation. Nevertheless, the ethical orientation was in one accord with Thomas J. Watson, Sr. guiding principle that IBM has to be a leader not only on the marketplace but also in ethical aspects.^[6] Lou Gerstner’s risky investment revealed to be benefiting for the company in the future. Apparently, this development contradicts the statement that an increased social responsibility lowers the profitability ability of a company. Big Blue has been able to respond to the customers’ needs (an environment responsible products) by, for example, an ISO 14001 certification. IBM has turned the environmental liability, which for the most companies is inconvenient, to a competitive advantage.

3.2. The global corporate culture

As a result of the more and more intensified integration of markets across the world^[7][8] most companies developed the global corporate culture, which for IBM means “the responsibility to enhance the environmental, economic and social quality of the world”.^[9]

3.2.1. The social quality

The social quality is concerned with the issues of employee well-being and the creation of equal opportunities for everyone, education improvement, and philanthropic activity. IBM implements a policy, which includes a variety of actions with the objective to increase the social quality. Consequently, hoping that this support of the people’s needs will increase the productivity and efficiency of work and additionally will attract the most productive people to join IBM.

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^[1] Internet.

^[1] van den Bosch/de Man, p.9.

^[3] Caroll p. 499.

^[4] Deresky, p.56.

^[5] IBM Environmental Report 2001, p.1.

^[6] IBM Environmental Report 2002, p.4.

^[7] the data provided in this section is based on IBM internal reports, particularly IBM’s Environmental Reports (1999-2002)

^[8] Dobson, p.485.

^[9] IBM Environmental Report 2002, p.4.