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Main Body

“Strategic Alliances are a better way of accessing and strategically developing knowledge, when compared to other forms of external and internal development”.

Critically evaluate this statement, using academic literature and current business examples.

The essay focuses on the concept of corporate social responsibility (CSR) and its impact on the organizational behavior. Many studies have shared their opinion about the concept of social responsibility and also mentioned that why it is necessary for an organization to perform it properly. In this essay, the focus will be on the comment made by one of the famous economist of the world Milton Friedman regarding the concept of corporate social responsibility. Friedman mentioned, “The only social responsibility of business is to make profit”, which has made huge amount of controversy. Since, traditionally CSR reflects that organization will have to perform specific task in order to become a good corporate citizen. Now, ccorporate citizenship is primarily about running a business properly such as paying taxes, obeying the law and also represent itself as a good neighbor like any other responsible citizen of the society. Hence, it is contradictory of the comment made by the Friedman. Therefore, the essay will try to analyze the comment of Friedman critically in order to evaluate different perspective of the concept CSR.

Friedman argues that there is one and only social responsibility that is to engage in activities, which can help the organization to increase in revenue level in the market. It reflects that like any other individuals in the society, every organization also have their rights to act freely. However, many studies have argued against this, as they mentioned that Friedman neglects the concept of business ethics that every organization has to perform in order to develop a popular image in the market. Specifically, the study made by Carroll in 1991 argued that organizations would have to perform a four layered of responsibilities in order to maintain its growth in long run. Carroll’s highlighted four layered responsibilities are economical, ethical, legal and philanthropic, which all the organization will have to perform in order to achieve a sustainable growth (Du et al. 2013). Naturally, it argues against the Friedman’s study that reflects that organizations only have to care about its revenue level.

As per the article by Moser and Martin (2012), Friedman has completely neglected the importance of the concept of business ethics. Rather Friedman has developed a pure economic approach, so that an organization can able to maximize its profit and revenue level. However, this economic self-interest view can actually damage the business of an organization. Since, organizational activities have huge amount impact on the overall image of the company. Therefore, if an organization only consider about its revenue level, it will affect its overall image. Thus, it will ultimately result in lower profit level of the organization. According to Fleming, Roberts and Garsten (2013) organizations represent a group of people working together for accomplishing the business objectives. Therefore, like any other element, it is also have to consider as a very important part of the organization. As a result, if it only consider about increasing its profit level, it might influence the organization to engage in several unethical activities. This will eventually will create adverse impact on the on the business of the organization.

CSR and Business Ethics

As opined by Chandler and Werther Jr (2013) social responsibly has emerged as one of the prime factors in business environment over the past few decades. Since, performing social responsibility properly, an organization can able to enhance its reputation in the market. Therefore, it will definitely create positive impact on the future businesses of the organization. Furthermore, as competition in the market is increasing day by day, every organization is trying to utilize different strategies in order to maintain its position in the market. Many studies have identified that the companies that are performing its social responsibilities properly and maintaining its ethical responsibilities as well are able to gain major competitive advantage in the market. Therefore, it highlighted that an organization will have to perform its ethical and social responsibilities properly in order to increase its revenue.

In the article, Friedman tries to separate society from business, which faced lot of criticism. Since, business transactions heavily depend on the social values and norms. This highlighted the significance of adopting ethical approach to the business. As argued by Kitzmueller and Shimshack (2012) Friedman’s theory has overlooked the significance of business decisions in the social and ethical responsibility that has the capability to affect many different groups, people in the society. Hence, it emphasizes that business decision regarding the social and ethical responsibility can actually affect the well-being of an organization. It also highlighted that Friedman has acknowledge the fact that both employees and customers have a stake in the company. However, Friedman’s theory does not agree with the fact that employees and customers interests are different to the shareholders interest.

It is imperative that all the business decisions often affect large number of groups, individuals or institutions, i.e. all the stakeholders of the organization. According to Carroll’s theory, corporate social performance and its activities beyond the profit making perspective of the organization has great impact on the significance of the corporate citizenship of the company. In fact, performing social responsibilities properly an organization can able to improve its public relations with its potential customers present in the society and also helps to improve the relationships among the companies. In addition, corporate citizen address the relationship between organizations and all its stakeholders (Windsor 2013). Thus, it highlighted that organizations will have to focus immensely on its additional ethical activities, which is not related to the profit or revenue of the company so that it can able to maintain a strong bonding among all its stakeholders. Thus, it opposes the comment of Friedman that state that company only have to focus on its revenue perspectives.

The Significance of Social Responsibility

As argued by Friedman (2013) Friedman neglects ethical dilemmas and conscience-oriented motives by developing an smoke screen theory that prime principles have to be spewed under the rug at the time of focusing on the outsource labor to under privileged employees in the pursuit to enhance profits. The article also argued against the Friedman suggestion of implementing cheaper labor in the market in order to enhance the profit level of the organization. The article highlighted that Friedman does not consider about the implementation of change or improvement of the domestic job market so that the society can able to grow along with the organization. Thus, it highlighted that Friedman’s theory abandons the organizational responsibility to the society and indicates that the organization is only willing to work with labor markets that can able to fulfill its demanding requirements. Hence, the article highlighted the fact that Friedman’s theory is for the fickle organizations that implements backstabbing approaches towards the domestic labor market in order to increase the revenue level to its fullest (Blome and Paulraj 2013). Furthermore, utilizing cheaper labor force has some of its own issues as well. Since, lower wages does not motivated the employees to give their best for the organization, which eventually will create negative impact on the revenue level of the organization.

However, many organizations has failed considerably by focusing too much on the organizational economic activities such as producing goods and services and neglects the significance of people present in the community (Jo and Harjoto 2012). Many studies also highlighted the fact that community can able to generate a sense of security for an organization that allows to initiate several innovative approach, which can help an organization to overcome the challenges of at the bad time. As a result, if an organization only focuses on its revenue generation, it will definitely not able to improve its security level. In addition, positive relationship with the community helps the organization to enhance its brand value (Hack, Kenyon and Wood 2014). As a result, it creates a serious positive impact on the sustainable growth perspectives of the organizations. Thus, it ultimately will create negative impact on the economic perspective of the company. Hence, it also contradicted with comment of Friedman. Since, it highlighted that if an organization focus on continues improvement, it will defiantly have to perform its social and ethical responsibilities properly.

As per the article by Deng, Kang and Low (2013) Friedman’s suggestion of implementing cheap labor force for the increasing the revenue level of the company can also have great amount of negative impact on the relationship among the employers and employees within the organization. Therefore, it can have major negative impact on the internal process of the organization. The article also highlighted the importance of the strong relationship among different level of employees, as it has the potential to make or break any business. The article highlighted that strong relationship among the different level of employees helps an organization to maintain its structure properly (Baden and Harwood 2013). As a result, it can able to utilize all its internal resources to its fullest. As a result, it will help to minimize the operational cost of the company, which definitely able to help organization to improve its present level of revenue.

Cheaper Labor Force and Organizational Responsibility

A recent survey has estimated that the US companies outsource almost 5 million computer related jobs in different economies. It also highlighted that companies that are working for the US outsourced markets are actually utilizing cheap labor force in the developing economies as compared to US economy (Lopez and Fornes 2015). Therefore, US loose capital, technology and jobs that move offshore to implement cheaper labor. Many economists have argued that loss of capital does not necessarily reflects in the rate of unemployment rather in reflects on the lower rate of wages that the employees have to face. The study highlighted that around $135 billion transform to US to other countries like India, China, Philippines and Russia (Flammer 2013). Thus, it do highlighted the concept of Friedman, as the organizations are looking to outsource huge portion of their works in the other countries so that it can able to utilize cheap labor force of the developing economies. It also highlighted organizations will have to invest comparatively lesser amount in order to enhance its existing level of capitals. Hence, it highlighted that utilizing cheap labor force effectively can actually help an organization to improve its present level of revenue. However, the success of utilizing the cheap labor force depends on the several factors as well. For instance, outsourcing a job in different economy has to go through many legal obligations. The legal system is generally different in different economies. Therefore, companies will have to be extremely careful about the factors such as intellectual property rights, trademarks, copyrights and trade secrets (Fooks et al. 2013). Otherwise, it will come up as a major legal issue for the company, which will create adverse impact on the business process. As mentioned earlier, Carroll theory states that performing legal responsibilities is among the top social responsibilities of the companies. Hence, for utilizing cheap workforce also companies will have to perform its legal responsibilities properly. Hence, it contradicts with the Friedman’s concept of focusing only on the revenue factors.

As per the article by Cheng, Ioannou and Serafeim (2014) Friedman has fail to understand only focusing on the revenue will not allow any organization to maintain its ethical responsibilities properly. In fact, it induces organizations to utilize back door policy, which can able to help the company to increase its revenue level. The article has mentioned that there are numerous examples that reflect organizational failure for trying to achieve quick success by outsourcing its important jobs to other economies. Since, it has failed to overcome all the legal obligations properly. In addition, legal obligation also made the operational processes comparatively slow, which creates major negative impact on the business processes of an organization. On the other hand, the article highlighted Harley Davidson company policy of not to choose outsourcing for its operational process. Since, the company has able to enjoy continues improvement in its revenue level without having to utilize outsource labor. Hence, the article highlighted the fact that utilizing cheap labor force does not necessarily improve the revenue level of the organization. Therefore, it also contradicts with the concept of Friedman.

Neglecting Community Involvement

Ioannou and Serafeim (2015) highlighted that maintaining proper social and ethical responsibility not only helps the organization to improve its image in the market but also help the organizations to improve its internal working atmosphere. The article highlighted the fact that community desires that every organizations will put their best effort in order to represent itself as a good corporate citizen. In addition, employees also expect more than just the paycheck from the company. Flammer (2015) highlighted that providing additional benefits to the employees such as health insurance, performance appraisal, timely increment of salary can actually help an organization to have a motivated workforce, which will help the organizations to enhance its profit level. Therefore, the article states that company does not only have to focus about its revenue level. Rather if an organization can able to perform its internal responsibilities properly, it can definitely able to improve its present level of profit.    

In the article, Friedman outlined shareholders wealth maximization concept. It highlighted that focus on discretionary social investments was improper for corporations. Hence, it highlighted that the prime goal of the organization will have to focus on the return to shareholders. Hence, Friedman mentioned that if an organization focuses too much on the external social factors it would lose its prime objective. In the article, Friedman mentioned that organizations do not know how to invest effectively for the social causes in order to create an effective image for the company (Melo and Garrido‐Morgado 2012). Hence, inept custodian argument highlighted that ethical and social responsibilities will have to be performed by the individuals not by the corporation.  However, Boulouta and Pitelis (2014) has countered the opinion of Friedman by stating that companies can solve the inept custodian argument by employing hire executives whom are experts in the concept of social responsibility. The article also argues that employing experts in the social responsibility department, an organization can definitely able to invest in a much effective way. This effectiveness in the investment process will allow the organization to cope up with the additional cost of employing experts in the economy. Throughout the article, Friedman clarify that shareholder wealth maximization is an imperative of the organization. Friedman also does not support organizational funding for the discretionary social activities (Bondy, Moon and Matten 2012). Friedman also highlighted that unless a clear objectives from employers is provided, ‘philanthropic’ activities of the organization will not able to improve the profitability of the company.

Conclusion

However, Garay and Font (2012) mentioned that Friedman has forgotten to taken into consideration about the externalities factors that can occur in normal business transaction. For instance, if an organization plan to develop a plant in the United States, it will increase the pollution level of the economy, which ultimately will create negative impact on the health of the citizen. Hence, it will provide benefits in the form of higher profitability. Therefore, it highlighted that increase wealth of the shareholders does not always increase the welfare level of the stakeholders. The article also highlighted that main challenge to the Friedman concept is it simplicity that completely different from the practical situation. Therefore, it only focuses on the revenue aspect of the organizations, which is obviously the prime objective of any company. However, the externality factor has established that many other factors that organizations will have to consider in order improving its position in the market. In fact, it mentioned that organizations would have to perform its social and ethical responsibilities in order to increase its revenue as well.         

Conclusion:

The above discussion has highlighted the fact that Friedman concept primarily focus on the investment process of the companies. Friedman theory focuses too much on the revenue level of the company. Therefore, it does not provide enough emphasize on the social and ethical aspect of the organizations. Therefore, it also faced huge amount of criticism from many other studies. The above discussion also highlighted the importance of maintaining proper social and ethical responsibilities for the sustainable growth of the company. Specifically, as the competition is increasing in the market, many organizations are focusing on the significance of the social and ethical responsibilities for gaining competitive advantage in the market. The above study also highlighted the fact that every organization will have to perform its social responsibilities in order to represent itself as good corporate citizen and also to gain competitive advantage in the market. Thus, Friedman comment regarding the social responsibilities of the organizations is somewhat controversial in the organizational business context.

References:

Baden, D. and Harwood, I.A., 2013. Terminology matters: A critical exploration of corporate social responsibility terms. Journal of Business Ethics, 116(3), pp.615-627.

Blome, C. and Paulraj, A., 2013. Ethical climate and purchasing social responsibility: A benevolence focus. Journal of Business Ethics, 116(3), pp.567-585.

Bondy, K., Moon, J. and Matten, D., 2012. An institution of corporate social responsibility (CSR) in multi-national corporations (MNCs): Form and implications. Journal of Business Ethics, 111(2), pp.281-299.

Boulouta, I. and Pitelis, C.N., 2014. Who needs CSR? The impact of corporate social responsibility on national competitiveness. Journal of Business Ethics, 119(3), pp.349-364.

Chandler, D. and Werther Jr, W.B., 2013. Strategic corporate social responsibility: Stakeholders, globalization, and sustainable value creation. Sage Publications.

Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), pp.1-23.

Deng, X., Kang, J.K. and Low, B.S., 2013. Corporate social responsibility and stakeholder value maximization: Evidence from mergers. Journal of Financial Economics, 110(1), pp.87-109.

Du, S., Swaen, V., Lindgreen, A. and Sen, S., 2013. The roles of leadership styles in corporate social responsibility. Journal of business ethics, 114(1), pp.155-169.

Flammer, C., 2013. Corporate social responsibility and shareholder reaction: The environmental awareness of investors. Academy of Management Journal, 56(3), pp.758-781.

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Flammer, C., 2015. Does product market competition foster corporate social responsibility? Evidence from trade liberalization. Strategic Management Journal, 36(10), pp.1469-1485.

Fleming, P., Roberts, J. and Garsten, C., 2013. In search of corporate social responsibility: Introduction to special issue. Organization, 20(3), pp.337-348.

Font, X., Walmsley, A., Cogotti, S., McCombes, L. and Häusler, N., 2012. Corporate social responsibility: The disclosure–performance gap. Tourism Management, 33(6), pp.1544-1553.

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Friedman, J., 2013. Milton Friedman Was Wrong About Corporate Social Responsibility. Huffington Post.

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Hack, L., Kenyon, A.J. and Wood, E.H., 2014. A Critical Corporate Social Responsibility (CSR) Timeline: how should it be understood now.International Journal of Management Cases, 16(4), pp.46-55.

Ioannou, I. and Serafeim, G., 2015. The impact of corporate social responsibility on investment recommendations: Analysts' perceptions and shifting institutional logics. Strategic Management Journal, 36(7), pp.1053-1081.

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Windsor, D., 2013. Corporate social responsibility and irresponsibility: A positive theory approach. Journal of Business Research, 66(10), pp.1937-1944.

 

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