Nov 21

How Important are Ethics to Small and Medium Sized Business Owners?

For the past decade till today, I have interacted with several business owners and managers of different sizes. Some of these firms are really small with one staff and others, large organisations with over 500 employees. As I learn from these businesses, one of the many things that have been most intriguing to me is how to harmonise Ethics and Business growth. This is not to be confused with Ethics and compliance as we’ve seen very many unethical businesses scoring highly in compliance.

Starting with a simple definition, business ethics are moral principles that guide the way a business behaves. The same principles that determine an individual’s actions also apply to business. Business ethics involves personal, professional and corporate behaviour. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations. Particularly, it involves examining suitable constraints on the hunt for self-interest, or profits, when the actions of persons or firms negatively affect others. Acting in an ethical way involves distinguishing between “right”, “wrong” and “right-when-no-one’s-looking” and then making the “right” if not “better” choice.

Business ethics is a huge issue in our society today. In this digital age, business has never called for more transparency than before. Someone else always is going to find out whatever you did when no-one-was-looking and it will spread to their immediate networks. Eventually, before you know, it will have gone viral. With a strong desire to not only grow but most often to survive, both start-ups and existing businesses seeking growth face ethical decisions every day. To just share with you, sometime last year on a day out with one of my business mentors, who is a re-known business guru in town with a very inspirational rags-to-riches story had this to say to me “Brian, this is an industry practice and you must either pay bribes or you’ll be forced out of business.” This is not to qualify unethical behaviour but to bring out the reality of how hard it may be to absolutely enforce ethical approach to business.

A client of ours who shared his story confessed that being unethical caused a big psychological cost that may even stifle growth. In his words “When I started my last business in 2007, I remember that our first customer wanted to visit our office. We had no employees or furniture at the time. We thought this would hurt our credibility. A few days before our customer came; we borrowed some furniture from a friend’s office. We had our computers dial our phone system to make it seem like we were a busy company receiving a lot of calls. We also “hired” a few good friends for the day to make it seem like we had at least a few employees. After we sent all the furniture back, we faced another problem. The customer wanted to come back a month later to visit us again!” He then started to see the cost of being unethical. This is his story and you well may know many other stories.

As I thought through this article, I asked a few of our clients whether they are ethical people and almost all of them were quick to answer with a very strong “YES”. In only moments after asking them on some situations where their ethics were tested and I asked the same question, the results to the question were interesting. Most of them still gave the same answer but now with a lot of hesitation and in a low tone. This was an indication of the gravity of the subject matter and the probable approach by many of them.

From my experience, business ethics issues always start small. Each small decision you make builds the kind of business person you are and the kind of company you run. We need to realize that most of these decisions produce both good and bad results. Like most vices when you find yourself off track, it is rarely because you made a conscious decision to do something dishonest or marginally honest but most often, it has been caused by a series of snap decisions made on the spur of the moment that gradually move you in a wrong direction.

Speaking of how hard it may be to be practice good ethics, why the hustle?

Businesses with strong ethics programs have found that these efforts have a couple of benefits and they include;

  • Potential Avoidance of Fines: Businesses and their employees are required to comply with national, international, and local laws governing their operation. Failure to comply with these standards can be costly in terms of time, resources, brand image and employee and customer loyalty. In addition, the development of strong ethics initiatives can greatly reduce the chance of fines resulting from wrongful, fraudulent, discriminatory or illegal activities.
  • Decreased Vulnerability: As companies develop and widen their geographical operations, decentralise their business functions, and empower their workforce, it is imperative for them to develop ethics practices that provide the necessary training and tools to assure that their employees across board can make ethical decisions. This decreases a company’s vulnerability to misconduct and the harm it can cause to profitability, brand image and management focus
  • Improved Brand Image and Reputation: A couple of studies on the link between CEOs and corporate reputation reported that a CEO’s ethical reputation enhances a company’s ability to attract investment capital, recruit the best employees, and earn a company the benefit of the doubt in times of crisis.
  • Access to Capital: Be it debt or equity, businesses with good business ethics always stand better chances than their counterparts with poor ratings when it comes to raising capital. Banks and investors are always keen as they conduct assessments to inject capital into businesses to ensure good records.
  • Financial Performance: As early as 1988, a study by The Business Roundtable in the U.S., “Corporate Ethics: A Prime Business Asset,” reported that “a strong corporate culture and ethics are a vital strategic key to survival and profitability in a highly competitive era” and that “sound values, purposes, and practices are the basis for long-range achievement.” More recently, some academic studies have shown a positive link between the existence of corporate ethics programs and financial performance.
  • Employee Commitment: A company’s ethical integrity directly influences their decision to work at the company. It is well known that the most important factors for employees in deciding where to work were employee treatment and business practices, ahead of quality, service, or price. So, for a business to attract and retain quality employees, it is imperative that the business owners and managers are highly ethical among other factors.
  • Customer Loyalty: A couple of studies have also reported that business ethics matter to consumers. There is always a tendency for customer to be more loyal to products and services that are provided by businesses they think are ethical in their business approach.

For anyone striving to live ethically, just know that it is a continous effort with costs in the short-run and benefits in the long-run.

By Brian Ahabwe Kakuru

BrianBrian is the Managing Director at BLEGSCOPE®, and has over 9 years of management consultancy experience notably in the finance and banking industry, MSMEs, FMCG companies and in the service industry.
You can follow him on twitter: @BrianAhabweK

Nov 13

What does inflation mean to the common man?

In Economics, Inflation is a rise in the general level of prices of goods and services over a period of time. When this happens, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of (real) value in the medium of exchange and unit of account within the economy. Consumer price inflation is the one usually in the news, and it takes an average of various items purchased by any typical household. The average can rise while some prices have actually fallen, and how much it reflects your personal situation is based on closely the basket of goods and services in the index matches your buying patterns. But, the bottom line is that we say that inflation has occurred when the average price of those goods and services has increased.

It’s also important to note that whereas Inflation is deemed a bad situation in an economy, it is not necessarily all bad and has some benefits. Different countries set different targets for inflation which only gets bad when that target is exceeded. The higher the inflation, the more serious the problem it is. Ideally, if your personal income increased at the same rate as inflation, there would be no hardships. Unfortunately, inflation is not an across-the-board price increase. Prices of different commodities or services may increase at different rates and at different times thus affecting different sections of the population. An example can be the rise of fuel prices usually growing faster than your own annual salary, hence the need to either get a new job with better bonuses or have a side income from a legal business of sorts.

Here in Uganda, as the government (through the Uganda Bureau of Statistics – UBOS) announces monthly inflationary rates, these facts will guide you through how inflation affects the common man;

  • Purchasing power of the shilling falls – a UGX 50,000 note, with which you used to buy a bunch of matooke, 2 kilogrammes of beef and 2 kilogrammes of sugar will probably buy you a small bunch of matooke, 1 and1/2 kilogrammes of beef and 1 kilogramme of sugar over time.
  • Speculative commodity wholesale dealers and middlemen may try and hoard essential commodities like food grains on hopes of reaping profits when prices increase further on dwindling supplies. This is very common during the harvest season and only gets prices going up with time after the harvests.
  • Fixed income groups (basically talking of salary earners like you and me) are the worst hit because their salaries will not be revised to include the cost of living even as prices of items soar.
  • Inflation reduces the value of savings. Just because Inflation leads to a fall in the value of money, it makes savers worse off (that is if you do not earn interest on your savings or that interest rate is lower than the rate of inflation). In the same way, high inflation is really bad for your retirement planning because your target has to keep getting higher and higher to pay for the same quality of life. In other words, your savings will buy less. As a result, you will need to save more today to pay for higher priced goods and services in the future. Since everything you buy today costs more, so you have less left-over income available to save.
  • Inflation can make an economy uncompetitive. For example, higher rate of inflation in Uganda can make Ugandan exports uncompetitive while making. This is particularly important for countries in the Euro-zone because they can’t devalue to restore competitiveness.
  • Inflation tends to discourage investment and long term economic growth. This is because of the uncertainty and confusion that is more likely to occur during periods of high inflation. It is only rational that most people will play safe rather than invest at times when savings are dwindling, interest rates are rising and the country’s trade competitiveness is diminishing among others.

And so, many people still question themselves on what causes inflation. Many circumstances can cause inflation. I will focus on three.

This is not an all-inclusive list, but I would think that it covers the vast majority of what affects us most.

  1. First, the economic agent could have market power. This means they have the ability to avoid (at least to some extent) competitive pressures. It is the latter that forces firms to please consumers. Taking an example of a utility provider like UMEME for the sake of electricity which is a sole provider of grip power and the consumers have limited substitutes. Any increase in the power tariff will most probably contribute to increasing inflation. This is so because, anything that uses electricity or electricity -based products, it would raise the prices of manufactured goods and may also raise the prices of other sources of energy like petrol, diesel, charcoal and firewood among others as consumers seek more of the substitutes of electricity.
  2. Another means by which inflation can take place is a rise in demand relative to supply. Say there is an increase in the demand for housing during an economic expansion. Bottlenecks may arise in certain building supplies like cement and bricks. Contractors bid up these prices in an attempt to secure the materials they need; these price increases then ripple through the economy. Firms and consumers again desire a larger money supply to be able to operate, which the country presumably accommodates. The producers of cement and bricks may also experience a rise in their incomes as part of this process. This is how a market system is supposed to work. Those selling goods and services in highest demand should see their profits and wages rise, even though by definition this will almost certainly cause inflation.
  3. Thirdly is a supply shock. If a hailstorms rage through many parts of the country, badly affecting gardens, plantations and eventually reducing the yield from that season’s crop, this may well raise the price of food. Poor agricultural out-put due to the disaster will lead to low supplies that will not be sufficient for the entire population. The shortage of food will definitely drive the prices up thus leading to inflation.

It should also be noted that how governments decide to curb inflation will in-turn affect each one of us. Taking an example of the approach Bank of Uganda (BoU) has largely used over the past 2 – 3 years; its decision to raise its policy interest rate commonly referred to the Central Bank Rate (CBR), which acts as a benchmark for other interest rates in the economy, including commercial bank lending rates.The economists refer to this approach as the monetary policy.

As you should always expect, the approach has attracted a lot of criticism. This does not mean that the approach is wrong, but there is always a cost to pay in the short-term. The cost that a common man may have to pay is when this Central Bank Rate indeed causes the interest rates to at which borrowers access credit from the commercial banks to rise thus making it more expensive for you to access a loan.

So, the next time you see the fuel pump prices go up or hear about the taxi operators crying over a high increase in the fuel prices, or the number of tomatoes you used to buy at your regular amount dwindling or when you see the notices in newspapers that commercial banks are increasing their lending rates, it’s a signal that you should not take lightly but prepare and cautiously spend on everything that you step out to buy and above all hope that it lasts less than the proverbial next six months.

By Brian Ahabwe Kakuru

 

BrianBrian is the Managing Director at BLEGSCOPE®, and has over 9 years of management consultancy experience notably in the finance and banking industry, MSMEs, FMCG companies and in the service industry. He has a BA (Econ). You can follow him on twitter: @BrianAhabweK

Nov 06

The_Yelling_Game!

Have you ever been in that scenario when you are wondering what is itching your boss? You know what I mean; that point when you are so sure you agreed to split the roles of some assignment and then he/she turns around to yell in your face about not delivering in your outputs and your turn around time slowing down ever so quickly!

The next immediate reaction is usually you being met in the corridor by someone and that person also receiving a yelling from you for nothing at all. Hehehehe

Truth be told, the way we react to yelling is weird. Most times it is usually at no fault of ours, but we usually just take the yelling full-on partially because we are startled into it and mainly because we do not expect it in the first place as we are conc-sure that we have executed what we were tasked to execute and usually above everybody’s expectation!

It can be argued that we cannot really avoid a yelling since the Boss is always allowed to be the Boss. But my business partner once shared with me that when he left his cushy job as a Banker in a large Pan-African bank to join a newly set up bank in the heart of our capital city, he had only previously been yelled at twice and both times were by clients and not any of his supervisors!

He went on to say that the first time, he promised the client to have something done and the team responsible at the head office delayed to execute it and the client damn-right blew his socks off and left after giving the manager a piece of his mind! It suffices to say that the next 10 to 15 minutes;he was seen (and heard) yelling down the phone at someone at the head office.

The second time, it was just one of those days when nothing seems to be going your way! A different client this time who had engaged him previously and had no such problems seemed to be having an equally crappy day and when his bank draft was not ready at the agreed upon time, a yelling was given to him and the day went south from there on out.

Dealing with a yelling has no scientific way of being handled lest you are a psychologist who has trained in this, but we have some prescribed methods of dealing with being yelled at based on the type of yelling given;

Anticipated – Yelling

Minding my own business then find myself being yelled at – Yelling

Technical – Yelling

Corridor – Yelling

Silent – Yelling

Overall, the yelling types always seem to arise from someone not learning how to manage or handle their emotions. There are other ways of showing that are you are annoyed and yet do not lasting memories on staff members. Some of these include;

Scathing Emails

Offsite Tongue Lashing

Regular Performance Appraisals

Genuine feedback on poor performance

Otherwise, the yelling game is not going anywhere soon, as long as we are constantly getting new managers who are still learning how to handle emotions based on not being impressed as expected and having a higher rate of delivery than most.

But be honest, tell us the story when you were yelled at!

Better still, when have you done the yelling?

by Edmund Kamugisha

Edmund Kamugisha

Edmund is the Engagement Director at BLEGSCOPE® and has over 8 years of management consultancy experience notably in MSMEs, FMCG and companies in the service industry.You can follow him on twitter: @edmokmg

 

Oct 28

Consultancy ~> Creativity or Functionality?

The truth about consultancy rarely comes from the supplier side. For it to be absolutely appreciated, it must come from the demand side. Forgive my non-economist readers, but allow me to break it down for you in a No-Holds-Barred kind of manner.

Many a time, a company, organisation, government or even a simple scenario is troubling to its promoters, and because they tend to have something fixed in their mind that tells them that this particular way is the best way. Other times, they are so busy on so many other pressing ideals within the company that taking the time to think through this scenario is a nuisance and does not fathom any time worthy of listening at all.

So, in many cases, the company will look through its history to see what it did the last time such a scenario popped up, and usually carry out a similar attack on the problem and this at best involves meetings with lots of delegating arising and in effect absolves senior management from handling the scenario. This is called sweeping the dust under the carpet. A known method of coping in a growing enterprise and not one to be treated lightly as it encourages the utterly hated blame game.

The other solution is to forge out a list of the problem in more detail and check around through the immediate networks to source somebody who has the ability and mainly prior experience to see beyond such a scenario and not only provide solutions, but should be able to effectively work out ways with the implementers-to-be on how to work around, within and on top of the scenario to the benefit of the client.

This is in effect a consultancy assignment.

The argument for consultants to be creative versus being simply functional can many-a-time be looked at as almost the same. You do a financial strategy for a money lending company and build similar assumptions when carrying out a financing strategy for an investment bank. Or in a better scenario, you carry out a distribution plan for a beverage company and trade similar strategies for a supermarket.

To effectively slice the bread into fairly acceptable slices and having the toaster not complain, one is encouraged to always think through things. Thinking through things requires a step back from every scenario and admitting that the scenarios though similar are quite unique in their own interests and effectively requires a different angle of approach.

The different angle of approach is often overlooked and too few questions are asked to allow the solution to come out from under the carpet. This is in effect a creative method of applying the mind to serious scenarios.

So, if you are on the demand side and the consultant does not have more than 2 ways of looking at your scenario in question, would you go ahead and hire him/her to suggest practical solutions for getting passed the situation?

I think not!

by Edmund Kamugisha

Edmund Kamugisha

Edmund is the Engagement Director at BLEGSCOPE® and has over 8 years of management consultancy experience notably in MSMEs, FMCG and companies in the service industry. He has a BA (Econ) and an MSc (Devt Econ).  You can follow him on twitter: @edmokmg