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Enterprise ethical climate changes over life cycle stages

Mulej Jernej Belak and Matjaz
Faculty 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 as the right-brain attributes of both managers and their co-workers. A four-stage model is used to perceive these possible changes. Findings are tested in Slovenian enterprises. Differences per stages may be crucial and should therefore be known to managers/owners. Based on the case study research, this paper aims to suggest that enterprise awareness of importance of ethical climate can be of essential meaning for its long-term success. The purpose of this paper is to discover differences in enterprise ethical climate in different enterprise life cycle stages and to identify their importance for active ethical climate care by the enterprises. Design/methodology/approach In this paper, the qualitative research is applied. The research cognitions on ethical climate are discussed in application of the dialectical systems theory. Findings The paper nds that there are some differences in enterprise ethical climate for enterprise life cycle stages and indicates a signicant presence of the rule, law and code and instrumental ethical climates. Movement towards a more bureaucratic method of enterprise functioning, as an enterprise 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 in Slovenian 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 enterprises innovative behaviour in accordance with the state of enterprises life cycle stage. Originality/value The available literature does not provide for a similar research of linkage between the ethical climate and enterprises life cycle. Keywords Cybernetics, Business ethics, Organizational innovation, Systems theory, Slovenia Paper type Research paper

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1. Introduction One speaks much more about knowledge management than about values/culture/ ethics/norms, which result from the right rather than left brain hemisphere and inuence an and Mulej, 2007a, b, c; Mulej, 2007a, b). how knowledge is directed and applied (Potoc This situation reects the usual lack of requisitely holistic (systemic) thinking of specialists. In the functioning of enterprises all stakeholders matter and each group of business 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 cause conict, 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 in time, as enterprises change and develop. There is an extensive body of literature on the concept of organizational life cycle, which attempts to model the stages that enterprises mpin and Prange, pass through, as they evolve from start-up to mature enterprises (Pu 1991; Bleicher, 1994, 2004; Fueglistaller and Halter, 2005). In economic science, the biological life cycle was used for describing and explaining the developmental and growth changes of enterprises. Several authors refer to various life cycle stages of enterprises within which they then describe different enterprise

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mpin and Prange (1991), as well as other authors, characteristics and problems. Pu argue that no uniform management model exists as an answer to problems of enterprises in different life cycle stages. While opinions on the number and nature of specic stages in a life cycle differ, it is clear that organizational challenges and managerial approaches vary as the enterprise evolves (Morris et al., 2002). These developments would also seem to have ethical implications, although little research has been done to address the relationship between life cycle stages and enterprise ethics. Since science recognizes the fact that an enterprise passes through different life cycle stages, and that life cycle stages differ in terms of management systems, formal structures, control systems, documentation of transactions and number of procedural hurdles (Morris et al., 2002), our main research problem was focused on differences in enterprise ethical climate as one of the most important business ethics impact factor. The present paper considers the fact that there are several elements and factors impacting the enterprises ethical behaviour such as enterprises core values, enterprise culture, formal and informal measures of business ethics implementation (Kaptein, 1998; Belak, 2008), not enterprise climate only. The rst part of this contribution therefore deals with the argumentation of the enterprise life cycle phenomena. In the second part, the importance of the enterprise ethical climate is argued, and in the third part the empirical research and the research cognitions are presented. Before them, we will briey present how this research has beneted from the application of the Dialectical Systems Theory (DST). 2. The general and the dialectical systems theories In our understanding of the General Systems Theory (Bertalanffy, 1968, edition 1979), the most crucial sentences read: [. . .] systems theory originally intended to overcome current over-specialization (exposure of these words by bolding is ours, M. Mulej) [. . .] (Bertalanffy, 1968, edition 1979, p. VII); General systems theory, then, is scientic exploration of wholes and wholeness which, not so long ago, were considered to be metaphysical notions transcending the boundaries of science (Bertalanffy, 1968, edition 1979, p. XX). As we see in Encyclopaedia (Franc ois, 2004), most authors of various versions of systems theories and cybernetics have not overcome the current over-specialization. This may solve many problems rather the one of crucial oversights resulting along with deep insights due to over-specialization. Hammond (2003) studied the history of systems theory and found that the fathers of both systems theories and cybernetics used to work on an interdisciplinary basis. Three decades earlier the same problem was detected by Mulej (1974, 1979) and Mulej et al. (2009). His response was labeled the dialectical system. The ancient Greek word for ek et al., 1960). For wholeness of insights interdependence was used dialectics (Britovs and action (Drack and Apfalter, 2007), all attributes of the object under investigation would have to be considered, which is impossible to attain inside a single selected viewpoint 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 beyond the human capacity. Thus, the dialectical system is dened as a system, i.e. network of all crucial viewpoints, which enables the requisite holism (Mulej, 2007b). The Bertalanffys crucial aim to ght important oversights has thus become attainable by

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 holism is met by the synergy of the enterprise life cycle approach and the enterprise ethical climate viewpoint. 3. Enterprise life cycle approach The application of the biological life cycle model to economic science and practice is a relatively new phenomenon. Fueglistaller and Halter (2005) refer to Grabowski and Mueller (1975), who developed the Life Cycle Theory (Lebenszyklustheorie) in the 1970s. According to Fueglistaller and Halter (2005) and Korallus (1988) was the author who mpin and Prange (1991), Rosenbauer importantly contributed to this area, likewise Pu ller and Schmidt (1995). An especially signicant role in (1995) and Kemmetmu developing the enterprise life cycle among these authors was played by works of the co-creators of the St Gallen Model of Integral Management Bleicher (1994, 2004), mpin and Prange (1991) and Fueglistaller and Halter (2005). Pu mpin and Pranges (1991) concepts of the enterprise life cycle described in their Pu ko latest work have been used by various Slovenian scientists and researchers. Puc (2003) and Duh (2002), in particular, derived from it important discussions and research. 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 cycle into: life cycle of products, organizations, branches and industries, as well as resource potentials. His concepts focus on the establishment/beginning and aging of enterprises and organizations, which in time change from entrepreneurial to bureaucratic organizations. In technology life cycles, the author (Cathomen 1996 in Fueglistaller and Halter, 2005) differentiates between: the life cycles of technologies, systems, costs and processes. In his classication, the author proposes a combination of economic and managerial ideas, as well as ideas about the enterprise life cycle (the enterprises part systems, and its environment). With the life cycle concept, the life of an enterprise is presented, making allusions to its growth and development a business changes qualitatively and quantitatively. Most authors explain both terms in combination with an enterprise life cycle and combine 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, the enterprise faces specic problems. If the crisis at the stage transition is not managed correctly, the enterprise can regress to a previous stage or even reach the stage of decline and, consequently, bankruptcy. During the rst three developmental stages, the enterprise is capable of developing from its own strengths these are called the stages of internal development (Bleicher, 1994). In the authors opinion, further enterprise development is possible only by acquisition of and in cooperation with other enterprises, and common exploitation of business opportunities; hence, we can speak of external enterprise development. In the last developmental stage, enterprise shrinks and consolidates after unsuccessful external development, or it divides into specic parts. At every

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developmental stage, its management faces specic problems that are reected at the normative, strategic and operative management levels. Thommen supplemented Bleichers developmental model with the components of strategy, structure, and culture of an enterprise at a certain developmental stage. In Thommens opinion, it is not only strategic decisions but that also develop the business life cycle. An enterprise witnesses changes in its structure and culture when passing through various developmental stages. For example, in small enterprises where the founder (pioneer) has a strong impact on management, stakeholders, and business strategy, the enterprise can act in a very exible manner (Thommen, 1997). mpin and Prange (1991) developed their model of business development within the Pu framework of the St Gallen concept of integral management. They distinguish four enterprise congurations, which are suitable for describing an enterprises mpin and Prange (1991) named these stages pioneer, developmental stages. Pu mpin and growing, mature, and enterprise in turn-over. In the authors opinion (Pu Prange, 1991), enterprise development is dened by its use of business opportunities. The enterprise should always exploit environmental and internal change, from which new business opportunities occur. Since business opportunities follow their own life cycle, which in the end leads to the stage of decline, it is essential for an enterprise to search for and discover new business opportunities (Duh, 2002). 4. Enterprise ethical climate Ethical climate concepts remain popular as a means of understanding the right-brain-based ethical atmosphere in enterprises. For the purpose of our discussion, we will use ethical climates as identied by Victor and Cullen (1988). In their opinion, an institutional normative system can be considered as an element of culture, although enterprise culture is more comprehensive and includes the patterns of behaviour, artefacts, ceremonies and special language. Observers of organizational ethical climate discuss only those organizational norms that concern practices and procedures 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 the ethical beliefs of the enterprise. Furthermore, the distinction between ethical culture and climate helps to clarify in what way the enterprise rules of conduct make a difference. Culture has a manifestation, and it has a stronger impact on the observed ethical behaviour in enterprises that have codes of ethical conduct, as well as other formal measures of business-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 the enterprise, and has a stronger inuence in enterprises with no code of conduct or any other measures of business ethics implementation (Grover and Enz, 2005). Agarwal and Malloy (1999) considers enterprise culture as a broader term, and denes ethical climate as a shared set of norms, values and practices of enterprise members regarding appropriate behaviour in the workplace. Several researchers have focused on understanding the factors that inuence ethical behaviour in enterprise. Various ethical decision-making models propose that ethical behaviour is inuenced by a combination of individual characteristics such as values and cognitive moral development, and contextual factors such as reward systems,

rules and codes (Ferrel et al., 1989). The researchers argue that although the individual characteristics have strong importance in enterprises ethical behaviour the researcher should put emphasis on the role of contextual factors, which seem to have stronger importance from the practical perspective because managers have more control over the work environment that they do over individuals values or moral development (Trevino, 1990; Trevino and Ball, 1992; Trevino et al., 1998, 2000). In the scientic theory, ethical context of enterprises behaviour has been represented mostly 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 and literatures. Although both constructs have been theoretically associated with individual ethical 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 or different aspects of the ethical context? Do enterprise culture and climate predict the same or different outcomes as attitudes, behaviours (Trevino et al., 1998)? The above-stated questions are origin of the organizational studies literature about the relationship between enterprise culture and enterprise climate, and the relationship between these context variables and attitudes and behaviour (Kopelman et al., 1990). Denison (1996) proposed an important thesis that differences between culture and climate literatures are differences of theoretical roots, perspective and preferred methodology 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 enterprise climate is an enduring characteristic of an enterprise. By contrast, culture is a highly enduring 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 therefore depends on the existence of a known past of considerable duration. Climate evolves out of 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. Both enterprise culture and enterprise climate refer to aspects of an enterprises context that are thought to inuence attitude and/or ethical behaviour (Trevino et al., 1998). For better understanding, these two constructs their authors proposed their metaphoric explanation. The term climate suggests meteorological climate and qualities such as temperature, humidity, wind, and other atmospheric conditions that can affect individuals (e.g. feelings), although it is unclear exactly what the effects will be (Trevino et al., 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 characterize enterprises in terms of broad normative characteristics and qualities that tell people what kind of enterprise this is essentially what the enterprise values are. Therefore, enterprise climate is likely to be associated with attitudes, but may inuence decision making and behaviour only indirectly (Gaertner, 1991). Enterprise culture on the other hand, characterizes the enterprise in terms of formal and informal control systems (e.g. rules, reward systems and norms) that are aimed more specically at inuencing 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 conduct through 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 methodology developed by Victor and Cullen (1988) who describe the enterprise climate as perceptions that are psychologically meaningful molar descriptions that people can agree characterize a systems practices and procedures. Further on, the authors argue that the prevailing perceptions of typical organizational practices and procedures that have ethical content constitute the ethical work climate. In their opinion, ethical climate is conceptualized as a general and pervasive characteristic of an organization, affecting a broad range of decisions. Ethical climate, therefore, informs/inuences members of the organization what one can do and what one ought to do regarding the treatment of others. The authors believe that climate types represent perceived norms of an organization or group with an ethical basis. Victor and Cullen (1988) developed a two-dimensional theoretical typology of ethical climates (as shown in Figure 1). The rst dimension represents the ethical criteria used for organizational decision making. The second dimension represents the locus of analysis used as a referent in ethical decisions. Cross-tabulation of the two dimensions results in nine theoretical ethical climate types. Based on the ethical criterion and locus of analysis, Victor and Cullen (1988) argue that ve major types of ethical climate occur in enterprises, the: (1) caring climate, where employees are expected to act in a way which is best for all 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 the law as well as codes and professional standards; (4) instrumental climate, where fullment of individual interests is in focus; and
Locus of analysis Individual Egoism Local Cosmopolitan

Self-interest

Company profit

Efficiency

Ethical criterion

Benevolence

Friendship

Team interest

Social responsibility

Principle

Personal morality

Figure 1. Theoretical ethical climate types

Company rules and procedures

Laws and professional codes

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

(5) independence climate, where employees are expected to follow their own moral beliefs in their decision making. 5. Research methodology For our research on enterprise ethical climates, we chose a multiple case study research methodology (as shown in Figures 2 and 3). Bell (1993) denes this methodology as an umbrella with common characteristics of focusing research attention on certain specic examples or phenomena. Case study research is dened by Yin (1993, 1999) as empirical research into contemporary phenomena in the real environment. The main purpose of such a methodology is to obtain an idea about the real and reciprocal functioning of variables or events. As such, the case study research method enables the researcher to focus on certain specic phenomena in a quest to dene the reciprocal processes that are fundamental in their meaning for other research methods such as surveys, interviews, focus groups, experiments, analyses of archive data, etc. In our research, we carried out face-to-face interviews, which were based on pre-designed questionnaire. The interviews were made with the owners/managers of 17 Slovenian enterprises and took 2.5 hours on average. In our research, we examined enterprises in various life cycle stages. Life cycle stage of an enterprise was dened in the rst part of the questionnaire, our rst construct, mpin and Prange (1991). As shown in following the methodology developed by Pu Appendix 1, in the rst part their methodology denes the characteristics of each life cycle stage (pioneer, growth and maturity stage and the phase of turn-over). In the second part, the data gathering were performed in order to dene 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 our research, we examined enterprises in various life cycle stages. Life cycle stage of an enterprise was dened in the rst part of the questionnaire, our rst construct, mpin and Prange (1991). Using the following the methodology developed by Pu replication logic, we were able to conrm specic ndings in a frame of different enterprise life cycle stages, where we examined quantitative (the age of enterprise, size, etc.) as well as qualitative (management behaviour, and its attitudes towards problems,
Conduct 1st case study Select cases Modify theory Develop theory Conduct 2nd case study Design data collection protocol Conduct remaining case studies Write individual case reports Write individual case report Develop policy implication Write individual case report Draw cross-case conclusions

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Write cross-case report

Figure 2. Empirical multiple case study design

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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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Life cycle stage of enterprises observed determined by using Puempin and Prange's (1991) methodology of life cycle stage

C1: Life cycle stage of enterprises examined

C2: Ethical climate of the enterprises examined

Figure 3. Methodologies and research constructs used in the empirical research

Assessing the ethical climate using the methodology developed by Victor and Cullen (1988)

Note: C = research construct

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 the methodology developed by Victor and Cullen (1988). Questionnaire items represented each of the theoretical climate types (as shown in Appendix 2). Respondents were asked to indicate on a six-point Likert-type scale how accurately each of the items described their 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. The combination of the highest values of the ethical criteria and loci of analyses showed the ethical climate of the enterprises. The highest summary results under a certain climate type dened the ethical climate in the enterprise, as shown in the example in Table I. 6. Research ndings 6.1 Life cycle stage The life cycle stage of these enterprises was determined by using the methodology mpin and Prange (1991). In our research, we examined the enterprises developed by Pu

that were classied in four various enterprise life cycle stages, as shown in Tables II and 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 of the enterprise life cycle as well as three (17.65 per cent) enterprises in the turn-over stage. We performed our interviews in two (11.7 per cent) micro, two (11.7 per cent) small, ve (29.4 per cent) medium, and eight (47.2 per cent) large enterprises, classied on 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 the methodology developed by Victor and Cullen (1988). As shown in Table IV and
Climate type Caring Law and code Rules Instrumental Independence Sum value 30 10 7 5 7

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Table I. Example of ethical climate in an enterprise

Enterprise A B C D E F G H I J K L M N O P R

Size Small Medium Large Micro Large Medium Large Large Medium Medium Medium Micro Small Large Large Large Large

Life cycle stage Pioneer Growing

Mature Turn-over Table II. Enterprise distribution by size and life cycle stage

Life cycle stage Pioneer Growing Mature Turn-over Total

Percentage 17.65 47.05 17.65 17.65 100 Table III. Distribution of research sample by enterprise life cycle stage

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Figure 2, in these particular enterprises, our research showed all ve types of ethical climate as dened by the authors (Victor and Cullen, 1988). Our research shows (Figure 4) that in enterprises A, B and C, a caring ethical climate prevailed. As we can observe from Figure 4, the characteristics of a rule ethical climate also have a strong impact on enterprises B and C. In Figure 5, we can observe the research ndings showing that the law and code ethical climate has the strongest impact on enterprises in the growth stage of the life cycle. In the enterprises D and F, this type of climate prevailed; on the other hand, in enterprises E, G and J, a combination of law and code and rule ethical climate was found.
Enterprise Life cycle stage A c B C Pioneer c/r c/r D l E l/r F l G H I Growth r/l r/i c/l J l/r K c/r L r/l M N Mature i l/r O r/l P R Turn-over r/l/i r/l/i

Table IV. Examined enterprises and ethical climate

Ethical climate

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

Caring 5 4 3 Independance 2 1 0 Rules A B C

Figure 4. Pioneer enterprises in terms of their ethical climate

Instrumental D 5 K 4 3 2 1 J 0 E

Law&code

Caring Rules F Law&code Instrumental Independance

Figure 5. Growing enterprises in terms of their ethical climate

In enterprise H, the rule climate prevailed; however, enterprise K showed the presence of the care and rule ethical climate types in combination. In the case of enterprises L and N, a strong combination of rule and law and code type of ethical climate can be observed as shown in Figure 6. In enterprise M, the instrumental type of ethical climate was dominant. In enterprises O, P and R, a combination of rule and law and code type of ethical climate prevailed, while enterprise P showed strong characteristics of an instrumental ethical climate (Figure 7). As shown in Figure 8, our case study research showed, that in most pioneer enterprises, 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 enterprise stakeholders. On the other hand, the research showed that it is very important for pioneer enterprises that their employees follow the rules and procedures set by the enterprise. In the case of growing enterprises, the research results reveal that the enterprises implement a combination of rule and law and code ethical climates, which implies that following the rules and procedures determined by the enterprise as well as respect for law and professional standards play an important role.
L 5 4 3 2 1 0 Caring Rules Law&code Instrumental Independance N M

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Figure 6. Mature enterprises in terms of their ethical climate

Caring 5 4 3 Independance 2 1 0 Rules O P R

Figure 7. Enterprise in turn-over phase in terms of their ethical climate

Instrumental Law&code

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Caring 4 3 2 Pioneer Rules Growing Mature Turn over

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Figure 8. Ethical climate by life cycle stages

1 0

Instrumental

Law&code

For mature enterprises and enterprises in turn-over, our research indicated a signicant presence of the rule, law and code and instrumental ethical climates. Enterprises in the maturity stage of their life cycle emphasized the importance of rules and procedures as well as legal frames and professional standards. In the framework of the instrumental climate, our case study reects a high level of its importance for the fullment of individual interests. 7. Concluding comments As the answer to our main research question, we must note that our study showed some differences in enterprise ethical climate per enterprise life cycle stages. Our research indicated movement towards a more and more bureaucratic method of enterprise functioning, as an enterprise moves from the pioneer stage towards the stage of turn-over. This pattern of functioning can also indicate a lower level of connection between co-workers, top-management and employees, as well as less loyalty, anchoring of enterprise values and norms, and capacity for innovative behaviour, which can be considered as one of the key success factors in business. Our research raises important issues regarding the enterprises in mature stage or turn-over stage, which are neither able to tolerate differences among employees as well as between all stakeholders nor prepared to stimulate or use the individuals talents in accordance with the enterprises visions, missions and policies. The alienation between top management and employees can have an important further implication such as alienation between the enterprise and its environment, which can make enterprise incapable of efciency and effectiveness. Several authors also argue (Diener and Seligman, 2004) that the basis for creative work is trust among employees. Furthermore, by various authors trust is considered as the constitutional element of enterprises ethical behaviour and constitutional basis for enterprises ethical climate (Victor and Cullen, 1988; Kaptein, 1998). The above-mentioned enterprises should therefore implement all measures, institutional as well as structural, which would foster and support trust in their enterprises. Thus, the climate can provide for innovative behaviour. The research cognitions about the enterprise climate type can be supported also by the research cognitions about the enterprise culture type (Belak, 2008). Those research ndings show that, through the life cycle stages, enterprises make a transition from a clan 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.

Besides, the dependency of an enterprises culture type on its life cycle stage, the research indicated that the culture strength depends on the life cycle stage, as well. In the enterprise life cycle transition (from pioneer enterprise towards the enterprise in turn-over), the culture strength changes from strong towards weak, as well. The research results showed that pioneer and growing enterprises are more successful in implementing the enterprises norms, values, vision, mission and strategic goals through the entire management and governance process (from the owners through the top and middle management to the operational level of the enterprise) than are mature enterprises and enterprises in turn-over. These results also reveal that the pioneer and growth enterprise culture is more compatible with the culture of the environment where they 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 ndings say that the managers of the case-research enterprises do not attain the requisite holism in mastering the novelties in ethical climate that show up over their life-cycle phases. 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 deep rather than surface competitiveness (Fujimoto, 2006). Less narrowly economic views an and Mulej, 2007a, b, c; Potoc an et al., of the enterprise success basis might help (Potoc 2005). This managers attitude may be very general.
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Duh, M. (2002), Razvojni modeli podjetja in managementa (The Developmental Models of Enterprises and Management), MER Publishing House in Maribor, Maribor. insko podjetje, razvoj in razvojni management druz inskega podjetja (The Duh, M. (2003), Druz Family Business, Development and Development Management of a Family Business), MER Publishing House in Maribor, Maribor. Ferrel, O.C., Gresham, L.G. and Fraedrich, J. (1989), A synthesis of ethical decision models for marketing, Journal of Macromarketing, Vol. 9 No. 2. Franc ois, C. (Ed.) (2004), International Encyclopedia of Systems and Cybernetics, 2nd ed., K.G. Saur, Muenchen. hren Gestalten Leben: KMU in Bewegung, Eine Fueglistaller, U. and Halter, F. (2005), Fu Auseinandersetzung mit Kleinund Mittelunternehmen (KMU) und hrung, Reader Wintersemester 05/06, lebenszyklusorientierter Unternehmensfu KMU-HSG, St Gallen. Fujimoto, T. (2006), Competing to Be Really, Really Good, International House of Japan, Tokyo. Gaertner, K. (1991), The effect of ethical climate on managers decisions, Morality, Rationality and Efciency: New Perspectives on Socio-economics, M.E. Sharpe, Armonk, NY. Grabowski, H. and Mueller, D. (1975), Life-cycle effects on corporate returns on retentions, The Review of Economics and Statistics, p. 57. Grover, L.S. and Enz, C.A. (2005), The inuence of company rules, ethical climate, and individual characteristics on sales representatives honesty, Journal of the Australian and New Zealand Academy of Management, Vol. 11 No. 2. Hammond, D. (2003), The Science of Synthesis. Exploring the Social Implications of General Systems Theory, University Press of Colorado, Boulder, CO. ., Duh, M. and Belak, J. (2008), Integral management: concept and basic features of the Kajzer, S r KMU und Entrepreneurship, Duncker & Humbolt, Berlin. MER model, Zeitschrift fu Kaptein, M. (1998), Ethics Management: Auditing and Developing the Ethical Content of Organizations, Kluwer Academic, Boston, MA. ller, W. and Schmidt, M. (1995), Strategicshe Fu hrung von KMU mit Kemmetmu Lebenszycklus-Konzepten (Strategic Management of SMEs with Life Cycle Concepts), Geburstag, Linz. Kopelman, R.E., Brief, A.P. and Guzzo, R.A. (1990), The role of climate and culture in productivity, Organizational Climate and Culture, Jossey-Bass, San Francisco, CA. Korallus, L. (1988), Die Lebeszyklustheorie der Unternehmung: Eine Analyse ihrer Bedeutung r die Managerialismus (Enterprise life cycle theory: its meaning and importance to the fu berpru fung fu r deutsche managerialismus), Debatte sowie ihre empirische U Aktiengesellschaften, Lang, Frankfurt a.M.. Moran, E.T. and Volkwein, J.F. (1992), The cultural approach to the formation of organizational climate, Human Relations, Vol. 45 No. 1, pp. 19-47. Morris, M., Schindehutte, M., Walton, J. and Allen, J. (2002), The ethical context of entrepreneurship: proposing and testing a developmental framework, Journal of Business Ethics, Vol. 40 No. 4, pp. 331-61. na teorija sistemov in ljudski reki, Nas e gospodarstvo, Vol. 21 Nos 3/4, Mulej, M. (1974), Dialektic pp. 207-12. na teorija sistemov (Creative Work and the Mulej, M. (1979), Ustvarjalno delo in dialektic Dialectical Systems Theory), Razvojni Center, Celje (in Slovenian).

ave in manjs ih podjetij z invencijami iz raziskovalnih Mulej, M. (2007a), Inoviranje navad drz organizacij, Fakulteta za management, Univerza na Primorskem, Koper. Mulej, M. (2007b), Systems theory a worldview and/or a methodology aimed at requisite holism/realism of humans thinking, decisions and action, Systems Research and Behavioral Science, Vol. 24 No. 3, pp. 347-57. kafar, B. and an, V., Prosenak, D., S Mulej, M., Fatur, P., Knez-Riedl, J., Kokol, A., Mulej, N., Potoc ne teorije sistemov Zenko, Z. (2008), Invencijsko-inovacijski management z uporabo dialektic itev ciljev Evropske unije glede inoviranja), Korona Plus d.o.o. Ins titut za (podlaga za uresnic inovacije in tehnologijo, Ljubljana. Mulej, M., Bozicnik, S., Cancer, V., Hrast, A., Jurse, K., Kajzer, S., Knez-Riedl, J., Mlakar, T., Mulej, N., Potocan, V., Rosi, B., Ursic, D. and Zenko, Z. (2009), Dialectical Systems Thinking and the Law of Requisite Holism, ISCE Publishing, Goodyear, AZ (in press). an, V. and Mulej, M. (2007a), Ethics of a sustainable enterprise and the need for it, Potoc Systemic Practice and Action Research, Vol. 20 No. 2, pp. 127-40. an, V. and Mulej, M. (2007b), Requisite holism precondition of reliable business Potoc information, Kybernetes: The International Journal of Systems & Cybernetics, Vol. 36 Nos 3/4, pp. 319-32. an, V. and Mulej, M. (2007c), Transition into an Innovative Enterprise, Faculty of Potoc Economics and Business, University of Maribor, Maribor. . (2005), Business cybernetics, Kybernetes: The an, V., Mulej, M. and Kajzer, S Potoc International Journal of Systems & Cybernetics, Vol. 34 Nos 9/10, pp. 1496-916. ko, D. (2003), Strates ko upravljanje (Strategic Management), Faculty of Economics, Puc University of Ljubljana, Ljubljana. mpin, C. and Prange, J. (1991), Management der Unternehmungsentwicklung, Phasengerechte Pu hrung und der Umgang mit Krisen, Campus, Frankfurt am Main. Fu Rosenbauer, C. (1995), Strategische Erfolgsfaktoren des Familienunternehmens im Rahme seines Lebenszyklus (Strategic developmental factors of family enterprises in a frame of life cycle), Dissertation der Hochschule St Gallen, Nr. 1605, Rosch-Buch, Hallstadt. Smircich, L. (1983), Concepts of culture and organizational analysis, Administrative Science Quarterly, Vol. 28 No. 3, pp. 339-58. Thommen, J.-P. (1997), Management Kompetenz und Unternehmungsentwicklung, in Belak, J., Mugler, J., Kajzer, S., Senjur, M., Sewing, N. and Thommen, J.-P. (Eds), rich. Unternehmensentwicklung und Management, Versus, Zu rdigkeit und Corporate Governance, 2. vollsta ndig u berarbeitete Thommen, J.-P. (2003), Glaubwu rich. Auage, Versus, Zu Trevino, L.K. (1990), A Cultural Perspective on Changing and Developing Organizational Ethics, JAI Press, Greenwich, CT. Trevino, L.K. and Ball, G.A. (1992), The social implications of punishing unethical behavior, Journal of Management, Vol. 18 No. 6, pp. 751-68. Trevino, L.K., Buttereld, K.D. and McCabe, D.L. (1998), The ethical context in organizations: inuences on employee attitudes and behaviors, Business Ethics Quarterly, Vol. 8 No. 3. Trevino, L.K., Hartman, L.P. and Brown, M. (2000), Moral person and moral manager: how executives develop a reputation for ethical leadership, California Management Review, Vol. 42 No. 4, pp. 128-42. Victor, B. and Cullen, B.J. (1988), The organizational bases of ethical work climates, Administrative Science Quarterly, Vol. 33 No. 1.

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Whittaker, H. and Cole, R.E. (2006), Recovering from Success, Oxford University Press, Oxford. Yin, K.R. (1993), Applications of Case Study Research, Sage, London. Yin, K.R. (1999), Enhancing the quality of case studies in health services research, Health Services Research, Vol. 34 No. 5, pp. 1209-24. Yin, K.R. (2003), Case Study Research: Design and Methods, Sage, London. mpin and Pranges Appendix 1. The enterprise life cycle stage diagnosis by Pu methodology

5 Elements of a pioneer enterprise A focus on new business opportunities The enterprise is radically innovative The enterprise is young The turn-over is low A low number of employees A low number of consumers Between the top management and the operational divisions, there is max. one level of management At the top is the entrepreneur owner The top management is very interested in details of business functioning (all-rounder) The top management has personal contacts with almost every customer The power of decision making is centralized and very intuitive Authoritarian-patriarchal management style using direct oral directions to every employee, manager giving the directions No formal organizational elements (organigrams, a description of the working place) Employees spontaneously rewarded by the manager in person and orally, as an alternative to nancial rewards for a job well done No standardization of products or processes, an individual approach toward satisfying customer demands A low level of employee specialization Inventors or super sellers at the top The amount of capital is high enough only to satisfy the legislation The level of self-nancing is from 1:3 to 1:5 Total Elements of a growing enterprise Enterprises business opportunities are mostly at the growth stage Table AI.

Agree 4 X

Disagree 2 1

X X X X X X X X X X X X X X X X X 0 1 3 X (continued ) 4 X 11

5 Rather less radical innovation in focus than multiplication of successful concepts and activities Innovations used are mildly radical: new products are similar to previous ones Breakthrough with the basic business activity to new markets and new regions Turn-over; the numbers of employees and customers increase rapidly Thinking of enterprise expansion at all levels, focusing on the interests of every stakeholder The management and innovators can become wealthy by being personally successful and innovative (participating in the prot) The enterprise management consists of the representatives of various business areas and branches Personal contact between enterprise management and the key customers is still present The leadership type is delegation of responsibility 3-4 hierarchy levels Implementation of only a few formal organizational instruments, the presence of organigrams, the descriptions of working places are limited to essential elements Enterprise shows a functional structure that is in its further growth transforms into a divisional structure Formal communication structure has developed, uniform leadership is still in operation Product standardization, sub-activities are abolished A growing number of employees and equipment specialization Initiating the service cores/departments (market research, planning and legislation/taxes) that used to be hired from outside Total Elements of a mature enterprise Enterprises business opportunities are mostly at the stage of maturity (harvest, following, etc.) Cash ows are very good and stable A slow transition into stagnation in the frame of the turn-over Branch benchmarking shows that the enterprise is old and large The top management has almost no connection with the core or the base of the enterprise Financial specialists and lawyers dominate the top of the enterprise Focus on ROI and efciency is greater than following qualitative goals

Agree 4

Disagree 2 1 X

Enterprise ethical climate changes 1393

X X X X X X X X X X X X X X X X 1 7 X X X X X X X (continued ) Table AI. 6 3 1

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Formal (written) communication is used instead of informal (oral) communication An environment of mistrust, control and formal responsibilities are emphasized Working manuals as the instrument of standardization and control, impatience towards a negative attitude Balanced salary structure, a low level of innovative behaviour support Matrix structure A wasteful multi-level planning system Many commissions Participative type of leadership Battles for power on a managerial level (mostly hidden) Discussion ob business decisions between internal and external interest groups The level of self-nancing is about 1:1 Total Elements of an enterprise at the turn-over stage Enterprises business opportunities are mostly in the stage of turn-over or decline Decline in cash ow and consequent negative cash ow Decline in turn-over Only sub-innovations in the context of old products Over-capacity, the competition is taking over the enterprises market share, constant price lowering One-sided focus on expenses (costs) Higher number of product recalls, supercial error dismissal, product quality level decrease Brain-drain Improvement in cash ow and turn-over is always on agenda for the next year A short-term orientation (one to two years), setting only short-term goals and business activities, tactical reactions to competitors The regulation and governmental protection (subventions, donations, etc.), shaping of the branch cartels and trusts The top management has been in place for several years; therefore they are elderly Battles between individual leaders for their own survival in the enterprise, mutual accusations Unclear directions to employees, interference of superiors, concerned employees Powerful authority groups Unnished paper work Enterprises isolation from its environment Large projects Total

Agree 4

3 X

Disagree 2 1

X X X X X X X X X 5 X 6 2 4 1 X X X X X X X X X X X X X X X X 1 1 5 4 X X 7

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Table AI.

The total score of the above-revealed enterprises characteristics gives us the opportunity to dene the life cycle stage of the enterprise.
Pioneer elements 5 pt 4 pt 3 pt 2 pt 1 pt Total 0/0 1/4 3/9 4/8 11/11 31 Growth elements 1/5 7/28 6/18 3/6 1/1 58 Maturity elements 5/25 6/24 2/6 4/8 1/1 64 Turn-over elements 1/5 1/4 5/15 4/8 7/7 39

Enterprise ethical climate changes 1395

Table AII.

Considering the characteristics of the exemplar enterprise, we can conclude that it is in transition from the growth to the maturity stage of its life cycle. The positive characteristics of a pioneer enterprise are slowly moving into the background, and pioneer spirit is not so strongly present in this enterprise any more. On the other hand, this particular enterprise is nancially still well-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 cause serious problems in future enterprise functioning. Considering the above results, the management should take the following steps: (1) Consciously, motivate pioneer entrepreneurial spirit (e.g. with the implementation of an entrepreneurial program). (2) Strengthen the external activities of the management (connections and contacts with customers, paying visits to employees during execution of their jobs, etc.). (3) A consciously intensied search for new business opportunities in the frame of an enterprises core activity. (4) Steps in the frame of an organizational structure (perhaps the implementation of decentralized, 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 developed by Victor and Cullen Please answer the following in terms of how it really is in your enterprise and not how you would prefer 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 benet 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

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5. (BC) In this enterprise, it is expected that you will always do what is right for the customers and public:
0 1 2 3 4 5

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

1396

7. (EC) In this enterprise, each person is, above all, expected to work efciently:
0 1 2 3 4 5

Law and code 8. (PC) People are expected to comply with the law and professional standards over and above other 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 this enterprise, people are expected to follow legal or professional standards strictly:
0 1 2 3 4 5

11. (PC) In this enterprise, the rst 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

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

Enterprise ethical climate changes 1397

19. (EI) People are expected to do anything to support the enterprises interests, regardless of the consequences:
0 1 2 3 4 5

20. (EI) People here are concerned with the enterprises interests to the exclusion of everything 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 and wrong:
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 authors Jernej Belak was born on 7 December 1976 in Maribor, Slovenia. He is an Assistant at The Department for Strategic Management and Enterprise Policy at the Faculty of Economics and Business, University of Maribor, Slovenia. He is also a Director of non-prot institution MER Evrocenter 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 published several articles and attended various scientic conferences. Jernej Belak is the corresponding author and can be contacted at: jernej.belak@uni-mb.si Mulej was born on 20 January 1941 in Maribor, Slovenia. He was married having two Matjaz adult children living healthy in Maribor, Slovenia. He was retired from the School of Business and Economics, University of Maribor, Maribor, as Professor Emeritus of Systems and Innovation 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 the DST (see Franc ois, 2004, International Encyclopedia) and innovative business paradigm for catching-up countries. He is a Member of New York Academy of Sciences (1996), European Academy 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 Systems Research (with 35 member associations), Many Who is Who entries. He nished his MA in Development Economics and Doctorates in Systems Theory and Management.

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