book ifs
International Foundation Programme
Business Management
Etain Casey FP0010
This guide was prepared for the University of London by: Etain Casey, EAP and subject support teacher for Development Studies and Business Management at the Foundation College at SOAS University of London, and a Fellow of the Higher Education Academy This is one of a series of subject guides published by the University. We regret that due to pressure of work the author is unable to enter into any correspondence relating to, or arising from, the guide. If you have any comments on this subject guide, please use the online form found on the virtual learning environment. University of London Publications Office Stewart House london.ac.uk Published by: University of London The University of London asserts copyright over all material in this subject guide except where otherwise indicated. All rights reserved. No part of this work may be reproduced in any form, or by any means, without permission in writing from the publisher. We make every effort to respect copyright. If you think we have inadvertently used your copyright material, please let us know. |
Business Management | Contents i |
Introduction to the course.........................................................................1 Unit 1: What is business management? ................................................ 7 Section 1.1: Types of business ........................................................................................... 8 Section 1.2: Business aims and objectives: profit and break-even ................17 Section 1.3: Management planning and stakeholders ....................................... 22 Concluding comments .....................................................................................................29 Unit 2: The external business environment....................................... 30 Section 2.1: The national and global environment .............................................. 32 Section 2.2: Evaluating the external environment .............................................36 Section 2.3: Business ethics and corporate social responsibility .................. 41 Concluding comments .....................................................................................................44 Unit 3: Strategy and strategic analysis ................................................ 45 Section 3.1: Managing strategy .................................................................................... 46 Section 3.2: Mergers and acquisitions ........................................................................51 Section 3.3: Leadership and strategy ..........................................................................54 Concluding comments ....................................................................................................60 Unit 4: The internal business environment....................................... 61 Section 4.1: Organisational control and management by objectives..........63 Section 4.2: The supply chain and improving product quality ..................... 69 Section 4.3: The HR function and recruitment ...................................................... 74 Concluding comments .....................................................................................................78 Unit 5 Making effective marketing decisions ................................... 79 Section 5.1: Customer segmentation, the marketing mix and the © University of London 2022 |
FP0010 Business Management | Introduction to the course 1 |
Studying business management The world of business is the human world of people in the global economy and knowledge of this world helps to explain why business leaders take the decisions that they do, whether we are looking at the airline industry, oil production, chocolate manufacture, pharmaceutical supplies The global economy itself is coming under increasing question as to the responsibility of enterprises for effects on the planet. Managers occupy positions of responsibility and need Business theories have been developing over the last 100 years and theorists have attempted to make models of how business enterprises work and, in doing so, simplify the processes and present them in diagrams and illustrations for easier understanding. Some theories have been in place for many years and can be applied to many business areas such as human relations, leadership, marketing and systems analysis and are of essential value to managers in problem- solving in the real world. Using these theoretical models, your business knowledge can be applied but always with attention to the individual circumstances you are examining. In studying business management issues, we also use case studies. These are narratives and explanations of events which took place in certain businesses in the past and that we can use Interrelated courses As you begin the International Foundation Programme it is important to appreciate the links across courses. There are clear links between this course and FP0002 Economics which examines human behaviour in the economic sphere. Economists also make use of statistics and data and, although we do not examine these so extensively in business, they are important |
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indicators of trends. Government fiscal policy also affects interest rates and the costs of running a business. Supply chains are dependent on international transport and shipping lanes and thus there are links to FP0004 Politics in the case of disruption to these. There are links to FP0003 International Relations for trade disputes and conflicts that affect the supplies of raw materials and thus impact on the costs of production and on plans to internationalise of globalise a business. Syllabus The course is divided into five units and each unit is further divided into two or three smaller sections. You should be aware, however, that the units are not mutually exclusive and the sections do not cover completely separate issues. You will soon start to find links between them. The best way to study is to work through the subject guide starting with Unit 1, as each subsequent unit builds on everything else covered before. Unit 1: What is business management? This unit introduces the basic components of business to understand the nature and purpose of business activities and the similar problems in structure and management that most businesses have. By the end of this unit, you should be able to identify common business activities and understand and discuss the role of management in business Unit 2: The external business environment This unit explores the reasons why businesses decide to internationalise and the methods available to them to achieve this. In the context of the global environment, it identifies connections and disconnections between corporate ethics and obligations and understandings of corporate social responsibility and how these may conflict with economic drivers in a company’s economic strategy. By the end of this unit, you should be able to understand how changes in the business environment pose threats and create opportunities. Unit 3: Strategy and strategic analysis This unit explores the behaviour of companies when deciding on how to achieve their aims and objectives, whether to expand their business and how leadership style and behaviour impacts on all these decisions. By the end of this unit, you should be able to analyse and discuss how managers make their choices regarding strategies and the theoretical models that help these to be implemented successfully. Unit 4: The internal business environment This unit focuses on how managers achieve their objectives by focusing on methods to improve the efficiency of operations management and control the supply chain. It introduces the role ways by which businesses can pursue their aims and objectives with effective management of resources, including human resource management, supplies and quality control. Unit 5: Making effective marketing decisions This unit considers how businesses set out to identify their customer base and create and satisfy customer demand and why this is an important activity. It explores methods of adjusting to new needs and technologies and involving the entire workforce. By the end of this unit, you should be able to analyse and discuss ways by which businesses can pursue their aims and objectives with effective management of marketing strategy. |
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Week Unit
3
6 7
Section 1.1 Types of business 2.1 The national and global environment 2.2 Evaluating the external environment 2.3 Business ethics and corporate social responsibility 3.1 Managing strategy 3.3 Leadership and strategy 4.2 The supply chain and improving product quality 4.3 The HR function and recruitment 5.2 Information technology and building customer relationships 10 11 13 14 15 16 4 The internal business environment 5 Making effective marketing 12 4.1 Organisational control and management by objectives 17 decisions 18 19 20 Aims of the course The major aims of the course are to: 5.1 Customer segmentation, the marketing mix and the product life cycle
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Introduction to the course 5 |
The Economist – weekly economic news and discussion of contemporary topics– weekly economic news and discussion of contemporary topics The Guardian – centrist paper Accessing the Student Portal and virtual learning environment To manage all your student administrative processes, you will need to log in to the Student Portal. You should have received your login details for the Student Portal with your official offer, which was emailed to the address that you gave on your application form. You have probably already logged in to the Student Portal to register. As soon as you register, you will automatically be granted access to the VLE, Online Library and University of London email account. If you have forgotten these login details, please click on the ‘Forgotten your password’ link on the login page. In order to access your learning materials for each course, you can click on the VLE tab within the Student Portal or login to the VLE directly. Examination advice Important: the information and advice given in the following section are based on the examination structure used at the time this subject guide was written. We strongly advise you to check both the current Regulations for relevant information about the examination and the VLE where you should be advised of any forthcoming changes. You should also carefully check the rubric/instructions on the paper you sit and follow those instructions. Do not leave it until the last minute to start to prepare for the examination. You cannot memorise the whole course in a few weeks and it is important to make a good study plan right from the start so that you understand the issues in the course material. Your two-hour written examination will seek to test the following specific areas and skills:
Here are some study tips to help you succeed in assessment:
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and other visuals to help you to understand theories. Once again, you will not be asked to reproduce these but it is vital that you understand how business processes work. Finally, be sure not to gamble on topics coming up in the exam and fail to revise any others. Past papers and mock tests are useful for your revision but all topics are interrelated in some way. I hope you enjoy the course and good luck! Etain Casey |
Unit 1: What is business management? | Introduction to Unit 1 7 |
Overview of the unit In this unit you will be looking at the basic components of business in order to understand the nature and purpose of business activities. Companies, firms and enterprises are all organisations, whether they are for-profit or not-for-profit. Businesses may be individual, small, family-based settings or employ many people, for example, multinational companies. All businesses have similar problems and many similarities in their structure and management which you will be able to identify and discuss as you study this subject. Week 1 2 3 Aims This unit aims to: introduce you to how businesses are structured Unit 1 What is business management? Section 1.1 Types of business introduce you to the role of managers, their responsibilities and how they fit into organisational structures. Learning outcomes By the end of this unit, and having completed the background reading and activities, you should be able to:
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Unit 1: What is business management? | Section 1.1: Types of business Introduction A business is an organised effort by individuals to supply or produce goods and services to Businesses are made up of a range of activities which include: manufacturing goods marketing, advertising and promoting products A sole trader business gives the owner complete control and direction in the operation of the business and is a simple structure to start up. However, it provides little personal protection against debt and loss, and means that the owner has to fulfil all the obligations of finance, sales and marketing themselves. As a business grows, it may be advisable for the trader to move to a limited company structure. This will provide some protection against losses as a company is a legal entity separate from its owners. There are two types of limited company: public (PLC) and private companies. Public companies offer shares to the public and provide public accounts whereas private companies may have restrictions as to how shares are owned or transferred. The smaller the company, the more difficult it may be to borrow money or expand. Sometimes a partnership is an appropriate way of organising the business: this is when the owners share the profits as partners. This organisation is common in professional activities such as doctors and other medical professionals, lawyers, accountants and other specialisations where a personal relationship with clients is important. Advantages include efficiencies of management and profit sharing, but there may be disadvantages as each partner is responsible for the debts of all and if personal relationships break down, there will be consequences for the business. International companies (IC) and multinational companies (MNCs) have grown up as 8 |
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The board of directors is the most senior group of managers and they are accountable for the company’s management and for setting strategic aims and objectives. The most senior manager of this group is the chief executive officer (CEO). Directors must act in a way that benefits shareholders but their interests are not the only ones that the directors must take into account. The way in which directors run a company is known as governance. This extends to legal, ethical and strategic behaviours, the relationship with shareholders and the remuneration of directors. The UK Corporate Governance Code sets out the principles which PLCs are expected to observe. ACTIVITY 1.1 From your knowledge of local and national business:
Look at:
3. Then decide which sectors these businesses are operating in. (For example, Present your findings to your group. Collecting examples of business activities worldwide will help you in Sections B and C of your exam where we ask you to use your own knowledge to answer the questions. Now is a good time to plan where and how you will store your notes. How are businesses structured and why are structures important? Organisational structures define how a business’s various divisions and departments are linked. In this section we will examine the primary types of organisational structures and their role and importance in the management of organisations, and assess their strengths and weaknesses. For example, do organisational structures remain stable over time? What might be the challenges that the contemporary business environment poses for organisations? Organisational structures refer to the ways in which managers divide, supervise, monitor and coordinate work. They comprise the formal and informal arrangement of tasks, responsibilities, lines of authority and reporting relationships. Organisational structures determine how different departments and people are linked. They also define the lines of authority and how information flows from one organisational division to another. Without an appropriate structure, managers will find it difficult to execute their tasks within the organisation. It will also be challenging to identify who is responsible for what in the organisation and how their own tasks may be linked to the activities in other departments. The absence of appropriate organisational structures can cause a number of serious problems for an organisation, including in the implementation of its strategies and administrative confusion for managers. Conversely, an appropriate organisational structure can allow a firm to reduce its |
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costs and achieve better operational efficiency. All this can greatly help with an organisation’s ability to create value for its customers and realise profits. Types of organisational structures From the various types of organisational structures that are available today, organisations may choose to combine elements from more than one type. It is also important to note that there Some of the most common organisational structures are: Functional: This is one of the most common types of organisational structure. As the name indicates, functional structures are based around the key tasks or functions of the organisation. These range from basic functions such as accounting and marketing to finance, operations and information management. Due to its simplicity, this type of organisational structure is used by smaller firms and those that have narrow product ranges. One of the major benefits of this type of organisational structure is that it leads to greater control of operations at the managerial The functional areas of business management in a larger organisation may include: finance and accounting sales Product: This type of organisational structure is based around the production of the various types of products or services the organisation delivers. The primary organisational functions such as marketing, operations, finance and accounting are organised around each product or service group. The organisation considers each product or service group as a profit centre. The main advantage of this organisational structure is that it allows managers to base their work activities around products (or services), and also to evaluate the performance of these products (or services). The primary disadvantage of this type of organisational structure is related to the duplication (or even multiplication) of the organisation’s various functions. Divisional: A divisional structure, as the name indicates, is a type of organisational structure where an organisation is made up of separate business units or divisions. In other words, a divisional structure consists of various divisions organised along business, product, customer group or geographic lines. The central corporate headquarters will monitor the activities of the various divisions, allocate resources and provide support functions. A significant strength of this type of structure is that it can allow an organisation to arrange its different products within a specific division and reduce the functional duplication. Additionally, this type of organisational structure can also ease cross-product as well as cross-regional coordination and cooperation. It is most suitable for large organisations with diversified products or product families. The primary |
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disadvantage of this type of structure is that it sometimes inhibits cross-division coordination and can even lead to conflict between the division’s objectives and those of the organisation. Matrix: A matrix structure organises itself along two or more dimensions in an effort to enhance collaboration, coordination and cross-unit communication. In this type of organisational structure, the managers assign specialists from different departments to work together Regional: Here, the organisational structures are constructed around different geographical areas. Organisations with this type of structure often consider a specific region as a profit centre and measure the profitability of each region based on revenues and expenses This type of structure allows the organisation to gain an in-depth understanding of the customers, products, governments – and even competitors – to be found in a particular geographical region. Furthermore, regional managers are accountable for the performance of the organisation in their own regions and therefore the lines of authority are particularly clear. The primary issue with this type of structure is that regional differences may often inhibit coordination and communication across the different regional units. Another problem is that regional units frequently develop their own way of doing business which may conflict with the approaches and strategies of the corporate office. Hybrid: A hybrid organisational structure consists of a combination of basic organisational structures. Organisations, especially large ones, will frequently combine elements of functional and divisional structures (or other types of structures too) to reap the benefits of each of these. This type of structure is used in order to utilise the strengths of each of the chosen organisational structures. It can lead to increased efficiency, help an organisation’s employees to develop cross- functional skills and offer high levels of flexibility. However, such an organisational structure comes with no clear line of authority, which in turn can create confusion about the roles and responsibilities of employees and managers, and even increase conflict among project managers. Team-based: This type of organisational structure relies on project teams that work collaboratively and communicate directly with partners and customers. Outsourcing: In this structure the organisation enters into contracts with external providers who will supply products and services which were previously supplied internally, for example, cleaning, IT and customer service. Management roles Earlier definitions of management adopted a particular view on organisational activities that saw management as the process of forecasting, planning, organising, coordinating and controlling resources. There was an alternative focus, however, on the social nature of management which emphasised the need to coordinate peoples’ resources and efforts to achieve common goals and objectives. The idea that started to emerge was that, while the various management functions and processes are important, the role played by people is the most crucial aspect of management. |
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While management is about processes, such as planning, organising, controlling and utilising resources, to achieve particular goals (see below), most importantly, however, management is about people. Management functions Management functions can be summed up as ‘what managers do’. While it is not possible to summarise everything that managers do, there are some core functions that underpin what management is about which include planning, organising, leading and controlling (see Boddy (2016) pp.22–24 for more detail). Planning Organisations exist to achieve goals, and someone needs to define what these goals are and the best ways to achieve them. The function of planning is to define goals for future organisational performance as well as the tasks and resources that are needed to attain them. The planning process sets out the overall direction of the work. Within this framework, managers need to undertake tasks such as forecasting future trends, assessing resources and developing performance objectives. As part of the planning function, managers must also make decisions regarding the scope of the business, the areas of work in which to engage and how to allocate resources between different projects or activities. Organising The organising function of managers typically follows the planning process and reflects how the organisation will accomplish particular plans of action. It involves assigning tasks, grouping tasks into departments, delegating authority as well as allocating resources across the organisation. Organising is frequently described as the process that moves abstract plans closer to reality by deciding how to allocate time and effort. As part of the organising function, managers perform tasks such as creating a structure for the enterprise, developing policies for HR and coordinating resources. Leading Every organisation involves people, and it is part of a manager’s job to direct and coordinate the activities of these people. This is the leadership function of management. It can be described as the use of influence to motivate people to achieve organisational goals. Leading is frequently associated with the creation of a shared culture and system of values. As part of the leadership function, managers will also need to communicate goals to employees and inspire them to perform at the highest level. Controlling Organisational objectives and plans need to be examined and evaluated on an ongoing basis. The controlling function is concerned with regularly monitoring employees’ activities, and it also determines whether the organisation is on target to reach its goals and to make adjustments Management skills A manager’s job is multidimensional and requires a range of skills. Managerial skills emerge through a combination of aptitude, education and training, but also experience. There are many skills that managers are asked to cultivate; these can be summarised in four categories. Conceptual skills Conceptual skills can be defined as the cognitive abilities that are needed to see the organisation as a whole and how its parts relate to one another. These involve the manager’s thinking, |
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information processing and planning abilities. Logical reasoning, judgement and analytical ability are the main features of the conceptual skills that every successful manager should have. This definition assumes a well-developed cognitive ability that enables one to see relationships between the organisation and its fundamental constituents. Human skills Human skills refer to the manager’s ability to work with and through other people and to work effectively as a member of a group. These skills are demonstrated in the way a manager relates to other people, including the ability to motivate, facilitate, coordinate, lead, communicate and resolve conflicts. Today’s managers need to be genuinely concerned with the emotional needs of their employees, not just their needs related to their job tasks. Human skills are also known as interpersonal skills. Examples of such skills include sensitivity, persuasiveness and empathy. They are important at all levels of management, particularly at the lower and middle levels. Technical skills Technical skills refer to the understanding of and proficiency in the performance of specific tasks. They include mastery of the methods, techniques and equipment involved in specific functions of the organisation, for example, engineering, manufacturing or finance. Technical skills also include specialised knowledge, analytical ability and the competent use of tools and techniques to solve problems in that specific discipline. Political skills Apart from the previously listed main skills, political skills are important part of a manager’s skillset. Managers use these skills to establish a power base and build important connections. Examples of such skills include negotiating and bargaining skills. Organisations are political arenas in which people compete for resources. Managers who have mastered these skills are usually better at obtaining resources for their groups. What is it like to be a manager? An important determinant of the nature of a manager’s job is hierarchical level. Top managers are at the head of the hierarchy and are responsible for setting organisational goals, defining strategies, monitoring and interpreting the external environment and making decisions that affect the entire organisation. They have titles such as president, chairperson, executive director, chief executive officer (CEO) and executive vice-president. Middle managers work at the middle levels of an organisation and are responsible for business units and major departments. Examples of middle managers are department head, division head, manager of quality control and director of the research laboratory. They implement the overall strategies and policies defined The other major difference in management jobs occurs horizontally across the organisation. Functional managers are responsible for departments that perform a single functional task and have employees with similar training and skills. General managers are responsible for several departments that perform different functions. Within this framework, a general manager is responsible for a self-contained division and for all functional departments within it. ACTIVITY 1.2 List at least five skills that you think a successful manager must have in order to be effective. Compare your list with others in your group and work together to compile a list of 10 essential management skills. Share this with the whole group. |
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Management roles Management roles can be further be divided into three conceptual categories: informational, interpersonal and decisional. These are explained below. Informational roles Managing depends on obtaining information about external and internal events, and passing this on to others. The manager seeks, receives and screens information to understand the organisation and its context, using research. As an example, a manager can conduct research through market intelligence, reports, conversations or by utilising any source of data that seems relevant. In the disseminator role, the manager shares information by forwarding reports, documents, statistics or briefs to staff inside the organisation. The disseminator will make sure that people within an organisation are constantly informed and receive up-to-date information. As a spokesperson, the manager transmits information to people outside the organisation – speaking at conferences, briefing the media or presenting at a company meeting. Interpersonal roles Interpersonal roles arise directly from a manager’s formal authority and status, and shape relationships with people within and beyond the organisation. As a figurehead, the manager Decisional roles In the decisional role managers see opportunities and create projects in order to exploit these opportunities. In this role, managers usually initiate change in their efforts to create a dynamic and forward-looking organisation. A manager becomes the disturbance handler when they deal with unexpected events, which draws their attention away from planned work. As a resource allocator, a manager makes decisions concerning how to allocate people, time, budget and other resources in order to achieve desired objectives. The negotiator role involves formal and informal discussions or bargaining to attain outcomes. For example, a manager may negotiate the prices of raw material with suppliers or the prices of final products with clients. Managers may also need to negotiate internally for the allocation of resources or budgets to their organisational divisions. Henry Mintzberg, a Canadian academic, devised a theory that recognised that every manager’s job combines elements of these roles, with their relative importance depending on the manager’s own style and preferences, hierarchical position and the type of business they Management: centralisation and decentralisation of power in a business In the early twentieth century, Henri Fayol, a mining engineer, was credited with inventing management as an activity. He proposed six management roles: forecasting, planning, commanding, coordinating and controlling. All of these, he stated, were interrelated. At around |
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the same time, Max Weber became interested in where power was based in an organisation and he developed a theory of bureaucracy which was based on the legitimate authority of business roles where work was divided, coordinated and controlled. There was a strong emphasis on rules, regulations, procedures and hierarchical relationships. In the 1970s, Henry Mintzberg devised another theory which identified ten management roles which he divided into interpersonal, informational and decisional (see above and also Buchanan and Huczynski (2019) p.534). He believed that this provided the best picture of how managers actually work in organisations. This led to further discussions of managerial roles and their impacts. Management occurs as a general set of tasks, but managers are often not just general managers but specialist managers, placed at different levels in organisational hierarchies. Managers will take on a variety of roles. Key management skills include the ability to plan, organise, control and lead within a variety of external and internal organisational contexts. Managers also need to make significant decisions not only about the type (or types) of structures that will best serve their organisation, but also on how power will be distributed between the various units, divisions and departments. Centralisation and decentralisation of power within an organisation refers to the extent to which decisions are made at the top or whether managers at lower levels of the organisation contribute to decision-making. Organisations in which power is centralised are known to restrict decision-making power to a few individuals from top-level management. Decentralised organisations in contrast tend to delegate decision-making authority to the lowest possible levels. The major advantage of centralisation is that it gives high levels of control over the entire company to the owners/managers. In a centralised organisation, there is also less chance However, centralised organisations also face several challenges. First, a high concentration of power among top-level management can lead to autocratic control over subordinates, which may lead to a lack of flexibility in administration. It can also lead to unexpected delays in securing action because of the increased time it may take to receive the approval for strategic decisions from top-level management. This can make an organisation slow in responding to changes in the business environment. Furthermore, high concentrations of power at the top may compel managers to make decisions with whatever information is available to them. This can be detrimental for the performance of the organisation, especially if the knowledge or information rests at the lower levels of the management hierarchy. Decentralisation of power also has its own advantages and disadvantages. One of its major advantage is that pushing decision-making to lower levels of management allows an organisation to shorten its response time, fosters innovation as it encourages the creation of new ideas among managers and also leads to higher involvement of people from different departments of the organisation. Additionally, as decentralisation gives power to people at lower levels of management, it leads to increased morale and the increased productivity among employees, which in turn also enhances business performance. However, decentralisation also has its own problems. For example, it can make communication between various levels of management difficult, resulting in miscommunication and mismanagement. It can also lead to a loss of control over decision-making and can therefore put an organisation at an increased risk of problems that may result from incorrect or unwise decisions being taken by people at the lower levels of management. In addition, as |
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decentralisation of power gives more authority to people at different levels to act and make decisions independently, it creates the risk of having too little collaboration and coordination across different parts of the organisation. Finally, emergency or crisis situations usually call for more centralised power and authority in order to increase response time and enhance the decision-making process. ACTIVITY 1.3 Read the GlaxoSmithKline (GSK) case study in Boddy (2016) pp.313–15. Make two slides to share with the group that answer the following questions:
ACTIVITY 1.4 Why might Max Weber and Henri Fayol be surprised by the modern developments in business structure and management? After discussing this question in groups; each student should write an individual short explanation. Conclusion In this section you examined a range of organisational structures that are used in business and how this affects risk. You investigated and discussed important management skills and the theory which accompanies management roles as well as the different functions which will affect the performance of a business. |
Unit 1: What is business management? | 17 Section 1.2: Business aims and objectives: profit and break-even Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to: analyse how vision, mission statements and aims are used to set objectives management. Background reading Cole and Kelly (2020) Skill Sheet 7: Managing strategy. Surridge and Gillespie (2019) pp.4–6 and 214–27. Introduction In this section, you will be analysing the background to business management and how strategy describes the basic steps that management take to reach and achieve the business objectives. First, there is the requirement for a vision or picture of where the company wants to be. This is followed by a mission statement that specifies the business in which the firm intends to compete and the customers it intends to serve. Managers will establish aims for the business, for example, the overall aim may simply be to increase profitability, or to improve the efficiency of the operations and lower costs. Another aim may be to capture a larger market share or to improve customer service. From these general aims, managers will set objectives or specific actions to take over a specific time frame, many of which may be quantified or measured in financial terms. Calculating the break-even position of a company and the point at which it moves into profit is another important part of management planning. Break-even analysis is a calculation that will show the manager the point at which total costs are exactly equal to revenue from sales. Although no profit has been made, no loss has been made either. Managers can calculate what adjustments need to be made in terms of production; they can use the calculation in their planning for loans and they can assess whether the business has a secure future. Setting objectives: vision and mission statements The vision of how a company may perform in the future is one of the concerns of senior management. This includes business owners, the CEO and the company’s board of directors. |
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Organisational mission A mission statement sets out the business’s current purpose in clear terms and states its Mission statements differ from strategic visions. The former represents the organisation’s present business and purpose, whereas the latter expresses the organisation’s plans for the future. Mission statements help stakeholders, suppliers and customers to understand the organisation’s philosophy, values and purpose. Sometimes businesses frame their mission statements in terms of their profit-making aspirations or potential. This is not a good approach to take when representing what an organisation Ideally, the mission statement of an organisation sufficiently describes the following: its identity customer needs that it must aim to satisfy the approach it uses to satisfy its customers. ACTIVITY 1.5 Most larger companies, especially PLCs, will have a mission statement in their advertising, on their website or in other material. Schools, colleges and universities will also have a similar statement that answers the question of why the organisation exists and how it intends to achieve its purpose. Find examples of three mission statements and analyse them to find out:
Objectives George T. Doran developed an acronym – SMART – in the 1980s to help managers succeed in setting objectives. He argued they should be: Specific |
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Relevant (every individual goal is connected to the organisational goal) Time bound (achievable within deadlines). Criticisms of SMART objectives SMART is still a popular method but common criticisms are that not every action can be measured in financial terms and not every activity in a company is measurable at all. In fast- moving businesses, objectives can shift very quickly and managers may be encouraged to write very limited objectives as they are afraid of failing. Deadlines may be missed and thus they have limited value. Specific. Whether they are devised for subordinates, companies or units, goals need to be specific. Specific goals are more likely to help companies to achieve progress and growth, but also enable them to assess whether particular goals have been fulfilled or not. Frequently, organisations put effort into expressing their goals in quantitative terms, whenever possible, in order to make these goals explicit and accurate (i.e. reduce costs by 2 per cent, increase teacher effectiveness ratings from 4 to 4.2 and so on). However, organisations will often set qualitative goals as well (something that happens very often at the strategic level). The crucial point is that goals are precisely defined and that it is possible for organisations to measure progress towards their attainment. Measurable. It is important that organisations develop goals that are not only specific, but are also measurable. Organisations need to measure their performance or the extent to which they are moving in the right direction to achieve particular goals. Accurately measured goals also help to establish a clear corporate vision. Making progress towards reaching a goal has to be measured often, and this is when goal setting is most effective. Achievable. To fulfil goals, it is important that they are agreed on and supported by the people who are directly or indirectly affected by accomplishing these goals. When it comes to companies, this means that a significant percentage of employees must agree on them. For example, individual subordinate goals must be accepted by subordinate individuals. Also, managers need to ask the employees to express their honest opinion about a goal. A vital objective of SMART goal setting is not superficial agreement to achieve a goal but a strong commitment to doing so. Relevant. Goals should be realistic and not unreasonably difficult. Setting challenging Time-bound. Finally, goals should have a specific time period in which they should be achieved in order to be effective. Specific milestones help organisations to measure their performance and evaluate their progress towards the achievement of particular goals. ACTIVITY 1.6 In this activity, we will look at case studies and applied theory. Work in small groups and complete either: Business in focus: Starbucks’ mission statement from Surridge and Gillespie (2019) p.6 or |
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Calculating profitability Once management has set objectives, they have provided some direction for employees who will then all be able to work towards the same targets. Individuals and department managers can measure their performance and progress more easily and this will help with motivation. In addition, the objectives can be kept under review and discussed in order to adjust planning. In a for-profit business, the key objective must be to increase profitability; to calculate this requires an understanding of the relationship between costs and revenue (i.e. the expenditure of a company which must be deducted from the income it receives over time). The balance left over can be expressed as a percentage or profit margin. Profits are increased when more income is received. A profitable business is much more likely to have the following advantages: to be of interest to investors to have an enhanced reputation to gain or retain a good credit score among lenders and suppliers. A profit margin is a ratio that expresses a business’s profit as a percentage of its revenue over a trading period. The uses and importance of break-even analysis This analysis is often made in the early days of a business start-up to ensure that the business will grow over time. The analysis will also reveal how much more must be produced or sold to make a profit. When a business approaches a bank or financial institution for a loan or credit, then the break-even analysis will be crucial in reassuring the lender. From time to time the costs of operating the business may change and the manager needs to ensure that these changes are not driving the business below the break-even point. A break-even analysis is also helpful in informing managers of the expected profit or loss at various stages of output (i.e. whether it is worthwhile expanding capacity or whether it should be reduced). For example, if a restaurant owner who has calculated that she needs to serve 3,000 customers per week to break even suddenly finds that she has only 1,000 customers, this is a warning that at that point, the fixed costs of running the restaurant will not be covered. The key terms are:
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Section 1.2: Business aims and objectives: profit and break-even 21 |
Conclusion In this section, you analysed how a company’s vision, mission statement and aims are created and how they can be used to set objectives. These objectives can be developed using the SMART technique. You have identified how profit and break-even calculations can be used in a variety of circumstances related to production and sales, which assist in management decision-making. |
Unit 1: What is business management? | 22 Section 1.3: Management planning and stakeholders Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to: demonstrate the significance of planning for the successful attainment of organisational outcomes explain the role of stakeholders in a business. Background reading Boddy (2016) Chapter 6. Johnson, G. et al. Exploring strategy. (Harlow: Pearson, 2017) 11th edition [ISBN 9781292145129] Chapter 5 ‘Stakeholders and governance’, pp.134–36. Surridge and Gillespie (2019) pp.71–72. Introduction Management is about processes, such as utilising resources to achieve particular goals. Most importantly, however, management is about people. Management functions can be summed up as ‘what managers do’. While it is not possible to summarise everything that managers do, there are some core functions that underpin what management is about. These functions include: planning, organising, leading and controlling. In this section, we will focus on one of these functions, namely, the function of planning. We Managers do not take their decisions without regard to the stakeholders in a business, and you will investigate the role of those individuals or groups who depend on an organisation to fulfil their own goals but on whom the organisation also depends. Planning Planning represents a decision-making process that is focused on the organisation’s future goals and how to achieve them. In particular, planning includes defining the business’s aims and objectives, designing a strategy to fulfil them and establishing a complex planning hierarchy to implement and coordinate its activities. Businesses conduct planning and goal setting in order |
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to achieve a high-quality performance. Organisational plans are the means by which an organisation will reach a certain target, whereas its objectives are the targets. Planning begins with a formal mission statement that outlines the main purpose of the company for its external audience (as you saw in section 1.2). It is important to note that organisational objectives come before plans, because plans do not make much sense without objectives. That is why planning is regarded as a fundamental managerial function, since it forms the basis for other managerial activities, including organisation, control and leadership. A crucial part of the planning process is developing a strategic vision. Traditionally, planning was carried out entirely by top executives, consulting firms and central planning departments. The latter includes groups of planning specialists who report directly to the chief executive officer (CEO) or president of the company. This top-down approach was very popular during the 1970s. Goals and plans were assigned to departments and divisions from the planning department, after approval by the CEO or president. Although this approach to planning is still being used, a common problem with it is that central planning departments may be out of touch with the fast-paced realities faced by front-line employees. Furthermore, because planning takes place at higher levels of the organisation, front- line employees are not given the space or the incentive to think creatively and generate their own ideas. A newer approach to planning has been to involve everyone in the organisation – sometimes even outside stakeholders (such as clients or suppliers) – in the planning process. In this more decentralised approach to planning, planning experts work with managers in major divisions, but also with line managers and front-line employees. The challenge behind the decentralised approach to planning is that often a massive amount of information is generated, and an organisation will need to devote time and effort to filter and analyse this information when making plans. Nevertheless, in a complex and competitive business environment, organisations constantly need to be looking for hidden sources of ideas and innovation. For this reason, involving not only senior or middle levels of management, but also their front-line employees in the planning process, becomes crucial. Types of plans Today companies that offer a single product or service are quite rare. Therefore, organisations must devise more than one plan to cover all their business activities. That is why managers often differentiate between three basic types of plans: strategic, tactical and operational. Strategic plans are usually projected to cover three to five years. They define a course of action an organisation needs to follow in order to fulfil its strategic goals. Their scope is broad as these plans cover the entire organisation. They tend to be quite general and complex because they encompass various industries and businesses. Strategic plans represent the blueprint that outlines resource allocation (personnel, cash, activities, space) and the activities of the organisation. The success of strategic plans defines the potential for an organisation to achieve growth, expansion and prosperity. On the other hand, the lack of success or failure of strategic plans may impact on the organisation’s survival. Tactical plans often project an organisation’s activity for the following one or two years. Their aim is to facilitate key strategic plans and contribute to particular aspects of the company’s strategy. Tactical plans define what the organisation’s sub-units and major departments are moderately interdependent and those drawing them up must take into account the capabilities and resources of several business units. Tactical plans are usually identified by a middle manager who has an overview of the company’s broad strategic plan. |
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Operational plans project future plans for no more than a year. They are developed at the lower levels of the organisation and outline actions that will support tactical plans. Why should managers formally plan? Formal plans are fundamental for contemporary organisations. In this section we are going to discuss four primary reasons why managers should undertake formal planning. First and foremost, planning provides direction for both employees and managers. In any corporate environment, teamwork and cooperation are crucially important. Formal planning is a complex activity that involves different levels of the organisation. In order to foster such an environment, all members of the organisation need to understand where the organisation is heading. In contrast, without formal planning, employees and managers may follow individual routes and objectives, engage in courses of action that divert from each other and therefore hinder a corporation from achieving its goals. Secondly, formal planning reduces uncertainty. Managers are forced to look ahead and examine the impact of various forces. Organisations that engage in formal planning procedures will be monitoring their environment on an ongoing basis and therefore be more prepared to tackle change. Very often managers are able to plan their responses to certain changes in advance. The third reason is to reduce redundant activities and overlapping. You may be surprised to find that at some point or another most organisations (especially the larger ones) engage in activities that are not necessarily useful or become less relevant in time. Wasteful or redundant activities are likely to be discovered through formal planning procedures. In addition, during formal planning, the ends and means of certain procedures are clearly articulated, which further helps to identify redundancies and inefficiencies. The fourth reason is that formal planning sets standards and objectives that facilitate control. Remember that control is another crucial management function. You will now have begun to realise that there is high level of interdependency between the different management functions that you were introduced to in section 1.1. Through formal planning, therefore, employees become aware of what they need to achieve and managers are better able to keep track of employee performance and whether the organisation as a whole is moving in the right direction. Without formal planning, there would not be explicit objectives or benchmarking criteria against which to compare, or coordinate, organisational efforts. Pitfalls in formal planning Formal planning can create rigidity. There is no doubt that organisations need to carefully plan their activities and make sure that they coordinate them with their operational, tactical ACTIVITY 1.7 In pairs or groups of three, look at the Crossrail case study in Boddy (2016) pp.187–89. Using Table 6.1 – a planning hierarchy – create three slides: one on those parts of the Crossrail plans that are at the strategic level, one slide for the tactical and another one for the operational levels. |
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and strategic plans. It is important, however, that managers are aware of the pitfalls of formal planning procedures. Investing effort in formal planning may force an organisation towards a particular course of action, which must be fulfilled within the set schedule. Some plans, however, may have been established under some potentially misleading assumptions. It is important therefore that managers evaluate the relevance of their plans on an ongoing basis. Furthermore, organisations operate in highly dynamic environments and so some plans may quickly become obsolete. Therefore, managers must be flexible and not insist on established courses of action merely because these were parts of a formally approved plan. Creativity and intuition cannot be replaced by formal plans. Similar to the idea of rigidity, formal plans tend to limit organisations to particular courses of action, therefore constraining the space for intuition and experimentation. While formal planning is crucial in setting some boundaries for organisational activities and coordinating effort, it should not discourage intuition and creative thinking. Successful organisations maintain a very fine balance between materialising formal plans, but at the same time, being open to change and creative ideas. Formal planning is focused on today’s competition and not on future survival. Formal strategic planning often focuses on capitalising on current business opportunities, thus discouraging managers (or diverting their attention) from searching for ways to reinvent or reconfigure their business model. Goal setting The purpose of goal setting is to convert the mission and vision of an organisation into Types of goals Just like plans, goals can be classified as strategic, practical and operational. Managers use these goals to steer employees and resources towards achieving particular results. Strategic goals are broad statements that officially indicate where the company aims to set a strategic goal to improve its market share by 20 per cent over the next five years. Unlike tactical and operational goals, strategic goals may not always be expressed in quantifiable terms. For example, an organisation may set a strategic goal to enhance its reputation or to become the most innovative in its sector. ACTIVITY 1.8 Now that you have learned about the characteristics of effective goals, put them into practice. Think of the next assignment you have to do for this course or for another course. What goals can you put in place to make sure that every day (or every few days) you are making progress towards the successful completion of your assignment? Draw up a plan. |
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ACTIVITY 1.9 Quiz
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Stakeholders It is useful to divide stakeholders in a business into internal and external. Internal stakeholders are those in the business who have an interest or concern in strategy, projects, plans, production or processes, for example, the board of directors and the CEO; the shareholders, operations, financial and HR managers; investors; credit agencies; banks; trade union officials and the workforce. Of these, the shareholders, suppliers, customers, lenders and employees are primary stakeholders. External stakeholders include those who do not belong to the organisation but are affected by the organisation’s performance, for example, customers, suppliers, the community within which your business operates, the wider environment, the government in the form of regulations and taxation, and competitors. The expectations and interests of stakeholders will differ and there are often conflicts between groups (see Johnson et al. (2017) p.136). Larger companies are very sensitive to the needs of A stakeholder could be anyone who exerts influence on the business or on whom the business has an impact. Stakeholders who directly influence the business include: shareholders suppliers. ACTIVITY 1.10 Complete the case study ‘Volkswagen’s governance crisis’ in Johnson et al. (2017) p.148. ACTIVITY 1.11 In pairs, make a list of the stakeholders in your employer Decide what their interests might be. Are there any conflicts of interest between the stakeholders in each case? Write a short report. |
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Conclusion In this section we examined the five tasks of planning, why people plan and the content |
Unit 1: What is business management? | Concluding comments 29 |
This unit forms the basis of the study of business management. It introduces the different structures that are used in business and the role of business in the creation of wealth is defined. In the same way, the unit defines the power of management and the distribution of this power across different structures. The skills necessary for management of an organisation and the calculations that need to be made to ensure that a business produces surplus are identified. There is specific reference to the importance of aims, objectives and planning in management strategy and the purpose of mission statements in company identity and purpose. Finally, the roles of stakeholders are defined and the reasons why managers need to consider them in decision-making processes, with particular attention to the significance and influence of shareholders. Unit 2 transitions us to the influence of the external business environment on business strategy and opportunities. A reminder of your learning outcomes Having completed this unit and the background reading and activities, you should be able to:
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Unit 2: The external business environment | Introduction to Unit 2 30 |
Overview of the unit The external business environment can affect companies in two ways. First, there are the variables that are beyond their control such as social, legal, economic political and technological forces that will affect all industry and enterprise. These forces constitute risk for a company, if they are not identified as early as possible. Next there are the industry specific variables which affect competition within that industry and include the customers, suppliers, competitors and distributors. Companies which are planning to expand into new markets, to internationalise and perhaps to globalise at an appropriate point, are particularly motivated to monitor these forces in the country where they intend to enter the market and managers must be sensitive to these new challenges and use planning tools to increase their chances of success. Globalisation has meant that products, people, money and information are able to move around the world much more quickly than before as barriers to trade and investment have been reduced and multinational enterprises (MNEs) can enter markets more easily. This process has produced both positive and negative effects: on the positive side, consumer markets have grown for new products, employment has been stimulated and improved communications have led to technological advances, better cooperation between countries and the sharing of ideas and culture. On the negative side, MNEs have become politically powerful and able to resist regulation. There have been damaging ecological effects of unregulated activity in some countries, unemployment in some sectors has risen and local producers have been disadvantaged. In this unit, you will examine the reasons why some companies decide to invest outside their domestic market and the process Week Unit
6 7 Aims This unit aims to: Section 2.1 The national and global environment 2.2 Evaluating the external environment 2.3 Business ethics and corporate social responsibility introduce you to globalisation and the stages through which it takes place provide you with tools to analyse how the external environment can impact on business decision making. |
Introduction to Unit 2 31 |
Learning outcomes By the end of this unit, and having completed the background reading and activities, you should be able to:
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Unit 2: The external business environment | 32 Section 2.1: The national and global environment Learning outcomes By the end of this section and having completed the background reading and activities, you should be able to: define the process of globalisation and how it affects business activities for business. Background reading Boddy, D. Management: an introduction. (Harlow: Pearson, 2016) 7th edition [ISBN 9781292088594] Chapter 4 Managing internationally pp.133–7. Cole, G. and P. Kelly Management theory and practice. (Boston, MA: Cengage, 2020) 9th edition [ISBN 9781473769724] (ebook) Section 1, 2.1 Organisations, companies, corporations and common legal forms. Johnson, G. et al. Exploring strategy: text and cases. (Harlow: Pearson, 2017) 11th edition [ISBN 9781292145129] Chapter 9 ‘International strategy’, pp.276–81. Morrison, J. The global business environment: towards sustainability? (London: Bloomsbury Academic, 2020) 5th edition [ISBN 9781352008975] Chapter 7 ‘International trade and globalisation’. Introduction Success in business does not depend only on expansion, and many domestic companies are satisfied with competing in the domestic market. In internationalising, companies decide to expand from the domestic to the international market because they see business opportunities in doing so. However, there is a great deal of risk involved in failure which can be expensive and can damage the reputation of the company and its managers. The business environment can change swiftly and customer preferences are not predictable. Political circumstances may also be volatile and governments may impose trade barriers. According to Yip (2003, as cited in Johnson et al. 2017, pp.280–81) the internationalising strategic drivers can be summarised as follows. Market drivers. The company may be attracted by a possible new market for its products, particularly if the domestic market has become saturated. There may be similar customer needs for the product. Cost drivers. Proximity to its customers might persuade a company to set up closer to them. This would mean saving costs on logistics. Areas of specialisation are also attractive to companies as this means that skilled and specialised workers can be found around these locations as well Competitive drivers. Competitors may have become involved in the new market and the company may be driven to increase its market share globally. |
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Government drivers. The host country’s government may have an advantageous trade policy and may be keen to invite foreign enterprises. There may be few legislative barriers. There are different ways in which a company can internationalise, with different country entry decisions. Foreign direct investment (FDI). In this strategy, the parent company creates a subsidiary and uses shareholder funds to buy a site and build facilities, takes over an existing business facility Joint ventures. Companies in two or more countries can engage in projects in which they have a mutual interest through joint ventures. They can also share the risks of the enterprise and take advantage of the strengths of the host company and the local knowledge of the other. Before the joint venture is launched, the companies agree the level of individual investment and how the shares and profits are to be distributed. This kind of enterprise can be risky if not enough time and expertise have been invested in surveying the industry and the local and business culture of the companies. The strength and organisation of management is also a factor in success. Outsourced production: Licensing. In this approach the company gives another firm (the licensee) permission or the right to produce and sell its products. The Disney Corporation is a leading company in this activity as it produces a high number of retail products associated with its films and characters. The licensing company will receive a percentage of the sale and the products are normally protected by trademarks – for example, Coca-Cola. Franchising. This arrangement helps companies to grow quickly and to extend their market share and is popular in the service industry. The franchise which the company buys gives the rights to operate the business brand name and for the product design to enter the target market. However, there are often strict regulations and controls on how the new business can be operated, which means an agreement is made with independent businesses to trade in the product. Portfolio investment. This is when a company buys significant shares of profitable foreign companies with the aim of favourably influencing strategy and policies. ACTIVITY 2.1 Case study; answer the questions. Walmart: international successes and failures Globalisation and international business In 2000, the UK Department for International Development defined globalisation as: The growing interdependence and interconnectedness of the modern world through increased flows of goods, services, capital, people and information. Globalisation is a complex activity. It can be seen as a series of processes that have affected politics, economics and social life. In political terms, globalisation has produced an expansion of institutions in which interregional transactions are managed. In economics, there is a growing |
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interdependence of world economies as a result of the growing scale of cross-border trade Drivers A number of drivers have enlarged the world markets for business, including developments in refrigeration, shipping, air transport and the use of modern technologies. Communications have been revolutionised by the internet, mobile phones and satellite technology. Shared media worldwide provides swift access to knowledge and entertainment. Supranational organisations have grown up to support global initiatives: the World Bank (1944); the United Nations (1945); the International Monetary Fund (1946); the European Union (1952); and the Association of Southeast Asian Nations (1961). Economic interdependence and the division of labour has meant that articles can be designed in the USA but manufactured in Asia and retailed around the world. Offshoring Offshoring is an aspect of globalisation and takes place when a company decides to relocate part of its operations to another country where labour costs are lower. Popular examples of this, although not without problems, are call centres and customer services operations. Once a common language is established, phone enquiries can be rerouted to the centres which can undertake various activities, including timetabling, booking technical services, dealing with orders and refunds. The decision to offshore affects organisational culture and the HR function, and will be discussed in Unit 4.4. Winners Economies that have gained from globalisation are those with low labour costs and infrastructure in certain sectors as these make them competitive. Educated and skilled workers are also in demand in technically developed industries. Multinational enterprises (MNEs) benefit from outsourcing some production lines or processes and enabling tax avoidance. Migration Fairtrade The Fairtrade label began in the Netherlands in the 1980s as a response to what was seen as unfair trading policies in the developing world from multinational enterprises. It guarantees that the producers of the product (for example, cocoa, coffee, flowers and sugar) receive a fair price which is governed by Fairtrade International. The cost of sustainable production is covered by the minimum price and includes an extra premium that can be invested in local development projects for the producers. Fairtrade labelling takes place in over 1,880 producer organisations in 71 countries (Fairtrade Organisation 2021). |
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Losers It is important to understand that globalisation has also created inequalities and damage. Manufacturers in high labour cost countries are faced with strong cost competition from low labour cost areas. In some areas, notably the Rust Belt in the USA, entire industries have been lost to lower cost economies. The poorest 5% of the world remain trapped in poverty and the prosperity from globalisation does not affect their lives. Unrestricted business activity has meant the environment is damaged by destructive processes which bypass laws and regulation and contribute to climate change, pollution, and wildlife and habitat destruction. Unemployment among manual workers is still a threat and for many migrants the promise of better working conditions is not fulfilled. ACTIVITY 2.2 Discussion Do you consider your country has benefited from globalisation? What have been the benefits and what have been the negative effects? Make notes and prepare a presentation to put forward your point of view in a class discussion. Conclusion In this unit you have examined some of the reasons why businesses may decide to invest |
Unit 2: The external business environment | 36 Section 2.2: Evaluating the external environment Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to: describe external factors in the business environment analyse the strengths and weaknesses of an organisation using the PESTLE framework analyse what organisational culture is composed of and how it can be changed in response to external challenges. Background reading Boddy (2016) pp.118–24. Buchanan, D. and A. Huczynski Organizational behaviour. (Harlow: Pearson, 2019) 10th edition [ISBN 9781292251578] Chapter 2 ‘Environment’, pp.55–9. Cole and Kelly (2020) Chapter 12 ‘The business environment’. Johnson et al. (2017) Chapter 3 ‘Industry and sector analysis’, pp.64–74. Morrison (2020) pp.35–46, 411–2. Surridge, M. and A. Gillespie AQA A-level business (London: Hodder Education, 2019) [ISBN 9781510453340] pp.337–41, 461–5. Introduction As you saw in Unit 2.1, a company that is successful in the domestic market may take the decision to develop its products and enter an international market by exporting or by other strategies. Before taking this decision, however, it is important for managers to analyse and evaluate the external environment in which the company will be involved. To enter the international market, managers need to understand the political, environmental, social, technological, legal and environmental markets in which they will be competing. In this unit, an important business theory is presented. If a company intends to set up an operation in another country, a PESTLE analysis of the external environment is essential. Francis Aguilar developed PEST in 1964 with the aim Political Economic |
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PESTLE The PESTLE model is used to analyse the macro-business environment and the factors that might impact on the business. The results of this analysis can be used to identify the threats and opportunities that the environment presents and these can be linked to a SWOT analysis (Unit 3.1). It is important to involve as many managers as possible in this analysis. This model presumes that it is possible to obtain all the data required and that it is correct. However, even if this framework is applied, there is still a high element of risk involved and company senior managers would be well advised to investigate further before taking decisions. Political factors Examples of political factors include all the policies and decisions that a government takes or has taken in the past that would indicate whether the country’s market is stable and receptive to new business. Economic factors Managers also need to be aware of the economic successes or weaknesses of the country and the key financial indicators – for example, wage rates and taxation, the availability of resources and whether there are already established competitors. Social factors Social analysis includes an estimation of the demography of the workforce and what should be considered in managing a workforce with a different culture to the company. Managers cannot assume that working days and public holidays will coincide with their own. They will also need information on the educational levels and the skills available in the new workforce. Technical factors The technological strengths and weakness of a country need to be evaluated to determine whether business will be slow or unproductive because of weak infrastructures in information technology and communications or perhaps underdeveloped transport systems. IT specialists and skilled workers are essential. Legal factors Legal constraints include not only international laws on trade and trade agreement but also local and regional laws that affect both employers and employees. Environmental factors There is an increasing emphasis in the business world in responding to environmental impacts connected to business activities. Ecology describes the relationship between living organisms including the human effects on the environment. A careful analysis of the risks of pollution, waste management, toxic spills and sustainability will be part of the environmental analysis of all but the most ruthless, short-term, profit-seeking organisation. For all these analyses, a great deal of data will be collected and the decision to internationalise will require responses from the senior management. How will they be able to adapt their strategy and management style for the new venture? What changes and innovation will be necessary? ACTIVITY 2.3 In small groups, use the PESTLE framework to analyse the external environment of a company with which you are familiar and the factors that might affect that organisation. You can analyse a global or international company. What advice would you give |
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Organisational culture Background reading Boddy (2016) Chapter 3. Introduction Edgar Schein defined organisational culture as a system of shared values, assumptions, beliefs and norms that unite the members of an organisation. It reflects the employees’ understanding of how things are done in their organisation. The specific culture that can be found in each firm affects how employees feel. In the same way, this will determine the recruitment policy of the organisation in that they will be searching for people who ‘fit’ their organisation. This culture is also evident to new employees as they go through the recruitment process. However, it can also be part of the reasons why employees leave an organisation if the culture does not meet their expectations. In this section you will examine the importance of values and ethics in business and this section provides a background to this. Culture and performance Organisational culture determines behaviours in the workplace. It influences what is considered acceptable and what is considered unacceptable. For example, employees will manage How is organisational culture expressed? (See Johnson et al. (2017) Chapter 6 ‘History and culture’, Figures 6.6 and 6.7.) Organisations can support their internal cultural assumptions in six ways.
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Section 2.2: Evaluating the external environment 39 |
6. Rituals in a company can include awards for achievements such as employee of the month and ceremonies to celebrate company anniversaries and success. Training programmes can demonstrate the kind of behaviours that are expected and the limitations to individual’s roles. Attendance at the office party, celebrating birthdays or taking part in social events at work can be used to build organisational culture and function as a means of control. Routines may include such behaviours as having lunch in a company canteen or keeping to parking restrictions in the company site. International cultures Hofstede argued that attitudes to work, authority and equality can vary around the world. His analysis identified four areas where they differ. Power distance. If this is high, it represents high respect for authority; low power distance represents a less controlled environment. Individualism versus collectivism. This describes relationships between the individual and the group and depends on whether individual work patterns or teamwork are preferred. Long term versus short term. These attitudes will influence management strategy and financial planning. Uncertainty avoidance. This attitude will determine how the business strategy is formed. Although Hofstede’s findings have some value, criticisms are based on his examples of national behaviours which appear too generalised to be useful and on his creation of national stereotypes in business which are to be avoided. ACTIVITY 2.4 Analysis Choose a multinational company in a competitive industry.
Managing change Managements often need to decide how and why to adjust their aims and objectives and change their goals in response to external or internal forces. It could be that there are internal forces driving this change such as a high staff turnover, falling sales, shareholder pressure. The types of environmental forces may include changes in technology, a shift in market forces, changes in social trends in the purchase or use of products and services or political changes that have led to changes in rules and regulations. The need for this change would be disseminated top-down from senior management to |
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area where there are deeply held beliefs and practices. Organisational culture is important when it comes to change policies as it can either facilitate or present barriers to these changes and prevent the organisation reaching its goals. There are a number of business models of change management. John Kotter (2007) designed an eight-step process by which organisations can effect change using the following steps.
The most significant steps are at the beginning of the process where management encourages the workforce to commit to the need for change. Unless that happens, the other steps may be more difficult to achieve. Cole and Kelly describe the foundation of change as an external threat (Cole and Kelly (2020) Figure 24.2). As discussed earlier in this unit, the change forces may be top-down or bottom- up and they may be planned or unplanned. Changes can be transactional involving people and processes or more transformational in the form of new vision and mission and changes in culture, goals and strategies. Both Kelly and Lewin in his force field theory (Lewin, 1951, as cited in Cole and Kelly, 2021) predict that there will always be resistance to change; a formal strategy of communicating understanding of employees’ fears and making concrete project plans to execute change will foster commitment to the process and make it more likely to be successful. Conclusion In this section you have analysed and evaluated the ways in which the external business environment can impact on organisations. You have learned how to apply an external evaluation framework, PESTLE, to an organisation and find where there may be potential weaknesses. The importance of organisational culture has been identified and you have been introduced to how changes in organisational culture can be part of a wider response to what may be perceived |
Unit 2: The external business environment | 41 Section 2.3: Business ethics and corporate social responsibility Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to: illustrate the significance of organisational culture and ethics relevant tools and frameworks for the assessment of these elements. Background reading Boddy (2016) Chapter 5. Introduction According to Cole and Kelly (2020), corporate governance is the ‘system [of rules, practices Social responsibility and ethics will govern the company’s decision making and policies as these values should hold its behaviour to high standards. Importantly, the company will be bound by the necessity of keeping to the laws governing its behaviour in the country where it operates and the regulations that apply. Worldwide accounting standards are also powerful barriers to dishonest trading. This compliance with rules and regulations is based on an understanding of the penalties Given these rules, practices and processes, senior managers may decide that transparency in the company’s conduct and policies is the best way to ensure that the required standard of corporate governance is kept. |
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Business ethics In a stakeholder model, there are important benefits for a company that integrates ethical behaviour into its strategy and planning. The first is the opportunity of building trust between There are also advantages for human resource management in that a company with high standards of behaviour is more likely to attract employees who will fit that form of ethical behaviour. Widespread knowledge of ethical considerations will help to embed company culture and may protect against behaviour that leads to legal challenges and costly lawsuits. The workforce understands the reasoning behind the policy and this engenders company loyalty and pride, and minimises discontent and rivalry. Compliance with government regulations thus becomes easier for senior management to maintain. In its relationship with the external environment, there are clear advantages for a company that takes into account its impact on the society or societies where its products are found or where it trades, and ethical business strategy can produce constructive change. ACTIVITY 2.5 Discussion: How ethical are you? Buchanan and Huczynski (2019) p.71. Exercises:
Working in pairs, complete one or both these questionnaires that are designed to elicit your personal and subject area views of ethical behaviours in business. The discussion of your results can be matched to the employability matrix on page 73 of the book. Corporate responsibility Business is an economic activity. The key elements of corporate responsibility (CR) are economic, in terms of making a profit, and legal, in terms of obeying the law. However, the key elements of corporate social responsibility (CSR) recognise that businesses have responsibilities that go further than the profit motive in trading and service providing. In examining its stakeholders, it would be clear to senior management that shareholders and profit are not the only factors to consider as the business has wider accountabilities. Managers are not employed by shareholders. Companies are formed of individuals and reflect ethical values. If the company has created a negative impact by its operations, then the responsibility lies with that company to acknowledge and address it. Companies also trade and operate inside societies |
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CSR versus the profit motive In a shareholder model of business, arguments against CSR have focused on three objections.
ACTIVITY 2.6 Benefit corporations; discussion Johnson et al. (2017) Chapter 5 ‘Stakeholders and governance’, p.155. In this case study, you will analyse not-for-profit benefit corporations. Answer the questions below.
Conclusion In this unit, you have analysed the connections and disconnections between corporate ethics and obligations and understandings of corporate social responsibility and how these may be |
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Business organisations depend on the outside world for their resources. They need to be efficient in how they deliver goods and services within a given environment to retain profitability. This aim is also shared by organisations in a not-for-profit environment. This unit began by defining the drivers for business expansion followed by an examination of the reasons for the contemporary process and growth of globalisation and some of the results of this trend were discussed. Next, the PESTEL framework, which managers can use for evaluating the success of an enterprise was introduced. This was followed by an outline of organisational culture and how managers can systematically analyse both national and international culture in their pursuit of advantage and in managing pressures to change. Finally, corporate governance, business ethics and corporate social responsibility (CSR) were defined and examined. Conflicting interests were found in the latter as pressure grows on weighing up the balance of profitability and environmental considerations in international political and economic forums. Next up is Unit 3 which looks at how managers make strategic decisions and the value of leadership in the organisation’s success or failure. A reminder of your learning outcomes Having completed this unit and the background reading and activities, you should be able to:
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Unit 3: Strategy and strategic analysis | Introduction to Unit 3 45 |
Overview of the unit In this unit you will develop an understanding of what a strategy is and how tools, techniques and analytical business models are used in the strategic environment to help businesses Week Unit 8–9 3 Strategy and strategic 10 analysis 11 Aims This unit aims to: Section 3.1 Managing strategy introduce you to how strategic thinking is used by leaders and senior managers to determine the direction of business planning and attain their goals. Learning outcomes By the end of this unit and having completed the background reading and activities, you should be able to:
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Unit 3: Strategy and strategic analysis | 46 Section 3.1: Managing strategy Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to:
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Section 3.1: Managing strategy 47 |
The points to consider in a plan are whether the actions will improve: profit potential future cost advantages. Taking action in the market depends on timing, whether there is a window of opportunity and whether the competitive market is favourable. Actions should be a good fit with the existing corporate image and competencies of the organisation and ensure a long-term presence in the market. Should the plan fail, it is important that there are low exit costs. Figure 3.1: Seven elements of a strategic plan. Understanding which markets to compete in A SWOT analysis is a simple way of examining important issues that affect a business: strengths, weakness, opportunities and threats. It is low cost and can be used with PESTLE to get a good idea of risk. It can be used in marketing objectives and helps managers to think in a structured way about the real situation in the company and how to align future actions to company objectives. SWOT can be used in any size of organisation and also by individuals who want to self-evaluate. The results of this analysis can be used to devise strategies and create plans. The SWOT technique is not without flaws and there are limitations to its use. For example, some strengths may also be weaknesses when examined from a different position. The significance of the findings and the solutions will still need to be identified by the management team. The analysis will only be as accurate as the data supplied and if this is based on inaccurate figures and prejudiced opinion, the interpretation may not be useful. ACTIVITY 3.1 Surridge and Gillespie (2019) Chapter 25, p.339. Business in focus: Toyota Explain a way in which the information in this SWOT analysis might influence strategic decision making by the management team at Toyota. |
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A strategic plan will also take into account the long-term direction of the business. The strategic direction of the business refers to which markets to compete in and which products to offer. The Ansoff matrix is a useful tool for managers creating a strategic plan. This diagram illustrates the choices that managers might have. Figure 3.2: Ansoff matrix. Actions in the existing market, such as aiming to increase sales, are low risk as this is a known The Ansoff matrix is a useful tool but in sophisticated markets it may be difficult for managers to determine what a new product is or what constitutes a new market. Porter’s five forces theory Michael Porter developed a theory of` ‘competitive advantage’, also known as industry analysis’, which he used to analyse both horizontal threats to a company and vertical powers. He also used it to assess current business environments and to help in the detailed analysis of sectors in the economy, for example, catering, farming and electronics. Porter argued that it was vital for businesses to understand the market in which they were competing in order to gain more market share. He also pointed to the importance of business cycles. The results of this kind of analysis often form part of a company’s business plan which can be used to apply for finance or investment or to organise internal operations. |
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Figure 3.3: Porter’s five forces. Competitive advantage Porter developed two strategies that managers could use to position themselves in a market: cost leadership A cost leadership strategy means that the company has lower input costs, experiences economies of scale, employs an experienced management team and makes savings in production. Differentiation strategy means the product is in some way unique or the company offers services and advantages that other suppliers do not. If the higher price still covers the extra costs involved, the company might profit over its rivals. Porter emphasised that the competitive position of a company cannot be mixed. It is not possible to be both low cost and differentiated and managers should decide their strategy and then act forcefully to implement it. Competitive scope Low cost Differentiation
Broad target Narrow target Table 3.1: Porter’s low-cost and differentiation strategies. |
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Porter’s low-cost and differentiation strategies The strategy devised by management can change as a company tries to position itself in a market or reposition itself. Sustainable competitive advantage is one of the keys to business success. It is the force that enables a business to have greater focus, more sales, better profit margins, and higher customer and staff retention than competitors. The six factors of advantage that can enable a business to compete successfully are: quality – better than competitors selection – desirable products Sustainable advantage is a strategy that will last over time and can be protected. Products can be patented to delay the entry of new producers. Good relationships with suppliers can be deepened, preventing new entrants to the market from creating relationships. Business reputation and a strong organisational culture can be protected, making it difficult for rival competitors to establish themselves. Conclusion In this section you have looked at the choices that managers have in devising strategies to attain competitive advantage and the business models that illustrate the tools for external and internal analysis: SWOT analysis, Anzoff’s matrix and Porter’s theories of competitive advantage and positioning. Strategic planning issues vary widely from sector to sector and it is important that managers begin the process of planning with clear goals in mind. ACTIVITY 3.2 Boddy (2016) Chapter 8 ‘Managing strategy’, Activity 8.1 ‘Describing strategy’. Answer the questions in this activity. Developing your knowledge of the current real-life business world will help you to answer questions in Sections 2 and 3 of the examination paper. |
Unit 3: Strategy and strategic analysis | 51 Section 3.2: Mergers and acquisitions Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to: understand the motivations and drivers for expansion of an organisation Background reading Johnson, G., K. Scholes and R. Whittington Exploring corporate strategy. (Harlow: Pearson, 2008) 8th edition [ISBN 9780273711919] Chapter 11. Morrison, J. The global business environment: towards sustainability? (London: Bloomsbury Academic, 2020) 5th edition [ISBN 9781352008975] pp.302–4. Surridge and Gillespie (2019) Chapter 35, pp.516–20. Introduction Organic development or encouraging a company to grow naturally using its own resources Motivation: strategic, financial and managerial Merger refers to the mutual consolidation of two or more entities to form a new enterprise of two equals. In a merger, one or more companies agree to integrate their operations into a single entity in which there is shared ownership, control and profit. Horizontal integration refers to a merger between companies in the same industry which consolidates their strength and power. Mergers between institutions also take place in the public not-for-profit sphere. Globalisation has made it more common for big companies to merge to dominate the market, and there are sometimes concerns about the monopolistic or anticompetitive tendencies of these actions. Vertical integration refers to a merger between businesses at different stages, for example a supplier (backward) or a retailer of the product (forward). There are advantages to both these strategies in security and control over resources and costs and control over pricing. The purchase of an enterprise by another enterprise or investor is known as an acquisition. A takeover requires the buyer to acquire the majority equity of the targeted company. This can be done either by the purchase of the assets of the company or by the acquiring ownership over |
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51% of its paid-up share capital. This may be accepted voluntarily; if the offer is rejected, further attempts to buy are called a hostile takeover. Joint ventures are created by businesses collaborating on a mutually beneficial project but retaining their independent status. Complementary skills can be used and there are fewer culture clashes. Franchises are created by the franchisor offering to sell the use of its name and business processes or products to a buyer. In return, the franchisor will ask for a fee and a percentage of the profits on sales. Franchises are common in the food and hospitality industry and agreements can vary as to the responsibility for training and the use of the brand in marketing. Strategic motivations for wanting to expand or grow a company can be categorised as a desire for:
ACTIVITY 3.3 Case study Johnson et al. (2017) Chapter 11, Figure 11.1. US hotelier and Chinese insurer contest ownership of Starwood Answer questions 1 and 2 in the case study. |
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The buyer’s curse If the company is offered too little then the bid will be unsuccessful, but if the acquiring company offers too much this may cause its financial planning to fail, which will affect profits. Target choice is followed by valuation of the purchase and then negotiations as to the exact terms and conditions of the merger or acquisition. This is followed by integration with the new business. During this process a high degree of competency is required from manager at different levels, especially if the process involves uncertainty or insecurity about relocations, careers and jobs. Conclusion This section has identified an issue that has implications for students of finance, law and economics. Financial planning is vital for strategies that will expand the growth of a company beyond the normal organic development. Monopolies and anti-trust legislation which may ACTIVITY 3.4 Case study Morrison (2020) pp.304–5. Bayer takes over Monsanto: What are the implications? Complete the mini case study. |
Unit 3: Strategy and strategic analysis | 54 Section 3.3: Leadership and strategy Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to: demonstrate some of the key characteristics of leaders and their sources of power. compare and contrast different styles of leadership Background reading Boddy (2016) Chapter 14 ‘Influencing’. Introduction In the previous sections, we illustrated the significance of planning and organising in business management. In this section we will focus on the role of leadership. Leadership is the process of influencing people, by demonstrating positive personal attributes and behaviours, to achieve a common goal. Chartered Institute of Personnel and Development (CIPD) You may already suspect that leadership is found in all organisations. In essence, it is the driving force behind organisational activities. It underpins decision-making and prioritises goals and objectives. Here we define leadership as setting a new direction or vision for a group and mobilising that group to achieve the goal (i.e. a leader is the spearhead for that new direction). However, management controls or directs people and resources in a group according to principles or values that have already been established. A manager depends more on a formal, rational method, whereas a leader uses passion and stirs emotions. Having said that, leading can happen in any part of the organisation where a new direction, motivation or achieving a new goal is required. Leadership therefore has inherent transformational, inspirational and directional attributes. Management is more about getting work completed with the aid of other people and resources, usually using existing techniques and processes. In this section we will discuss five characteristics that successful leaders display as well as some recognised styles of leadership. We will further identify the primary sources of power drawn on by leaders and managers, and examine the five primary responses to influence that managers need to consider. |
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Leadership traits Historically, research has tried to identify personal characteristics of leaders. Prominent figures are studied, with the aim of discovering some aspects of their personality that could explain their success. These characteristics – referred to as traits – are often relatively stable and are classified in the following five categories. This is known as the ‘Big Five’ model. Openness. People with this trait are creative, open-minded and intellectual. Conscientiousness. This is a common characteristic of people who are dutiful, achievement- oriented and self-disciplined. Agreeableness. This is more common in people who are adapters, straightforward, compliant and sympathetic. Neuroticism. This behaviour can be described as reactive and is characterised by anxiousness, depression and self-consciousness. Conscientiousness was found to be one of the most consistent predictors of work outcomes. This is mainly because people with this trait are dutiful, deal with tasks accurately and persist in overcoming difficulties. They are therefore also in a much better position to be easily influenced by supervisors to perform well. However, some have argued that certain traits have more influence when they ‘fit’ the work situation. For example, it has been proposed that extroverts Styles of leadership At the top level, leading and influencing skills have the most visible effects on strategy design and execution. Managers at all levels have to exercise influence over others. The central question is: how do leaders and managers exercise power and influence? At this point it is useful to differentiate between leadership and management. Based on the traits exhibited by leaders, researchers have identified two types of management, namely transactional and transformational. A transactional leader treats leadership as an exchange where they give their followers what they want only if they work in the way that the leader desires. Such leaders influence their followers’ behaviours through striking a bargain. For example, if followers behave in the way the leader desires, they are more likely to receive rewards. In other words, transactional leaders are more likely to support the status quo by rewarding the followers’ efforts and commitment. Transformational leaders, however, are those who treat leadership as a way of increasing motivation and commitment in their followers by constantly encouraging them to raise their aspirations by regularly performing higher ideals and moral values. Transformational leaders often energise their followers by setting attractive goals, reinforcing certain values and by allowing them to express new ideas. One of the major differences between the two leadership styles is that transactional leaders often motivate their followers to meet the leader’s expectation whereas transformational leaders motivate their followers to exceed the leader’s expectations. It is worth noting that the two leadership styles are not mutually exclusive. Managers or leaders, more often than not, may use both styles, although they may not do so to the same extent. The evidence on which type of leadership style is most effective in generating better performance from followers is mixed. For example, researchers have argued that the ability of transformational leaders to inspire and motivate others translates into business performance. |
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However, there is also the view that there is no universal trait that can guarantee enhanced performance. Leaders have to use each of the leadership styles depending on the challenges of particular settings: a trait considered to be valuable in one situation may be irrelevant in another. Another influential perspective on leadership was developed by Blake and Mouton (1978). They developed a managerial grid model which shows different combinations of concern for results and concern for people.
High concern for people Low concern for people Status quo Indifferent Controlling Low concern High concern for results for results Table 3.2: Leadership grid. (Source: Blake and Mouton, 1978) concern for people. Indifferent. At the lower left-hand corner is the indifferent style, indicating lower concern for both results and people. These managers will not be actively involved and will do enough to keep their position, but no more. Accommodating. At the upper left-hand corner is the accommodating style which shows low concern for results combined with a high concern for people. These managers will be caring towards their subordinates, sometimes at the expense of objectives and plans that need to be carried out. Controlling. At the lower right-hand corner is the controlling style, which has high concern for results combined with a low concern for people. These leaders will be driven by outcomes and are focused on performance. They do not care about their subordinates but ensure that they are able to make use of their skills to achieve their objectives. Status quo. In the centre of the grid is the status quo. These managers achieve performance from their staff by balancing the need to get results with paying reasonable attention to employees’ needs. They do not like extreme positions (i.e. too much concern for business results or too much care for employees) and try to maintain a balanced approach. Sound. At the upper right-hand corner is the sound style which has a high concern for results combined with a high concern for people. These managers do not view the need to achieve results and to care for people as contradictory. They motivate people and encourage performance by facilitating relationships of trust and respect in the workplace. Another influential classification of leadership styles was developed by House (1996). House considered that effective leaders are those who help their subordinates to identify the path that enhances their performance. When subordinates can identify the paths that help them to improve their performance, they are more likely to achieve the rewards they seek. House identified four styles of leadership. Directive. Directive leaders let their subordinates know what their expectations are and give them specific guidance. They also direct their subordinates by asking them to follow certain rules as well as procedures. This type of leader also schedules and coordinates the work of their subordinates. |
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Supportive. This type of leader treats subordinates as equals, showing concern for their needs and welfare. Creating a friendly environment in the workplace is also a key priority. Achievement-oriented. These leaders set goals and targets for subordinates, often seeking performance improvements. They also emphasise excellence in performance and expect their subordinates to succeed. Participative. Leaders with this leadership style often place emphasis on increasing the participation of subordinates. Participative leaders often consult their subordinates and are more likely to take their opinions into account. House also suggested that no leadership style is superior and that a variety of factors (including the work environment, particular challenges and, most importantly, the characteristics of Tannenbaum and Schmidt (1973), however, observed that leaders have different styles of leadership that range from autocratic to democratic. They state that leaders can take positions between these two extremes. Based on these positions, their leadership styles can either be boss-centred, showing the level of authority used by the manager, or subordinate-centred, based on the freedom given to subordinates. The more freedom the subordinates are given, the less authority the manager has. As per the continuum of leadership behaviour of Tannenbaum and Schmidt, the leadership styles chosen by a leader can depend on three forces.
Clearly, leaders and managers have to influence others. When one person is attempting to influence another, there are four likely responses: compliance, identification, internalisation and resistance. Compliance. This response to influence occurs when a person submits to the person who Identification. This response occurs when a person acts in a way requested by another to identify with the person making the request. The main reason behind such a response is that the individual aims to maintain a desired relationship with influencer and hence works as asked. Internalisation. Internalisation refers to the response where a person not only agrees with the influencer’s request but also makes a commitment to put in the effort required to complete a task. The person internalises the values and reason for the request and agrees that the task needs to be done. Such a response is the most successful outcome for the influencer, especially when a particular task requires a high level of commitment. |
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Resistance. In this type of response, a person declines or actively refuses to carry out a task requested by the influencer. As we saw earlier, leaders use different types of skills to influence others. A critical question is: where does a person’s power over another originate? In their influential study on power, French and Raven (1959) identified five primary sources of power. Legitimate power This source of power originates from a person’s legitimate position or formal position (e.g. a manager). The person’s formal position may give them the power to enact decisions such as make capital expenditures, select a supplier, offer overtime to subordinates and even recruit staff. Reward power This is related to rewarding people who comply with specific requests or instructions. The rewards can take several forms, ranging from financial to offering interesting work or time off. Coercive power Using this source of power, a person achieves compliance with arm’s-length measures such as punishment or harm. Some of the coercive measures include demotions, threats, using bullying language, reprimanding subordinates and even having a powerful physical presence. Referent power Also referred to a charismatic power, an individual possesses this because of their personality. For example, a person may have certain characteristics that are attractive to people and which they may identify with. This ultimately may give a charismatic person power. Expertise power This type of power comes from a person’s expertise or knowledge. For example, a person may be an expert administrator, may know how an organisation operates, may have technical expertise or may know how to do a particular task. Other people often acknowledge a person’s expertise or knowledge about a particular task or job which, in turn, gives that person power. Furthermore, people are more likely to follow the suggestions or guidance of a person who has the necessary skills and expertise. Each type of power can have a personal and positional source. When a source is personal, it comes from the individual themselves – their characteristics, traits, skills and competencies. When a source is positional, it is related to the individual’s role or level in the organisation’s hierarchy. An individual’s ability to exert power or to influence the behaviour of others can come from personal sources, which they may draw from positional sources. An individual with low access |
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Conclusion In this section we learned the distinction between leadership and management, acknowledging that leadership is about transformation, change and doing new things, possibly using different ways of operating, whereas management is more about using existing techniques and processes to get work done through leveraging people and resources. To be effective, leaders and managers need to influence others. We identified ways in which people respond to attempts at being influenced. We then traced a range of approaches to leadership. Earlier theories focused on identifying the attributes and traits of a leader, whereas more modern theories acknowledge a more contingency approach to leadership – that is, certain leadership styles will be more effective in certain situations than others. Factors like the preferred leadership style of a leader, nature of the task, time pressure, characteristics of the work group, the nature of the work environment (e.g. culture) and rewards available sometimes make the choice of leadership style for a particular situation quite difficult. We also looked at the sources of power for leaders and managers, and the tactics they can use to influence people’s behaviour. |
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This unit presented several business models which managers use to guide them in strategic decision making and meeting business objectives. First was a model of a strategic plan, followed by an outline of the SWOT framework and an explanation of its use in analysing a company’s position in the marketplace. After this, came an examination of the Ansoff matrix and its use in business planning. Porter’s five forces theory was introduced which identifies whether new products, services or businesses have the potential to be profitable, the strength of an existing company and the strength of possible re-positioning of a company. The importance of Porter’s theory of competitive advantage was outlined. The unit moved on to define the differences between mergers and acquisitions of companies and the relationship of these actions to business strategy. This was followed by a consideration of the importance of strategic fit when embarking on any of these initiatives. The unit concluded with an examination of leadership traits and styles, power and the distinction between leadership and management in company performance. Unit 4 transitions us from planning, organising and leading to the role of managers in controlling business processes. Enjoy! A reminder of your learning outcomes Having completed this unit and the background reading and activities, you should be able to:
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Uniit 4::Theiinternall busiinessenviironment | Introduction to Unit 4 61 61 |
Overview of the unit Previous units have illustrated the significance of planning, organising and leading in management. In this unit we will focus on the significance of management in guiding employees to achieve particular objectives. It is important that management can identify whether these objectives have been achieved. This not only highlights the importance of control processes but also enables leadership to see whether particular activities are on track and to identify those that need corrective action. This unit introduces the tools of control and performance measurement systems, and the strategies that managers may adopt, and why. Week Unit
15/16 Aims This unit aims to: Section 4.1 Organisational control and management by objectives 4.2 The supply chain and improving product quality provide you with an overview of the control function in business and the functions of the supply chain, HR and quality management. Learning outcomes By the end of this unit, and having completed the background reading and activities, you should be able to:
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Introduction to Unit 4 62 |
Background reading Boddy, D. Management: an introduction. (Harlow: Pearson, 2016) 7th edition [ISBN 9781292088594] Chapter 19. Cole, G. and P. Kelly Management theory and practice. (Boston, MA: Cengage, 2020) [ISBN 9781473769724] Chapter 19 ‘Control and performance measurement’. |
Unit 4: The internal business environment | Section 4.1: Organisational control and management by objectives Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to: identify key control functions in an organisation Primary elements of the control function This section will illustrate the four primary elements of the control function. It will then demonstrate the significance of two management control systems used in organisations: the balanced scorecard and management by objectives (MBO), including the four essential steps of the MBO process. Activities will help you to deepen your understanding of best practices on setting goals. The control function aims to facilitate the achievement of objectives. Managers design control systems and mechanisms for various organisational activities including accounting, finance and marketing activities. Some systems of control may be formal, well defined and objective; others may be informal, for example those based on cultural norms, informal supervision, trust and relationships. Systems of control incorporate four basic elements.
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There are five generic performance objectives: (a) quality, (b) speed, (c) dependability, (d) flexibility and (e) cost. Each can be expressed in more detailed measures (e.g. number of complaints, speed of delivery, response time) or more composite ones (e.g. customer satisfaction). The more detailed measures tend to have more operational relevance; the more composite measures have more strategic importance. Table 4.1 outlines the five generic performance objectives and a range of generic and composite performance measures.
Table 4.1: Generic and composite performance measures. (Source: adapted from Slack et al. (2013) p.607 in Boddy (2016) p.619, Table 19.4) Managers need to keep a balance and be mindful of creating too many measures or not creating enough. Too many performance measures may be difficult to manage and lead to a lack of focus on the key performance indicators; too few may not provide the information and measurements required. Managers aim to ensure that there is at least a clear link between the measures chosen and their strategic objectives in various organisational functions (such as marketing, operations and finance). Key performance indicators (KPIs) refer to the summarised set of the most important measures of performance that inform managers how well an operation is achieving its organisational goals. ACTIVITY 4.1 In small groups or pairs, identify three examples of organisational controls. List three reasons why the effective controls are important to organisations. Case study Boddy (2016) Chapter 19, pp.607, 615 and 618. Answer the questions | ||||||||||||||||||
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The balanced scorecard The balanced scorecard (developed by two researchers at Harvard Business School, Kaplan and Norton, in 1993) is a performance measurement tool that is widely used by organisations. It provides a holistic framework that looks at four key areas contributing to organisational performance (see Boddy 2016, p.620).
Kaplan and Norton make clear that effective performance using the scorecard is measured by a person, group or business unit reaching minimum acceptable targets in all four areas. There can be no trade-offs; all four areas are important. For example, doing exceptionally well on learning and growth cannot be traded against putting in a poor financial performance. It is also important to observe the four primary features of effective control when devising a specific scorecard. When a balanced scorecard proves ineffective, it is usually because some of these principles have not been observed. Kaplan and Norton also indicate that the detailed goals need to be agreed with those required to meet the performance targets and deadlines. Do not forget that controls must also be motivational, and people are more likely to try to achieve performance levels when they have agreed to them. ACTIVITY 4.2 Read Boddy (2016) pp.619–24.
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Management by objectives (MBO) Among the most popular methods of goal setting and controlling is management by objectives (MBO). Companies use the MBO process to set mutually agreed goals between managers and employee. Managers and employees work together and define goals for every department, project and person, and use them to monitor progress and performance. This method was first proposed by Peter Drucker in his book The Practice of Management (1954). It focuses on turning company-wide objectives into specific objectives where an individual or a group can assume responsibility. Thus it creates a mutually reinforcing hierarchy of goals. MBO is useful not only in that it indicates how well individuals, teams or departments are performing, but also, and significantly, it aims to direct people’s activities in the right direction, supporting higher goals in the hierarchy of objectives. Four major actions are needed for MBO to be successful.
There are numerous benefits of the MBO process. Organisational goals are more likely to be achieved when employees and managers agree on them and coordinate their efforts. Using a performance measurement system such as MBO enables employees to see how their tasks, jobs |
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and performance contribute to the business, generating a sense of ownership and commitment. Furthermore, employees can understand better how their work is linked to other functions within the organisation. Another crucial benefit of MBO is that it gives clarity on the connection between lower- and higher-level goals. This enables managers to see clearly whether there is alignment in the work at different organisational levels. Problems with MBO arise when a company faces rapid change or operates in unstable environments. When an organisation is challenged to change its goals every few months, there is little time for action plans and appraisals to take effect. For MBO to be successful, it is important that there is mutual trust between employees and their supervisors. Poor relationships between employees and their managers will result in conflicts about the definitions of goals and action plans. Sometimes it is difficult to measure the full range of performance, especially where the context is changing and the level of difficulty varies. Frequently, overemphasis on operational goals can harm the attainment of higher-level goals. Furthermore, it is important to emphasise that MBO is a highly participative process. Without ACTIVITY 4.3 Quiz
Conclusion This section has looked at the primary features of effective control systems, and two systems designed to focus an organisation and its members on higher goals and how and when they can be achieved. Both the balanced scorecard and MBO approaches create a hierarchy of goals and assume that humans are highly motivated by target setting. Both apply the principles of goal setting, measurement and comparison – for example, targets against performance and feedback for correction. The balanced scorecard is devised to focus attention on goals related to many aspects of performance: financial, internal and external, and learning and growth. The MBO process is less specific about the goals. Both approaches are aimed at aligning activity at the lower and middle levels of an organisation with its strategic direction. Both are effective when there are relatively few key performance indicators that can be achieved with little challenge, agreed on by those who will perform the work, are clear and well communicated, |
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and when there is regular feedback on performance, followed by correction where necessary. In practice both systems must be used judiciously to mitigate the risks of goal displacement, over- bureaucratic mechanisms, too many goals, and applying the systems and measurement to the wrong kind of work or process. |
Unit 4: The internal business environment | 69 Section 4.2: The supply chain and improving product quality Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to: describe and analyse the role of operations managers Background reading Cole and Kelly (2020) Chapter 37. Surridge, M. and A. Gillespie AQA A-level business. (London: Hodder Education, 2019) [ISBN 9781510453340] p.184–86. Introduction The operations manager is a crucial position in a company as this role determines how efficiently the company can provide its goods and services to customers. The role relates directly to finance in terms of keeping down costs and to HR in terms of the supply and training of the workforce. Operational objectives must fit with the overall business objectives and must be part of competitive strategy. Key objectives for operations managers are:
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financial and human resources are invested in the activities involved in making products or delivering services. Operations management is, therefore, critical to organisational success. This role was created to respond to the demands of mass production and draws on the work of scientific management theorists and manufacturers such as Ford in the USA. Given the importance of this role it is necessary to organise, plan, coordinate and manage the function so that it contributes to organisational goals. The operation strategy is the contribution the role makes to the business and how operational objectives fit in with the overall objectives of the company. These will vary according to the products or services supplied. Operation planning: inputs See Chapter 37, Figure 37.2 in Cole and Kelly (2020) for a description of the production and operations process. The operations process has five stages: Operations managers take decisions that work on a feedback system. First, they set operational objectives. Next, they analyse operational data to decide the existing situation in the company and the level of output necessary to satisfy demand. Decisions will be taken on the range Supply chain management Operations management is closely connected with supply chain management. This is concerned with controlling what happens outside an organisation, which in turn affects company performance. The operations strategy is the way in which the demands of the market are met by the resource capabilities of the company. Operations managers can deal with unstable demand by following either a make-to-order strategy, which provides confidence that stock is available in advance, or a just-in-time strategy, which avoids the need to store finished goods. According to Cole and Kelly (2020), ‘Supply chain management is the management of all activities that facilitate the fulfilment of a customer order for a manufactured good to achieve satisfied customers at reasonable cost.’ In Figure 4.2, the ‘downstream’ activities of inbound logistics describe the supply of goods or material. ‘Upstream’ are the outbound logistics where the product is passed to storage facilities and sales and marketing. |
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Figure 4.2: Porter’s value chain diagram: example. (Source: Wondershare, edrawsoft.com) Production planning: Single-sourcing This is the practice of obtaining all of one type of product, component or service from a single supplier, rather than from multiple organisations. The advantage can be seen in building a good relationship with a supplier and ensuring reliability and ensuring quality. The disadvantage is that any disruptions to the supply at source will result in shortages and price rises. Multi-sourcing Obtaining the same type of product, component or service from more than one supplier in order to maintain market bargaining power or continuity of supply is a way of avoiding disruption in the chain. Fragmentation, where different components of the product or service are sourced from more than one country, is a function of globalisation. ACTIVITY 4.4 Discussion Surridge and Gillespie (2019) Chapter 11, p.153. Business in focus: Inditex Analyse how Zara’s speed of response and flexibility helps it to compete. To what extent is Uniqlo’s operational response better than Zara’s? ACTIVITY 4.5 Writing Surridge and Gillespie (2019) Chapter 11, p.155. Business in focus: Tesla Write two paragraphs in answer to the case study questions 1 and 2. Compare the answers with your group. |
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Operations objectives: product quality Background reading Boddy (2016) Chapter 18 ‘Managing operations and quality’. Cole and Kelly (2020) Chapter 28 ‘Improving quality’. Surridge and Gillespie (2019) pp.174–6. Introduction When setting operational objectives to fit in with the overall objectives of the company, managers must take into account customers’ quality preferences. Quality can be defined in a number of ways. According to the Corporate Finance Institute: Quality management is the act of overseeing different activities and tasks within an organisation to ensure that products and services offered, as well as the means used to provide them, are consistent. It helps to achieve and maintain a desired level of quality within the organisation. The benefits of quality management are that it helps an organisation achieve greater consistency in tasks and activities involved in the manufacturing products and providing services. Monitoring quality can increase efficiency in processes, reduce waste and improve time management and other resources. The principles of quality management involve a customer focus. Strong leadership will engage the workforce in this approach. Quality is best enhanced by using a process approach. The aim product improvement process improvement people-based improvement. In planning for quality assurance, control and improvement the manager will aim to:
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Various quality characteristics can be enhanced, as follows:
ACTIVITY 4.6 Discussion In pairs, discuss how a business or organisation that you know well could improve the quality of its products or operations. |
Unit 4: The internal business environment | Section 4.3: The HR function and recruitment Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to: understand the need to set human resource objectives in a company Background reading Boddy (2016) Chapter 11 ‘Human resource management’. Cole and Kelly (2020) Chapter 14, Section 13 ‘HR’. Surridge and Gillespie (2019) Chapter 20 ‘Setting HR objectives’ pp.259–62 and Chapter 23 ‘Improving motivation and engagement’. Introduction Human resource management (HRM) refers to all processes concerned with managing people 74 ACTIVITY 4.7 Case study 1 Boddy (2016) p.348. BMW In small groups, discuss the case questions 11.1. |
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HR goals The criteria for HR managers in developing their goals is that they need to be clearly aligned based on the needs of the business In some companies, the workforce is seen as a resource to be exploited or dispensed with in the pursuit of a low-cost operation. In other organisations, the workforce is seen as a resource that is essential to long-term objectives and success and that should be stabilised and retained. Having sufficient employees, in the right location to meet the demands of production, Specific HR objectives: These are dependent on the industry. In manufacturing, labour productivity is a key issue, and an HR manager will focus on productivity aims. In the same way the location of the labour force and flexibility in responding to expanding or seasonal demands for labour will require the manager to set recruitment objectives. Training: As technology develops in the workplace, different skills may be required from the workforce and the HR manager needs to have training schemes in place. Training is a specifically job-related process and forms a key part of HR strategy especially in fields where developments in technology are fast moving. Employee engagement and involvement: HR managers may aim to engage with the workforce to align their values to those core values in corporate vision, mission and goals. To do this, they may want to implement a quality programme or involve all the staff in plans to solve problems and improve the business performance. In some companies, there may be a tradition of workforce engagement and communication processes. Diversity: Some companies may set improving their diversity in the workforce as an HR objective. This involves ensuring that there are policies related to equality and that this equality confirms the benefits of diversity in gender, race and ethnicity, disability, religion and age in the workforce. Internal influences on HR strategy: These are primarily the overall company objectives whether for increased profit, larger market share, reduced costs or possibly expansion. The attitudes and beliefs of senior managers across a company will be key in the type of decisions taken regarding HR. Companies with a high turnover in their workforce may be forced to review their plans to improve retention of staff. The company structure itself will also influence HR strategy in that it may be a centralised structure with decision making taken by senior managers or decentralised where more junior staff have autonomy and can develop their skills and require less supervision. Centralised structures have fewer needs for delegation and can speed decision making. However, this can put a strain on senior managers who have less ability to focus on the long term. The leadership and management style of an organisation also has a direct impact on how HR managers themselves can operate. |
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External influences on HR strategy: As you saw in Unit 2, these will include the wider political, economic, social, technological, legal and environmental influences that apply to the company itself (PESTLE). For example, if the market for the product is declining then this would impact on the numbers employed in a company unless plans are made for reinvestment and change. Concerns with the environmental impact of industry have had a strong influence not only on the legislative environment but on customer preferences which favour environmentally friendly productive processes, products and sustainability. Legislation which protects the rights of labour also has far reaching influence beyond the country which produced it. Laws which restrain freedom of movement across countries will also impact on the recruitment process as migrancy is discouraged. In a strongly competitive environment the demand for skilled staff may encourage HR managers to review incentives for employment. Motivation: Employees may be motivated by their own internal values and aspirations. They may also respond to external company goals and targets and to the prospect of financial reward. A high level of employee engagement can have a positive impact on absenteeism, labour retention, productivity and communications within the company. In order to align motivation to company goals, HR managers may use a variety of performance management techniques. This involves setting targets for productivity, time management and other activities. However, there are many roles for which statistical measurement of the output is not possible. Although employees may be engaged, in that they take an active role in their job, they may not be motivated. Modern HR management emphasises the need for a strategy for motivation of employees which in addition to efficiency will provide:
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HR manager needs to be aware of the need to demonstrate compliance. An HR objective to improve diversity may also impact on organisational culture positively. One advantage of a diverse workforce is that it may resemble the market in which the business is competing and contribute this knowledge. It may also include members of the community where the business is based, which would lead to a greater understanding of the market.
ACTIVITY 4.8 Case study 2 Boddy (2016) p.356. BMW In small groups, discuss questions 11.4 and write a paragraph explaining your answers. Share your work with other groups. Conclusion In this section you have identified several areas of HR management: the need to integrate the HR strategy with other areas of organisational planning and development; efficient resourcing; recruitment and selection of high-quality staff; the need for staff training and learning; internal and external influences on HR planning; of employee rewards, good employee relations and employee wellbeing. You have discussed HR management as applied to the car industry in BMW. You have identified the need for a fair recruitment process that ensures equal opportunities. You have investigated the various methods of motivating a workforce both by financial and non- financial rewards. |
Uniit 4::Theiinternall busiinessenviironment | Concluding comments 78 78 |
This unit began by introducing the four primary elements of the control function in business followed by the five generic objectives The balance between the number of performance objectives and ultimate efficiency was examined. The balanced scorecard tool was introduced and its use in estimating organisational performance and the unit went on to define management by objectives (MBO) and how this is used to set agreed performance targets between managers and employees. The role of operations manager was introduced and the importance of efficient management of The unit concluded with an introduction to the HR function, the development of skilled and competent employees and how this process fits into the strategic objectives of a company. Each company will have different objectives for its HR managers and the unit identified a number Next up is Unit 5 which moves us to marketing management and the use of IT in business operations. A reminder of your learning outcomes
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UUnnitit55: :Maakkininggeeffefecctitviveemaarkrkeetitninggddeeccisisioionnss | Introduction to Unit 5 79 79 | ||||
Overview of the unit Previous units have illustrated the significance of planning, organising, leading in management and the role of HR. In this unit we will focus on the significance of marketing. This is the process by which organisations set out to create and to satisfy existing customer needs. In doing so they need to research customer markets carefully, advise on the creation of attractive products, advise on setting prices and communicating the offer, and elicit feedback to find out whether adjustments need to be made. Marketing is not confined to production or to for- profit organisations. The techniques of obtaining customer feedback in the form of interviews, questionnaires, group discussion and social media input are also common to service providers and not-for-profit organisations. Week Unit Section Aims This unit aims to: Learning outcomes By the end of this unit, and having completed the background reading and activities, you should be able to:
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Introduction to Unit 5 80 |
Background reading Boddy, D. Management: an introduction. (Harlow: Pearson, 2016) 7th edition [ISBN 9781292088594] Chapter 8 ‘Managing marketing’. Cole, G. and P. Kelly Management theory and practice. (Boston, MA: Cengage, 2020) [ISBN 9781473769724] Chapter 31 ‘The marketing mix’. Surridge, M. and A. Gillespie AQA A-level business (London: Hodder Education, 2019) |
Unit 5: Making effective marketing decisions | 81 Section 5.1: Customer segmentation, the marketing mix and the product lifecycle Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to: understand the use of customer and market segmentation in marketing strategy company Customer segmentation Introduction The idea of market segmentation originates in marketing planning. It involves grouping customers in segments based on perceived needs that apply to these segments. For example, buyers may be grouped by age, social class, gender, culture, income, interests, lifestyles, and thus may be expected to respond to a marketing initiative in a similar way. These categories of buyers can be relied on to understand the value of the products offered whereas other categories of buyers may not. Market research activity provides important information about the customer base of a company, which can be used to develop products and increase sales and market share or improve competitive advantage. Managers are aiming to discover the key influences on demand that Technology provides opportunities to research product markets through market research questionnaires and surveys and also through the presence of business on social media websites and feedback mechanisms. The data collected can be comprehensive and is known as ‘big Market segmentation, targeting and positioning (STP) This model uses market research data in a process, which starts with identifying the market segments – defined as groups of customers with similar needs and wants. Instead of treating |
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Segmentation of customers is a sophisticated process and is based on complex indicators which include data gathered about the following. Demography. This includes assumptions based on the characteristic needs and wants of age groups, gender, the size of families and responsibilities in life. Geographic factors. Where people live, their accommodation, the climate and technological development can all influence buying patterns Disposable income. This important segmentation describes the needs and wants of high- and low-income groups, and is based on data from socioeconomic analysis of the characteristics of occupational groups. Buying behaviours. International buying behaviour depends on the culture of the country, the distribution of public holidays and traditional buying patterns. Marketing in a new environment requires extra research into the needs and wants of selected segments. Segmentation must be: measurable substantial accessible Targeting Using this data, a business will target specific markets where there is a potential for sales and profit and where the business can satisfy demand without incurring high costs. In evaluating different targets, a company must look at: the segment’s overall attractiveness economies of scale Competitive positioning and risk Market segmentation is based on market research. The value that is attached to this is based on the need to avoid risk in promoting a product and to be sure that it will be competitive in the chosen market. By determining which products have the best chance of gaining a share Elements of competitive positioning are shown in Table 5.1. Image Price Service Product
Table 5.1: Competitive positioning. |
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Competitive marketing strategies give the organisation a choice of four positions. A market leader strategy will dominate the market share.
Marketing mix According to the Chartered Institute of Marketing: Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements profitably. This necessitates the creation of a strategic marketing plan which will integrate selected, targeted marketing tactics with common goals and align them with overall company aims and strategy. If there is a marketing department, the marketing manager will work closely with the HR, finance and operations management departments. If there is no formal marketing department, the marketing strategy must be known and common to all in the company. The management process will require planning and analysis, resource allocation, control and investment in terms of capital – both human capital and physical capital. There are seven functions of marketing in the product development process.
Marketing mix and marketing techniques A variety of techniques are used in the marketing of goods and these are known as the ‘marketing mix’ – product, price, place and promotion. Managers can choose and adapt these approaches according to the condition of the market, the industry they work in and the goals of the company. One marketing aim is to build customer value by achieving high customer satisfaction. These customers will be loyal to the company for longer, are less price sensitive and tend to buy more products and upgrades. They can be relied on to spread favourable reports through social media, word of mouth and formal feedback. Product The product must be developed with a target customer segment in mind. This could be based on factors such as customer demography, culture, income, interests, social class and gender. The product itself must go through a feasibility process to be sure that the company will be able to produce the numbers required. A prototype of the product is tested and improved before the launch. Branding is an important feature of marketing with the aim of creating a brand equity, a brand that is recognisable, has positive associations and attracts loyal customers. Packaging can be another important consideration in marketing the product whether for attractiveness |
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products, electronics and cars provide warranties and guarantees. Many of these services are governed by laws in the country of sale. The product portfolio, which contains all the company products and services, must be monitored and improved to retain competitiveness. Price Market price, as we know from economics, is determined by supply and demand in a condition of perfect competition. Price leadership will set a price that is below all other competitors. is more common in luxury markets (e.g. wine, jewellery, high fashion, diamonds) to retain the high status of the product or to reflect the technology required in production. Discounted prices will generate increased sales in a very price sensitive market. Extension of payment periods Place This describes where the products are distributed and needs to be appropriate for the pricing decision. Traditionally, supermarkets will include lower priced items whereas exclusive designs and high-end products are deliberately restricted to certain locations. Promotion Typical promotion activities include advertising, sales promotion, direct marketing and attempts to engage the public around the brand or product by events, shows, celebrity endorsement, special offers and by publishing positive customer feedback. Service industries Three more factors can be added to the traditional marketing mix to reflect the rise of service industries in developed economies. Service industries, which are the third sector of the economy, are not involved in manufacturing, and include, for example, banking, insurance, financial management, retail, communications, professional services such as law and medicine, non-profit organisations, hospitality and all government departments. In some countries, service industries are the biggest sector of the economy and marketing in this sector includes people, physical environment and process. People and customer service. A customer is more likely to buy a service if the people providing it are well trained, knowledgeable, reliable, friendly and efficient. Physical environment. The presentation of the environment where a service is delivered is important. In modern shopping malls the experience of buying is connected to demands for leisure, catering and entertainment. Process. This includes activities such as the speed of processing an order and the availability of customised delivery times to accommodate lifestyles. Point-of-sale payment systems that rely on efficient technology and security can improve sales. |
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ACTIVITY 5.1 Discussion In pairs, exchange information on two companies that you know. Identify: a) how the marketing mix is used to promote the sales of their goods Surridge and Gillespie (2019) p.138 ‘Business in focus – location targeting’. In pairs, discuss questions 1 and 2. Management of product growth using the Boston Matrix The Boston matrix (see Table 5.2) was designed to help managers monitor the success of products in the market by measuring the percentage of sales they have and how fast these sales are growing. Table 5.2: The Boston matrix. This analysis provides the company with opportunities. The decision can be made to invest more in the product to build the market share; or to continue to finance the product to hold its competitive position; or to reduce investment and continue to receive revenue while using the investment for another product; or to discontinue the product and use the resources elsewhere. Product lifecycle theory Use of this theory is another opportunity for the marketing manager to develop a long-term sales strategy and to protect against losses. Introductory stage: developing new products In this stage, management will assess the potential of possible products. What is needed is Launching a new product is the stage in which the risk is highest. This is because it takes time
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Growth The growth stage is when the new product satisfies the market. Sales increase and thus so Maturity This can be a long-lasting stage especially if the product has been popular with customers and has been marketed skilfully. In this stage, there may be a slowdown in sales compared with early stages. It may be necessary to increase the promotion of the product and to engage in more research and development to support sales targets and maintain profitability. By this stage, there may be a number of suppliers who are active in the market. Overcapacity may lead to competition. There may also be substitute products that can compete in price with a long- standing product that has gained consumer acceptance. Saturation Here the market for the product is exhausted and profits shrink. Despite competitive strategies on price, sales begin to fall. Decline Sales decline consistently and profits fall to zero. At this point, the product must be withdrawn from the market before incurring losses. Conclusion In this section, you have analysed how businesses use data that has been gathered through customer research, to manage their customer demand by using segmentation, targeting of the selected segment and positioning in the market for competitive advantage. You have investigated how the marketing mix techniques are used to increase sales and profitability or to develop other business strategies. You have seen how the product lifecycle theory influences investment decisions in marketing planning. You have worked on case studies of companies that were faced with the need to make marketing strategies. It is important to understand that although marketing data is powerful it may not always reflect the reality of customer behaviour and marketing managers need to be aware of the importance of avoiding risk and costly mistakes. ACTIVITY 5.2 Case study |
Unit 5: Making effective marketing decisions | 87 Section 5.2: Information technology and building customer relationships Learning outcomes By the end of this section, and having completed the background reading and activities, you should be able to:
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Section 5.2: Information technology and building customer relationships 88 |
Data and information Data can be illustrated by recorded descriptions of events, activities and transactions. This data is raw, unanalysed facts, figures and events. Data can be displayed and distributed in numerous forms such as text, a photograph or tables and may or may not convey relevant information. Information, however, can be defined as a subset of data that has been processed in such a way that it can be meaningful, informative and useful. Data can be seen as a record of events, whereas information is data with purpose or use. The production of reliable information depends both on the quality of data and the efficiency and reliability of data-processing systems and techniques. Characteristics of useful information The performance of organisations relies heavily on high-quality information that will be used to identify problems and develop strategic plans. The characteristics of useful information fall into three broad categories.
In summary, the characteristics of good information are that it is: valid, reliable, timely, fit-for- purpose, accessible, cost-effective, sufficiently accurate, relevant, has the right level of detail, from a source in which the user has confidence, and the information is understandable by the user. Types of information systems Operations information systems. These are computer-based information systems that support an organisation’s day-to-day operations. They contain all the information and applications that employees use daily or on a regular basis. Operations information systems are classified as follows:
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ACTIVITY 5.3 Reading and writing Read Boddy (2016) pp.383–92.
Organisational implications of information technology The use of information technology in organisations is crucial, as it may define the best ways Benefits of IT in business operations The following paragraphs summarise the primary benefits of the use of IT as well as the fundamental risk of information overload. Increased employee effectiveness. Employees have access to a great deal of data and information which improves their decision-making capabilities as well as the overall effectiveness of their work. Geographical distance and differences in time zones dissolve, so employees Increased efficiency. The use of IT within an organisation can considerably increase the efficiency of the organisation. This is mainly because IT not only speeds up work processes Collaboration. IT facilitates collaboration inside organisations, as employees are brought together with colleagues across departments, business units and geographical regions. Corporate networks and collaborative work systems (Skype for Business, Zoom, Microsoft Teams etc.) enable employees to connect, share ideas and work in virtual teams. At the same time IT facilitates collaboration with external stakeholders, including clients, suppliers, universities and government bodies. Extranets or ERP systems connect organisations to clients, suppliers and other external parties. Better organisational learning. Organisations can easily get access to a wide variety of |
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Drawbacks to the use of IT Information overload. Although IT is the vehicle to access and analyse a variety of data, the processing of too much data can be overwhelming for many organisations to handle. A major problem associated with accessing more data is the challenge to sort out the valuable data from the useless data. Organisations are increasingly being challenged to become competent in filtering out unnecessary data and unusable information. In practice, managers need to ensure that suppliers of data and information work closely with employees to identify the kinds of questions that need to be answered and the type of data that is needed. Top executives should be actively involved in setting limits on the critical questions or issues that need to be tackled. ACTIVITY 5.4 Quiz In groups, answer these questions:
Conclusion In this section you have learned how to distinguish between data, information and knowledge and how information technology differs from information systems. In today’s fast-paced business environment, organisations carry out an enormous amount of data and information processing. Some companies have this activity as their core operation, that is taking in data, processing the data and converting it into information for customers. Customers then use the information to create knowledge and insight. Information systems, allied to the internet, are now fundamental to organisations; they operate at different levels and purposeful different roles, whether to assist senior management in decision making, business planning, customer relationship management, or just carry out the high-volume processing of a bank. Clearly, organisations are now hugely dependent on information systems and the But IT and systems and connectivity also bring a number of risks to commercial activity that must be mitigated and overcome. |
Unit 5:Makingeffectivemarketingdecisions | Concluding comments 92 92 |
The key concepts of marketing planning, customer segmentation, targeting and positioning were defined, distinguishing their different processes and implementations within a marketing strategy. The value of market research in developing products and services was emphasised. The unit went on to introduce the use of competitive positioning by marketing managers and the need for their sensitivity to risk and awareness of some of the strategies available to avoid risky situations. After this, the marketing mix and the measurement tool of market growth provided by the Boston Matrix were presented. Product lifecycle theory was outlined to show how managers could judge long term sales policy and the avoidance of losses. The unit concluded with an examination of the growth of IT in contemporary organisations, the distinction to be made between data and information and the role of management information systems (MIS) inside an organisation, how they function and what their impact can be, including a discussion of their similarities and differences. Finally, the unit concluded by comparing the benefits and disadvantages of the use of IT in customer focussed business operations. A reminder of your learning outcomes Having completed this unit and the background reading and activities, you should be able to:
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