A2 Business Studies r

7/29/2019 A2 Business Studies r

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1AL.2BusinessStructure

Tradinglinks

InternationaltradehasgrownrapidlyintherecentyearsMorecountriestradingtogethermeanscanbebeneficial:

Improvetheirpolitical&socialaspectsandresolvedifferencesbetweenthem

Widerchoicesforconsumersmayleadtobetterstandardsofliving Countriesmayobtainanyrawmaterialsthatarenotavailableintheirown

countries

Importsmaycreatecompetitionfordomesticfirmsandencouragethemtobemoreefficient

Countriescanspecialiseintheproductstheyarebestatmakingandbenefitfromtheeconomiesofscale

However,thesearethedrawbacks: Lossofoutput&jobsfromdomesticfirms(cannotcompetewithimported

goods)

Strategicindustries(foodstuffs,electricity,coal,etc.)shouldnotbedependentonothercountriesbecauseiftherewereaconflictbetween

countriesoranotherfactorleadingtolossofimportsthenthecountrywouldlosethesupplyofimportantgoods

New/smallbusinesses(infantindustries)maynotcompetewithimportedgoods

Importersmaydumpgoods(pricelowerthancost),whichisunfair Toomuchimportscouldleadtoacurrentaccountdeficit&depreciationin

currency

MultinationalsMultinationalbusinessbusinessorganisationthathasitsheadquartersinone

country,butwithoperatingbranches,factoriesandassemblyplantsinother

countries

Whatsgoodaboutbecomingamultinational? Closertomainmarkets(lowertransportcosts,betterinformationof

market)

Lowercostsorproduction(lowerlocalwages,cheaperrentandsitecosts,bettergovernmentgrantsandtaxes)


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Avoidimportrestrictions Accesstolocalnaturalresources

Problemsthatmultinationalsmightface: Communicationproblems(languagebarriers) Culture&legaldifference(soneedtoadapt) Biggesttypeoforganisationsoneedtoensurethattheobjectivesare

coordinatedbetweenallplantsofthebusiness

Benefitstohostcountries: Createemployment&trainingopportunity(improvedlabourskills) LocalfirmsmaybenefitfromsupplyingmaterialstothemultinationalsMayimproveinfrastructureforthecountry Encouragelocalfirmstoimprovestandardstocompetewithbigger

businesses

Increasedgovernmenttaxrevenuefromtheprofitsmade GDPmayincreaseandthiscauseseconomicgrowth

Possiblelimitationstohostcountries: Exploitationofworkerswithlowwages,unfairworkingconditions,long

workinghours,etc.

Pollutionanddepletionofnaturalresourcesofhostcountries Localfirmsmaygooutofbusiness Profitsmaybesentbacktohomecountry,ratherthankeptfor

reinvestmentinthehostnation

Privatisation

Privatisationsellingstate-ownedandcontrolledbusinessorganisationstoinvestors

intheprivatesector

Argumentsforprivatisation:

Theprofitmotiveofprivate-sectorbusinesseswillleadtogreaterefficiencyDecisionmakinginstatebodiescanbeslow&bureaucraticMarketforceswillbeallowedtooperate,failingbusinesseswouldgooutand

successfuloneswouldexpand(nolimitsongrowth)

SaleofnationalisedindustriescanraisefinanceforgovernmentPrivatebusinesseswillhaveaccesstoprivatecapitalmarkets(leadstoincreased

investmentintheeconomy)


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Argumentsagainstprivatisation:

Thestateshouldtakedecisionsaboutessentialindustrieswhicharebasedonsocietysneedsnotjustinterestofshareholders(someunprofitablecompanies

maybekeptopen)

Itismoredifficulttoachievecoordinatedpolicytobenefitthewholecountrywithmanyprivatelyrunbusinesses

Manystrategicindustriescouldoperateasprivatemonopoliesifprivatisedandtheycouldexploitconsumerswithhighprices

Nationalisation

Nationalisationsellingprivatelyownedandcontrolledbusinessorganisationsto

thestateorpublicsectorArgumentsfornationalisation:

Weaknessesoffreemarket(freemarketpricetoouncertainorvolatile)Publicownershipmeetssocial&economicneedsLoss-makingservicesmightstillbeopenedifthesocialbenefitisgreatenough

Argumentsagainstnationalisation:

LackofprofitmotivesmayleadtoinefficiencyOnlyproducewhattheythinkpeopleneed(maynotalwaysbecorrect)Governmentmaymakebusinessdecisionsforpoliticalreasons(e.g.openinga

newbranchinacertainareatogainpopularity)

Public-privatepartnerships(PPP)

PPPgovernmentservicesorbusinessventuresthatarefundedandmanaged

throughapartnershipofgovernmentandoneormoreprivate-sectorcompanies

Governmentfunded:governmentfinancesthebusinessandprivatesectormanagesandcontrols

Privatesectorfunded:ofteninvolvelargesumsofcapitalinvestment(sogovernmentdoesnothavetocollectgreatertaxrevenuetofinancethebusiness).

Statecontrols&managestheservices

1AL.3Sizeofbusiness

Externalgrowth

Businessexpansionachievedbymeansofmergingwithortakingoveranother

businessfromeitherthesameoradifferentindustry


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Mergeranagreementbyshareholdersandmanagersoftwobusinessestobringbothfirmtogetherunderacommonboardofdirectorswithshareholdersinboth

businessesowningsharesinthenewlymergedbusiness

Takeoverwhenacompanybuysover50%ofthesharesofanothercompanyandbecomesthecontrollingownerofit.Alsocalledacquisition


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Advantagesofmerging/integrating:

Twofirmsmaybeabletoshareresearchfacilities&ideasthatwillbenefitbothbusinesses(onlyiffirmsusethesamekindoftechnologies)

Largerfirmsmaybenefitfromeconomiesofscale Thenewbusinesscansaveonmarketing&distributioncostsusingthe

sameoutletsandsalesteams

Disadvantagesofmerging/integrating:

Thefirmmaybecometoobigandfacesdiseconomiesofscale Theremaybelittlemutualbenefitfromsharedfacilitiesormarketing

systemsifthefirmshaveproductsindifferentmarkets

Thebusiness&managementcultureofthefirmsmaybedifferentandconflictscouldoccur(e.g.environmentalissues,CSRandetc.)

1AL.6Externalinfluencesonbusinessactivity

Economicsconstraintsandenablers

Marketfailurewhenmarketsfailtoachievethemostefficientallocationofresourcesandthereisunder-oroverproductionofcertaingoodsorservices(you

shouldalreadyknowthesolutionsforallofthem!)

Macroeconomicobjectivesofgovernments

1. Lowunemploymentworkersintheworkingpopulationarewilling&abletoworkbutareunabletofindajob

Costsofunemployment:

Theeconomycouldproducemoregoods&services,whichwouldthenbeavailableforconsumption

Governmenthastopayunemploymentbenefitsfromthetaxrevenuewhilethemoneycouldbeusedinbetterwaystoimprovethecountry

Seriousunemploymentcouldleadtosocialproblemssuchascrime Unemploymentreducesdemandforgoods&servicesandthiswillreduce

theincomesforthoseworking

Lossofincomeleadstolowerstandardsofliving Unemploymentcausestheskillstobecomeobsolete


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Cyclicalunemploymentresultingfromlowdemandforgoodsandservicesintheeconomyduringaperiodofsloweconomicgrowthorarecession(ADfalls,firms

produceless,lessworkersneeded)

Governmentneedstoavoidsubstantialswingsinthebusinesscycle(stabilise

inflation&exchangeratesothatdomesticandinternationaldemandsdonot

fluctuatemuch)

Structuralunemploymentcausedbythedeclineinimportantindustries,leadingtosignificantjoblossesinonesectorofindustry(changesinconsumertastes

e.g.switchingfromhigh-streetbankingtoonlinebanking,changeinthestructure

ofindustry,improvementintechnologye.g.employersarelookingformulti-

skilledworkers)

GovernmentneedstoprovidetrainingandeducationfortheunskilledworkersNOTtopreventchangesintheeconomy

Frictionalunemploymentresultingfromworkerslosingorleavingjobsandtakingasubstantialperiodoftimetofindalternativeemployment

Governmentcanimprovethelabourmarketbyprovidingmoreinformationabout

jobopportunities(moreemploymentagenciesandreduceunemployment

benefitsforpeoplewhoareslowtofindanewjob)

2. Lowinflationanincreaseintheaveragepricelevelofgoods&serviceswhichresultsinafallinthevalueofmoney

Causesofcost-pushinflation(riseincostofproduction):

Lowerexchangeratepricesofimportsrise Labourcostrises(higherwagedemands) Transportationcostsrise(oilpricesrise)

Demand-pullinflation:

Economicboom Demandrisesandtheeconomyhasnosparecapacitytomeettheincreased

needs

Impactsonbusinessactivity

Benefitsoflowinflation(approx.2%):

Inflationmeansafallofrealmoneyvalue.Thevalueofbusinessliabilitiesordebtswouldfall

Thevalueoffixedassets(buildingandland)couldrise,thisincreasesthevalueofthebusinessonthebalancesheet&makethefirmmorefinanciallysecure


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Sincestocksareboughtinadvanceandthensoldlater,thereisanincreaseinprofitduetoinflation

Drawbacksofhighinflation(5-6%):

Higherwagedemandsfromworkers(addstocosts) Consumersdemandmayfall GovernmentneedstoraiseinterestratestoreduceADandtrytocontrolthe

risinginflation,thiswouldincreasethesizeofdebtabusinesshastopay

Cash-flowproblemsmayoccurbecausebusinesseshavehighercosts Inflationaddsuncertaintyaboutthefuture Ifinflationishigherthanothercountries,thenthecountrywilllossinternational

competitiveness(exchangeratefallsbecausenobodywantstobuytheproducts

andthusthecurrency)

Businessesmaynotofferextendedcreditperiodsbecausemoneyislosingvalue

Businessstrategyduringinflation

CuttingbackoninvestmentspendingCuttingprofitmarginstostayascompetitiveaspossibleReducingborrowing

ReducingtimeperiodfordebtorstopayReducinglabourcosts

Deflationisnotgoodeither!

Demandwouldfallbecauseconsumerswouldthinkthatpriceswillcontinuetofallanddelaymakingpurchases

Businesseswouldnotwanttoborrowbecausetheyarerepayingdebtswiththemoneywithhighervalue,thereforeinvestmentmayfall

Businesseswouldrefusetoholdlotsofstocksbecausetheylosevaluesastimepasses,theywouldreduceordersandthisleadstoalossofnationaloutput

2AL.3Humanresourcemanagement(HRM)

Measuresofemployeeperformance

Labourproductivitytheoutputperworkerinagiventimeperiod(indicatesefficiency)

Totaloutputintimeperiod

Totalstaffemployedatthattime


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Improveby:

IncreasestaffmotivationMoreefficient&reliablecapitalequipment Betterstafftraining Increaseworkerinvolvementinproblemsolvingtospeedupproduction Improveinternalefficiency(e.g.nowaitingforsuppliesofmaterialsto

arrive)

Absenteeismratesmeasurestherateofworkforceabsenceasaproportionoftheemployeetotal

NumberofstaffabsentX100

Totalnumberofstaff

Maybecausedbypoorworkingconditions(leadtoillness,stress,lossofmotivation)

Staffabsenteeismmayleadtopoorcustomerservices.Itisexpensivetoemploy

extrastaffjusttocoverforthestaffawayfromworkortoaskotherstowork

overtime.Firmsneedwell-focusedandmotivatedstafftoavoidtheseextracosts

Labourturnovermeasurestherateatwhichemployeesareleavinganorganisationgoodindicatorofstaffdiscontent

Numberofstaffleavingin1yearX100

Averagenumberofstaffemployed

Othermeasuresofworkforceperformance

Wastagelevels(wastedordamagedproductsasaproportiontototaloutput) Rejectratesorconsumercomplaintsovertotalcustomersserved Dayslostduetostrikeswithinthebusiness


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Improvingemployeeperformance

Regularperformanceappraisalagainstpre-settargetsifconstantlyfailingthendisciplinaryproceduresorfurthertrainingmaybeneeded

Offeringtrainingopportunitiestostretchandchallengeeveryworkermayhelptoincreaseefficiency

Qualitycirclesinvolveeveryoneinsuggestingsolutionstoproblems Teamworkgivecompletesectionofworktoeachteam(improvemotivation) Offeringfinancialincentives

Managementbyobjectives(MBO)

Dividingtheorganisationsoverallaimintospecifictargetsforeachdivision,

departmentandindividual.Targetsaresetduringtheannualappraisalprocesswithworkersagreement

Benefits:

Staffinvolvementisakeyfeatureofjobenrichmentaidsmotivation Allstaffwillknowexactlywhattheyhavetodo,thishelpsthemtoprioritisetheir

timeandworkmoreefficiently

Everyoneisworkingtowardsthesameoverallobjectivesincreasedcoordination Settingtargetsmeansthatmanagersareabletomonitoreveryonesperformance

andmeasuresuccessorfailureProblems:

Settingtargetsforeveryonecanbetime-consuming Objectivescanbeoutdatedveryquicklyfixingtargets&monitoringprogress

againstthemcanbeuselessifthebusinesssenvironmentchanges

Settingtargetsdoesnotguaranteesuccess,theremustbesufficientresourcesandstafftrainingaswell

Co-operationbetweenmanagementandworkforceApproachestolabour-managementrelations:

1. Autocraticmanagementstyleworkersemployedonshort-termcontracts,littlejobsecurity.Ifanyworkersdonotagreewiththeconditions,managerswillsimply

sackthemandreplacewithanotherperson.Leadstolowlabourcosts.BUT:

Nojobsecurity=lessmotivationStaffarenottrainedtobemulti-skilledNoclearobjectivesbetweenlabour&managementNostaffinvolvementorparticipation,nojobenrichment


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2. Collectivebargainingbetweentradeunionsandemployerswhenunionsandnationalemployersnegotiatewagelevelsandworkingconditionsforthewhole

industry.Unionsarepowerfulbecausetheymaycallforstrikeactions,whichbring

theentireindustrytoahalt.DISADVANTAGES:

Nationalagreementsmaynotbeaffordable/suitableforsmallbusinesses Industrialactions(strikes)causedisruptionandlostoutput&salesPowerfulunionsmayresisttochanges,thisleadstolackofinvestmentand

developmentofkeyindustries(adverselyaffectsunionmembers)

Lessnegotiation&confrontationleadstoincreasecompetitiveness3. Cooperationbetweenlabourandmanagement

InvolvingworkersinimportantdecisionsandissuesLessconfrontation,fewerstrikesandmorecooperationBasedonmutualrespect,understandandcommonaimsLeadstoacompetitive,efficientandproductivebusinessMaycostmoreorbetime-consumingbutgoodforlong-termsuccess

Tradeunions

Anorganisationofworkingpeoplewiththeobjectiveofimprovingthepayand

workingconditionsoftheirmembersandprovidingthemwithsupportandlegal

servicesReasonsforjoiningatradeunion:

1. Strongerpositionforworkersincollectivebargainingandnegotiationsthantheyareiftheynegotiatedindividuallybecausetradeunionsrepresentalltheir

membersinabusiness

2. Individualindustrialaction(oneworkergoingonstrike)isnotveryeffective3. Providelegalsupporttoemployeeswhoclaimunfairdismissalorpoorconditions

ofwork

4. Unionsensurethatalllegalrequirementsaremet(health&safetyrules,etc.)

Negotiation

1. Nationalbargainingtradeunionleadersdiscussoverpayandworkingconditionsatanationallevelwithemployersassociations.Agreementswould

thenbeappliedinallbusinessesintheassociation.However,theseagreements

maynotreflecttheneedofallbusinessesbecauseoftheirdifferentcost

structuresandprofitmargins


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2. BusinessbargainingWhenafirmnegotiateswithunionofficialstoestablishpayandconditionsforallthebranchesofthebusinessinthatcountry.Dealsmaynot

reflecttheproblemonefactoryhasinrecruitingstaff

3. Plantbargainingeachfactoryagreesadealbetweenunionofficialsandlocalmanagement.Thisismorecustomisedforeachfactoryandavoidsallthe

problemsabove

Single-unionagreement

Anemployerrecognisesjustoneunionforpurposesofcollectivebargaining

Whenworkforceinabusinessaremembersofdifferentunions:Collectivebargainingmoredifficultandtime-consuming

Inter-uniondisputesoverwhichgradesofworkersshouldgetthehighestpayrise

Alsoreducesflexibilityofaworkforceifmembersofoneunionarepreventedfromdoingtheworkofotherworkersbelongingtoanother

unionandreducesproductivity

Problemssolvedwhenemployerssignrecognitiondealswithjustoneunion

Conciliation

Theuseofathirdpartyinindustrialdisputestoencouragebothemployeranduniontodiscussanacceptablecompromisesolution(athirdpartywilllistentobothsides

andhelpthemtocometoacompromiseagreement)

Arbitration

Resolvinganindustrialdisputebyusinganindependentthirdpartytojudgeand

recommendanappropriatesolution(makedecisionforthem)

2AL.4OrganisationstructureOrganisationalstructureTheinternal,formalstructureofabusinessthatshowsthewayinwhichmanagementisorganizedandlinkedtogetherandhowauthorityis

passedthroughtheorganization

Itindicatesformalrelationshipbetweendifferentpeopleanddepartments Itshowsthechainofcommand(thewayinwhichauthorityispasseddownthe

business)

Itshowsthespanofcontrol(numberofsubordinatesreportingtoeachmanager)

Helpsindividualstoseetheirpositioninanorganisation Allowsstafftobeawareoftheirresponsibilities


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Seewhohasauthorityoverthem,andtowhomtheyareaccountableforHierarchicalstructure

Theorderofmanagementinanorganisationlowesttohighestshowingchainof

commandandthewayauthorityisorganised/distributedlevelsofaccountability

Advantages:

RolesandrelationshipsmadeclearAccountabilitiesandcontrolsareestablishedInformationandcommunicationchannelsareestablishedAuthorityandresponsibilitylevelsestablishedLinemanagementauthoritymadeclearVeryappropriateforsomeorganisations(e.g.Army)withmanylevelsandnarrowspansofcontrolSupportiveofbureaucraticorganisationsrequiringdetailedcontrol

Disadvantages:

One-waycommunication(notefficient)Fewlinksbetweendepartments(mayleadtolackorcoordination)Inflexible(changeresistance)becauseallmanagersaretryingtodefend

theirownpositioninthehierarchyandtheimportanceoftheirown

department

Matrixstructure

Anorganizationalstructurethatcreatesprojectteamsthatcutacrosstraditional

functionaldepartments-anemphasisawayfromfunctionstowardsprojectsortasks;

reducelayersinhierarchy;combinelinedepartmentswithprojecttaskteams

Advantages:

EncouragesteamapproachStaffareassignedbyabilityandskill,notrankorpositionAllowstotalcommunicationbetweenallmembersoftheteamand

traditionaldepartmentalbarriersbrokendown

MorevariedworkGreatermotivationforstaffingmulti-disciplinaryteamsReducesbureaucracyandcontrolStafffocusonwhatisgoodforthebusinessasawholenotjustonlyfor

theirdepartment

Allowpeopletoshareideasandfindthebestsolution


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Disadvantages:

LessdirectcontrolfromtheseniormanagersSeniormanagersmaynotwanttoworkwithmorejuniorstaff

Cancauseconflictswithinteams

Levelofhierarchyastageoftheorganisationalstructureatwhichthepersonnelonithaveequalstatusandauthority

Chainofcommandtheroutethroughwhichauthorityandpower,andinformationarepasseddownabusinesstheflowofauthority,power,and

information

SpanofcontrolThenumberofstaffthatamanagerhasauthorityoverorthenumberofpeopledirectlyunderthecontrolofamanager.

WideSpanofcontrol:

Greaterdelegationrequiredsomoreresponsibilityforsubordinatesandlesscentralcontrol

Therearelesslayersofmanagementtopassamessagethrough,sothemessagereachesmoreemployeesfaster

Itcostslessmoneytorunawiderspanofcontrolbecauseabusinessdoesnotneedtoemployasmanymanagers

Communication+coordinationproblems(morepeopleundercontrolsomorecomplex)

Limitedopportunityofcloseconsultationwithstaff(cancausedemotivation)

Increasedstress+workloadformanagers/supervisorsNarrowSpanofControl

Anarrowspanofcontrolallowsamanagertocommunicatequicklywiththeemployeesunderthemandcontrolthemmoreeasily

FeedbackofideasfromtheworkerswillbemoreeffectiveItrequiresahigherlevelofmanagementskilltocontrolagreaternumberof

employees,sothereislessmanagementskillrequired

DelegationpassingonauthoritydowntheorganisationalhierarchyAdvantages:

SeniormanagerscanfocusmoreonmoreimportantrolesShowstrustinsubordinatesandincreasemotivationlevelDevelopsandtrainsstaffformoreseniorpositionsHelpsstafftoachievefulfilmentthroughtheirwork(self-actualisation)


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Disadvantages:

Delegationwouldbeunsuccessfuliftaskisnotwelldefinedorifinadequatetrainingisgiven

Delegationwouldbeunsuccessfulifinsufficientauthorityisgiventosubordinate

Staffwillbedemotivatedifmanagersonlydelegateboringtaskstothem

Centralisationkeepingalloftheimportantdecision-makingpowerswithintheheadofficeorthecentreoftheorganisation

Advantages:

Rapiddecision-making(nodiscussion)Samepoliciesthroughoutthebusinessreduceconflict&confusionSeniormanagerstakedecisionsintheinterestofthewholebusinessnotjustonedivisionofit

Centralbuyingallowsgreatereconomiesofscale

Decentralisationdecision-makingpowersarepasseddowntheorganisationtoempowersubordinatesandregional/productmanagers

Advantages:

MorelocaldecisionscanbemadethatreflectdifferentconditionsMorejuniormanagerscandevelopandprepareformorechallengingrolesDelegation&empowermentcanleadtomotivationDecisionmakinginresponsetochangesshouldbequickerasheadoffice

willnothavetobeinvolvedeverytime

Factorsinfluencingtheorganisationalstructure

1. Sizeofthebusinessthebiggerthemoreformal&complicatedthestructurewillbe.Clearrelationshipsandpositionsneedtobemadeinlargefirms

2. Styleofmanagement3. Theneedtoreducecostse.g.duringrecessionafirmmightconsiderdelayering

toreducelevelsofhierarchyandoverheadsleadstoshorterchainofcommand

4. NewtechnologiesITcanreplacecertaintypesofemployeeLineandstaffrelationships

Linemanagersmanagerswhohavedirectauthorityoverpeople,decisionsand

resourceswithinthehierarchyofanorganisation.Theyhaveresponsibilityfor

achievingspecificbusinessobjectives


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Staffmanagersmanagerswho,asspecialists,providesupport,informationand

assistancetolinemanagers(specialistsemployedtogiveadvicetoseniorline

managers)canbeeconomists,scientificexpertsormarketresearchers.They

performsupportingrolesbutdonottakedecisions

Somelinemanagersmightresentexpertscomingintotheorganisationand,asthey

seeit,tellingthemhowtodotheirjobs

2AL.5Businesscommunication

Purposesofeffectivecommunication

Effectivecommunicationcanleadtosolutionstoproblems(ifallstaffareinvolvedandaskedfortheirideas)

Leadstofasterdecisionmakingandfasterresponsetomarketchanges Reducesrisksorerrorincorrectunderstandingscanleadtoincorrectresponses Effectivecommunicationwouldleadtocoordinationofdepartments,motivated

staff,goodcustomerserviceandasenseofoveralldirectionofthebusiness

Methodsofcommunication

Electronicmediatheprocessofsendinginformationfromsendertoreceiver

throughtheinternet(plusfeedback)

Strengths:

Accuracyoforderse.g.automaticorderingsystemsviacomputerlinksReducedstocklevelsJITbasedITsystemsQuickere.g.thanarrangingmeetingsLesstime-consumingthanfacetofacecontactEncouragesresponseWeaknesses:

CapitalcostonhardwareStafftrainingrequiredRiskofcommunicationoverloade.g.toomanye-mailsRequiressuppliers/customerstohavecompatiblesystemsDiminishespersonalcontact

Oralcommunicationcanbeone-to-oneconversations,interviews,groupmeetings

orteambriefings

Strengths:Directandallowsfeedback


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CanbevariedtosuitneedsofreceiverEasytounderstandCanbequestionedquicklyWeaknesses:

NeedtolistencarefullyAffectedbynoiseNopermanentaccuraterecordCanbequicklyforgotten

Writtencommunicationletters,memos,noticesonboards,reports

Strengths:

PermanentrecordavailableMorestructuredEasytodistributeCannotbevariedCanbereferredtoagainWeaknesses:

MessageidenticaltoeachreceiverNobodylanguageshownFeedbackisslowerNoimmediateresponseCanbemisinterpretedTime-consuming

Factorsinfluencingchoiceofmedia

1. Importanceofthemessage(mayneedpermanentrecordsifimportant)2. Cost(electronicmedianeedsexpensivecapitalresources)3. Speed4. Quantityofdatatobecommunicated(oralwouldbeinappropriateforlongand

detailedmessages)

5. Sizeandgeographicalspreadofthebusiness(regularmeetingsmaybeimpossibleformultinationals)

Barrierstocommunicationreasonswhycommunicationfails

1. Inappropriatemediaused2. Receiverforgot


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3. Misleadingorincompletemessage4. Jargons&languagethatcanbehardtounderstand5. Informationoverload6. Channelofcommunicationistoolong(theroutethroughwhichamessageissent

fromsendertoreceiver)

7. Senderisnottrusted8. Unmotivatedworkers=poorreceivers9. Poorsender(notensuretheclarityofthemessageorunderstanding)10.Noiseinthefactories

InformalcommunicationUnofficialchannelsofcommunicationthatexist

betweeninformalgroupswithinanorganisation

3AL.4Marketingplanning

Marketingplan

Adetailedreportofafirmsmarketingobjectives,budgetandmarketingstrategy

Contents:

Purposeandmissionprovidesinformationandpurposeoftheplan(e.g.toprepareforthelaunchofnewproductornewbusinessproposal)

Situationalanalysiswherearewenow?(Currentstrengths,existingproductrangeandmarketshares,existingandpotentialcompetitors,consumertastes,

externalproblemsandopportunities)Requiredalotofresearch&time-

consumingbutessential.Ifnottaken,businesscouldaimtoreachinappropriate

objectiveswhichwouldbeevenmoreharmfultoit

Marketingobjectiveswheredowewanttobe?Canbeexpressedintermsoftotalsales(valueorvolume),marketshare,profitabilityorsalesgrowthrate.

Givessenseofdirectionandcanbebrokentospecifictargets.Allowsfinalreview

ofmarketingstrategytobecomparedagainsttargets

Marketingstrategyhowthefirmintendstoachieveitsobjectives?Overallapproach:massornichemarket?existingornewmarket?developanew

product?Oncedetermined,tacticscanbeestablished

MarketingmixtacticsProduct:briefsummaryofexistingproducts,outlineofkeyfeatures,USP,

branding,packagingandlabellingdetails

Price:factorsaffectingcosts,PED,competitorsprice,marketconditions


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Promotion:howtheproductwillbepromoted?Advertising,salespromotion,PRandpersonalselling.Thescaleandtypearedependenton

theimagebeingcreated,pricebeingcharged,budgetavailable

Placeordistribution:gettingtheproducttoconsumers.Coversthedetailsofchanneltobeused,outletsorretailers

MarketingbudgetFinanceavailableforpromotionalexpenditureplanningonexpectedexpenditure&revenue(howtospendeffectively?)

Summaryandtimescalegivesashortsummaryoftheplanandthetimescaleoverwhichitwillbeintroduced

Reviewingtheplan

Howsuccessfulwasit?Resultsneedtoberegularlycheckedagainstobjectivesduring

theprocess.Ifstrategiesarenotworking,thenchangestooverallplancouldbe

made.Finalresultscanbeusedtoaidfutureplan

Evaluation

Benefits:

Potentialentrepreneursneedtoconvincefinancialinvestorsthattheproposalispotentiallyprofitablemorechancesofreceivingfinancialsupport

Reducerisksoffailurehelpsestablishstrategiesandmarketingmix Providesdirectionandpurposeforthebusiness,progresscanbemonitored Moreaccuratebudgetcouldbeallocated

Limitations:

Complex Costlyandtime-consuming Requiredskills Planscouldgooutofdateandbeuseless(externalenvironmentchanges)

Promotionalcampaigns

AIDAamodelthatexplainsthesuccessivestagesacustomerpassesthroughin

buyingaproduct:AttentionInterestDesireAction

DAGMARaprocessofestablishinggoalsforapromotioncampaignsothatitis

possibletodeterminewhetherithasbeensuccessfulornot:DefiningAdvertising

GoalsforMeasuredAdvertisingResults(passcustomersthroughthestages:Unaware

AwareComprehensionConviction(belief)Action)


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Importanceofcoordinatedmarketingmix

1. Integratingwithotherdepartmentsfinance(toobtainessentialresources),humanresources(toobtainadequatestaffing),operations(todiscussaboutthe

productanditsadaptations)2. Thefourelementsofthemarketingmixmustbeintegratedwitheachother

Productdevelopment

Newproductdevelopment(NPD)thedesign,creationandmarketingofnewgoods

andservices

Theprocess:

1. Generatingnewideas CancomefromcompanysownR&Ddepartment Adaptationofcompetitorsideasneedtobecarefulnottoviolate

copyright/patentlaws

Marketresearch,suchasfocusgroupsdiscussionaboutnewproductsthatconsumerswouldliketoseeonthemarket

Employeesworkersknowalotaboutexistingproducts Salespeopletheyhaveclosecontactwiththefinalconsumers,theymay

suggestimprovementsornewproducts

Brainstormingingroupsgeneratenewideasbeyondthelevelthatwouldbeachievedbyindividualsworkingseparately

2. Ideascreening Ideaswiththeleastchanceofsuccessareeliminated Questionsthatneedtobeconsidered:Howwillconsumersbenefitfrom

thisproduct?

Isittechnicallypossibletomanufacturethisproduct?

Willtheproductbeprofitableenoughatthesellingprice?3. Conceptdevelopmentandtesting

Whoarethemostlikelyconsumers? Whatfeaturesshouldtheproducthave? Howwillconsumersreacttoit?(Canbetestedbysurveys&market

research)

Whatarethemostcost-effectivemethodsofmanufacture? Whatwillitcosttoproduce?


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4. Businessanalysis Whatarethelikelyimpactonsales,costsandprofits? Isfinanceavailabletodeveloptheproduct? Willitfitwiththeexistingproductmix?

5. Producttesting Developingamodeloftheproduct Testingtheproductintypicaluseconditions Usingfocusgroupstogatheropinionsabouttheproduct Adaptingtheproductasrequiredaftertestingorfocusgroupfeedback

6. Testmarketingthelaunchoftheproductonasmall-scalemarkettotestconsumersreactionstoit

Actualconsumerbehaviourcanbeobservedandmeasured Feedbackfromcustomerswillhelpdecisionwhetherthefirmshouldinvest

inafull-scalelaunchornot

Risksofproductfailingarereduced Anyweaknessesintheproductidentifiedbyconsumerfeedbackcouldbe

usedtoadjustandimprovethefinalversionoftheproduct

Testmarketingcanbeexpensive Competitorscanobserveafirmsintentionandreactbeforeafull-scale

launchisputintoeffect

7. Commercialisation Afull-scalelaunchoftheproduct(introductionphaseoftheproductlife

cycle)

Promotionalstrategy&advertisementstoinformthemarketofthearrivalwillbeputintoplace

Distributionchannelwillbefilledupwithstockstoensuretheavailabilityoftheproduct

Researchanddevelopment

Thescientificresearchandtechnicaldevelopmentofnewproductsandprocess.R&D

canleadtoproductinnovation,whichallowsthebusinesstochargepremiumprices

andearnhigherprofits.

FactorsinfluencingthelevelofR&Dexpenditure:

ThenatureoftheindustryrapidlychangingtechnologiesinthemarketwouldrequirehigherinvestmentintoR&D


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R&Dspendingplansofcompetitorsitmaybeessentialtospendasmuchasormorethancompetitorstomaintainmarketshareandtechnicalleadership

Businessexpectationsifthefirmisoptimisticaboutfuturedemandsandeconomicgrowth,thenitismoreabletoagreetosubstantialbudgetsforR&D

Cultureofthebusinesssomebusinessviewshort-termprofitasaverycrucialissue.ThiswouldpreventlargespendingonR&D

GovernmentpolicygrantsandtaxreductiontobusinesseswouldencouragemoreinvestmentintoR&D

R&Ddonotguaranteesuccess,newideascanfailtoreachthemarketbecause:

Defectsindesignsormanufacture Competitorsproductsrisingahead Inadequatemarketresearchandinappropriatepricing Changesintechnologyleavingtheproductoutdated

Regardlessoftheserisks,manyfirmsstillcontinuetoinvestinR&D.Theybelievethat

theywouldbenefitfromthelong-termsuccessandprofitabilitythatR&Dwouldlead

themto

Salesforecasting

Predictingfuturesaleslevelsandsalestrends

Helpsreducerisksofbusinessoperations Thefirmwouldknowhowmanymaterialstoorder(aidsstockcontrol) Marketingdepartmentknowshowmanyproductstodistribute Moreaccurateworkforceplan(correctlevelofstaffing) Cashflowsandotherforecastswouldalsobemoreaccurate(financedepartment

couldplanmoreaccurately)

Movingaveragemethod

Factorsthatmayinfluencefuturesales:

Trendbasicmovement(pattern)inatimeseries Seasonalfluctuationsregular&repeatedvariationsthatoccurinsalesdata

withina12monthsperiod

Cyclicalfluctuationsvariationsinsalesoccurduetothebusinesscycle Randomfluctuationsoccuratanytime&willcauseunpredictablesalesfigures

(e.g.poorweather,negativepublicimage,productfailure)


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Example

Description:

Four-quartermovingtotal:4salesrevenuesaddedtogether Eight-quartermovingtotal:two4four-quartermovingtotalsaddedtogether Movingaverage:eight-quartermovingtotaldividedby8 Seasonalvariation:actualsalerevenuemovingaverage Averageseasonalvariation:seasonalvariationsforeachquarteraddedtogether

anddividebynumberofresults

Forecastingsales

1. Plotthemovingaveragesonatime-seriesgraph2. Extrapolateintothefuture3. Readofftheforecasttrendresultfromgraph4. Adjustbytheaverageseasonalvariationforthatparticulartimeperiod

Evaluation

Advantages:

Usefulforapplyingseasonalvariationtopredictions Canbeaccurateforshort-term


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Identifiesaverageseasonalvariationsforeachtimeperiod(aidsfutureaccuracy) Usefulforoperationsmanagement&marketingdecisions(ifsalesareforecasted

tobefalling,pricecouldbelowered)

Disadvantages:

Complexcalculation Onlyusefulifexternalenvironmentdonotchange(inrealitythingschange) Forecastingintolongertermrequiresqualitativemethodsthatarelessdependent

onpastresultsaswell(e.g.marketresearch)

3AL.5Globalisationandinternationalmarketing

Globalisationthegrowingtrendtowardsworldwidemarketsinproducts,capital

andlabour,unrestrictedbybarriers


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Internationalmarketing

Internationalmarketingsellingproductsinmarketsotherthantheoriginal

domesticmarket

Whyinternational? Saturatedhomemarketstoomuchcompetitionwithlargefirms Profitssalesgrowthandlowercostsofoperation Spreadingriskssalesandprofitsorthebusinessarelessdependentoneconomic

&legalconstraintsinhomecountry

Legaldifferencesothercountriesmayhavefewerrestrictions(e.g.advertising)

Differences:

Politicalchangesingovernmentcancauseinstabilityinsomecountries,thismayleadtorisksofterrorisme.g.Thailandprotests.Mayleadtodestructionof

companysassets

Economic&socialagestructure,roleofwomen,taxandinterestrates(sobusinessneedstoselltherightproducts&usetherightstrategies)

Legalbannedgoodsinsomecountry,advertisingrestrictions,safety Culturalpeoplesbehaviour,language,perception Differentbusinesspracticesformalitiesofsettingupabusinesscanvaryfrom

countrytocountry

Methodsofentry

Exportingcanbesellingdirectlytoaforeigncustomer(onlinewebsite),orthroughexportintermediary(agentortradingcompanybasedinthecountry)

Internationalfranchisingcanbeonecompanyinchargedofallbranchesinthecountryorindividualfranchiseesoperateeachoutlet

JointventuresLicensingallowinganotherfirmtoproduceditsbrandedgoodsorpatented

productsunderlicence.Goodsdonothavetobeexported,savestime&

transportcost.Butqualitymustbeensured,anyunethicalpracticebythelicensee

maycreatenegativeimpactontheparentfirm

Directinvestmentinsubsidiariessettingupfactoriesinforeigncountry.Canbedecentralised(localmanagersincharged),orcentralised(controlfromthehead

officeinthehomecountry)


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Pan-globalmarketing

Adoptingastandardisedproductacrosstheglobeasiftheentireworldwereasingle

marketsellingthesamegoodsinthesamewayeverywhereAdvantages:

Relativelylowcost(EOS)useonemarketingstrategy&mix Acommonidentityfortheproductcanbeestablished.Thisaidsconsumer

recognition

Disadvantages:

Sometimesfirmsneedtoadapttosuitvariousculture&religion(orelsepeoplewontbuyit)


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Legalrestrictionscanvaryadvertisingstrategymayneedtobedifferentorthesameproductmaybelegalinonecountryandillegalinanother

Settingthesamepriceinallcountrieswillnotreflectthedifferentaverageincomelevelsindifferentcountries

Theremaybelocaloppositiontomultinationalbusinessactivity

Globallocalisation

Adaptingthemarketingmix,includingdifferentiatedproducts,tomeetnationaland

regionaltastesandcultures

Advantages:

Localneeds,tastesandculturesarereflectedinthemarketingmixofthebusinessthiscouldleadtohighersales

Thereisnoattempttoimposeforeignbrandsorproductsadvertisementsonregionalmarkets

Theproductsaremorelikelytomeetlocalnationallegalrequirementsthaniftheyarestandardisedproducts

Therewillbelesslocaloppositiontomultinationalbusinessactivity

Disadvantages:

ThescopeforEOSisreduced Thebrandcouldloseitspower&identityifdifferentiateproductstoadapt Additionalcostsofadapting(e.g.adverts,storelayouts)tospecificlocalneeds

4AL.2Operationsplanning

Enterpriseresourceplanning

Theuseofasinglecomputerapplicationtoplanthepurchaseanduseofresourcesin

anorganisationtoimprovetheefficiencyofoperations

Coordinate&linktogetherallsystemsofabusinessstockcontrolandordering,invoicingtocustomers,humanresourceplanning,production

planningandsoon

E.g.acustomerordersaproductTheorderisrecordedontheERPsystem,whichupdatesthestockThenareplacementisorderedfromthemanufacturerThecustomerissentaninvoiceWhenpaymentismadetheaccountingrecordsareupdated


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BenefitsofERPsoftware

Supplyonlyaccordingtodemandleanproduction(avoidwaste) Just-in-timeorderingofstocks Reducescostsatallstagesofsupplychainmaterials&productsare

electronicallytracked

Improveddeliverytimesandbettercustomerservice(computerisedsystemworksfasterthanlabourforcedoes)

Alldepartmentsarelinkedbettercoordinationandlesswastage Datafromalldepartmentsandallstagesofproductionwillbeavailableto

managementviathecomputersystemmayhelpfuturedecisionmaking

LimitationsofERPsoftware

Highcostsofinstallation(advancedtechnologyisexpensive) Differentdepartmentsnowneedtoworkinonecommonsystemmaynotbe

suitableforsomemanagers/workers

ImplementationofERPcantakemanyyears,chosensoftwarecanbecomeobsoletebythetimeinstalledorcompetitorscouldcomeupwithabetterand

moreadvancedsystemalready

4AL.4CapacityutilisationCapacityutilisationtheproportionofmaximumoutputcapacitycurrentlybeing

achieved(measureoperationalefficiency)

CurrentoutputlevelX100

Maximumoutputlevel

Excesscapacityhassparecapacity

Rationalisationreducingcapacitybycuttingoverheadstoincreaseefficiencyof

operations,suchasclosingafactoryorofficedepartment,ofteninvolveredundancies


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Fullcapacityproducingatmaximumoutput

Benefits:

Lowersfixedcostsperunit(spreadamonglargenumberofunits) Increasescompetitivenessasaresultthisisacompetitivemarket Givesstaffjobsecurity&prideinthefirmtheyworkfor Cutsdownonwastedtime/resources


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Drawbacks:

Littletimeformaintenance/repairs Thismayleadtobreakdownofmachinery Worsenshealthandsafetyrecord Putspressureonstaff/managers(stress&workoverload) Notabletomeetincreasedorderse.g.fromestablishedcustomers

Outsourcing

Usinganotherbusinesstoundertakeapartoftheproductionprocessratherthan

doingitwithinthebusinessusingthefirmsownemployees

Advantages:

Reductionofoperatingcostsspecialistfirmsarecheaperbecausetheybenefitfromeconomiesofscale)

Increasedflexibilitycontractscanbeendedwhendemandfall Improvedcompanyfocusthebusinesscanconcentrateonitsmainaims&tasks

andoutsourceotherfunctions

Accesstoqualityserviceorresourcesthatarenotavailableinternally Freed-upinternalresourcesforuseinotherareas

Disadvantages:

Lossofjobswithinthebusinessreducestaffmotivation&jobsecurity


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Qualityissuesdifficulttomonitoronquality Customerresistancecreatesdoubtsandconsumersmayquestionthequality&

reliability

Securityrisksofimportantdataofthebusinessbeinglostwhenoutsidebusinessesinvolve

Evaluation

Outsourcingmayhelptoimproveefficiencyandthismayleadtoincreased

opportunityforbusinesses.However,therearerisksinvolved.Thecompanyshould

weighupthecostsandbenefitsbeforethedecision.Itislessriskytooutsourcethe

minorsectionsofthebusinessandfocusonthecoreactivityitself

4AL.5LeanproductionandqualitymanagementLeanproduction

Philosophyofoperationsthataimstominimisewasteofallresourceswhile

maintainingquality:

Involvesqualitycircles,efficientuseofcapacity&JIT(producequalityoutputwithfewerresources)

Gettingrightthefirsttime Cuttingoutanythingthataddscomplexity,costandtime,anddoesnotadd

valuetocustomer

Flexiblespecialismsflexibleemploymentcontracts/machinery/multi-skilledworkers.Adaptableforchanges,reducestockholdingcost,cutwastetime

Simultaneousengineeringdifferentstagesofproductdevelopmentaredoneatthesametimeinsteadofinsequence(reducetime)

Cellproductionsplittingflowproductionintogroupsthatareresponsibleforwholeworkunits(motivation=faster&betterqualitywork)

Advantages:

Reducedwastetime&resourcesReducedunitcosts=higherprofitsWorkingareaislesscrowdedandeasiertooperateinLessstockshold=lessrisksofdamageandobsolescenceNewproductslaunchedmorequickly


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Just-in-time

Apartofleanproduction,involvesfewerresourcesbeingtiedupinbufferstocks

(notesinASrevision)

Kaizencontinuousimprovement1. Aseriesofsmallimprovementcanleadtobigimprovementinefficiencyovertime2. Involvingallstaffsometimesworkersknowbestabouthowproductioncouldbe

improvedbecausetheyhavealotofexperiencewiththetaskstheyaredoing

3. Teamworkingdiscussingideastoimprovequalityorsolveproblems4. EmpowermentbygivingeachKaizengrouppowertotakedecisions,ideascan

beputintopracticefasterandworkerswouldbemoremotivated

5.Improvementsinonepartoftheproductionsystemrequiresimprovementsfurtherdownthelineaswelltoavoidbottleneckandincreasedworkinprogress

LimitationsofKaizen

Somechangescannotbeintroducedgraduallyandmayneedacomplete&expensivesolution(e.g.completenewinvestmentinthebusiness)

Theremayberesistancefromseniormanagerstoinvolveallsubordinates Maybecoststothefirmofsuchscheme(e.g.training,meetingtime) Diminishingreturnsbigimprovementstendtobemadeonlyinthebeginningof

thescheme,thenlesssignificantchangesaremadelateron

SuitabilityofJITandleanproduction

Advanced&flexiblestaffandequipmentrequiredforleanproduction.Sothattheycanadapttodifferentproductsquickly,notbuildingpilesofstocks.BUT

training&equipmentareexpensive,maynotbesuitableforsmallbusinesses

Cooperationofallstaffneededbecausechangesinworkingconditions,levelofempowerment,cultureandetc.willtakeplace.Workersneedtoacceptandobey

Notsuitable:

Whenbusinesscannotforecastdemandzerostocks,whatifdemandrisesunexpectedly?

Whenproductionprocessesareexpensivetostartafterabreakdown(keepinglowlevelofstockscanleadtoproductionbreakdown)

Whenfirmsuseittocreateredundancies(leanproductioncanresultinjoblosses).Nosupportfromexistingworkforce

Whencostsoftechnologyandretrainingaresohighandunaffordable

Whensuppliersarenotreliable


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Qualitycontrolandassurance

Qualityproductagoodorservicethatmeetscustomersexpectationsandis

thereforefitforpurpose.Itisnotnecessarilymadeofhighestqualitymaterialsbut

mustmeetconsumerrequirementsforit.Qualitydependsontheproductspriceandtheexpectationsofconsumers

Qualitystandardstheexpectationsofcustomersexpressedintermsofthe

minimumacceptableproductionorservicestandards.Firmsestablishthequality

standardsthatcustomersexpectbyusingmarketresearchandconsumerfeedback

data

Advantagesofproducingqualityproducts

1. Gaincustomerloyalty2. Savesthecostsassociatedwithcustomercomplaints(replacementetc.)3. Longproductlifecycles4. Establishesaqualityimageforthebrandlessadvertisingmaybeneeded5. Possibletochargehigherpriceforqualityproductshigherprofits

Qualitycontrol

Inspectionofcompletedproduct

1. Whenrawmaterialsarereceivedbeforeproduction2. Whilstproductsaregoingthroughproductionprocess3. Whentheproductsarefinished

Includesinspection,testingtheproducts,andrandomsampling.Itismorelike

identifyingthedefectsratherthanpreventinginthefirstplace

Weaknessesofqualitycontrol

Lookingforproblemsisanegativeprocess.Workersmayfeelthattheyarenottrustedandtheworkingrelationshipinthebusinesswillnotbegood

Thejobofinspectioncanbetedious,inspectorscanbecomedemotivatedandmaynotcarryouttheirtasksefficiently

Checkingcanbedonetoolateintheproductionprocess;faultyproductsmaypassthroughseveralstagesbeforebeingnoticed.Alotoftimeneedstobespent

findingthesourceofthefault

Workerswillnotseequalityastheirresponsibilitybecausetheyknowthattherewillbeinspectorscheckingonthequalityanyway.Thislackofresponsibilitycan

leadtodemotivationandlower-qualityoutput


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Qualityassurance

Asystemofagreeingandmeetingqualitystandardsateachstageofproductionto

ensureconsumersatisfaction.Qualityassurance:

Focusesonpreventionofpoorqualitybydesigningtheappropriateproductionprocess,ratherthaninspectingforpoorqualityproductsattheend

Emphasisesontheneedforworkerstogetitrightthefirsttimetoavoidexpensivereworkingoffaultygoods

Establishesqualitystandardsandtargetsforeachstageoftheproductionprocess

Checkscomponents,materialsandproductsateverystageoftheproductionprocess,notonlyattheendwhenmuchtimeandresourcescouldhavebeen

wastedalreadybythattimeAdvantagesoverqualitycontrol

1. Everyoneisresponsibleforqualityleadstojobenrichment2. Makingeffortstoimprovequalityincreasemotivation3. Easiertotracebackqualityproblemstothestageofproductionprocesswherea

problemmighthavebeenoccurring

4. ReducestheneedforexpensivefinalinspectionandcorrectionoffaultyproductsImportanceofqualityassurance

Involvesallstaff&promoteteamwork=increasedmotivation Allmaterialsarecheckedagainstsettargetsbeforeitistoolateandthewhole

producthasbeencompleted

Reducescostsoffinalinspection(alreadycheckedateachstage) Improvedquality=reducedcostsofwastage&faultyproducts Gainaccreditationforqualityawardandgoodpublicimageofthecompany

TotalQualityManagementAnapproachtoqualitythataimstoinvolveallemployeesinthequality-improvement

process

Everydepartmentisrequiredtomeetthestandardsexpectedbyitsinternalcustomers(peoplewithintheorganisationwhodependuponthequalityof

workbeingdonebyothers)

Tobeeffective,theconceptmustbefullyexplainedandtrainingmustbegiventoallstaff

Staffmustcheckthequalityoftheirworkbeforepassingontothenextstage


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Benchmarking

Itinvolvesmanagementidentifyingthebestfirmsintheindustryandthencomparing

theperformancestandardsincludingqualityofthesebusinesseswiththoseof

theirownbusiness.Process:

1. Identifytheaspectsofthebusinesstobebenchmarked(whatisthoughttobethemostimportantfactors,e.g.speedofdelivery)

2. Measureperformanceintheseareas(e.g.deliveryrecords&customercomplaints)

3. Identifythefirmsintheindustrythatareconsideredtobethebest4. Usecomparativedatafromthebestfirmstoestablishthemainweaknessesinthe

business(maybeobtainedbypublishedaccounts,contactwith

suppliers/customers)

5. Setstandardsforimprovement6. Changeprocessestoachievethestandardsset7. Re-measurementitisacontinuousprocesstoachievethelong-term

improvementsinproductivity&quality

Benefits:

Faster&cheaperwayofsolvingproblemswhenhavecomparisons Mostimportantareastocustomerscanbeidentifiedandimproved HelpsincreasefirmsinternationalcompetitivenessLimitations:

Therelevantandupdateddatafromotherfirmscanbedifficulttoobtain


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Copyingtheideasandpracticesofotherfirmsmaydiscourageinitiative&originalideas

Thecostsofthecomparisonexercisemaynotberecoveredbytheimprovementsobtainedfrombenchmarking

4AL.6Projectmanagement

Projectaspecificandtemporaryactivitywithastartingandendingdate,clear

goals,definedresponsibilitiesandabudget(e.g.installingmachinery,buildinga

factory,settingupanewITsystem)

Projectmanagementusingmodernmanagementtechniquestocarryoutand

completeaprojectfromstarttofinishinordertoachievepre-settargetsofquality,

timeandcost

Keyelementsofprojectmanagement

SettingclearobjectivesDividingtheprojectupintomanageabletasksMonitoringthetimeoftheprojectateverystageGivingeachstaffaclearroleProvidingcontrolsoverqualityissues

Causesofprojectfailure

CustomerswerenotinvolvedintheplanningprocessNoornotenoughresourcesvitalforitscompletionSeniormanagementdidnotgiveinterestingivingassistancetotheprojectDetails&instructionskeepchangingduringthecourseoftheprojectPlanningwaspoorProjectsscopebecameoutdatedduetochangeinbusinessenvironmentTheprojectteamwastechnicallyincompetent

Resultsoffailure

BadpublicityintheindustryPenaltypaymentshavingtobepaidLossoffuturecontracts


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Criticalpathanalysis

CPAAplanningtechniquethatidentifiesalltasksinaproject,putstheminthe

correctsequenceandallowsfortheidentificationofthecriticalpath

CPAprocess1. Identifytheobjectiveoftheproject2. Putthetasksinorderanddrawanetworkdiagram3. Addthedurationsofeachactivities4. Identifythecriticalpath5. Usenetworkasatoolduringtheproject

NetworkdiagramthediagramusedinCPAthatshowslogicalsequenceofactivitiesandthelogicaldependenciesbetweenthemandthecriticalpathcanbeidentified

Criticalpaththesequenceofactivitiesthatmustbecompletedontimeforthewholeprojecttobecompletedontime(nodesthatESTandLFTareequal)

Arrowindicateseachactivity Nodeacirclethatindicatesthestart&endofeachactivity ESTearlieststarttimenextactivitycannotstartuntiltheonebeforefinishes LFTlatestfinishtimecalculatefromrighttoleftofthediagram,subtractthe

timeoftheactivitybefore(iftherearetwoanswers,usethelowestnumber)

Totalfloatamountoftimeanactivitycanbedelayedwithoutdelayingthewholeprojectduration(LFTdurationEST)

Freefloatlengthoftimeanactivitycanbedelayedwithoutdelayingthestartofthefollowingactivity:EST(nextactivity)durationEST(thisactivity)

Dummyactivitynotanactivityatall,onlyusedtoshowlogicaldependency.Thearrowshowsthedirectionofdependency

Advantages:

Putstasksinorder;helpswithidentifyingsimultaneousactivitiesHelpsmanagerstoplantheorderingofequipmentsandmaterialsAllowsbusinesstogiveaccuratedeliverydatesFloattimescanbeusedtoallocateresourcesmoreefficiently(resourcescouldbe

takenfromactivitiesthathavesparetimefirsttoaidotheractivities)

Delayscanleadtomanagersusingnetworktoidentifywhichactivitiesneedtobespeededup


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Disadvantages:

Onlyaplanningtoolneedsgood&skilledmanagementtoseetheprojectthroughtosuccessfulcompletion

Outsideeventscouldresultinunforeseendelayse.g.planningpermissionproblems

Dependsgreatlyonreliabilityofthedurationestimates

EvaluationCPAcanbeausefultooltomanagers,butskillsarerequired.Staffwillbemore

motivatediftheyinvolvedintheplanningprocess.UsingCPAfornewprojectswould

beharderbecausethebusinesshasnopreviousexperienceaboutthedurationsof

theactivities.ThetimeandexpenseofusingCPAmustbejustifiedbythefollowing

cost&efficiencysavingsofapplyingthetechnique

5AL.4Costs

Costcentreasectionofabusiness,suchasadepartmenttowhichcostscanbe

allocatedorcharged

Profitcentreasectionofabusinesstowhichbothcostsandrevenuescanbe

allocatedsothatprofitcanbecalculated

Full/absorptioncosting

Amethodofcostinginwhichallfixedandvariablecostsareallocatedtoproductsor

services(fixedcostscanbesharedonabasisofspacetakenupbyeachproduct,

percentageofdirectlabourcostsforthatproductandetc.)

Evaluation

Relativelyeasytocalculate&understand Allcostsareallocatedcomparedwithcontributioncostingmethod Relevanttosingle-productfirms Goodbasisofpricingdecision(fullunitcostiscalculated) Butoverheadcostisnotallocatedbaseontheactualexpenditureusedbythat

centre(e.g.aproductmaytakeupalotoffactoryspace,butuselow-cost

machinerywhichaddsuponlyalittleamounttotheoverheadcost)

Sofinalcostingfigurecanbemisleadingorinaccurate Samebasisneedstobeusedovertimeforcomparisonstobemade


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Marginalorcontributioncosting

Costingmethodthatallocatesonlydirectcoststocost/profitcentres,notoverhead

costs

Thefirmwouldcontinueproductioniftheproductisstillmakingapositivecontributiontowardsfixedcosts

Endingproductionwillreduceoverallprofitsasthefixedoverheadcostswillstillhavetobepaidandtherewillbereducedcontributiontopaythem

Contribution=sellingpriceminusmarginal(variabledirect)costs Profit=contributionminusoverheads

Evaluation

Overheadcostsarenotallocatedtocostcentres,soitavoidsinaccuraciesofallocatingthesecosts

Excesscapacitycanbeusedeffectivelyasordersthatmakeapositivecontributionwillbeaccepted

But,ignoringoverheadcostsuntilfinalcalculationcanleadfirmstoignorethatfactthatsomeproducthavemuchhigherfixedcoststhanothers

Firmsmaycontinueproductionjustbecauseitismakingapositivecontribution,anddonotconsiderthatanewproductcanmakeanevengreatercontribution

Qualitativefactorsarecrucialtoo(e.g.stopmakingoneproductmayaffecttheimageofthewholerangeofproductsofthefirm)

5AL.6Budgets

Budgetadetailedfinancialplanforthefuturethatabusinessaimstofulfil

Benefits:

Planning:thebudgetaryprocessmakesmanagersconsiderfutureplanscarefullysothatrealistictargetscanbeset

Effectiveallocationofresources:sothatthebusinessdoesnotspendmoreonresourcesthanitcanfinance

Settingtargetstobeachieved:thissetsaimsforeachstaffandmotivatesthemtoworkhardtowardstheobjectives

Co-ordination:alldepartmentsneedtodiscussovertheallocationofresourcesandworkeffectivelytogethertoachievetomaingoal

Monitoring&controlling:thebusinessprocessandbemonitoredandcheckedagainsttheplantoseeifanythingcanbedonetoimprove


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Assessingperformance:oncethebudgetedperiodhasended,varianceanalysiswillbeusedtocomparetheactualperformancewiththeoriginalbudgets

Drawbacks:

Lackofflexibility:externalfactorsareconstantlychanging,theplancouldbeunrealisticifnotsetflexibleenoughtoadapt

Focusedontheshort-term:managersmaymakedecisionsaccordingtotheshort-termbudgetplan,butthismaynotbebeneficialforthelong-termsuccessofthe

firm(e.g.reducelabourtostaywithinbudgetbutmaylimitthefirmsabilityto

increaseoutput)

Mayleadtounnecessaryspending:managersmaythinkthattheyunder-spenttheirbudgetsandthereforespendonunnecessarythingsjusttopreventhavinga

surplusandtomaintainthesamelevelofbudgetfornextyear

Trainingrequired:settingfinancialplansandobjectivesarenotsimpletasks,stafftrainingisrequiredforaneffectiveplan

Producingbudgets

1. Organisationalobjectivesareestablishedbasedonthepreviousperformanceofthebusiness,externalchangeslikelytoaffectthebusinessandthesaleforecasts

basedonresearchandpastdata

2. Thebudgetforthekeyfactoraffectingthesuccessofthebusinessneedstobesetfirst(salesformostbusinesses).Inaccuracyofthekey-factorbudgetwoulddistort

allotherbudgetaswell(e.g.ifsalesbudgetisinaccuratethencash,production,

labourbudgetswouldbeinaccurateaswell)

3. Thekey-factorbudgetispreparedafterdiscussionwithallbranches&divisionofthebusiness

4.Theotherbudgets(cash,labour-cost,material-cost,sellinganddistributionbudgets)arepreparedbasedonthekey-factorbudget

5. Thecoordinationofbudgetsneedstobeensured.Budgetscannotconflictwitheachotherandthespendinglevelplannedcannotexceedtoresourcesofthe

business

6. Amasterbudgetisprepared(maindetailsofallthebudgets&concludeswithabudgetedprofitandlossaccountandbalancesheet)

7. Themasterbudgetisthenpresentedtotheboardawaitingforapproval


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Flexiblebudgeting

Costbudgetsforeachexpenseareallowedtovaryifsalesorproductionvaryfrom

budgetedlevels.Newbudgetsaresetdependingontheactualoutputlevelachieved

(e.g.ifoutputlevelrises20%,thenotherbudgetsareset20%higheraswell)Thisis

moreaccurate&efficientandmoremotivatingformanagersbecausetheywillnot

becriticisedforadversevariancesthatoccurjustbecauseoutputwasslowerthan

budgeted

Zerobudgeting

Settingbudgetstozeroeachyearandbudgetholdershavetoarguetheircaseto

receiveanyfinance.Thiscanbeverytime-consuming,asmanagersneedtoprovideareviewoftheirworkandtheimportanceofeachoneinordertojustifythefinance

needed.Butitcouldprovideincentiveformanagerstodefendtheworkoftheirown

sectionanditcanpreventmanagersfromspendingonunnecessaryitems

Variances

Avarianceisthedifferencebetweenbudgetedandactualfigures

Itassistsinanalysingthecausesofdeviationsfrombudget(e.g.ifprofitislowerthanbudgeted,wasthisduetolowersalesorhighercosts?)

Thecausesidentifiedmayhelpthebusinesstosetmoreaccuratefuturebudgets


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5AL.7Contentsofpublishedaccounts

Intangibleassets

1. Goodwillariseswhenabusinessisvaluedatorsoldformorethanthebalance-sheetvalueofitsassets

Willappearonbalancesheetonlywhenthebusinessispreparedforsaleorjustafterthefirmhasbeenpurchased

Itiswrittenoff(getridof)ASAPbecauseitisdifficulttovalueandcanchangeordisappearrapidly

Itwillappearonthebusinessthathasboughtanotherfirmandhaspaidforgoodwillundernon-currentintangibleassetandwillbetakenoffASAP

Inventoryvaluation Canbeinformsofrawmaterials,workinprogressandfinishedgoods Netrealisablevaluetheamountforwhichanasset(inventory)canbesoldfor

minusthecostofsellingit(thecostofdamageorfixingtheassetneedstobe

reducedfromtheoriginalvalue)

Depreciation

Thedeclineintheestimatedvalueofafixedassetovertime

Profitswouldbemoreaccuratebecausethecostofassetboughtisspreadoveritsusefullife(notlowerthanactualinthefirstyearandhigherinlateryears)

Itwillreflectthetrueretainvalueoftheassetonthebalancesheeteachyearuntilfullydepreciatedorsoldoff

Originalcostofassetexpectedresidualvalue

Expectedusefullifeofasset(years)

Evaluation

Straight-linemethodiseasytocalculate&understand

Butitrequiresestimates,mistakeswillleadtoinaccuracies Assetstendtodepreciatemorequicklyinthefirstfewyearsthaninlateryears,

straight-linemethoddoesnotreflectthis

Repair&maintenancecostsofanassetusuallyincreasewithageandthiswillreducetheprofitabilityoftheasset(notshowninthismethod)


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5AL.8Analysisofpublishedaccounts

Accountingratios:

1.Profitabilityratio

Returnoncapitalemployed(RoCE)NetoroperatingprofitX100

Capitalemployed

Capitalemployed:thetotalvalueofalllong-termfinanceinvestedinthebusiness

Totalassetcurrentliabilities Non-currentliabilities+shareholdersequity

Comparesprofitwithcapitalinvestedinthebusiness(howmuchprofitcana$1investmentgenerate)

Thehigher,thegreaterreturnoncapitalinvestedinthebusinessComparisonswithpreviousyearsorotherfirmscanbemade(allowstrend

tobeidentified)

Canbecomparedwiththereturnfrominterestaccounts(doesinvestinginbanksgetmorereturn?)

RoCEisnotrelatedtorisksinvolvedinthebusiness.HighRoCEmayresultfromahigh-riskoperationnotatruebusinessefficiency

2.Liquidityratios(inASnotes)

3.Financialefficiencyratios Inventoryturnoverratio

Costofgoodssold

Valueofinventories


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Numberoftimesstockboughtinandresold(turnover)inaperiodoftime(howfastcanthefirmsellstocks)

Thehighertheratio,thelowertheinvestmentininventoriesefficientstockmanagement(smallstocksbuthighvalueofsales)

Dependsonindustry(perishableproducts=lessstocks)Notrelatedtoservicefirms(theyarenotsellingproductsheldinstock)

Dayssalesinreceivableratio(debtordays)AccountsreceivableX365

Salesturnover

TellshowlongittakesforcustomerstopaydebtsTheshorter,thebettercontrolofworkingcapitalMoredaysmeansbusinessgiveslongcredittocustomersmanagement

strategytogaincustomers.Buttoohighmeanspoorcontrolofdebtors&

repaymentperiods

Dependsontheindustry(sellingforcash=lowresults)Canbereducedbygivingshortercredittermsorimprovingcreditcontrol

4.Gearingratio Long-termloansX100

Capitalemployed

Non-currentliabilitiesX100Shareholdersequity+non-currentliabilities

Long-termdebtX100Shareholdersequity

Showstheextenttowhichthefirmsassetsarefinancedfromexternallong-termborrowing

Highlygeared=morerisks(havetopayinterestrates,lessprofits&dividends)couldcauseworkingcapitalproblems

Toolow=safebutmaybenotborrowingandinvestingenoughCanbereducedbyusingnon-loansourcesoffinancetoincreasecapital

employed(issuingsharesorretainedprofits)

5.Investorratios Dividendyieldratio

DividendpershareX100Currentshareprice


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Measurestherateofreturnashareholdergetsatthecurrentshareprice(howmuchyougetforinvesting$1)

RateofreturncanbecomparedwithotherinvestmentsMoreeffectivewhencomparedwithpreviousyearsorsameindustryPotentialinvestorswillbeattractedwhenyieldishighandpriceisnot

expectedtofallsoon

Ahighdividendyieldmaynotindicateasuccessfulinvestmentyieldcouldbehighbecausepriceisfalling(notnecessarilyagoodsign!)

Yieldcouldalsobehighonlybecausedirectorswanttokeepshareholdershappy(profitstaysthesamebutpayfromreserves)

Directorsmayreducedividendtoreinvestinthebusiness,butwouldshareholdersbehappy?

DividendcoverratioProfitaftertaxandinterest

Annualdividends

Comparesdividendwithprofit(howmuchprofitthefirmhastopayoutdividends)

High=firmisabletopaythedividendsandstillhaveaconsiderableamountofprofitlefttoreinvestback

Low=paysdividendsoutoflowamountofprofit(lowretainedprofits)

Price/earningsratioCurrentshareprice

Earningspershare(profitearnedpershare)

Showshowmuchinvestorsarewillingtopayforeach$1ofearnings IndustrieswithhighgrowthprospectswouldhavehighP/EMoreusefultocomparefirmswithinthesameindustrybecauseofdifferent

growthprospectsandinvestorsexpectations

Limitationsofaccountingratios

1. Oneratioresultaloneisnotveryuseful,comparisonstootherfirmsorpreviousyearsneedtobemadefortheanalysistobemeaningful

2. Financialyearsendatdifferenttimesforbusinesses,thismayleadtomisleadingresultswhencomparisonsaremade

3. Somefactorsoutsidethecompanyscontrolcanaffectitsperformanceandratioresultstoo(e.g.recession)


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4. Someratiosarecalculatedusingdifferentformulae,comparisonswouldbemisleading(sameformulaehavetobeusedtoallowaccuratecomparison)

5. Differentdepreciationmethodswillleadtodifferentratioresults.Alsowindowdressingcanmakeresultslookmorefavourableintheshortterm.Therefore,

resultswouldnotreflectthetrueperformanceofthebusiness

6. Qualitativefactorsregardingbusinessperformancearecrucialaswell7. Ratiosonlyhighlightissuesthatneedtobetackled;theydonotsolvebusiness

problemsorindicatethecausesoftheproblems.Managersstillhavetocomeup

withstrategiestoovercomethem

5AL.9Investmentappraisal

Investmentappraisal

Evaluatingtheprofitabilityordesirabilityofaninvestmentproject

Quantitativemethodscomparecashoutflowswiththeexpectedfuturecashinflows

Managersusethistoassesswhetherthelikelyfuturereturnsonprojectswillbegreaterthanthecostsandbyhowmuch

Usedtogetherwithqualitativefactorstodeterminewhetherornotaprojectisprofitableorshouldbeundertaken

Forecastingcashflowsisnotaneasytask Itispossiblethatunpredictedeventsorexternalfactorswilloccurmakingthe

forecastsinaccurate

Managersneedtobareinmindthattherearesomerisksinvolvedininvestmentdecisionsduetotheuncertaintyofcashflowforecasts

Basicmethods

PaybackmethodPaybackperiodisthelengthoftimeittakesforthenetcashinflowstopaybacktheoriginalcapitalcostoftheinvestment.Formulatofindout

theexactmonth:

AdditionalnetcashinflowneededX12months

Annualcashflowinthatnextyear

Advantages:

Quick&easytocalculateResultsareeasytounderstand&analyse


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Thefocusonthespeedofreturnofcashflowsmeansmoreconcentrationonshort-termforecastoftheprojectsprofitability

ResultscanbeusedtoeliminateprojectsthattaketoolongtogivereturnsUsefulforbusinesseswhereliquidityismoreimportantthanoverall

profitability

Disadvantages:

Doesnotmeasureoverallprofitabilityofaproject&ignorescashflowsafterpaybackperiod(possiblethataprojectgivesrapidreturnbutthenofferno

morecashinflows)

Thebusinessmayrejectveryprofitableinvestmentsjustbecausetheytakesometimetorepaythecapital

Itdoesnotconsiderthetimingofthecashflowsduringthepaybackperiod

Averagerateofreturn(ARR)measurestheannualprofitabilityofaninvestmentasapercentageoftheinitialinvestment

Annualprofit(netcashflow)X100

Initialcapitalcost

Advantages:

Itusesallthecashflows(unlikethepaybackmethod) Itfocusesonprofitability(maybethefirmsobjective)Resultsareeasytocomprehend&comparewithotherprojects

Disadvantages:

Itignoresthetimingofthecashflows(someprojectsmayhavethesameARRbutonecouldpaybackmuchmorequicklythantheother)

PredictedorexpectedcashflowsinthefuturemaynotbeaccurateThetimevalueofmoneyisignoredasthecashflowshavenotbeendiscounted

Discountedcashflowmethods

Thisiswhenthetimevalueofmoneyistakenintoaccount.Discountingisthe

processofreducingthevalueoffuturecashflowstogivethemtheirvalueintodays

term;thefuturevaluedependsontheinterestrate

Discountedpaybackusesthediscountedcashflowstocalculatethepaybackperiodoftheprojects(samedis/advantagesaspaybackperiodexceptthatittakes

intoaccountthetimevalueofmoney)


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Netpresentvalue(NPV)todaysvalueoftheestimatedcashflowsresultingfromaninvestment

1. Multiplythegivendiscountfactorsbythenetcashflows2. Addallthediscountedcashflowstogether3. SubtractthecapitalcosttogivetheNPV

Advantages:

Itconsidersbothtimingofcashflows&sizeoftheminarrivingatanappraisalTherateofdiscountcanbevariedtoallowfordifferenteconomic

circumstances

Ittakesintoaccountthetimevalueofmoney&theopportunitycostofmoney

Disadvantages:

Complextocalculate&explainforsomemanagersResultsdependgreatlyontherateofdiscountused,andthatcouldbe

inaccurate

NPVcanonlybeusedtocompareprojectswithsameinitialcostsbecauseitdoesnotprovideapercentagerateofreturnontheinvestment

Internalrateofreturn

TherateofdiscountthatyieldsanetpresentvalueofzerothehighertheIRR,the

moreprofitabletheinvestmentprojectis(becauseastherateofdiscountincreases,

thenetpresentvaluedeclines)

CanbecomparedwithIRRofotherprojectshighest=moreprofitableCanbecomparedwithcriterionrate(minimumlevelssetbymanagement

forinvestment-appraisalresultsforaprojecttobeaccepted)presetbythe

business

Qualitativefactors

Non-numericalfactorsincludingimpactonenvironment&localcommunity,publicity&imageofthebusiness

Theaimsandobjectivesofthebusinesssomeprojectsmayseemprofitablebutreducethecustomerservicewhichisthemainpriorityofthefirm

Managersattitudetowardsrisk Firmsviewoftheimportanceofethicalissues


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Ifdifferentmethodsofinvestmentappraisalsuggestdifferentprojectstobe

profitable,thenthedecisionwilldependonthebusinesssmainaimsandthe

managersattitudetorisk

6AL.1Whatisstrategicmanagement

Corporatestrategyalong-termplanofactionforthewholeorganisation,

designedtoachieveaparticulargoal(howwegetfromwherewearenowtowhere

wewanttobeinthefuture).Involvesalldepartmentsinthebusiness.Allfirmsneed

acorporatestrategytoprovideintegration,directionandfocus

Corporatestrategyareinfluencedby:

1. Resourcesavailablescarceresourceswillforcefirmstochoosewhichstrategiestoproceedandwhichtodroporscaleback

2. Strengthsofthebusinessthefirmwillbemorelikelytobesuccessfulifitappliesitsstrengthsinthestrategies

3. Competitorsactionsfirmsneedtorespondtocompetitorsactiontoretainorattractcustomerstothebusiness

4. Objectivessocial-responsibilityorshort-termprofits?Etc.

Tacticsshort-termpolicyordecisionaimedatresolvingaparticularproblemor

meetingaspecificpartoftheoverallstrategy(smaller-scaledecisionswhichoftenimpactononlyonedepartment)

Strategicmanagementtheroleofmanagementwhensettinglong-termgoals

andimplementingcross-functionaldecisionsthatshouldenableabusinesstoreach

thesegoals

1. Assessingcurrentpositionofthebusiness2. Settingmission,visionandobjectives3.

Takingimportantlong-termdecisionsthatleadtoobjectivesset

4. Coordinatingactivitiesofalldepartments5. Allocatingsufficientresourcestoallownewpoliciestowork6. Evaluatingsuccessagainstgoalsthenimprovementscanbemade

Businessstrategyandcompetitiveadvantage

Worldtradeisgrowingrapidly,businessesnowhavetocompetewithdomesticand

alsointernationalcompetitors,whichmayhave:

1. Lowercosts2. Differentiatedproducts


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Theseare2mainfactorsthatcanleadtoamajorcompetitiveadvantage

Strategiestoincreasecompetitiveadvantage:

Automationadvanced&flexibleproductionprocesshelptoreducecostsofmanufactureandalsocreatedifferentiatedproducts

Rationalisationcutanyunnecessarycosts(e.g.makeworkersredundant) Researchanddevelopmentallowsdiversificationawayfromoriginalactivities

andcreateproductdifferentiation

6AL.2Strategicanalysis

Strategicanalysistheprocessofconductingresearchintothebusiness

environmentwithinwhichanorganisationoperates,andintotheorganisationitself,

tohelpformfuturestrategies(whereisthebusinessnow?whatishappeningor

likelytohappen?howcanthebusinessrespondtothechanges?)

SWOTanalysis

Aformofstrategicanalysisthatidentifiesandanalysesthemaininternalstrengths&

weaknessesandexternalopportunities&threatsthatwillinfluencethefuture

direction&successofabusiness

OnlycarryingouttheSWOTanalysisisnotsufficient,managersneedtodecidehow

toovercomethethreats&weaknessesandhowtotakefulladvantagesofthe

strengths&opportunities.Thebusinessalsoneedstocarryoutfurtheranalysis

beforestrategicchoicescanbemade.OneweaknessoftheSWOTanalysisisthe

subjectivity,onemanagercouldseeonethingasstrengthandanothercouldseeitas

aweakness

PESTanalysis

Thestrategicanalysisofafirmsmacro-environment,includingpolitical,economic,

socialandtechnologicalfactors


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PESTiscomplementarytoSWOT,notanalternative.PESTanalysisshouldbe

constantlyreviewedandupdatedbecausebusinessesareoperatinginadynamic

environment

Vision/missionstatement

Visionastatementofwhattheorganisationwouldliketoachieveoraccomplishin

thelongterm(outlinesthepreferredfutureofthefirm)

Missionastatementofthebusinessscorepurposeandfocus,phrasedinawaytomotivateemployeesandtostimulateinterestbyoutsidegroups

Thevision&missionstatementarenotsettoimpressanyone,theyshouldbeclearly

understoodbyallemployees.Theybothgivethesenseofpurposetoanorganisation,

andpreventbusinessfromdriftingawayfromitsmainaims.Thereforestrategies

shouldbesetaccordingtothosemainfocusesoftheorganisation


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BostonMatrix

Awayofanalysingtheproductsofafirminthedifferentmarketstheyarein.The

matrixcomparesmarketshareandmarketgrowthandfirmstrytocategoriseeachof

theproductssothattheycananalysewhattodowiththem.Thisanalysisworksforamulti-productfirmandtheimportantconclusionsarebasedaroundthefuturetactics

notthelabellingofthediagram

Star

Asuccessfulproductinanexpandingmarket Needstotryandmaintainmarketposition Butfast-changingmarketsopromotionisneededtodifferentiateproduct&

reinforcebrandimage

HighmarketingcostsbutgenerateshighamountsofincomeforfirmCashcow

Well-establishedinamaturemarket Salesarehighandpromotionalcostsarelow(highconsumerawareness) Thefirmneedstomaintainthisforaslongaspossible ThecashcanthenbeinjectedintootherproductsProblemchild

Haspotentialtosucceedbecausethemarketisgrowingfast Consumesresourcesbutgenerateslittlereturn.Needsheavypromotioncoststo

competewithcompetitorsintheexpanding&evolvingmarket

Ifsalesdonotimprove,thefirmcouldrevisethedesign,relaunchorevenwithdrawfromthemarket

Dog

Offerslittletothebusinessandhaslowpotentialofsuccess Themarketisnotgrowing,thefirmcouldtrytogainhighmarketshareorstop

producingthisproductandfocusonotherproductintherange

Theanalysishelpstoestablishthefirmscurrentproductpositionsbutdonot

predictfuturesuccessofthebusiness.Itdoesnottellmanagerswhattodowith

theproducts.Furthermarketresearchisrequiredandotherexternalfactorsneed

tobeconsideredwhenmakingdecisions.Italsoassumesthathighermarket

sharesmeanhigherprofits,butthismaynotalwaysbetrueifsalesaregainedby

reducingpricesandprofitmargins


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PortersFiveForcesanalysis

Thefiveforcesanalysisisawayofassessinganindustryinwhichabusinessoperates.

Theanalysisassumesthatthereare5factors,whichneedtobeanalysedforthat

business1. Barrierstoentrytheeasewithwhichotherfirmscanjointheindustry2. Buyerpowerameasureofthepowerthatthecustomershaveonthefirm3. Supplierpowersuppliersmaybemoreimportantthancustomersinthis

relationshipwhenthebrandisverypowerfulorwhencustomershavevery

littlepower

4. Threatofsubstitutesproductsinotherindustriesthatmightaffectthebusinesssindustry.Itmustbeawareofwhatisbeingproducedelsewhere

5. Competitiverivalrythemostimportantforce.Thesuccessofanybusinessisafunctionofitsabilitytocompeteinthemarketplace.Insomemarkets

competitionishigh,inothermarkets,itcanbehardlynoticeable

Benefits:

Byanalysingnewmarkets,thefirmmaydecidewhethertoenterornot Byanalysingexistingmarkets,thefirmmaydecidewhethertostayinornotand

whetherifithaspotentialtobecomeprofitable

Theanalysisaidsbusinesstodecidewhethertodifferentiateitsproduct,buyoutsomecompetitors,enterdifferentmarketsegments(lesscompetitive)


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Drawbacks:

Onlyworksataspecificpointintime(butthebusinessenvironmentisconstantlychanging)

Canbecomeverycomplexwhenanalysingmodernindustries

Corecompetencies

Corecompetenceanimportantbusinessabilitythatgivesafirmcompetitive

advantage(abilitythatmakesthebusinessdifferentfromotherfirmsintheindustry).

Acorecompetenceshould:

ProviderecognisablebenefitstoconsumersNotbeeasyforotherfirmstocopy(e.g.patenteddesign)Provideaccesstoawiderangeofmarkets

Onceacorecompetenceisestablished,thebusinesshastheopportunitiesto

developcoreproductsandthennewendproducts&markets

Coreproductproductbasedonabusinessscorecompetences,butnotnecessarily

forfinalconsumerofenduser(canbeaproductthathasmanyusesorareusedto

producemanyotherproducts)

6AL.3Strategicchoice

AnsoffsmatrixAmodelusedtoshowthedegreeofriskassociatedwiththefourgrowthstrategies

of:marketpenetration,marketdevelopment,productdevelopmentand

diversification


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Evaluation

Managerscananalysethedegreeofriskassociatedwitheachopportunity However,itonlyconsiders2factorsinthestrategicanalysisofabusinesssoption.

Otheranalysisareneededaswelltogiveamorecompletepicture

Thematrixdoesnotsuggestactualdetailedmarketingoptions(whichmarkettoenter?Orwhichproducttoproduce?)

Managersstillneedtomakedecisionsbasedonexperiencetoo

Force-fieldanalysis

Techniqueforidentifyingandanalysingthepositivefactorsthatsupportadecision

andnegativefactorsthatconstrainit

1.Analysecurrentandthedesiredsituation

2. Listallthedrivingfactors3. Listalltheconstrainingfactors4. Giveanumericalscore,scaleof1-10(1=weakest&10=strongest)5. Listallforcesonthediagram6. Totalthescoresanddecidewhetherthechangeisreasonable7. Considerwayswhichcanstrengthenthedrivingforces&reducethe

restrainingforces

Limitation

Inexperiencedmanagerscouldfailtoidentifyallrelevantforcesinvolved Theallocationofnumericalvaluesissubjective,2managersmaycomeupwith

differentvaluesfortheforces

Therefore,proposeverydifferentdecisionsbasedontheirassessments

Decisiontrees

Adiagramthatsetsouttheoptionsconnectedwithadecisionandtheoutcomesand

monetaryreturnsthatmayresult

Expectedvaluethelikelyfinancialresultofanoutcomeobtainedbymultiplyingthe

probabilityofaneventoccurringbytheforecasteconomicreturnifitdoesoccurand

subtractcostofoperating

Decisiontreemeasurestheriskinrelationtopossiblelevelofreward Drawntovisuallyaidthedecision-makingprocess ForcesmanagerstoconsiderALLoptionsavailable Simpletofollow


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Byusingprobabilities,thereisanattempttocalculatethelevelofriskHOWEVER:

Inrealityitisnoteasytocalculateprobabilities,themodelcanbeinaccurate Estimatereturnscanbedifficulttopredictfornewprojects Decisiontreesmayaiddecisionmaking,butotherqualitativefactorsneedtobe

consideredaswell(e.g.environment,workforceattitude)

Itdoesnoteliminatetherisksinvolved

6AL.4Strategicimplementation

Businessplan

Awrittendocumentthatdescribesabusiness,itsobjectivesanditsstrategies,the

marketitisinanditsfinancialforecasts Summaryofthestrategies Descriptionofthebusinessopportunity Marketing&salesstrategyhowtoselltheproductstocustomers? Managementteamwhomtorecruitorworkwith? Operationspremises,facilities,ITsystems Financialforecastsofsalesprofitandcashflow

Businessesneedtoprovideplaninordertoobtainstart-upfinance Plangivessenseofpurposeanddirectionandaidsresourceallocation Helpsmotivatestafftoworktowardstargets Progresscanbereviewedagainstobjectives

Corporateculture

Thevalues,attitudesandbeliefsofthepeopleworkinginanorganisationthat

controlthewaytheyinteractwitheachotherandwithexternalstakeholdergroups

thewaywedothingsaroundhere.Corporateculturewillaffectanydecisionsof

individualsinthebusiness,itdefineswhatisconsiderednormalanorganisation.It

willbeinfluencedbythevaluesandexpectationsofmanagersandemployees,the

firmsobjectivesandthetypeofmarketitoperatesin.Differentdepartmentshave

differentcorporateculture

Powercultureconcentratingpoweramongjustafewpeoplesimilartoautocraticleadership.Fewpeopleareinvolvedindecisionmaking


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Rolecultureeachmemberofstaffhasaclearlydefinedjobtitleandrolesimilartobureaucraticorganisations.Well-definedstructure,clearroles&

responsibilities.Peopleworkwithinstrictrulesandshowlittlecreativity

Taskculturebasedonco-operationandteamworkcommunicationsimilartomatrixstructure.Groupsareempoweredtotakedecisionsandareencouragedto

becreative

Personculturewhenindividualsaregiventhefreedomtoexpressthemselvesfullyandmakedecisionsforthemselvesthemostcreativeculturebutmaycause

conflictbetweenindividualgoalsandthoseofthewholeorganisation

Entrepreneurialcultureencouragesmanagementandworkerstotakerisks,tocomeupwithnewideasandtestoutnewbusinessventures.Successcanbe

rewardingwhensomedegreeofriskistaken

Techniquesforimplementingandmanagingchange

1. Understandwhatchangemeanschangeistheadaptionofbusinessstrategiesandstructuresinresponsetochanginginternal&externalforces

2. Recognisethemajorcausesofchange Technologicaladvancesleadingtonewproductsandprocesses(staff

trainingandnewequipmentneeded)

Macro-economicchangespolicies,businesscycleetc. Legalchanges Competitorsactionshighercompetitiveness

3. Understandthestagesofthechangeprocess Wherearewenowandwhyischangenecessary? Newvisionsandobjectivesestablishedexplainedtothosepeopleinvolved Allocatesufficientresourcestoenablechange Givewarningstopeopletoavoidresistancetochange Providetrainingtostaff Checkonhowindividualsarecopingwiththechangeandsupportthem

4. Leadchange,notjustmanageit Takeactionsthatleadfirmawayfromresistancetochange Motivatingstaffatalllevels

Resistancetostrategicchange

Fearoftheunknownincreaseduncertaintycanleadtoanxietyforsomepeople


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Fearoffailurechangesmayrequirenewskillsthatmaybebeyondaworkerscapabilities

Lackoftrustworkersmaynotbelieveinthereasonsgiventothem

ContingencyplanningandcrisismanagementContingencyplanplanningforunforeseenevents(fire,floods,damagetostock,

illnessofkeystaff,IT-systemfailureoraccidentsonthebusinesspremisesetc.)also

knownasbusinesscontinuityplanning

1. Identifythepotentialdisastersthatcouldaffectthebusiness2. Assessthelikelihoodoftheseoccurring(itiseasiertoplanforthemostcommon

disastersbutmanagersalsoneedtothinkabouttheunlikelyonesbecausethey

canhavegreaterrisktothebusiness)

3. Minimisethepotentialimpactofcriseswhentheyhappen(stafftrainingandpracticedrills,tellingthetruthandindicatingdetailsofcausesandsolutionsto

protectthereputation)

4. Planforcontinuedoperationsofthebusiness(thesoonerthebusinesscanbegintradingagain,thelessimpactislikelytobeoncustomerrelationships

Finalevaluation:

CostofCPneedstobebalancedagainstthepotentialcostsofnotdoingit Howmuchtimeisspentonpreparingandtestingcontingencyplans? Inthiscaseitseemstohavebeeneffectivebutitmightbemoreimportantto

focusonqualityissuesthemselves,ratherthantryingtorespondtoaproblem

onceithasarisen

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