e2 Bpp Study Notes

978-1-4727-8539-8

Project and Relationship Management Operational Level Paper E2 Course Notes FOR EXAMS IN 2015

2

Improving study material and removing errors There is a constant need to update and enhance our study materials in line with both regulatory changes and new insights into the exams. BPP appoints, from one of our experienced tutor team, a subject expert to update and improve these course notes regularly. These updates are technically checked by another tutor and frequently proof read. We always aim to leave no numerical errors and narrative typos. However, given the volume of detailed information being changed in a short space of time, it is regrettable that an error may slip through our net despite our best intentions. We apologise sincerely for any inconvenience that this might cause. If you find a specific error or typo please let us know at [email protected] so we can correct it immediately. In addition we would welcome any suggestions you may have to further improve these study materials.

3

Contents Page

Welcome to E2 .................................................................................................................................. 4 Exam Technique Overview ............................................................................................................... 9

Introduction to strategy and contemporary perspectives 1a Introduction to strategy ....................................................................................................... 11 1b Contemporary perspectives in strategy development ........................................................ 29 General environment 2 General environment ............................................................................................................ 41 Competitive environment 3 Competitive environment...................................................................................................... 51 Key concepts in management and leadership 4a Key concepts in management ............................................................................................ 63 4b Key concepts in leadership................................................................................................. 75 Culture 5 Culture .................................................................................................................................. 87 Conflict, negotiation and communication 6 Conflict, negotiation and communication.............................................................................. 99 Control and the finance function 7 Control and the finance function......................................................................................... 119 Change management 8 Change management ......................................................................................................... 131 Introduction to project management 9 Introduction to project management ................................................................................... 143 The project team 10 The project team............................................................................................................... 159 Answers to lecture examples ........................................................................................................ 179

WELCOME TO E2

4

Welcome to E2 Project and Relationship Management Our aim is to help you confidently prepare for success in your exam in an effective and efficient way; allowing you to personalise your learning experience, step by step, whilst being supported by BPP’s team of experts.

These course notes are one of the components of your programme, and are one of the tools you have at your disposal as a student of BPP. They focus primarily on ensuring you acquire the technical knowledge and understanding required to pass your exam. They have been written by our subject matter experts and tutors, are will be delivered to you by our expert tutor team, be it in centre or online.

These course notes play two important roles in your programme:

1. Knowledge – the course notes will help you to learn and understand the key knowledge topics to allow you to progress up the Achievement Ladder

2. Support – you can revisit specific elements in your course notes in the light of feedback you receive as you attempt each step on the Achievement Ladder.

Remember, the Achievement Ladder is the unique tool to allow you to see your own progression towards being fully prepared for the real exam.

Description of the paper E2 emphasises a holistic, integrated approach to managing organisations, from external and internal perspectives. It builds on the understanding of organisational structuring gained from E1 and is centred on the concept of strategy and how organisation strategy can be implemented through people, projects, processes and relationships. It provides the basis for developing further insights into how to formulate and implement organisational strategy, which is covered in E3.

Syllabus Areas and their weighting

Syllabus topic Weight

30%

20%

20%

A. Introduction to strategic management and assessing the global environment

B. The human aspects of the organisation

C. Managing relationships

D. Managing change through projects

Summary of syllabus

30%

WELCOME TO E2

5

The Objective Test exam Pass Mark 70%

Format Computer Based Assessment

Duration 90 minutes

Number of Questions 60

Weighting As per Syllabus Areas

All component learning outcomes will be covered

Question Types Multiple Choice

Multiple Response

Drag and Drop

Gap Fill

Hotspot

Drop Down List

Booking availability On demand

Results Immediate

How To Pass Your OT exam In simple terms, the best way to pass your exam is to work your way up the Achievement Ladder at a good steady pace, acting on all feedback as you go. This will ensure you cover all the technical syllabus in a balanced way, and will get you familiar with the different real-exam question types and how to approach them.

A great way of furthering your understanding is to continually try to put the topics, concepts and ideas in the syllabus into context. As you move through your course, think about how your learning relates to your working life, or to reports in the business news. Read management accounting journals and articles and see how they tie in with your studies. Passing CIMA exams is all about applying what you know to real business situations, so the more you can think along these lines the better.

A key first step you should take is to construct a Study Plan, based around the dates you will attempt each step of the Achievement Ladder. You should look to transfer these dates to your online calendar in the near future.

WELCOME TO E2

6

Syllabus Learning Outcomes

Lead Outcome Component Outcome Chapter A Introduction to strategic management and assessing the global environment

(a) discuss the concept of strategy and the rational/formal approach to strategy development

1a Introduction to Strategy

(b) compare and contrast alternative approaches to strategy development

1a Introduction to Strategy

1b Contemporary Perspectives in Strategy Development

1 Discuss developments in strategic management

(c) explain the approaches to achieving sustainable competitive advantage

3 Competitive Environment

(a) distinguish between different aspects of the global environment, including the competitive environment

1b Contemporary Perspectives in Strategy Development

2 General Environment

2 Analyse the relationship between different aspects of the global business environment

(b) discuss the approaches to competitor analysis including the collection and interpretation of trend data

3 Competitive Environment

B The human aspects of the organisation (a) discuss the concepts of leadership

and management 4a Key Concepts

in Management

4b Key Concepts in Leadership

1 Discuss the concepts associated with managing through people

(b) discuss HRM approaches for managing and controlling individual’s performance

6 Conflict, Negotiation and Communicat-ion

(a) discuss behavioural aspects of management control

4a Key Concepts in Management

7 Control & the Finance Function

2 Discuss the hard and soft aspects of people and organisational performance

(b) explain the importance of organisational culture

5 Culture

WELCOME TO E2

7

Lead Outcome Component Outcome Chapter C Managing relationships

(a) evaluate the issues associated with building, leading and managing effective teams

10 The Project Team

(b) discuss the effectiveness of handling, relationships between the finance function and other parts of the organisation and the supply chain


1 Discuss the effectiveness of organisational relationships

(c) discuss the effectiveness of handling relationships between the finance function and external experts and stakeholders


(a) discuss the roles of communication, negotiation, influence and persuasion in the management process


2 Discuss management tools and techniques in managing organisational relationships

(b) discuss approaches to managing conflict


D Managing change through projects

(a) discuss the concept of organisational change

8 Change Management

1 Advise on important elements in the change process (b) recommend techniques to manage

resistance to change 8 Change

Management

(a) discuss the characteristics of the different phases of a project

9 Introduction to Project Management

(b) apply tools and techniques for project managers

9 Introduction to Project Management

2 Discuss the concepts involved in managing projects

(c) discuss management and leadership issues associated with projects, including the roles of key players in projects

10 The Project Team

WELCOME TO E2

8

2015 Syllabus Changes For resit students who first studied the paper under the 2010 syllabus only… There have been some specific changes to the technical content of this paper’s syllabus, and you should be fully aware of these to help you prepare for your resit under the 2015 Syllabus.

Here’s a summary of the ‘ins and outs’ for this paper:

Main Topics that have come in… Main Topics that have gone out… Change Management See Chapter 8

LoNGPEST See Chapter 2

Big Data See Chapter 3

As well as ensuring you take these main changes into account during your preparations for your resit, you should also be aware that the new assessment structure in 2015 means that you will be examined in a different way even for topics that have ‘rolled over’ from the 2010 Syllabus.

We would therefore strongly recommend attempting all the Steps in your Achievement Ladder, and act on the feedback provided, to ensure you are fully exam ready for your resit.

You will find more detail and guidance online.

The Case Study Exam Your Integrated Case Study exam for this Level will draw on the technical content of each paper’s syllabus. To pass, you will need to APPLY this knowledge in the context of the preseen case study, demonstrating CIMA’s four core competencies and your ability to integrate your knowledge across the three pillars in a single exam.

It is therefore a very good idea to keep your technical knowledge fresh after passing your OT exam for this paper, and to start to think more about how the technical theories, techniques and concepts apply to ‘real life’, as this is effectively what you will be assessed on in your Case Study exam.

The specifically written ICS Bridging Questions that you will find online will help you with this and we would recommending looking at these after your OT exam, and as your attention starts to shift towards preparing for your Case Study.

WELCOME TO E2

9

Exam Technique Overview

1 Knowing the best way to approach each Question Type Passing your CBA is all about demonstrating your understanding of the technical syllabus content. You will find this easier to do if you are comfortable with the different types of Objective Test Questions that you will encounter in the CBA, especially if you have a practised approach to each one.

OTQ Type Example Multiple Choice “Choose one correct answer from the following options: A B C D”

Multiple Response “Which THREE of the following are true in this situation?”

Drag and Drop “Drag and drop these steps of the process into the correct order”

Gap Fill / Numeric Entry “Give your answer to the nearest $million”

Hotspot “Click on the area of the graph that represents profit”

Drop Down List “The strategy adopted by the company is best described as … ”

You will find yourself continuously practising these styles of questions throughout your Objective Test programme. This way you will check and reinforce your technical knowledge at the same time as becoming more and more comfortable with your approach to each style of question.

2 Making all the decisions you can before your CBA You’re not likely to have a great deal of ‘spare time’ during the CBA itself so you must make sure you don’t waste a single minute. One way to do this is to make any decisions that you can before your CBA, so all your exam time is purely focused on answering questions…

How long should I spend on each question?

With 60 questions to answer in 90 minutes, on average you have a minute and a half per question. You can also use this to build handy benchmarks – eg after the first 30 minutes, you should ideally have answered 20 questions, and with 30 mins to go you should have 20 questions remaining, etc.

What’s the mix of question types likely to be in the CBA?

This is especially important for papers with calculation questions, as these usually take quite a bit longer than purely narrative questions, so this will allow you to flex your time sensibly in the exam.

Which order should I do the exam questions in?

Another thing you can do in advance of your real CBA is to decide which exam approach works best for you. There’s no single right way of working through a long exam – its all down to personal preferences, but what is important is that you make your decision in advance and then stick to it!

There are at least three different ways of doing this:

1 Work through the exam from the first question to the last, attempting every single question as you go and flagging any you want to return to at the end.

2 Work through quickly once, answering all the questions that seem ‘easy’ to you, then go back to the beginning and work through all the trickier ones.

WELCOME TO E2

10

3 If there are a mix of calculations and narrative questions in your CBA, you could work through and do all of the narrative questions first as these are often easier and certainly quicker, but you must set yourself a target time to complete them to ensure you don’t over-run as you will need longer per question to complete all the calculation questions.

The key here is to try out different approaches during your studies, so that you can identify and settle on the one that works best for you.

3 Maximising your marks in your CBA Time does funny things in an exam!

Scientific studies have shown that humans have great difficulty in judging how much time has passed if they are concentrating fully on a challenging task (which your CBA should be!).

You can try this for yourself. Have a go at say five questions for your paper, and notice what time you start at. As soon as you finish the last question try to estimate how long it took you and then compare to your watch/clock/phone.

The majority of us tend to underestimate how quickly time passes and this can cost you dearly in a full exam if you don’t take steps to keep track of time.

So, the key thing here is to set yourself sensible milestones, and then get into the habit of regularly checking how you are doing against them: -

You need to develop an internal warning system – “I’ve now spent more than 3 minutes on this one calculation – this is too long and I need to move on!” (less for a narrative question!)

Keep your milestones in mind (eg 20 questions done after 30 mins). If you are a distance from where you should be then adjust your pace accordingly. This usually means speeding up but can mean slowing down a bit if needs be, as you may be rushing when you don’t need to and increasing the risk of making silly mistakes.

A full exam will be a mix of questions you find harder and those you find easier, and in the real CBA the order is randomised, so you could get a string of difficult questions right at the beginning of your exam. Do not be put off by this – they should be balanced up later by a series of questions you find easier.

11

Introduction

Syllabus Area A Introduction to strategic management and assessing the global

environment

30%

Lead learning outcome Discuss developments in strategic management

Syllabus component Discuss the concept of strategy and the rational/formal approach to

strategy development

Compare and contrast alternative approaches to strategy development

Context This syllabus component will require that you have a good understanding of the fundamental techniques for strategic planning for an organisation.

You will need an in-depth understanding of the rational planning model and its alternatives, and when is appropriate to use them.

This chapter addresses the following indicative syllabus content: Section

Defining strategy and strategic management; Core areas of strategic management 1 Levels of strategy within organisations 1 Stages in the rational approach to strategy developments 2-9 Intended, emergent, logical incrementalism and political approaches 10-11 Resource-based view – resources and competencies, internal value and dynamic capabilities

12-13

Other chapters in Syllabus Area A

Chapter 3 Competitive Environment

Chapter 2 General Environment

Chapter 1b Contemporary perspectives in


Chapter 1a Introduction to

strategy

Introduction to strategy

1a: INTRODUCTION TO STRATEGY

12

Overview

Mission and objectives

Environmental analysis

Position audit

Strategic option, choice,

implementation and review

Emergent strategy

Logical incrementalism

Strategy & small businesses

The rational planning model

What is Strategy?

Criticisms of the rational planning

model

Positioning view vs resource-based

view

Top-down strategy process



13


What is Strategy?

Positioning view vs resource-based view



14

1 What is a strategy? 1.1 A strategy is “a course of action, including the specification of resources required, to achieve

a specific objective.” (CIMA) It is concerned with:

the purpose and long-term direction of an organisation the scope of an organisation’s activities meeting challenges arising from the external environment using internal resources effectively delivering value to people who depend on the organisation

1.2 Strategic management is the strategic decision making which is characterised by the consideration of:

the scope of business activities matching a business’s activities to its capabilities allocation of resources the operational decisions which follow the values and expectations of senior management the long-term direction that the business takes change in the business

1.3 Strategy can play a number of roles within an organisation. Henry Mintzberg suggested five such roles, known at the 5 Ps of strategy.

(a) Plan. Strategy can provide direction for an organisation. (b) Pattern. Strategy, whether intended or not, will be evident as a consistent pattern of

behaviour over the long term. (c) Ploy. Strategy can be used as a tactic to deter or confuse competition. (d) Position. An organisation's strategy can provide an indication as to where that

organisation places itself within a particular market or environment. (e) Perspective. Strategy indicates more than just a chosen position, it represents the

unique way in which an organisation perceives the environment in which it operates and how it interprets the information from it.

1.4 Strategies exist at all levels of the organisation and can be considered as covering three areas as follows:

Levels

Corporate strategy the overall purpose and scope of the organisation

Business strategy how a strategic business unit approaches a particular market

Functional strategy long-term management policies of functional areas

Areas

Financial strategy capital structure, dividend policy, investor relations

Investment strategy use of capital to provide strategically valuable resources

Competitive strategy how the business outperforms its rivals


15

Lecture example 1 Exam Standard

A consultant has told the board of ABC Ltd that the strategic planning process should result in a strategy at all levels of an organisation. He has shared a document setting out how overall objectives are to be achieved, by specifying what is expected from specific functions, stores and departments.

What type of strategy has he created?

A Corporate Strategy

B Business Strategy

C Functional Strategy

D Competitive Strategy

Solution

2 The rational planning model 2.1 In order to plan a strategy effectively, many organisations follow a formal process, of which

the rational planning model is the most widely used. With the rational planning model:

Strategy is seen as the achievement of objectives A formal, documented process is followed The process is led by senior management The process incorporates corporate / business / functional strategies

Mission and

Objectives

Corporate appraisal

Strategic option

generation

Strategy evaluation &

choice

Strategic implementation

Review and

Control

Position Audit

Environment analysis


16

2.2 Each stage within the rational planning model is considered in detail from section 4 onward.

3 Top-down strategy process

3.1 When it comes to setting a strategy, most large organisations adopt a top-down process, where senior management maintain close control. This means:

Establishing a designated team responsible for strategy development. Formalising the collection of information, both internal and external. Senior managers deciding on the strategy collectively. Formal communication and implementation of the strategy. Regularly reviewing the strategy at a senior level.

Lecture example 2 Discussion

Required

Explain the advantages and disadvantages of the top-down approach to strategy.

Solution

4 Mission & objectives 4.1 A mission is a broad statement of the purposes of an organisation that has been prepared

in line with the values and expectations of its stakeholders. It is often communicated in the form of a mission statement.


17

4.2 According to Hooley et al (1992), a mission statement should:

(a) Provide a basis for consistent decision-making. (b) Assist in translating direction into objectives suitable for assessment and control. (c) Provide a consistent purpose between different interest groups (stakeholders). (d) Establish organisational goals and ethics. (e) Improve understanding and support from key groups outside the organisation.


The bus service provider Stagecoach Group has the following mission statement:

“Stagecoach Group is committed to being a market-leading public transport business with long-term growth prospects based on high-quality services and investment in innovation. Our vision is to create sustained shareholder value and share our success with our people, our customers and our communities.”

Required

Discuss whether this is an effective mission statement.

Solution

4.3 A mission is expected to last for several years and therefore needs to be relatively open-ended. The mission therefore needs to be converted into a series of strategic objectives that set targets for the business to achieve. Such objectives need to be:

Specific Is it clear and unambiguous?

Measurable Can it be objectively measured?

Achievable Do those involve believe it is realistic?

Relevant Will it help the organisation meet its mission?

Time-bound Has a deadline for achievement been agreed?


18

4.4 An objective that meets these characteristics will perform the following functions:

Planning A framework that identifies the targets to be reached

Responsibility Place clear expectations on managers

Integration Ensure coordination of effort across the organisation

Motivation Inspires managers to meet targets

Evaluation Acts as a criteria for performance evaluation

4.5 Like controls (see Chapter 7), objectives are needed at strategic, tactical and operational levels.

5 Environmental analysis 5.1 In order to develop an effective strategy, there needs to be an awareness of the

opportunities and threats contained in the external environment. This can be done using PESTEL and Porter’s Five Forces. Both these models will be discussed in more detail in Chapter 2.

6 Position audit 6.1 The position audit involves an internal analysis of the organisation’s strengths and

weaknesses. Johnson, Scholes & Whittington (2008) identify four areas to consider:

Threshold resources resources needed to meet the customer’s minimum requirements

Threshold competences activities and processes needed to meet the customer’s minimum requirements

Unique resources resources that underpin competitive advantage and are difficult for competitors to replicate

Core competences activities and processes that underpin competitive advantage and are difficult for competitors to replicate

6.2 The organisation’s internal position can also be analysed using Porter’s Value Chain (also assumed knowledge from E1). The components of each activity below can be analysed to determine the extent to which they “add value to the customer”:

Firm infrastructure

Human resource management

Technology development

Procurement

Inbound logistics

Operations Outbound logistics

Marketing and sales

Service

M A R G I N

Support activities

Primary activities


19


ABC Ltd provides financial planning services for small businesses. Their management accountant has been tasked with a review of the company’s activities in providing its services to customers. In terms of Porter’s Value Chain, which are the primary activities they should consider?

A Inbound logistics

B Procurement

C Firm infrastructure

D Marketing & sales

E Service

Solution

7 Corporate appraisal 7.1 The internal position audit and external environmental analysis combine to form a corporate

appraisal or SWOT analysis: Internal Strengths the skills or competences that give an organisation an advantage over its

competitors. Weaknesses internal failures that hinder the organisation from meeting its aims. External Opportunities events or changes outside the organisation that could be exploited to the

organisation’s benefit. Threats events or changes outside the organisation that are unfavourable to the

organisation and need to be guarded against.

8 Strategic option, choice, implementation & review

Strategic options

8.1 Having completed the corporate appraisal, it is up to managers to identify the options open to the organisation. While some of these will extend clearly from the SWOT analysis, others may emerge through a more creative idea-generation process.


20

Strategic choice

8.2 With a range of options to choose from, a strategic choice is made using the following three criteria:

Will it achieve competitive advantage? What is the organisation’s strategic advantage? What methods will be used to meet these objectives?

8.3 The organisation can choose to meet their objectives using the following methods:

Internal development / organic growth Takeover / acquisition or merger Strategic alliance

Strategic implementation

8.4 Having agreed the overall strategy, it is necessary to convert it into a set of detailed plans in order to implement it. These take place at tactical and operational levels.

Strategic review

8.5 The strategy should be continually reviewed from two perspectives:

Will the delivery of the strategy help the business meet its strategic objectives? Do changes in the environment require a change in strategy?

9 Criticisms of the rational planning model 9.1 Although the rational planning model is the most widely used method of generating a

strategic plan, it has been criticised by some for being too academic and failing to reflect “the real world”. These criticisms include:

(i) The model is too rigid.

The rational planning model does not allow users to go backwards – only forwards. This could result in a strategy being implemented that does not reflect recent changes to the internal or external environment.

(ii) No strategy can be completely formalised in advance.

Any strategy is based on imperfect knowledge of the future. Any attempt to allow scope for change undermines the stability of the whole model.

(iii) Managers only declare their strategy after the event.

Mintzberg argues that managers present their past actions as being part of an intentional strategy, whether they were or weren’t. In other words, strategy is not created in advance but emerges over time.


21

(iv) An organisation cannot set an objective – only the people within it.

Objectives are the outcome of negotiation between internal factions. Objectives therefore conflict with each other and become obsolete as different groups become more or less dominant.

(v) The people who set the strategy aren’t the people responsible for implementing it.

Objectives are set by senior management, who don’t have sufficient awareness of the issues being faced in the front line or the social and cultural values of staff.

(vi) Strategy is not a rational process.

An excessively rational approach to strategy can cause managers to become obsessed with the associated problems (inconsistency between objectives, resistance from those who disagreed with their approach). Instead, it is argued, lower level managers should select shorter-term courses of action.

In addressing these criticisms, two alternative models have been identified:

Emergent strategy Logical incrementalism

10 Emergent strategy 10.1 Mintzberg (1987) sees strategy as including an unanticipated or emergent dimension.

Intended strategy is formally created by established senior management. Some of these will be taken forward (deliberate strategy) and others will not. At the same time, informal patterns or consistencies will create an emergent strategy.

10.2 The emergent model reduces the reliance on a formal process and instead shifts the focus for creating a strategy on the manager. Mintzberg recognised that managers could develop deliberately emergent strategies by creating conditions that allow new ideas to flourish.

10.3 To develop such a strategy effectively, the manager needs the following skills:

Manage stability – there is no need to constantly re-think the organisation’s strategy.

Detect discontinuity – look for subtle changes that may impact on future performance.


22

Know the business – develop a hands-on feel for the business.

Manage patterns – encourage strategic initiatives to grow and intervene as necessary.

Reconcile change and continuity – major change will require careful management.

11 Logical incrementalism 11.1 Lindblom (1959, 1979) used logical incrementalism to demonstrate how administrators

operated without implementing any radical changes.

11.2 Administrators do not take drastic action to achieve radical strategy but continue along the same path as before, towards logical incrementation. However, where there are changes in the environment, the path of logical incrementation will deviate from what is required and create a strategic drift.

11.3 Note that this is a statement of reality rather than a recommendation to follow!

11.4 Quinn (1978) develops logical incrementalism into something more positive, where the manager moves towards a defined destination through a series of small steps, adapting to circumstances as they change.

11.5 In Quinn’s model, logical refers to the use of a formal strategic framework (such as the rational planning model), while incrementalism is the belief that stakeholder consensus is best achieved through incremental (rather than rapid) change. In this context, the manager’s role is to:

Be attuned to the issues the organisation is facing by networking formally and informally with internal and external stakeholders.

Develop a strategic vision when the need arises.

Build political support for the vision (as opposed to presenting a full-blown strategy).

Obtain commitment by initiating a trial of the new strategy.

Allow the consensus to build and implement the change incrementally.

Radical strategy

Environment

Logical incrementation

Strategic drift

TimeNow


23


Required

Explain how the duties and skills required of a manager using the rational planning model compare to those of a manager using logical incrementalism.

Solution

12 Further considerations

Positioning view versus resource-based view of strategy

12.1 In the context of a strategy’s aim to “meet the challenges of arising from the external environment”, theorists disagree over how organisations can compete successfully. This has led to two conflicting theories: the positioning view and resource-based view.


24

Positioning view

12.2 The positioning view sees competitive advantage as coming from the way a firm positions itself in relation to its competitors, customers and stakeholders. This competitive advantage can therefore be secured through:

High market share compared to rivals Differentiated products Low costs

According to this view, the organisation therefore needs to adapt to fit its environment (referred to as an outside-in view).

Criticisms of the positioning view

12.3 Until the 1990s, the positioning view was widely accepted. However, the following criticisms emerged:

(a) Competitive advantages are not sustainable

Positioning advantages can be replicated by competitors with relative ease.

(b) Environments are too fast-moving for positioning to be effective

If the environment changes too quickly, the organisation will always be changing in a futile attempt to catch up.

(c) It is easier to change the environment than the organisation

The organisation’s structure and competences will be destroyed if it is always having to change to meet the environment’s demands.

Resource-based view 12.4 Resource-based theorists believe that, instead of permanently reacting to its environment,

the organisation should focus on developing a unique competence or asset and then find a market which wants it. This is referred to as an inside-out view.

12.5 Stalk et al (1992) identify four principles of the resource-based view (referred to by them as capabilities-based competition):

(a) Advantage needs to be based on business processes, not products. (b) Success derives from converting these processes into value-adding capabilities. (c) These capabilities require group-wide investment (i.e. across functional boundaries). (d) The CEO needs to champion this group-wide approach for it to be effective.


25

12.6 Resource-based theorists have attempted to identify where internal competitive advantage comes from:

Stalk et al (1992) Barney (1991) Kay (1997)

Speed Valuable Competitive architecture (see below)

Consistency Rare Reputation

Acuity Imperfectly imitable Innovative ability

Agility Substitutability Owning strategic assets

Innovativeness

12.7 Kay’s competitive architecture refers to the relationships that make up the organisation. These break down into:

(i) Internal architecture (relationships with employees) (ii) External architecture (relationships with suppliers and customers) (iii) Network architecture (relationships between a group of collaborating firms)


As compared with the Resource-Based Approach the Positioning Approach to strategy:

A assumes the future of markets is predictable

B ensures the organisation has a good fit with the environment

C is outside-in

D is based on core competences

E focuses around what the organisation does best

Solution

12.8 Prahaland & Hamel (1990) argue that organisational controls should be based, not on a division/SBU basis, but instead on its competence. This supports Stalk et al’s theory that failing to cross divisional boundaries can ultimately damage an organisation’s competence.

Implications of the resource-based view

12.9 Taken to its logical conclusion, the resource-based view conflicts with theories that focus on products and/or markets. Such theories include Porter’s Five Forces, the Product Life Cycle and even the rational planning model! However, resource-based theorists would argue that even a unique product will eventually be replicated or substituted, whereas processes can form a long-term source of competitive advantage.


26

The political approach to strategy 12.10 The political approach to strategy recognises the influence of power in strategy

development, and hence the use of bargaining and negotiation in setting strategy. The formulation of strategy is viewed as a political process where political and stakeholder

analysis is critical to determine the main sources of power.

13 Strategy and small businesses 13.1 Brian Birely (1982) saw the traditional top-down approach to strategy as being inappropriate

for small businesses for four reasons:

(a) Internal stakeholder interests

Small businesses are often owner-managed, making it difficult to separate strategic decision making from shareholder (and, potentially, family) issues.

(b) Limited market choice

A small business will have fewer products / services than larger competitors and therefore have a narrower range of strategic options to choose from.

(c) Limited resources

Even when a strategy has been proposed, small businesses often have insufficient capital to pursue it.

(d) Organisational structure

Small firms may not have the infrastructure (or management skills) to deliver the strategy.

13.2 Although Birely’s points will be familiar to many small, family-run firms, some entrepreneurs have grown rapidly due to adopting a freewheeling opportunism approach. This involves:

Successfully competing against a much larger, complacent competitor. Sticking to the founder’s vision of how they wanted the business to develop. Providing products / services in markets where customers behave spontaneously. Not reliant on conventional funding sources. The day-to-day involvement of the founder who demonstrates appropriate skills. Some very large businesses have been successful with a freewheeling opportunism approach also.


27

Summary

Emergent strategy

Logical incrementalism

Strategy & small businesses

Intended strategies Unrealised strategiesDeliberate strategies Emergent strategies Realised strategies

a series of small steps toward a goal, adapting to the environment as it changes

Stakeholder interests Limited market choice Limited resources Organisational structure

Criticisms of the rational planning

model


Mission and objectives


Strategic option, choice,

implementation and review

SMART and PRIME

PESTEL O&T of SWOT

Value chain S&W of SWOT

Position audit

3 Questions:

1 will it achieve competitive advantage?

2 what is the organisation's strategic direction?

3 what methods will be used to meet these objectives


What is Strategy?

Strategy is "a course of action, including the specification of resources required, to achieve a specific objective.


28


What is Strategy?

Positioning view vs resource-based view


Requirements: Designated team Formalised collection of internal and external information Collective decision-making Formal communication & implementation of strategy Regular review of strategy

Advantages: Avoids short-termist behaviours Helps identify strategic issues Gives goal congruence Improves stakeholder perception of the business Provides a basis for strategic control Develops future management potential, and helps ensure continuity

Disadvantages: Too infrequent Prevents innovative strategies Harder to implement due to lack of participation Loss of entrepreneurial spirit Impossible to use if environment is uncertain Too expensive and complicated for a small business

Positioning: Outside-In

Resource-based: Inside-Out

END OF CHAPTER

29

Introduction


environment

30%

Lead learning outcome Discuss developments in strategic management

Syllabus component Compare and contrast alternative approaches to strategy development

Distinguish between different aspects of the global business environment including the competitive environment

Context This syllabus component introduces you to other strategic considerations organisations can have in the modern environment, in addition to the models learnt in the previous chapter.


Strategy development in different contexts, e.g. SMEs, public sector, not-for-profit 5-6 Strategy and structure 2-3 Globalisation 1 Transaction cost theory in the context of shared service centres and outsourcing, including contractual relationship, SLAs (service level agreements), bounded rationality and co-creation with customers

4



strategy





Contemporary perspectives in strategy development

1b: CONTEMPORARY PERSPECTIVES IN STRATEGY DEVELOPMENT

30

Overview

Contemporary perspectives

Complex organisational forms

Strategic alliances

Mergers and acquisitions

Ecological perspective of strategy

Hierarchy solutions

Market solutions

Transaction cost theory

Asset specificity


31

1 Contemporary perspectives 1.1 The growth of internationalisation and globalisation means that, although firms have the

opportunity to explore new international markets, they will also find themselves having to defend their domestic market against new entrants from overseas.

Globalisation

1.2 The growing economic interdependence of countries worldwide. (IMF)


Required

Why has there been such a strong move towards globalisation?

Solution

1.3 However, at the same time as global markets opened up, there emerged an increasing emphasis on customising products and services to local conditions. This has resulted in glocalisation (sic) under the tag line: “think global, act local”.

1.4 The modern business environment is now characterised by internationalisation and globalisation:

Internationalisation Extension of trade beyond national / economic / political boundaries

Globalisation Functional integration of internationally dispersed activities

1.5 Dicken (1998) clarifies that globalisation is not uprooting political or cultural differences. Nevertheless, he recognises that globalisation has become prevalent due to:

Production chains being extended across national boundaries Foreign Direct Investment (FDI) Creation of supranational organisations (aided by legal / tax / currency harmonisation) Transformation of communication and transport through technology “Webs of enterprise” transcending political boundaries Transference of culture, lifestyle and personnel across national boundaries


32


Required

Discuss the challenges facing governments and individuals in industrialised nations as a consequence of the increased growth of the globalised economy.

Solution

1.6 As a business decides how to approach a global market, it would consider adopting one of the following strategies.

2 Mergers and acquisitions 2.1 The traditional approach to becoming a global player was to acquire a subsidiary in the

target country. However, by the 1990s, many firms found that any economies of scale they experienced were more than offset by the need for increased structure and management. This overall lack of synergy combined with a desire to focus on the customer’s need led to a number of high-profile de-mergers.

2.2 In this context, the concept of a strategic alliance has replaced as a viable alternative to mergers and acquisitions.

3 Complex organisational forms 3.1 In exploring alternatives to traditional mergers and acquisitions, firms are driven by two

needs:

Cost reduction Market penetration


33

Strategic alliances

3.2 A strategic alliance is the sharing of resources and activities across two or more organisations in order to pursue strategies. Types of strategic alliance include:

Franchising The franchisee manufactures or distributes a product or service while the franchiser retains control of the brand and marketing.

Joint ventures A new, shared organisation is set up by two or more firms who each retain an independent entity.

Consortia Short-term legal entities to deliver a particular project. Licensing The right to manufacture a patented product (in return for a fee)

Network organisations

3.3 Often, when a customer deals with a supplier, he or she is dealing with a network of firms which come together to provide a single product or service.


ABC Ltd has decided to work with a foreign manufacturer of a complementary service to market both services jointly in both countries, through a new legal entity, DEF Ltd. What type of structure have they agreed on?

A Franchise

B Joint venture

C Consortium

D License

Solution

3.4 Where an organisation owns relatively few physical assets and instead relies heavily on IS/IT, it may be referred to as a virtual network.

3.5 Ghoshal & Bartlett (1997) explain that firms can replace traditional organisational structures with a network (or virtual) structure and buy in those value-adding activities they require:

(a) Staff can be hired on a contract / temporary basis (b) Capital assets can be leased (c) Outsourcing production / service provision (d) Customer referrals


34

4 Transaction Cost Theory (TCT) 4.1 Organisations seeking to adopt a network / virtual orientation need to consider two

questions:

(a) Which activities should be bought in?

(b) How can management control operations in a network organisation? These questions are addressed through Transaction Cost Theory.

4.2 Oliver Williamson (1981) identifies two alternative approaches to controlling resources:

Hierarchy solutions Having decided to own the relevant assets (or employ staff directly), managers focus on

controlling their use and performance.

Market solutions Managers enter into a contract to buy in the relevant asset (or staff) from outside the

organisation.

If the transaction costs associated with the market solution are too high, the hierarchy solution will be preferred.


Required

Identify the transaction costs associated with a market solution and explain why they are hard to quantify.

Solution

4.3 Transaction Cost Theory (TCT) leads to the following conclusions:

TCT allows distinctive competences to be identified

A firm’s distinctive competence is one that cannot be provided by another company without prohibitive transaction costs. Anything that can be provided cheaper with a market solution cannot be a source of competitive advantage.

TCT supports organisational restructuring

For the reasons highlighted above, any non-core competences should be bought in from outside using a market solution.

IT reduces transaction costs

IT allows the more efficient searching, comparison and monitoring of suppliers.


35

4.4 Williamson goes on to ask why any firm would choose incur transaction costs over and above the cost of the project itself. His answer is based on the concept of asset specificity.

4.5 If the relationship between supplier and customer is of high asset specificity, the supplier is expected to provide an expensive asset with no alternative use. This increased risk may deter suppliers from entering this market at all but, even if they did, the transaction costs would become prohibitively high. Therefore, high asset specificity is likely to encourage a hierarchy solution.

4.6 Williamson identifies six types of asset specificity:

Site specificity a location with a limited range of uses.

Physical asset specificity a unique work of art or building

Human asset specificity knowledge or skills unique to one organisation.

Dedicated asset specificity a man-made asset with only one application.

Brand name capital specificity a brand that would lose impact if spread wider.

Temporal specificity exclusive access to a product / service for a certain time

Other issues to consider

4.7 The following issues need to be considered when investigating TCT:

Organisations may underestimate the costs of internal control

As an organisation takes on more hierarchy solutions and becomes more complex, its internal costs may increase exponentially.

Increased trust reduces transaction costs

Where an existing relationship of trust exists between supplier and customer, the transaction costs are likely to be considerably lower.

5 Ecological perspective of strategy 5.1 With ecological issues becoming an increasing social, political and economic issue, a new

style of strategy has emerged that focuses on the organisation’s relationship with the environment.

5.2 Bennett & James (1996) identify six ecological areas that need to be monitored:

Production minimising inputs required to generate outputs

Environmental auditing compliance with legislation, treatment of waste etc

Ecological approach trace the full life-cycle of the product

Quality A TQM approach to continuous improvement

Accounting Shadow pricing to quantify environmental consequences

Economic Environmental costs allocated to relevant processes


36

6 Social responsibility 6.1 Social responsibility involves “taking more than just the immediate interests of the

shareholders into account when making a business decision.”


Required

Discuss whether or not social responsibility conflicts with shareholder interests.

Solution

Implications for the accountant 6.2 When facing a real-life ethical issue, the philosophies above offer no simple solution. For

the purposes of E2, the following facts should be borne in mind:

What seems ethical to you may seem unethical to someone else, especially if they have a different social, commercial or cultural background.

Different stakeholders are likely to expect different behaviour from the firm.

Moral and ethical debates inform government policy, often through pressure groups.


37

Summary

Franchising Joint ventures Consortia Licensing

Site Physical asset Human asset Dedicated asset Brand name capital Temporal

Production Auditing Ecological approach Quality Accounting Economic

Contemporary perspectives

Complex organisational forms

Strategic alliances

Mergers and acquisitions

Ecological perspective of strategy

Hierarchy solutions

Market solutions

Transaction cost theory

Asset specificity


38

END OF CHAPTER

39

You have now covered the Topic that will be assessed in Step 1 of your Achievement Ladder.

It is vital in terms of your progress towards ‘exam readiness’ that you attempt this Step in the near future. You will receive feedback on your performance, and you can use the wide range of online resources and ongoing BPP support to help address any improvement areas. This will help you to tailor your learning exactly to your own individual requirements.

Topic name Subtopic/Chapter name Course notes chapter

Introduction to strategy and contemporary perspectives

Introduction to strategy Contemporary perspectives in strategy development

1a

1b

Achievement Ladder Step 1

Achievement ladder

40

41

Introduction

Syllabus Area A Introduction strategic management and assessing the global environment

30%

Lead learning outcome Analyse the relationship between aspects of the global business environment

Syllabus component Distinguish between different aspects of the global business environment, including the competitive environment

Context This syllabus component builds on the rational planning model and looks at various techniques to assess the external environment. You will need to be able to differentiate between the different models and apply them to specific scenarios.


The macro and micro environments 1 LoNGPEST analysis and its derivatives 2 Country and political risk factors 3 Emerging markets 6 Porter’s Diamond and its use for assessing the competitive advantage of nations 5 Porter’s Five Forces model and its use for analysing the external environment 4






strategy


General Environment

2: GENERAL ENVIRONMENT

42

Overview


Analysing the macro-environment

Analysing the micro-environment

Comparative advantage

Emerging nations

Porter's Diamond

Porter's Five Forces

Industry life cycle analysis

LoNGPEST Corporate political activity


43

1 Environmental analysis 1.1 The environment can be seen as any factor outside management’s control which can impact

on the organisation’s operations. It can be analysed at macro (wider business environment) and micro (industry) levels.

2 Analysing the macro-environment LoNGPEST analysis

2.1 The macro-environment covers developments in the wider business environment and examines four key factors, across three levels:

Political government policy, legislation, stability of ruling party Economic tax rates, inflation, interest rates, exchange rates, unemployment Social cultural or demographic factors; attitudes, values & beliefs Technological impact of IT on work processes

These are examined across three levels, which is useful for management when attempting to understand the key external influences on the organisation. Once those influences considered most important are known the decision on how to respond can be made:

Local the community that they operate within National the country that they operate within Global the international environment that they operate within

Additionally, the PEST analysis is often extended to include two extra factors, referred to as a PESTEL analysis:

Ecological energy consumption, waste disposal Legal employment law, product safety, monopolies legislation


ABC Ltd’s management accountant is carrying out a PESTEL analysis. During her research she discovers a significant growth across the country in the number of female-led small businesses, which she deems to be an important strategic issue for the company. In which section of her analysis should she record this matter?

A Local Political

B National Social

C Global Technological

D Local Economic

Solution


44

3 Economic systems 3.1 Economic nationalism – Protectionism

One country (or group of countries) attempts to restrict trade with another, to protect their producers from competition.

3.2 Economic liberalisation – Free Trade

The movement of goods, services, labour and capital without tariffs, quotas, subsidies, taxation or other barriers likely to distort the exchange. (CIMA)

Lecture example 2 Idea generation

Required

Explain the advantages and disadvantages of a country adopting a Free Trade policy.

Solution

Corporate political activity

3.3 If political factors are identified through the PEST analysis, organisations can get involved in the political process in two ways:

Buffering

Lobbying government before legislation is ratified in order to explain its potential impact.

Bridging

Monitoring political developments so as to ensure compliance with upcoming legislation


45

4 Analysing the industry / micro-environment

Porter’s Five Forces 4.1 Unlike PEST, which analyses the general environmental influences on an organisation,

Porter’s Five Forces focus on the competitive environment in which an organisation operates.

4.2 Threat of new entrants

The arrival of a new entrant can lead to reduced economies of scale and / or a price war. However, even the threat of a new entrant can result in costs to existing firms as they try to prevent the new entrant from becoming established. Barriers to entry include:

Economies of scale enjoyed by existing firms. Differentiated (normally branded) products. Capital investment required. Switching costs. Access to distribution channels. Government policy / legislation.

4.3 Pressure from substitute products or service

A substitute product is one that meets a similar need but is manufactured in a different way.

4.4 Bargaining power of buyers / suppliers

Buying power will be greater if:

There are a small number of customers buying high volumes. The products are undifferentiated. Buyers are aware of alternative prices. Low switching costs.

Threat of new entrants

Substitute products/services

Rivalry among existing firms

Bargaining power of buyers

Bargaining power of suppliers


46

4.5 Competitive rivalry

Michael Porter identifies six factors that create high competitive rivalry:

1. Numerous rivals. 2. Low industry growth rate. 3. High fixed costs. 4. Low differentiation / switching costs. 5. High strategic stakes. 6. High exit barriers.


Which of the following would encourage new entrants into a market, with regard to Porter’s Five Forces?

A High competition

B A monopoly supplier of a vital component

C One large customer

D Low competition

Solution

5 Comparative advantage & Porter’s Diamond 5.1 In a Free Trade global economy, each nation would theoretically produce the products and

services most suited to its own circumstances.


47

5.2 Michael Porter’s Diamond identifies 4 factors to be considered when determining a nation’s comparative advantage. These factors can lead to clusters of successful businesses.

5.3 Factor Conditions

What sources of comparative advantage does the country have? They can be basic (e.g. raw materials, unskilled labour) or advanced (e.g. IT infrastructure, trained labour).

5.4 Related and supporting industries

What support is available to enable a new industry to emerge in this country?

5.5 Firm strategy, structure and rivalry

Does the country’s culture and management style help or hinder the industry?

5.6 Demand conditions

To what extent does consumer demand in the home country encourage a global approach?

Limitations of the Diamond 5.7 There are a number of difficulties in applying Porter’s Diamond:

1. The choice of country does not, in itself guarantee success. 2. Globalisation makes it difficult to identify a single country of origin. 3. When exporting, it ignores the traits of the target country. 4. Services are more impacted by their local environment.

Firm strategy, structure and rivalry

Factor conditions

Demand conditions

Related and supporting industries


48


Which of the following is an example of “firm strategy, structure and rivalry” under the Porter’s Diamond model?

A The demand in the home market

B The quality of domestic competitors

C The presence of competitive supplier industries

D The demand in the global market

Solution

6 Newly industrialising and emerging nations 6.1 Developing nations seek to attract overseas investment from multi-national enterprises

(MNEs). This is known as foreign direct investment (FDI) and can take two forms:

(a) acquisition

purchasing an existing company based in a developing nation.

(b) greenfield investment

setting up new facilities in a developing nation.

6.2 The BRIC countries (Brazil, Russia, India, China) are developing nations growing at a rapid rate.

This growth has led to the BRIC countries undertaking foreign direct investment themselves. For example, in February 2010, China had over $750bn invested in US Treasury Bonds.

6.3 Successful emerging nations have adopted some of the following methods:

Export of national commodities

Selling oil, metals or land to foreign countries to generate income that can be invested in the domestic infrastructure.

Import-substitution

The government uses import taxes or tariffs to protect developing industries and remove the country’s dependence on foreign imports.

Export led industrialisation

The government devalues the local currency to make exports cheaper and imports more expensive. The government may also subsidise the cost base of industries.


49

Summary

Political Economic Social Technical Local National Global Ecological Legal

Buffering Bridging

Existing rivalry

Threat of new entrants

Threat of substitute products

Bargaining power of buyers

Bargaining power of suppliers

Introduction

Growth

Maturity

Decline

Factor conditions

Demand conditions

Related and supporting industries

Firm strategy, structure and rivalry


Analysing the macro-environment

Analysing the micro-environment

Comparative advantage

Emerging nations

Porter's Diamond

Porter's Five Forces

Industry life cycle analysis

LoNGPEST Corporate political activity

Acquisition

Greenfield


50

END OF CHAPTER

51

Introduction


environment

30%

Lead learning outcome Analyse the relationship between different aspects of the global business environment

Syllabus component Explain the approaches to achieving sustainable competitive advantage

Discuss the approaches to competitor analysis including the collection and interpretation of trend data

Context This syllabus component requires you to understand the competitive environment that modern businesses operate in, and how an organisation can create and retain competitive advantage.


The concept of competitive advantage; Generic competitive strategies 6 Value, rarity, inimitability, non-substitutability as bases of competitive advantage 6 Achieving sustainable competitive advantage 6 Key concepts in competitor analysis 2 The role of competitor analysis 1 Approaches to collecting competitor information; Sources, types and quality of competitor data

3

Analysing and interpreting competitor data 4 The application of Big Data to competitor analysis 5







strategy

Competitive environment

3: COMPETITIVE ENVIRONMENT

52

Overview

Competitor analysis

Levels of competitor Gathering competitor intelligence

Responding to competitors

Benchmarking

Use of big data Competitive advantage


53

1 Competitor analysis Wilson & Gilligan (1997) identify three roles of competitor analysis:

Help managers understand their own competitive advantages / disadvantages. Generates insights into competitors’ past, present and future strategies. Informs future strategies to out-perform competitors.

2 Levels of competitor 2.1 Kotler (2008) identifies four levels of competitor:

(a) Brand – similar size, structure, and products (b) Industry – same products, but different size or structure (c) Form – satisfy the same needs but in a different way (d) Generic – different products competing for the same disposable income

2.2 The extent to which these competitors pose a threat to an organisation depend on:

(a) The number of rivals.

(b) The extent of differentiation.

(c) Entry and mobility barriers.

(d) Cost structure.

(e) Degree of vertical integration.


ABC Ltd has only been in existence for two years, while one of their competitors, XYZ Ltd, was founded over fifty years ago and is three times the size. What type of competitors are they?

A Brand

B Industry

C Form

D Generic

Solution


54

2.3 Kotler (2008) identifies four reactions to competitor action:

Laid back competitor Selective competitor Tiger competitor Stochastic competitor

3 Gathering competitor intelligence 3.1 Gathering competitor intelligence is more than a fact-finding mission. Grant (2002) advises

that, to properly understand a competitor, you need to identify their:

Current strategy Objectives Assumptions about the industry Resources and capabilities

3.2 Two approaches can be taken to sourcing information to inform strategic decision-making: environmental scanning and detailed environmental analysis.

Environmental scanning 3.3 Environmental scanning is a low-intensity method of gathering information. It can be done

by line managers, the strategic management team or a specialist unit. Wilson & Gilligan (1997) emphasise the importance, not just of generating this information but also of sharing it effectively.

Detailed environmental analysis 3.4 Detailed environmental analysis takes place to address a specific issue. This requires a

more in-depth understanding of competitors (see Chapter 17).

Categories of information sources 3.5 Tudor (1992) identifies three categories of information source:

Primary (original information) Secondary (commentary on primary sources) Computer-based information services (online databases, web sites)

Qualitative and Quantitative information 3.6 Quantitative research is based on facts and numbers, and is objective. The following

methods are examples of quantitative research:

Time series analysis Regression analysis Econometrics


55

3.7 Qualitative research involves collecting and analysing non-numerical data, and is useful for understanding behaviours and attitudes. This can be done through:

Observation Interviews Focus groups Surveys

Strategic Intelligence 3.8 Strategic intelligence is defined as “what a company needs to know about its business

environment to enable it to anticipate change and design appropriate strategies that will create business value for customers and be profitable in new markets and new industries in the future” (Marchand).

3.9 Key dimensions of strategic intelligence: Information culture What is the role of information to the

organisation? Future orientation Specific decisions or general line of enquiry Structure of information flows Vertical or horizontal? Processing strategic intelligence Who does it? Experts, or everyone? Scope Senior management or whole organisation? Time horizon Short- or long-term view? Role of IT What kind of management information system is

there? Organisational “memory” Do we learn from past successes and failures?


Required

Identify the sources of information about a competitor that would be useful to an organisation.

Solution


56

4 Benchmarking 4.1 Benchmarking can be performed as part of SWOT analysis to determine the extent of

strengths or weaknesses. Performance should improve if best practices can be identified and adopted. Benchmarking can also be used a control technique when measuring performance.

4.2 Benchmarking is “The establishment, through data gathering, of targets and comparators, through whose use relative levels of performance (and particularly areas of underperformance) can be identified.”

4.3 The main types of benchmarking include:

Internal benchmarking. A means of comparing one operating unit or function with another in the same business.

Functional benchmarking. Internal functions are compared with those of the best external practitioners of those functions, regardless of the industry they are in (also known as operational benchmarking or generic benchmarking).

Competitive benchmarking. Information is gathered about direct competitors. Financial information is easier to obtain but information on products can be gained, through reverse engineering (the process of dismantling a competitor’s product in order to understand its content and configuration).

4.4 Competitive benchmarking is sometimes also referred to as competitor accounting, the analysis of competitors’ costs in order to determine their likely strategies and impact on the firm.


When Sony launched the PlayStation 3 in 2006, competitors couldn’t understand how it could provide such an advanced piece of technology (including a Blu-Ray player) at such a low price.

Required

(a) How could one of Sony’s competitors work out the cost of manufacturing a PS3? (b) Why would Sony choose sell each PS3 at a significant loss?

Solution


57

5 Big Data in Competitor Analysis 5.1 Big data is a term used to describe the extraction of meaning from vast quantities of

uncorrelated data. Organisations are particularly interested in identifying trends and correlations in the data that they collect and store with the aim of putting this to commercial use.

Big data was defined by Doug Laney by using the 3 V’s:

Volume The volume of data generated is a key feature of ‘big data’. The quantity of data now being produced is being driven by social media and transactional-based data sets recorded by large organisations, for example data captured from in-store loyalty cards and till receipts. Data is also now being derived from the increasing use of ‘sensors’ in business.

Velocity Velocity refers to the speed at which ‘real time’ data is being streamed into the organisation. To make data meaningful it needs to be processed in a reasonable time frame.

Variety Modern data takes many different forms. Structured data may take the form of numerical data whereas un-structured data may be in the format of email or video. This presents a challenge for organisations as processing varied forms of data requires significant investment in people and IT infrastructure.

Big data can be used in competitor analysis to identify and analyse competitor’s strategies, as well as trends in customer behaviour. Benefits to using big data in this way are as follows:

Examine vast quantities of data relatively quickly

Big data analytics allows for large quantities of data to be examined to identify trends and correlations e.g. shopper buying habits

Improves organisational decision making

Better data analysis help management to take advantage of current social trends by introducing new products to meet customers needs

Greater focus on the individual customer

Organisations can target special offers or discounts directly to individual customers to encourage repeat business

Cost reduction Improved data about customers and internal operations may help to reduce costs.


58


Which of the following is not an advantage of using big data?

A Making faster, better decisions

B Creating brand-new revenue streams

C Increased volume of data within the organisation

D Generating insights to tackle important challenges

Solution

6 Competitive advantage 6.1 Competitive advantage is anything which gives one organisation an edge over its rivals.

When a company can continue to earn excess profit despite the effects of competition, it possesses a sustainable competitive advantage.

To transform a short-term competitive advantage into a sustained competitive advantage for the long-term, the following criteria must be met:

(a) Value (b) Rarity (c) Inimitability (d) Non-substitutability

6.2 A competitive strategy is ‘taking offensive or defensive actions to create a defendable position in an industry; to cope successfully with… competitive forces and thereby give a superior return on investment for the business' (Porter).

Porter believes there are three generic strategies for competitive advantage. To be successful, Porter argues, a company must follow only one of the strategies. If they try to combine more than one they risk losing their competitive advantage and becoming 'stuck in the middle.'

Cost leadership means being the lowest cost producer in the industry as a whole.

Differentiation is the exploitation of a product or service which the industry as a whole believes to be unique.


59

Focus involves a restriction of activities to only part of the market (a segment) through:

– Providing goods and/or services at lower cost to that segment (cost-focus)

– Providing a differentiated product or service to that segment (differentiation-focus)

Cost leadership and differentiation are industry-wide strategies. Focus involves segmentation but involves pursuing, within the segment only, a strategy of cost leadership or differentiation.


Which of the following best describes a strategy of differentiation, according to Porter's generic strategies model?

A When an organisation's products or services offer features that are not offered by competitors' offerings

B When an organisation has a competence that distinguishes it from other organisation in its industry

C When the products are perceived to offer greater satisfaction and for which customers are, consequently, prepared to pay premium price

D When an organisation has a widely recognised brand name

Solution


60

Summary

END OF CHAPTER

Competitor analysis

Levels of competitor Gathering competitor intelligence

Responding to competitors

Benchmarking

Use of big data Competitive advantage

Brand Industry Form Generic

Environment scanning – low-intensity gathering of information

Detailed environmental analysis – i.e., using LoNGPEST

Research – Primary (original) Secondary (conducted by someone else)

Qualitative (numbers) & quantitative (words) information

Laid back Selective Tiger Stochastic

The establishment, through data gathering, of targets and comparators through whose use relative levels of performance can be identified.

Internal Functional Competitive

Increased speed Improved decision-making Greater focus on individual customer Cost reduction

Cost

Leadership

Differentiation

Focus

61

You have now covered the Topics that will be assessed in Step 2 of your Achievement Ladder. This mainly focuses on the shaded topics below but will also include some recap questions on earlier topics.





1a

1b

General environment General environment 2

Competitive environment Competitive environment 3


Achievement Ladder

62

63

Introduction

Syllabus Area B The human aspects of the organisation

20%

Lead learning outcome Discuss the concepts associated with managing through people

Discuss the hard and soft aspects of people and organisational performance

Syllabus component

Discuss the concepts of leadership and management

Discuss behavioural aspects of management control

Context This syllabus component requires you to understand the history of management and the main theories from each era. You will need to be familiar with the various theorists and be able to apply their concepts to various situations.


Fundamental and contemporary concepts in management 1-6 Performance management and measurement frameworks e.g. management by objectives 7

Other chapters in Syllabus Area B

Chapter 6 Conflict, Negotiation &

Communication

Chapter 4a Key Concepts in

Management

Chapter 5 Culture

Chapter 4b Key Concepts in

Leadership

Key Concepts in Management

4a: KEY CONCEPTS IN MANAGEMENT

64

Overview

Role of the manager

Management by objectives

The classical school

Human relations school

Systems theory Contingency theory


65

1 Role of the manager 1.1 Management is “the art of getting things done through other people” (Mary Parker Follett).

This chapter looks at how the understanding of what management is has developed over time:

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Classical Human Relations System Contingency Mgt By Objectives

2 The Classical School 2.1 Classical theory sees management as a rational, logical and mechanical process.

The administrative school 2.2 Henri Fayol (1841 - 1925) identified management as one of six operations that established

control within a business:

Technical (production, maintenance, design) Commercial (sales & marketing) Financial (investments) Security (of goods and staff) Accounting (financial statements) Managerial

2.3 Managerial control, according to Fayol, was achieved by acquiring a set of skills that had universal application:

(a) Planning

Setting objectives for the organisation and processes for achieving them

(b) Organising

Grouping tasks and providing the resources necessary to complete them

(c) Commanding

Giving instructions to subordinates

(d) Coordinating

Ensuring that all staff are working towards an agreed goal

(e) Controlling

Monitoring performance against plans and correcting any gaps


66


Having been the branch manager of an electrical shop for five years, Gerry is keen to develop his career. He has secured an interview for a call centre manager position with a financial services company selling pensions and life insurance. At the interview, he is asked why he should be considered for the job given that he has no experience in the finance sector.

Required Advise Gerry how he should answer this question.

A He should explain how he is a frequent user of call centres

B He should discuss the transferable managerial skills that he has

C He should tell them that he is a quick learner, despite his lack of finance experience

D He should admit that he isn’t the strongest candidate for the position

Solution

2.4 Fayol later expanded his POCCC list to create fourteen general principles of management:

Division of labour – generating efficiency by creating specialist roles Unity of command – each employee should receive orders from one manager only Scalar chain – a clear organisational structure Teamwork, referred to as esprit de corps Initiative should be encouraged and developed to the full Equity (fairness) should prevail in managers and employees Remuneration should be fair

Material & social order – “a place for everything and everything in its place” Unity of direction provided by one head with a single plan Discipline, with penalties judiciously applied by worthy superiors Central control should be maintained for maximum efficiency Authority & responsibility (see Chapter 2) Personal interests should not supersede the aims of the organisation Stability of tenure (secure jobs) are required to enable long-term goals to be achieved


67

Scientific management 2.5 F.W. Taylor (1856 – 1917) published four principles of scientific management:

(a) Development of a “true science of work”

The ability to accurately calculate what constitutes “a fair day’s work”

(b) Scientific selection and development of workers

Selection of the most suitable worker using objectively measurable criteria, followed by specific technical training

(c) Combining the science of work with the scientifically selected worker

Uniting 1 and 2 together should allow the workforce to reach its full potential.

(d) Constant and intimate cooperation between management and workers

Taylor believed that a more efficient workforce was in the interests of both managers and workers.


Scientific management has not gone away – quite the reverse.

Required

Explain the weaknesses of Scientific Management and recommend contemporary situations where it would be appropriate.

Solution

Bureaucracy 2.6 In the nineteenth century, success was more commonly due to family status and wealth than

an individual’s ability. Max Weber (1864 – 1920) believed that strict adherence to rules and procedures was a superior method of running a business and identified eight characteristics of a successful bureaucracy:

Hierarchy which gives a clear chain of command

Impersonal, objective and rational decision-making


68

Public funding, as Weber feared private (e.g. family) money would lead to conservative decision-making in an attempt to avoid risk

Specialised roles with a clear division of labour

Career development occurs within a defined salary structure

Appointed officials selected based on qualifications, education and training

Rules strictly followed and used as a basis for decision-making

Full time commitment from officials (no “part-timers”!)

2.7 Unfortunately, bureaucracy has become more renowned for its weaknesses:

Slow to respond to change Slow to communicate (due to the segregation of officials) No involvement of staff in decision-making Innovation stifled by “jobs worth” attitude Failure to consider important informal relationships


Required

Which of the following is not a benefit of using the bureaucratic form in a hospital?

A Appointment based on technical competence

B Clear rules and procedures

C Lack of innovation

D Decisions and action recorded

Solution

3 Human Relations school 3.1 By the 1920s, management theorists began to shift the focus from rules and processes

towards people and relationships.

The Hawthorne Effect 3.2 The Human Relations school is exemplified by the Hawthorne Studies (1927 – 1932)

conducted by Elton Mayo (1880 – 1949).


69


The Hawthorne Studies were originally concerned with managing fatigue among production line workers. It was found that installing better lighting improved output and it was logically concluded that the brighter lighting reduced fatigue and improved productivity. However, when the new lights were removed, output improved even more! Why was this?

Solution

3.3 Mayo identified that workers defined themselves as members of a group (see Chapter 4). This led him to conclude that people should not be managed as individuals but as members of a wider group.

3.4 Henry Mintzberg (1955) grouped a manager’s activities into three roles:

Interpersonal building relationships with others; leading and liaising

Informational collecting and disseminating information

Decisional making strategic decisions about the organisation’s future

Motivation theory 3.5 Frederick Herzberg (1959) saw human behaviour at work as being driven by a desire to

avoid undesirable situations and achieve desirable ones. This was the basis for his Two Factor Theory (as seen in E1):

Hygiene (or maintenance) factors cannot actively satisfy. They can only prevent dissatisfaction.

Motivational factors can actively motivate but only if hygiene factors have already been met.


70


Required

Which of the following are hygiene factors for a police constable?

A Fair supervision

B Level of responsibility

C Salary

D Sense of achievement

Solution

4 Systems theory 4.1 Systems theory regards the working environment as a combination of social and technical

issues – a “socio-technical system”.

4.2 Trist & Bamforth (1951) found that the implementation of new machinery, instead of improving efficiency, prompted a rise in absenteeism and a total breakdown of workplace relations. Although there was nothing technically wrong with the machinery, it had:

Broken up close-knit groups Made communication more difficult because of the geographic spread of workers Caused jealousy through a new payment scheme Built in too much specialisation and individuality into the job

4.3 Trist & Bamforth concluded that the workplace is strongly influenced by both social and technical factors:


71

5 Contingency theory 5.1 In the 1960s, theorists recognised that it was not possible to select a single management

theory that would apply to all situations. Instead, they concluded that the best theory was contingent (dependant) upon a range of variables.

Mechanistic v Organic 5.2 Burns & Stalker (1961) saw the level of change in the environment as a contingent

variable. They presented a spectrum ranging from mechanistic to organic.

Mechanistic (used in stable, unchanging environments) High degree of task specialisation Clearly defined responsibilities and authority Each management level responsible for coordination and communication Selective release of top-level information to subordinates Great emphasis of fostering loyalty and obedience Employees often recruited locally Organic (used in dynamic, changing environments) Skills, experience and specialist knowledge are valued Extensive communication networks to integrate efforts Leadership based on consultation and involvement in problem-solving Commitment to task achievement exceeds need for obedience Employees recruited from a variety of sources

6 The flexible firm 6.1 It is widely perceived that flexibility is key to the success of the modern organisation.

6.2 Handy suggested businesses organise themselves as a “shamrock”, i.e. with three key elements:

(a) The professional core

(b) Flexible labour force

(c) Contractual fringe

6.3 Handy also noted a fourth element which is the customer who, thanks particularly to modern communications technology, can be drafted in to do some of the work for themselves e.g., self scan at the supermarket, or self check-in at the airport.


72

7 Management by objectives 7.1 Management by objectives (MBO) is a control strategy developed by Peter Drucker (1954)

that has more recently gained a higher profile. He advised organisations to set time-bound objectives or targets in four areas in order to achieve their aims:

Profitability Management performance Worker performance Public responsibility

7.2 To ensure that these objectives are met, managers need to follow a process: Clarify organisational objectives and goals Define areas of individual responsibility in conjunction with that individual Then jointly define the key tasks Key results will also need to be defined jointly Agree performance improvement plans Monitoring, self-evaluation and review of performance at regular intervals Periodic review of performance against objectives


Required

What are the advantages and disadvantages of using MBO?

Solution


73

Summary

Fayol Planning Organising Commanding Coordinating Controlling

Taylor "True science of work" Scientific selection and development of workers Allow the workforce to reach its potential Constant and intimate cooperation between management and workers

Weber HIPSCARF

Mayo Groups & individuals both have to be managed

Mintzberg Management have 3 roles:

(i) interpersonal (ii) informational (iii) decisional

Herzberg Hygiene factors: Working conditions Salary Supervision Job security

Motivators: Advancement Achievement Recognition Responsibility

Trist & Bamforth Technical systems Social systems

Burns & Stalker Mechanistic Organic

Drucker SMART objectives in the following 4 areas: Profitability Management performance Worker performance Public responsibility

Role of the manager

Management by objectives

The classical school

Human relations school

Systems theory Contingency theory


74

END OF CHAPTER

75

Introduction


20%

Lead learning outcome Discuss the concepts associated with managing through people

Syllabus component Discuss the concepts of leadership and management

Context This syllabus component differentiates leadership from management and discusses what makes a leader. You will need to consider the different situations that leaders can arise in and how the approach taken will differ.


The concepts of power, authority, delegation and empowerment 1-3 Different approaches to leadership, including personality/traits, style, contingency/situation, transaction/transformational, distributive

4-9

Leadership in different contexts 10



Leadership


Management


Communication

Chapter 5 Culture

Key Concepts in Leadership

4b: KEY CONCEPTS IN LEADERSHIP

76

Overview

Leadership

Power Theories of leadership Leadership in different contexts

Trait theory

Contingency theory

Transformational leaders

Distributive leadership

Power

Authority

Delegation

Style theory


77

1 Power 1.1 Power is the ability to take action. French & Raven (1959) identified five sources of power

in an organisational context:

Reward power the ability to influence the distribution of rewards.

Coercive power the threat of punishment to enforce compliance.

Referent power exerted by charismatic or inspirational people.

Expert power derived through knowledge or expertise.

Legitimate power derived from the position held – also referred to as authority.


The Finance Director of ABC Ltd has strong relationships with the company’s owners, employees and customers. He generates strong feelings of loyalty and commitment among the people that currently work for him and they know that he is immensely capable.

Required

What type of power does he have?

A Legitimate power

B Referent power

C Coercive power

D Expert power

Solution

2 Authority 2.1 Authority is the right or permission to take action and makes power legitimate. Max

Weber identified three ways in which authority can be obtained:

Charismatic authority secured by charismatic or inspirational people

Traditional authority authority accepted and agreed by society

Rational-legal authority vested in the position held rather than the individual


78

2.2 Most authority in business is rational-legal. However, it’s not always clear what the boundaries to a manager’s authority are. Rational-legal authority can, in fact, be broken down into four main areas:

Line authority the authority of a line manager over a subordinate who reports directly to him / her (aka control authority)

Staff authority a manager’s authority to give professional advice to colleagues in other departments (aka advisory authority)

Functional authority a hybrid of line and staff authority, where the manager is authorised to control actions in other departments

Service authority the authority of a manager or department to provide a service which the receiving department must accept

3 Delegation 3.1 Delegation is the process whereby a superior gives to a subordinate part of his or her own

authority to make decisions. While authority and some types of power can be delegated, overall responsibility for the work remains with the superior.

3.2 The process of delegation involves one or more of the following actions:

Abdication leaving a gap for someone else to fill

Custom & practice precedent dictates that subordinates have to do certain jobs

Explanation subordinates are briefed as to how to do a task

Consultation encouraging input from staff before making a decision


Insert the correct words to complete the sentence defining delegation.

Required

Delegation is the process whereby a manager assigns part of his __________________ to a subordinate but the manager’s __________ can never be delegated.

responsibility authority power accountability


79

4 Theories of leadership 4.1 Whereas a manager plans, organises, co-ordinates and controls routine operations, a leader

creates a strategic vision and influences others to work towards it. In reality, most business managers also need leadership skills in order to do their job effectively.

4.2 Three broad schools of thought attempt to explain what makes a leader effective:

Trait theory the leader’s personal characteristics (see section 5)

Style theory the leader’s style of management (see section 6)

Contingency theory the ability of the leader to adapt to the situation (see section 7)

5 Trait theory of leadership


Required

Identify some well-known, successful leaders. Explain what traits they share and what made them successful.

Solution

5.1 Trait theory assumes that, while management skills can be taught, leaders are effective due to innate personal characteristics. The most commonly reported traits include:

Above-average intelligence Initiative Motivation Self-assurance The ‘helicopter factor’

This list has been extended to include integrity, tough-mindedness, enthusiasm, sociability, imagination, determination, energy, faith and even virility.


80


Required

Which of the following is not a problem with trait theory?

A Unable to measure the factors objectively

B Hiring highly effective people who require minimal training

C The list is too long for any one person to meet all the requirements

D Exceptions to the rule aren’t considered

Solution

6 Style theory of leadership 6.1 As well as using their innate traits, leaders also choose how they interact with their followers

– in other words, how they manage them. As a result, the effectiveness of a leader is dependent on the management style he or she adopts.

Theory X & Theory Y

6.2 Douglas McGregor (1906 – 1964) realised that managers select a management style based on their perception of their subordinates.

6.3 Theory X managers assume that their staff have an inherent dislike of work and therefore need to be coerced, directed and threatened in order to meet the organisation’s objectives.

6.4 Theory Y managers, on the other hand, assume that “work is as natural as play or rest” and that staff naturally seek out responsibility and personal achievement. They should therefore be supported and given opportunities rather than coerced and controlled.

McGregor saw Theory Y as the path to “true innovation”.


81

A management style continuum 6.5 McGregor’s Theory X and Theory Y represent two ends of a continuum. The categories of

other theorists can be plotted on the same continuum as follows:

McGregor Theory X Theory Y

Kurt Lewin Authoritarian Democratic Laissez-faire

Rensis Likert Exploitative Benevolent Consultative Participative Authoritative Authoritative

Tannenbaum Tells Sells Consults Joins & Schmidt

6.6 These theorists agreed that a democratic or consultative approach generated the best productivity and staff satisfaction, while the authoritarian approach was the least productive and satisfying.

The Managerial Grid 6.7 Blake & Mouton (1994) believed the manager’s choice of style is based on concern for the

task (production) and concern for the individual (people). These concerns are each scored from 1 (low) to 9 (high) to create the following grid:

6.8 The five points marked on the graph can be explained as follows:

The impoverished style manager (1, 1) abdicates responsibility and shows concern for neither people nor production. This style of management may be demonstrated by a de-motivated manager and is doomed to failure.

Country club

Team

Middle-of- the-road

Impoverished

Authority compliance

HIGH (9)

Concern for

people LOW (1)

LOW HIGH (1) Concern for production (9)


82

The authority compliance manager (9, 1) sees people as a commodity to be directed and controlled like a machine. This can lead to subordinates becoming apathetic or even rebellious.

The middle-of-the-road manager (5, 5) is a “give and take” style that aims to balance people and production while believing that any improvements are probably idealistic and unachievable.

The country club manager (1, 9) encourages and supports staff, overlooking any inadequacies on the assumption that everyone is doing their best. This approach can lead to inefficiencies as staff are not challenged to work more efficiently.

The team manager aims to find the best and most effective solutions to meet the needs of both people and production. The skill here is in effectively managing the conflicts that will inevitably emerge.


Required

Using Blake & Mouton’s Managerial grid, explain when would it be appropriate for a leader to use a style of leadership other than Team.

Solution

7 Contingency theories of leadership 7.1 Contemporary theorists have concluded that a leader’s success depends on his or her

ability to adapt their leadership style to a given situation.


83

Action-centred leadership 7.2 John Adair (1983) built on Blake & Mouton’s Managerial Grid to theorise that a leader’s

style had to alter depending on the needs of the task, team and individual. The successful leader is the one who can understand these three dimensions and bond them together.

Fiedler’s contingency model 7.3 Fred Fiedler (1922 - ) theorised that the leader could, at any one time, be people-oriented or

task –oriented but not both. The decision whether to be people or task oriented is based on three factors:

Leader / member relations Task structure Leader position power

For example, imagine a group with a favourable attitude towards their leader who had a high level of authority by virtue of his position and was easily able to control what the group does. Given these contingencies, the leader would have sufficient support and power to be more task oriented.

If, on the other hand, the group was ambivalent towards its leader, it would be more appropriate to have a people oriented style of leadership.

Hersey & Blanchard 7.4 Hersey & Blanchard (1969) defined leadership style in terms of the level of direction (task

behaviour) and the level of personal support (relationship behaviour) given to the subordinate.

7.5 The position on the graph, and therefore the leadership style, is contingent on the maturity of the subordinate. In this case, the subordinate’s maturity is defined as:

Their desire for achievement Their willingness and ability to accept responsibility Their education, experience and skills

Each level of maturity (M1 to M4) has a corresponding leadership style (S1 to S4 respectively).


84

8 Transformational leaders 8.1 Unlike a manager, a leader creates a vision of the future. However, the leader will need to

transform this vision to reflect the rapidly changing, modern business environment. Boyd sees this transformational leader as requiring five key skills to do this effectively:

(a) Anticipatory skills –the foresight to be proactive in a changing environment

(b) Visioning skills – persuading all staff members of the need for change

(c) Value-congruence skills – reconciling the organisation's needs to those of staff

(d) Empowerment skills – delegating and sharing power effectively.

(e) Self-understanding skills – understanding their own needs as well as those of staff

9 Distributive leadership 9.1 Distributive leadership is the concept of mobilising leadership at all levels in the organisation

not just relying on leadership from the top. This will have positive impacts on motivation, ownership, experience and efficiency. However, the organisation requires clear reporting lines and training in order to execute this correctly.

10 Leadership in different contexts 10.1 While transformational leaders can deal with change, there is also a need for leaders to

innovate. Wickham (2004) describes entrepreneurs as managers who manage in an entrepreneurial way – pursuing opportunities, driving through change and learning as they go.


85

10.2 Bolton & Thomson (2003) identify the following characteristics of an entrepreneur:

Identifies opportunities Determined in the face of adversity Liaises well with others Exploits opportunities by finding suitable resources Creates capital Has control of business Innovative, creative Manages risk well Puts the customer first


86

Summary

END OF CHAPTER

Power is the ability to take action

Authority is the right or permission to take action

Delegation is the process whereby a superior gives a subordinate part of his/her authority to make decisions

leaders share similar characteristics

Theory X Theory Y Mgmt Style Continuum Managerial Grid

Action-centered leadership Contingency model Hersey & Blanchard

Anticipatory Visioning Value-congruence Empowerment Self-understanding

Mobilising leadership at all levels of the organisation

Leadership

Power Theories of leadership Leadership in different contexts

Trait theory

Contingency theory

Transformational leaders

Distributive leadership

Power

Authority

Delegation

Style theory

Characteristics of entrepreneurs

87

Introduction


20%

Lead learning outcome Discuss the hard and soft aspects of people and organisational performance

Syllabus component Explain the importance of organisational culture

Context This syllabus component takes a holistic view of the organisation and breaks down the different components that contribute to an organisation’s culture. You will need to be able to analyse a company or country’s culture and relate it back to the models covered.


Explaining the concept and importance of culture; Levels of culture; Influences on culture 1 Analysing organisational culture – the cultural web framework 2 Models for categorising culture 3 National cultures and managing in different cultures 4


Chapter 5 Culture


Leadership


Management


Communication

Culture

5: CULTURE

88

Overview

Aspects of organisational culture

Analysing organisational culture

Cultural models Culture & structure International culture

5: CULTURE

89

1 Aspects of organisational culture 1.1 Culture refers to the underlying beliefs, values and codes of practice that makes an

organisation what it is. Put simply, it is “the way we do things around here” (Charles Handy)

1.2 The culture of an organisation has a major impact on the behaviours and actions of its members. For an organisation to be successful, therefore, it must understand and manage its culture effectively.

The organisational iceberg 1.3 An organisation’s culture can be split into formal and behavioural factors. French & Bell

(1990) illustrated these factors using an iceberg:

Formal aspects (overt, apparent) Structure, technology, goals, skills Behavioural aspects (covert, hidden) attitudes, behavioural patterns, group dynamics, personalities, political behaviour

1.4 Although formal aspects are easier for a manager to control, they make up a relatively small

proportion of the overall culture.

1.5 For the organisation to work effectively, each aspect needs to be aligned with the others to create and support a single set of shared values.

Trompenaars’ levels of culture 1.6 Trompenaars (1993) explained the three levels of culture as follows:

(a) Observable elements such as behaviour, artefacts and rituals

5: CULTURE

90

(b) Values & beliefs which in themselves are not observable but may have observable manifestations. For example, to make a senior employee feel valued and appreciated and illustrate the importance of knowledge and experience, they may get an office with a good view.

(c) Assumptions which are also unobservable. These are the deepest level of cultural awareness that determines behaviour.


Required

According to Trompenaars, organisation culture exists at three different levels. Which of the following are included in the level ‘values & beliefs’?

Select ALL that apply:

A Staff contentment

B Quality product

C Polite treatment of customers

D Refunds cleared within 3 business days

E Concept of customer as “king”

Solution

2 Analysing organisational culture

Johnson’s cultural web framework 2.1 Johnson et al (2005) created a web of elements that, together, make up a culture:

Stories what people talk about to each other

Routines what the normal ways of doing things are

Rituals events highlighted by the organisation as being important

Symbols logos, titles, company cars

Power structures who makes the decisions and who influences them

Control systems the selection of criteria to monitor and subsequent measuring

Organisational structure who reports to whom

5: CULTURE

91


Required

Discuss the extent to which a manager can influence each element of the cultural web.

Solution

The McKinsey 7-S framework 2.2 The McKinsey 7-S framework expands the iceberg into seven elements of an organisation

that make up its culture.

Hard aspects (formal)

Strategy actions planned in order to meet organisational goals Systems the procedures that enable the strategy to be met Structure the way the organisation is structured (functional, divisional, matrix) Soft aspects (behavioural) Style management and leadership style (see chapters 1 – 2) Skills the key capabilities of the organisation Staff the numbers and types of personnel in the organisation

Other organisational determinants of culture 2.3 In addition to the factors outlined above, an organisation’s culture can also be determined by

the organisation’s history, age, size and stage in its life cycle as well as the personality of its leader.

5: CULTURE

92

3 Cultural models 3.1 Having understood some of the different aspects of culture, it is possible to create

classifications of cultures that share similar elements.

Handy’s cultural types

3.2 Charles Handy (1993) in his book Gods of Management developed four types of culture, based on the work of Roger Harrison.

Power culture (web) - Zeus

Dominated by one or more powerful individuals

No rules or procedures – the controller decides what happens

Role culture (temple) - Apollo

Bureaucratic rules and procedures

Decisions still made centrally

Task culture (net) - Athena

Flexible teamwork

Focus on achieving objectives rather than hierarchy

People culture (constellation of stars) - Dionysus

Organisation is founded on individuals who provide specialist expertise

Individuals have high levels of freedom and independence


Required

Which of the following is not an advantage of a Task culture?

A Allows flexibility to solve problems

B High creativity

C Job satisfaction

D Matrix structure that doesn’t follow the traditional hierarchy

Solution

5: CULTURE

93

Miles & Snow’s cultural types 3.3 Miles & Snow linked culture to strategy, defining four cultural types:

Defenders, which are low-risk operators in secure, niche markets

Prospectors, which seek to expand their market presence

Analysers, which try to balance risk and profits, with a stable core but some prospector tendencies

Reactors, which lack strategy and respond to changes in the environment as the occur.

Strong culture theory 3.4 Deal & Kennedy (1982) suggest that culture is determined by the level of risk associated

with the organisation’s activities and the speed of feedback on the outcome of the organisation’s decisions.

High risk

BET YOUR COMPANY TOUGH-GUY MACHO

Long decision-cycles (years)

Stamina and nerve required

Individualistic, high risk-taking

High pressure

PROCESS WORK-HARD-PLAY-HARD

Bureaucratic order & predictability

Technical performance is key

Focus on teamwork

Customer feedback is key

Low risk

4 International Culture 4.1 A strong culture can produce the following benefits for an organisation:

Reflects the values of the organisation Strengthens norms of behaviour Minimise differences of perception between members of the organisation Impacts on the organisation’s ability to respond to change

4.2 Instead of seeing culture as being contingent on the industry or environment, some theorists try to identify fundamental cultural traits that have the potential to generate competitive advantage.

4.3 The term “supranational culture” refers to culture that extends its influence across national boundaries.

Fast feedback

Slow feedback

5: CULTURE

94

Theory A, Theory J & Theory Z 4.4 William Ouchi (1980) compared the culture of a “typical” American organisation (Theory A)

with that of a typical Japanese one (Theory J). He used this research to identify modifications to the culture of American companies (Theory Z) in order to make them more competitive.

Features Theory A Theory J Theory Z

Employment Short-term

Lay-offs common

Life-long

Lay-offs rare

Encourage a loyal, committed workforce by offering fairly long-term

employment

Evaluation and promotion

Very fast

Staff look externally if not promoted

internally

Very slow Slow down promotion and

instead emphasise development & training

Career path

Very specialised

Staff tend to stay in one function for

their whole career

Very general

Staff are rotated around the whole

organisation

More general

Encourage job rotation and broader training

Decision making

By individual managers

By group or committee

Individual managers should seek group

consensus

Control

Very explicit

Staff are formally aware of their responsibilities

Implicit and informal All parties rely on

trust

There needs to be a better balance between formal

and informal control

Responsibility Assigned on an individual basis

Shared collectively Continue to assign on an

individual basis

Concern for personnel

Employer is only interested in

employee’s work life

Employer is concerned with the worker’s whole life

Expand concern to include aspects of home life

4.5 For the increasing number of organisations that operate internationally, the culture of the different countries they operate in need to be taken into consideration.

5: CULTURE

95

4.6 Geert Hofstede summarises national culture under five key headings:

(a) Individualism v Collectivism

Are people seen as distinct individuals or members of a society?

(b) Masculinity v Femininity

Do people generally adopt a masculine (assertive) or feminine (nurturing) approach?

(c) Power – Distance

To what extent are those in power expected to wield it over subordinates?

(d) Uncertainty avoidance

To what extent are people wary of ambiguity and change?

(e) Confucian dynamism

How far do individuals conform to their status and obey social expectations?

HIGH LOW Individualism UK, USA Pakistan, Taiwan

Masculinity Japan, Italy Denmark, Sweden

Power distance France, India Denmark, Austria

Uncertainty avoidance Japan, France Denmark, Sweden

Confucian dynamism China, Japan USA, Australia

5: CULTURE

96

Summary

END OF CHAPTER

Trompenaar's levels of culture observable unobservable

Johnson's cultural web Stories Routines Rituals Symbols Power structures Control systems Organisational structure

McKinsey's 7-Ss Strategy Structure Systems Style Skills Staff

Handy's Cultural TypesPower Role Task People

Miles & Snow's Cultural Types Defenders Prospectors Analysers Reactors

Deal & Kennedy's Strong Culture Theory Bet your company Process Tough-guy macho Work-hard-play-hard

Handy's Cultural Types Power (entrepreneurial structure) Role (functional structure) Task (matrix structure) People (co-operative)

Aspects of organisational culture

Analysing organisational culture

Cultural models Culture & structure International culture

William Ouchi's Theory A, Theory J, Theory Z

Geert Hofstede's National Cultures

97






1a

1b



Key concepts in management and leadership

Key concepts in management Key concepts in leadership

4a

4b

Culture Culture 5


Achievement ladder

98

99

Introduction

Syllabus Area B/C The human aspects of the organisation

Managing relationships

20% each

Lead learning outcome

Discuss the concepts associated with managing through people

Discuss the effectiveness of organisational relationships

Discuss management tools and techniques in managing organisational relationships

Syllabus component

Discuss HRM approaches for managing and controlling individuals' performance

Discuss the roles of communication, negotiation, influences and persuasion in the management process

Discuss approaches to managing conflict

Context This chapter covers two syllabus sections, which cover employee performance and behaviour within an organisation, and the various barriers towards good performance. You will need to be familiar with various sources of conflict as well as the various HR strategies available to resolve it.


The sources and causes of conflict in organisations; The different forms and types of conflict 2 Strategies for managing conflict to ensure working relationships and productive and effective 2 HR policies and procedures 1 Different approaches to employee performance appraisals 7 The contribution of coaching and mentoring in enhancing individual and organisational performance

8

Equality and diversity practices 6 Disciplinary and grievance procedures in resolving poor performance 3 Dismissal and redundancy 4 Employer and employee responsibilities in managing the work environment (e.g. health and safety)

5

The communication process, types of communication tools and their use, ways of managing communication problems

9

The importance of effective communication skills for the Chartered Management Accountant; The importance of non-verbal communication and feedback

9

Developing effective strategies for influence/persuasion/negotiation; The process of negotiation; Negotiation skills

10

Conflict, negotiation & communication

6: CONFLICT, NEGOTIATION & COMMUNICATION

100



Communication

Chapter 5 Culture


Leadership


Management


101

Overview


Conflict Discipline Grievance procedures

Dismissal

Health & safety Discrimination Appraisal Communication


102


Coaching and mentoring

Negotiation


103

1 HR Policies and Procedures 1.1 Human Resources (HR) have staff authority, a cross functional role to guide line management in

terms of how their subordinates should be managed and developed. They have authority over the following areas:

Conflict management Disciplinary and grievance procedures Dismissal and redundancy Health & safety Equality and diversity practices Performance appraisals Coaching and mentoring

2 Conflict 2.1 Conflict is “a disagreement... when one party is perceived as preventing or interfering with the goals

or actions of another.” (CIMA) While conflict can be constructive, it is often destructive, for reasons identified by Daft (1989):

Diversion of energy to win conflict rather than achieving organisational goals Altered judgement due to intense nature of conflict The loser of the conflict may deny or distort the reality of losing (the loser effect) Poor coordination

Sources of horizontal conflict 2.2 Horizontal conflict takes place between departments at the same level in the hierarchy and arises

from the following sources:

Uncertainty, leading to disagreement about the future and the need for renegotiation

Size and structure of the organisation

Task interdependence, often made more complicated through the use of technology

Incompatibility of goals, exacerbated by the grouping of people with similar traits in the same department.

Reward system

Sources of vertical conflict 2.3 Vertical conflict takes place between those at different levels of the hierarchy and can be caused

by:

Power and status – employees at lower levels of the hierarchy can feel powerless.

Ideology – there are basic differences between goals of organisation and unions.

Psychological distance – employees feel that their needs are being ignored.

Scarce resources – employers, unlike the workers, want to keep salaries low.


104

Handling conflict 2.4 Thomas (1976) identifies five different ways of handling conflict:

Compet ition Col labora tion

Ac commodat ionAvoidance

CompromiseFocus on own interest

Focus on ot her’s interest

High

Hig h

Low

Low

2.5 Avoidance – one or more party seeks to avoid, suppress or ignore the conflict. This is not recommended as it does not resolve the conflict.

2.6 Accommodation –one party puts the other's interests first and suppresses their own interests in order to preserve some form of stability and to suppress the conflict.

2.7 Compromise – often seen as the optimum solution. A deal is accepted after negotiation and debate. However, both parties lose something and there may be a better alternative.

2.8 Competition – the parties do not co-operate, but instead seek to maximise their own interests and goals, creating winners and losers. The resulting conflict can be damaging.

2.9 Collaboration – this is likely to be the optimum solution. Differences are confronted and jointly resolved, novel solutions are sought and a win-win outcome is achieved.

Handling intergroup conflict 2.10 When conflict occurs between groups, the following actions can be taken:

Confrontation, involving negotiation Third party consultant to arbitrate over differences Member rotation – seconding staff to other departments to break down barriers Superordinate goals – setting goals that require the co-operation of conflicting groups Intergroup training – shared training sessions to explore the relationship

Trade unions

2.11 The relationship between trade unions and managers is a classic example of vertical conflict. Industrial conflict between trade unions and employers can be addressed using:

(a) Collective bargaining – negotiation following a series of formal stages.

(b) Avoidance strategies - refusing to recognise unions and/or shifting operations to non-unionised sites.

(c) Human resource management strategies - no longer dealing with staff collectively but establishing an individualistic approach to pay and benefits.

(d) Gain sharing – using profit-related pay and bonuses rather than flat rate increases.


105

(e) Partnership agreements – agreeing common interests between unions and companies and working towards them.

(f) Labour-management teams – designed to increase co-operation and improve worker participation.


As a result of a global economic downturn, the government of Rohan plans to revise the final-salary pension entitlements currently offered to public sector workers. This has been met with hostility by staff, 75% of whom belong to the General Worker’s Union (GWU) and there are threats of a general strike if the changes are implemented.

Required

Discuss the ways in which the government could address this conflict.

Solution

3 Disciplinary & Grievance Procedures 3.1 Once employees know what is expected of them in the workplace, and assuming that they believe

these expectations to be reasonable, they would ideally exercise self-discipline. Furthermore, if the group as a whole accepts the rules, then they often exert group pressure on those who may dissent.

3.2 If a disciplinary issue remains in spite of self-discipline and group pressure, it is the responsibility of the manager to take disciplinary action with the aim of improving the future behaviour of the employee and other staff.

3.3 According to McGregor’s “hot stove rule”, the manager’s disciplinary action should be immediate, consistent, impersonal and with advance warning. The employee’s privacy should also be respected.


106

3.4 Disciplinary action involves a number of steps. Depending on the seriousness of the issue, action can commence at any point:

(a) Informal talk to resolve minor issues

(b) Oral warning – an interview warning the employee that continued action could result in serious disciplinary action.

(c) Written warning – a formal part of the employee’s record

(d) Final written warning – as above, with the understanding that future infringements will result in demotion, suspension, transfer or dismissal.

3.5 The Advisory, Conciliation and Arbitration Service (ACAS) publishes guidelines on employment practices which are taken as a yardstick in disciplinary procedures and tribunals. The ACAS disciplinary code of practice requires that procedures should:

(a) Be in writing (b) Specify to whom they apply (c) Allow for problems to be dealt with quickly (d) Indicate the disciplinary action that may be taken (e) Inform individuals of the complaint against them and give them the opportunity to reply (f) Allow the individual to be accompanied by a trade union representative or work colleague (g) Ensure that disciplinary action is not taken until the case has been carefully investigated (h) Provide a right of internal appeal

External methods of resolving conflict 3.6 If, after all internal procedures have been exhausted, the employee disagrees with the outcome, he

or she can take the case to an industrial tribunal. These judicial bodies are employment specialists and can make legally binding rulings on both parties.

3.7 Although an industrial tribunal is less formal than other parts of the judicial system, it can be a costly, time-consuming and stressful experience for those involved. As a result, an alternative dispute resolution may be sought using a neutral third party such as ACAS. This service includes:

Advice The third party advises both parties on possible solutions, but there is no obligation for either conflicting party to follow the advice.

Conciliation The third party attempts to get the conflicting parties to reach their own agreement.

Arbitration The conflicting parties agree in advance to be bound by the recommendation of the third party.

3.8 A grievance exists when an employee believes that he/she is being wrongly treated by colleagues or superiors. A typical procedure would involve:

(a) The individual sounding out a colleague and/or union representative. (b) Raising the matter with his or her immediate supervisor. (c) If unresolved, referring the matter to a higher manager and the personnel department. (d) Investigating alternative dispute resolution processes (arbitration, conciliation)

(e) As a last resort, going to an industrial tribunal.


107

4 Dismissal 4.1 Dismissal is “the termination of employment... by the employer”.

Constructive dismissal is resignation by the employee because the employer’s conduct was deemed to have terminated the contract.

Wrongful dismissal means that the incorrect procedure was followed when dismissing the employee.

Unfair dismissal means that, although the correct procedure was followed, the reason for dismissal was unfair.

Reasons for dismissal that are recognised as fair include:

(a) Conduct

(b) Capability

(c) Breach of statutory duty

(d) Redundancy

(e) Some other substantial reason

4.2 Redundancy is defined as dismissal under two circumstances:

(a) The employer has ceased to carry on the business at all, or in the place where the employee was employed.

(b) The requirements of the business for employees to carry out work of a particular kind have ceased or diminished, or are expected to.

It is desirable to consult with employees or their representatives, and notice of impending redundancies is a legal duty for redundancies over a certain number.

5 Health and safety legislation 5.1 A healthy and safe working environment, as well as being one of Herzberg’s hygiene factors, is a

legal obligation under the Health and Safety at Work Act 1975 (HASAWA).

Employer’s responsibility 5.2 HASAWA defines five key areas of employer responsibility:

(a) The provision of safe and risk-free plant and systems of work (b) Ensuring safety in the use, handling, storage and transport of articles and substances (c) Provision of information, training, instruction and supervision (d) Maintenance of a safe workplace (e) Provision of a safe working environment and adequate facilities


108

Employee’s duties 5.3 HASAWA additionally places the following burdens upon employees, who must:

(a) Take reasonable care of themselves and others (b) Allow the employer to carry out his or her duties (including enforcing safety rules) (c) Not interfere intentionally or recklessly with any machinery or equipment (d) Inform the employer of any situation which may be a danger (e) Use all equipment properly

Contractors 5.4 As ‘strangers’ to the working environment, contractors need to communicate closely with managers

to foresee and guard against hazards.

Safety representatives 5.5 Safety representatives are appointed, normally by their trade union, to inspect the workplace from a

health and safety perspective. The employer has a legal duty, where a safety representative exists, to co-operate with them.

6 Discrimination legislation 6.1 Discrimination takes place when a worker (or job applicant) is treated less favourably than others.

This can be addressed through equal opportunities or diversity.

Equal opportunities 6.2 Equal opportunities focuses on removing discrimination through pro-active action, often initiated by

a disadvantaged group. Legislation in this field includes:

Disability Discrimination Act 1995 Equal Pay Act 1970 / Equal Pay (Amendment) Regulations 1993 Race Relations Act 1976, amended 1996, 2000 Sex Discrimination Act 1975, amended 1986 Trade Union Regulation & Employment Rights Act 1993 (TURERA) Employment Equality Regulations 2003

6.3 This legislation, alongside other acts, make it illegal to discriminate against an employee on the grounds of:

gender marriage or civil partnership gender reassignment pregnancy and maternity leave sexual orientation disability race colour ethnic background


109

nationality religion or belief age part-time working working on a fixed term contract


Required

Which of the following is not a benefit to an employer of offering flexible child care provisions to staff with children?

A Cost of the provision

B Attract and retain good employees

C Enhanced perception of the employer

D Reduced employee absenteeism and turnover

Solution

Diversity 6.4 The aim of diversity is to focus on maximising the potential of all staff. This broadens the

discrimination agenda into something positive that relates to all employees rather than just disadvantaged groups.

6.5 The concept of diversity can be extended to recognise and make use of the unique characteristics of a particular group. An organisation will need to be proactive in managing the needs of a diverse workforce in areas (beyond the requirements of equal opportunity and discrimination regulations) such as:

(a) Tolerance of individual differences (b) Communicating effectively with (and motivating) ethnically diverse workforces (c) Managing workers with increasingly diverse family structures and responsibilities (d) Managing the adjustments to be made by an increasingly aged workforce (e) Managing increasingly diverse career aspirations/patterns, flexible working etc (f) Dealing with differences in literacy, numeracy and qualifications in an international workforce (g) Managing co-operative working in ethnically diverse teams


110


For many years, the Northland Police Force (NPF) has adhered to an equal opportunities policy when recruiting police officers and was proud of the controls it had in place not to differentiate against applicants because of their racial, sexual or religious background.

However, in recognition of the fact that nearly all its officers are British men aged 25 – 35, the NPF has announced that, in some cases, preference will be given to applicants who are female and / or from racial or religious minorities.

The Daily Hail has published an article accusing NPF of “political correctness gone mad” and, in an editorial, argues that this positive discrimination against white, British men is illegal.

Required

Advise the Chief Constable of NPF whether this recruitment policy is legal.

Solution

7 Appraisal 7.1 There are three main types of appraisal:

(a) Reward review: measuring the extent to which the employee deserves a bonus or pay increase

(b) Performance review: for planning and following-up training and development programmes

(c) Potential review: aid to planning career progression and succession planning


111

Approaches to appraisals 7.2 Approaches are used and combined according to management’s philosophy of HR:

(a) Management led: employee is assessed by manager according to targets set by manager.

(b) Self-appraisal: employee assesses own performance against criteria, identifies issues, and discusses with manager how to resolve them.

(c) 180 degree: feedback on the appraisee is sought from his/her colleagues

(d) 360 degree: feedback on the appraise is sought from the following parties: line management, peers, subordinates, customers, self

7.3 The benefits of a good appraisal include:

(a) Rewards good performance (b) Sets motivating challenges (c) Identifies training needs (d) Provides an ideal forum for exchanging feedback (e) Allows employees to express views (f) Identifies future aspirations and expectations (career management)

Barriers to effective appraisals 7.4 Lockett pointed out that appraisals may fail for the following reasons:

Confrontation Conflict between both parties involved

Judgement Appraiser takes a one-sided approach to the process

Chat Lacks purpose or outcomes being set

Bureaucracy Appraisee sees the process as a form filling exercise

Unfinished business

Appraisal should be part of a continuing process towards performance management

Annual event Annual targets may be irrelevant after 3-6 months so rendered meaningless


112


W Co is a firm which appraises its employees once a year. At the firm X Co, the employees are required to rate themselves. At Y Co, annual bonuses are conditional upon satisfactory levels of customer feedback. At Z Co, all of the subordinates rate their managers.

Required

Which one of the following statements is true?

A W Co’s method of appraisal is the best way to keep appraisals relevant

B X Co does not use a 360 degree appraisal system

C Y Co’s method of appraisal assumes that the appraisee’s boss may not be the best judge of customer service

D Z Co uses a downward appraisal method

Solution

8 Coaching and Mentoring 8.1 A mentor is an experienced member of staff who offers support and guidance to less experienced

employees.


Bruce, a CIMA student, reports to Alfred, the Finance Manager of Gotham plc. Company policy dictates that Bruce has a mentor and Henri, the Operations Manager, has agreed to perform the role. Alfred believes that a trainee with a good manager should not need a separate mentor and is therefore resisting Henri’s appointment.

Required

Explain to Alfred the benefits of Bruce having Henri as a mentor.

Solution


113

8.2 Coaching is where a trainee is put under the guidance of an experienced employee. For coaching to succeed the following steps are appropriate:

Step 1 Establish learning targets

Step 2 Plan systematic learning and development programme

Step 3 Identify opportunities to broaden trainee's knowledge and experience

Step 4 Allow for trainee's strengths and weakness

Step 5 Exchange feedback

9 Communication 9.1 The effective sharing of information is key to an organisation’s effectiveness, so managers need to

understand the process by which information is communicated.

The communication process 9.2 Communication can be broken down into the a five stage process:

9.3 There is a risk that the sender and receiver will distort the message:

Sender Not being clear on what message needs to be communicated Omitting information or using inappropriate language (e.g. jargon) Choosing an inappropriate method of communication

Receiver

Not receiving the communication or being selective about what is received

9.4 In this context, noise is any distraction or interference that comes from the environment (as opposed to from the sender or receiver).

9.5 Communication can be facilitated or emphasised using non-verbal techniques, e.g. Posture Expressions Eye contact Movement Silence

Sender has a

message

Sender encodes message

Message

transmitted

Receiver decodes message

Receiver receives message

N O I S E


114


Harold is a chartered management accountant. He is shy, enjoys solitary fishing trips and playing World of Warcraft. At work he eats lunch at his desk and does not attend team outings if he can possibly avoid it. However, he enjoys data analysis and finding the “right answer” to a problem. Because of his fastidious nature, Harold has garnered a reputation as an asset to the business and has consequently been assigned to the project team responsible for delivering a strategically important new product.

Required

Discuss the potential consequences of Harold’s lack of natural talent for communication and building relationships.

Solution

10 Negotiation 10.1 Sometimes, the manager’s communication will not be agreed with and he/she must enter

negotiation. Negotiation in this context has three characteristics:

A conflict between two or more parties

An absence of any agreed set of rules for resolving the conflict

Both parties want to resolve the conflict themselves

10.2 Although both parties will seek to “win” the negotiation, it is important that any agreement is stable. If one party exploits the other (win – lose), then the losing party is likely to attempt to break the agreement at the earliest opportunity. In long-term relationships, therefore, the aim should be towards a win – win solution.


115

10.3 The process of negotiation involves four phases:

(a) Preparation (gathering information)

(b) Opening (each party presents their case in an attempt to influence the other)

(c) Bargaining (both parties try to bridge the gap using rational debate)

(d) Closing (agreement is reached and formally agreed)

10.4 Preparing the negotiation strategy involves the following steps:

(a) Set objectives for the negotiation: what you want to get out of it. These should be achievable and consistent with the organisation's policies.

(b) Gather information on the issues over which negotiations are going to be conducted: trends in union demands, market pay rates, case studies from similar organisations/sectors, etc.

(c) Identify potential areas of conflict. In bargaining, each side accepts that the objectives and viewpoints of the other side are as real and legitimate as their own. So recognition of the needs, wants and fears of the other party will help in devising a workable trade-off.

(d) Identify potential areas of movement. Each party identifies the key issues or items likely to be on the table, and decides on which of these it will be willing to trade or make concessions. It also tries to anticipate the items on which the other party will be willing to trade or make concessions.

(e) Formulate a negotiating strategy. There are basically three possible outcomes:

(i) If we were to achieve all our objectives, what would be the ideal settlement or outcome?

(ii) If we were able to make progress, but being realistic about the bargaining power of the other side, what is a realistic settlement or outcome?

(iii) If we were to concede, what is an acceptable fall-back position: the least favourable outcome that can be accepted without failing to meet our objectives?

A position for each side should be estimated for each of the above options – and areas of agreement concentrated on, as potential middle ground.

10.5 John Hunt lists some characteristics of successful negotiators in his book Managing People at Work:

They avoid direct confrontation. They consider a wide range of options. They hold back counter proposals rather than responding immediately. They use emollient verbal techniques: 'would it be helpful if we…' They summarise on behalf of all involved. They advance single arguments insistently and avoid long winded, multiple reason arguments


116

Summary

Horizontal between departments

Vertical between levels in the hierarchyHandling conflict with: Avoidance Accommodation Compromise Competition

Process: Informal talk Oral warning Written warning Final written warning Alternative dispute resolution: Advice Conciliation Arbitration

Sound out a colleague or union rep.

Raise the matter with a supervisor

Refer matter to a higher manager and personnel department

Use arbitration/conciliation

Industrial tribunal

Constructive

Wrongful

Unfair

Employer's responsibility

Employee's responsibility

Contractors

Illegal on the grounds of: Gender Marriage Gender-reassignmentPregnancy Sexual-orientation Disability Race colour Ethnic-background Nationality Religion or belief Age Part-time-working Working on a fixed-term contract

Diversity

Types of appraisal: Management-led Self-appraisal 180 degree 360 degree

Barriers to effective appraisal (Lockett): Confrontation Judgement Chat Bureaucracy Unfinished business Annual event


Conflict Discipline Grievance procedures

Dismissal

Health & safety Discrimination Appraisal Communication


117


Coaching and mentoring

Negotiation

Mentoring is where an experienced member of staff provides guidance and support to a more junior member of staff

Coaching is role specific guidance provided by a more experience staff member The coaching process:

1 Establish learning targets

2 Plan L&D programme

3 Identify opportunities to broaden trainee's experience

4 Allow for trainee's strengths and weaknesses

5 Exchange feedback

The negotiation process:

1 Preparation 2 Opening 3 Bargaining 4 Closing


118

END OF CHAPTER

119

Introduction

Syllabus Area B/C

The human aspects of the organisation

Managing relationships

20% each

Lead learning outcome Discuss the hard and soft aspects of people and organisational

performance


Syllabus component

Discuss the behavioural aspects of management control

Discuss the effectiveness of handling relationships between the finance function and other parts of the organisation and the supply chain

Discuss the effectiveness of handling relationships between the finance function and external experts and stakeholders

Context This syllabus component requires you to have a solid understanding of the various control mechanisms an organisation can have, especially from a people perspective. The role of the chartered management accountant is also key.


Theories of behavioural aspects of management control 2 Performance management and measurement frameworks, e.g.

• Target setting • The Balanced Scorecard (BSC)

3

Trust and control 1 Management of relationships between the finance function and other parts of the organisation (internal)

5

The concept of the Chartered Management Accountant as a business partner in creating value

4

Management of relationships with professional advisors (external) e.g. accounting, tax and legal, auditors and financial stakeholders such as the shareholders and other investors to meet organisational objectives and governance responsibilities

5

Control & The Finance Function

7: CONTROL & THE FINANCE FUNCTION

120

Other chapters in Syllabus Area C

Chapter 7 Control & The Finance

Function

Chapter 10 The Project Team


Communication


121

Overview

Organisational control

What is control?

The finance function

Role of the Chartered Management Accountant

Management of business relationships

Performance management

Behavioural aspects of control


122

1 What is control? 1.1 Control is “the process of ensuring that operations proceed according to plan”. (Lucey) It is

a process integrally linked to the role of a manager (see Fayol, Chapter 4a).

1.2 Environments with fewer controls generally have higher levels of trust between management and employees. In organisations where trust is weak, more controls are introduced to monitor and manage performance.

The control loop

1.3 Control operates at different levels of the organisation:

Strategic control e.g., setting policies and procedures, managing corporate governance, strategic planning for the organisation as a whole.

Tactical control e.g., tactical planning for a specific department, monitoring, budgeting

Operational control e.g., credit controls, order processing, invoicing. I.e., activities that probably require little management oversight.

1.4 William Ouchi identified three basic control strategies used by organisations.

(a) Market control is the use of the price mechanism and related performance measures, internally and externally, to control organisational behaviour. It is used in loose organisational forms such as consortia and alliances.

(b) Bureaucratic control uses an impersonal system of rules and reports to maintain control (refer to Chapter 4).

(c) Clan control is based on corporate culture. It depends on shared values and standards of behaviour within the organisation, and assumes that employees 'buy in' to the purpose, goals and expectations of the organisation.

Input

Compare

Process Output Sensor

Regulator

Standard


123

2 Behavioural Aspects of Control 2.1 Accountants must consider the impact of their financial control systems on human

behaviour, which can be negative as well as positive.

Example 1: Budgets

(a) Budget pressure unites employees against management (b) Pressure may lead to negative results (c) Workers form into protective groups (d) Accounting personnel equate success with finding fault in workers (e) Workers feel victimised – loss of confidence and motivation results (f) Supervisors use budgets as an expression of their position of superiority

Example 2: Standard Costing

Traditional Manufacturing

Modern Environment

Impact on Standard Costing

Stable environment / products

Rapidly changing

environment / products

Regular revision of standards can be de-motivating for employees as the goal posts keep moving

Standard product Customised product Differences between products make developing a standard difficult. Resulting variances may not be meaningful and

certain employees may be unfairly penalised

Raw material and finished goods inventory is important

Just In Time philosophy

Inventory may be built up in an effort to improve efficiency variances

A good system of control must influence employees in the direction of the company’s best interests.

2.2 To address these concerns, the following aspects should be considered:

Targets should be set which support the company objectives

Managers should only be assessed on those items that they can control

Targets should incorporate long-term as well as short-term objectives

Targets should be set that motivate

Targets should encompass the big picture and may include financial and non-financial aspects


124


Required

Analyse how different management theorists would address the issue of control.

Solution

Classical school

Human Relations school

Contingency theory

3 Performance Management 3.1 To address the above issues, a popular alternative to purely financial targets is the use of a

‘balanced scorecard,’ which consists of a variety of indicators both financial and non-financial.

3.2 This creates a broader control mechanism for the organisation, as managers will no longer be measured on monetary objectives alone, but will appraised against a wider range of factors which contribute to the long-term success of the organisation.


125

3.3 The balanced scorecard focuses on four different perspectives and aims to establish goals for each together with measures which can be used to evaluate whether these goals have been achieved.

Perspective Question Customer What do existing and new customers value from us? This

perspective gives rise to targets that matter to customers: price, durability, service

Internal What processes must we excel at to achieve our financial and customer objectives? This perspective aims to improve internal processes and decision-making

Innovation & Learning

Can we continue to improve and create future value? This perspective considers the business's capacity to maintain its competitive position by acquiring new skills and developing new products

Financial How do we create value for our shareholders? This perspective covers traditional measures, such as growth, profitability and shareholder value, but these are set by talking to the shareholder or shareholders direct

3.4 The scorecard is ‘balanced’ in the sense that managers are required to think in terms of all four perspectives, to prevent improvements being made in one area at the expense of another.

3.5 The method has the advantages of looking at both internal and external matters concerning the organisation, and of linking together financial and non-financial measures.


126

3.6 Disadvantages of this will arise from the selection and interpretation of appropriate measures, and any potential conflicts between measures (e.g. R&D expenditure).


Which of the following statements is correct?

A The primary purpose of a balanced scorecard is to create a corporate strategy

B Balanced scorecards always report using the same time periods as the financial accounting system

C Organisations should use a ‘traffic-light’ system on their balanced scorecard to help them prioritise their activities

D The primary purpose of a balanced scorecard is to increase the number of performance indicators used to manage the business

Solution

4 The role of the chartered management accountant 4.1 This evolution in the role of the finance professional has lead to the creation of the term the

‘hybrid accountant’, which is now regarded as the modern model of an accountant.

4.2 Often management accountants spend the majority of their time as internal consultants or business analysts. They spend less time preparing standardised reports, but more time analysing and interpreting information. They are based in the operational departments with which they work, meaning they are more actively involved in decision-making.

4.3 Important areas where the accountant’s role has developed have included:

Providing more useful information on business units, projects, products and customers

Supplying business cases for new investments

Giving support in helping operational managers understand the information provided

Collaborating in strategic planning and budgeting

Designing information systems that provide greater support for operational managers


127


Fill in the missing words in the paragraph below.

This transition has led to many management accountants focusing their role to that of a business partner, adopting a more _____________, action-orientated approach. This means gaining broad knowledge of the business, participating as full members of ____________ teams and bringing financial expertise to the management process. They are expected to integrate management accounting information with _____________ management accounting data.

4.4 Management accountants will also work with the finance function, which is responsible for financial control and treasury activities. This includes dealing with external stakeholders such as banks, shareholders and the government.

4.5 As with other departments, the finance function must deliver control efficiently and effectively. Options for achieving this is include business process outsourcing or shared service centres.

4.6 With business process outsourcing (BPO), an external third party takes responsibility for running the finance function’s internal processes.


Required

Briefly explain the benefits and drawbacks of outsourcing a finance office function and discuss which of its elements should be outsourced.

Solution

commercial theoretical finance operational strategic tactical


128

4.7 Shared service centres (SSCs) involve centralising operations that would previously have been found in more than one part of the organisation. It is sometimes referred to as “internal outsourcing”. Benefits include:

Economies of scale (lower headcount, premises costs) Selection and delivery of single best practice from all operations Improved control and quality

5 Management of business relationships 5.1 The increasing use of the finance function as a business partner emphasises the importance

of managing organisational relationships and collaborative working practices.

Internal relationships

5.2 Collaborative relationships are beneficial for both organisation and the individual, as they help to develop the careers of the finance professionals involved. Building closer links between the finance function and the entities operations is believed to facilitate the sharing of experiences throughout the organisation and help drive innovation by generating new ides to take the business forward.

External relationships

5.3 Due to factors including globalisation and increasing levels of corporate governance, most large organisations now have an increasingly diverse range of stakeholders to consider.

5.4 Besides shareholders, CFO’s must become increasingly engaged with groups including: tax authorities, auditors, regulators, finance providers, customers and suppliers.

Building relationships

5.5 Collaborative relationships can be established using a range of techniques:

Talent programmes: aimed at identifying professionals from different business functions who possess desired skills needed for the entities future success.

Multi-functional teams: where finance professionals increasingly work with individuals from other functions across the organisation on a variety of projects. This facilitates the flow of expertise and helps with relationship building.

Job rotations: help to create a more collaborative culture as they allow finance professionals to interact with other parts of the business on a longer term basis.

Coaching and mentoring programmes (chapter 6): ‘afford the individuals the opportunities to develop the close and personal constructive working relationships that are the basis of any strong network’.


129


Which of the following is not a benefit of collaborative working relationships?

A Increased profit

B Increased staff motivation

C Increased efficiency

D Increased staff retention

Solution


130

Summary

Performance management

The Balanced Scorecard –Customer perspective Internal Business perspective Innovation and Learning perspective Financial perspective

END OF CHAPTER

Organisational control

What is control?

The finance function

Role of the Chartered Management Accountant

Management of business relationships

– Provide useful information

– Business cases for new investments

– Help operational managers understand financial information

– Collaborate in strategic planning and budgeting

– Design information systems that provide information needed for the business to achieve its objectives

Internal & external

Building relationships through: Talent programmes Multi-functional teams Job rotations Coaching and mentoring

Financial Control TreasuryBusiness Partnering Outsourcing Shared Service Centres

Behavioural aspects of control

131

131

Introduction

Syllabus Area D Managing change through projects

30%

Lead learning outcome Advise on important elements in the change process

Syllabus component Discuss the concept of organisational change

Recommend techniques to manage resistance to change

Context This syllabus component requires you understand the change management process. You will also need to be familiar with the reasons for resistance to change and how to resolve that.


Types of change 2 External and internal triggers for change 1 Stage model of change management; Principles of change management 3 Problem identification as a precursor to change 4 Reasons for resistance to change 5 Approaches to managing resistance to change 6

Other chapters in Syllabus Area D

Chapter 9 Introduction to Project

Management

Chapter 8 Change Management


Change Management

8: CHANGE MANAGEMENT

132

Overview Change management

What is change management?

Process Problem identification

Balogun & Hope Hailey

Managing resistance to change

Lewin's Stage model

Resistance to change

Types of change


Lewin


133

1 What is change management? 1.1 Change management is an approach to transitioning individuals, teams, and organisations

to a desired future state. (Kotter)

1.2 A change agent is an individual or group that helps to bring about strategic change in an organisation. They are particularly useful where a cultural change is required.

1.3 The stimulus for organisational change is usually driven by some form internal or external event. Such events are often referred to as ‘triggers’. Triggers may include:

External events Internal events

Increasing competition Out of date working practices / processes

Changes in customer tastes and buying behaviour

Changes in organisational performance eg reducing profitability

Social changes e.g. demographics (age, income and gender)

Introduction of new technologies

Changes in the economic cycle (recession)

Changes in senior management

Political and legal pressures (new laws, regulations and tax rules)

High staff turnover

Increasing use of new technologies (internet, mobile technologies)


Fill in the blanks in the sentence below, choosing from the following options to do so:

A company could use _____________________ initially to ascertain the existence of any broad triggers of change. Triggers would then need to be analysed in more detail using ____________________. It is important to identify the triggers of change so that a company can plan to deal with them.

Environment Scanning

Porter’s Five Forces

Primary Research Secondary Research


134

Balogun & Hope Hailey summarise the process of change management in the flow chart presented below:

2 Types of change 2.1 Once a basis for competitive advantage has been chosen, Balogun and Hope Hailey

analyse types of change that an organisation may implement into its scope and nature as follows:

Scope of change

Realignment Transformation

Incremental Adaptation

– Step-by-step in the current way of thinking.

Evolution

– Paradigm changes over time.

'Big bang' Reconstruction

– Major change within current paradigm.

Revolution

– Rapid, fundamental shift in the paradigm

Nature of change

Stage 1: Analyse competitive position

Stage 2: Determine type of change needed

Stage 3: Identify desired future state

Stage 4: Analyse the change context

Stage 5: Identify the critical change features

Stage 6: Determine the design choices

Stage 7: Design the transition process – levers and mechanisms

Stage 8: Manage the transition

Stage 9: Evaluate the change outcomes


135


What is meant by evolutionary change?

A Incremental change within the existing paradigm

B Incremental change outside the existing paradigm

C Big bang change within the existing paradigm

D Big bang change outside the existing paradigm

Solution

3 Stage model of change management 3.1 Whichever type of change is appropriate, the change needs to be managed. Where there is

a significant amount of change, Lewin recommends a 3 stage process as illustrated in his diagram below:

Unfreeze 3.2 This involves breaking up the current state of affairs and preparing an organisation for

change. Approaches to this may include:

(a) Physically removing individuals from current posts and routines (b) Consulting individuals on proposals for change (c) Confronting individuals’ perceptions and emotions about change (d) Creating a positive agenda supporting change

Change

3.3 The new working methods, systems and cultures must be implemented. This will require staff participation in order to ensure that they ‘buy into’ the new status quo.

Unfreeze Change Refreeze


136

Refreeze

3.4 The new state is embedded by:

(a) Habituation as staff become accustomed to the new state (b) Positive reinforcement as compliance is rewarded (c) Negative reinforcement as non-compliance is punished


Managing the unfreezing process can involve:

A An emphasis on external problems or threats

B Signalling the need for change

C Making internal changes such as adjusting management

D All of the above

Solution


137

4 Problem identification 4.1 Lewin devised the Force Field Analysis model to illustrate how achieving the desired state

depended upon the success of overcoming the forces that resist change. His model provides a way to identify these forces.

Example – introducing teachers' performance related pay.

Driving forces Current state Restraining forces Desired outcome (unfreezing factors) (resistance) (freezing position)

Need to improve Existing systems general standards are sufficient in schools

Greater motivation Concern over (meritocratic) effects on jobs and working conditions

Improved quality of service Perceived as divisive

Reduced running costs What if it is not operated fairly?


138


Why might a force field analysis be useful in thinking about strategic change?

A A force field analysis helps to identify the blockages to change

B A force field analysis help to identify forces which might facilitate change

C A force field analysis identifies those in the organisations with power to make change happen

D A force field analysis provides a way of identifying forces for and against change in the organisation

Solution

5 Reasons for resistance to change

5.1 As seen above, one of the greatest challenges for a change manager is staff resistance. The reason of their resistance can usually be traced back to the one of the following causes:

High levels of uncertainty Increase in workload Sense of embarrassment Rapid change Loss of autonomy Skills and competence


139

6 Managing resistance to change

6.1 Kotter and Schlesinger identified 6 approaches to overcoming staff resistance:

Approach Comment Education and communication

Assumes resistance caused by ignorance

Change must therefore be ‘sold’ to staff

Participation and involvement

Staff involvement in design of processes lessens resistance

Involvement may alleviate fears on how staff will cope with change

Facilitation and support

Staff should be offered support via counselling and an open door policy

Training on technical aspects of new job design is essential

Negotiation and agreement

Essential to negotiate where union influence is strong

Incentives to accept change may be required i.e. additional payments

Manipulation and co-optation

Resistance is undermined in covert ways such as manipulation of information

A risky strategy as manipulation may increase resistance

Coercion, implicit and explicit

A suitable approach where management are powerful and staff are weak

Rapid change is possible; though staff resentment may be high


The IT Director of a company is trying to roll out a new system, but the employees have been using the existing system for a long time and refuse to change their ways. The IT Director decides to start a monthly competition, rewarding the employee that logs the most time on the new system with a cash prize.

What approach is the IT Director using?

A Participation and involvement

B Facilitation and support

C Negotiation and agreement

D Manipulation and co-optation

Solution


140

Summary

END OF CHAPTER

1 Analyse competitive position

2 Determine type of change needed

3 Identify desired future state

4 Analyse the change context

5 Identify the critical change features

6 Determine the design choices

7 Design the transition process

8 Manage the transition

9 Evaluate the change outcomes

1 Unfreeze 2 Change 3 Refreeze

Education & communication

Participation & involvement

Facilitation & support

Negotiation & agreement

Manipulation & co-optation

Coercion, implicit & explicit

Scope & Nature

– Realignment – Evolution – Reconstruction – Revolution

Driving forces Restraining forces Current state Desired outcome

Change management

What is change management?

Process Problem identification


Managing resistance to change

Lewin's Stage model

Resistance to change

Types of change


Lewin

141






1a

1b





4a

4b

Culture Culture 5

Conflict, negotiation and communication

Conflict, negotiation and communication 6

Control and the finance function

Control and the finance function 7

Change management Change management 8


Achievement ladder

142

143

143

Introduction

Syllabus Area D Managing change through projects

30%

Lead learning outcome Discuss the concepts involved in the managing projects

Syllabus component

Discuss the characteristics of the different phases of a project

Apply tools and techniques for project managers

Context This syllabus component requires you to understand what makes a project and a good understanding of the main project management tools, including control mechanisms such as PRINCE2 and planning techniques including critical path diagrams.


Definition of project attributes; Time, cost and quality project objectives 1 The purpose and activities associated with the key stages in the project lifecycle 2 Examples of the role of project management methodologies in project control (e.g. PRINCE2, PMI)

3

Key tools for project management, including work breakdown schedule (WBS), Gantt Charts and Network analysis

5-6

Managing project risk 4 PERT charts; Scenario planning and buffering 6 The contribution of project management software 7


Chapter 9 Introduction to Project

Management



Introduction to project management

9: INTRODUCTION TO PROJECT MANAGEMENT

144

Overview

Project management

What is a project?

Project planning

Critical path analysis

Gantt charts

Project management software

Risk management The project life cycle

Control methodologies


145

1 What is a project? 1.1 A project is “a temporary endeavour undertaken to create a unique product or service”.

(Project Management Body of Knowledge).


Required

What is the difference between a project and “business as usual” work?

Solution

1.2 Project management is “the integration of all aspects of a project, ensuring that the proper knowledge and resources are available when and where needed, and above all to ensure that the expected outcome is produced in a timely, cost-effective manner.” (CIMA Official Terminology).


146


There are nine project management areas that need to be managed during a project. These can be divided into five constraints and four activities.

Required

You work for a building contractor which wants to break the world record for building a house (currently standing at 2 hours, 52 minutes and 29 seconds). Consider this project from the perspective of the nine project management areas.

Solution

CONSTRAINTS

Time

Cost

Quality

Scope

Risk

ACTIVITIES

Resourcing

Integration

Communication

Procurement


147

2 Feasibility Before a project is chosen and initiated, a range of projects will undergo a feasibility study to ascertain whether the project can achieve its goals in a cost-effective manner. The assessment of feasibility can be broken down into 4 areas:

(a) Technical feasibility involves consideration of both technology and matters of technical expertise, such as marketing, financial strategy and human resource management.

(b) Social feasibility considers the impact of a project on both internal and external stakeholders.

(c) Ecological feasibility including:

(i) Impact on the local community

(ii) Pollution and the impact on the environment that could be caused by the project

(iii) Reputational damage should the project not be perceived to be ecologically sound.

(d) Financial feasibility which means ascertaining whether the costs incurred by a project are outweighed by the benefits gained. It can be difficult to ensure that all costs/benefits are considered.

3 The Project Life Cycle 3.1 In order to ensure that a project is successful, a suitable framework needs to be adopted.

The Project Life Cycle, designed by Gido and Clements (1999), is the most common:

3.2 Large projects may follow an iterative process, where the Project Life Cycle is repeated several times until a solution is agreed and delivered.


148

3.3 This Project Life Cycle was developed by the Project Management Institute (PMI) into a five-step process:

Project Life Cycle PMI Process Description Identification of need Initiation Goals and objectives are set

Development of a solution Planning Resources (finance, skills etc) are scheduled

Implementation Execution Using allocated resources to complete the tasks according to the schedule

Control Measuring progress against plan and taking corrective action where necessary.

Completion Closing Ensure that the project is completed and meets the goals and objectives.

These steps are often referred to using the acronym IPECC.

4 Control methodologies – PRINCE2 4.1 One of the most widely used control methodologies is the software package PRINCE2

(Projects IN Controlled Environments version 2).

4.2 PRINCE2 was originally developed by the UK government for the public sector but has been successfully used across a wide range of projects. It maintains control by prescribing a series of processes to be followed:

Initiating a project – setting out criteria against which the project will be judged Starting up a project – appointment of project manager and team Planning a project – sequencing activities using project management tools Managing product delivery – co-ordinating different aspects of the project Managing boundaries between each stage of an overall project Controlling each stage of a project – solving problems and controlling deliverables Closing a project – reporting on the extent to which a project is a success Directing the project – carried out by senior management throughout the project

4.3 These processes clearly overlap with the Project Life Cycle, but PRINCE2 is unique in establishing a detailed structure and documentation system to ensure compliance.

4.4 These processes are supported by three techniques:

Product-based planning – seeing the project in terms of output rather than activity Change control – how to manage changes when they arise Quality reviews – a structured measurement of “fitness for purpose”

4.5 As a result of these processes and techniques, PRINCE2 is associated with the following features:

(a) It enforces a clear structure of authority and responsibility on the project team.

(b) It ensures that ‘management products’ such as the PID, budgets are produced.


149

(c) It generates different types of plan to ensure that all participants have a clear understanding of their role in the completion of a task.

(d) It has detailed, documented technical procedures which act as quality controls.


Which of the following is a benefit of using PRINCE2?

A Increased bureaucracy and ‘red tape’ within the organisation

B Management control of any deviations from the plan

C Lack of autonomy for individual employees

D Specialist knowledge required from employees

Solution

4.6 PRINCE2 is the most extensively used control methodology (especially in the public sector). However, there are other systems on the market that meet the same need, including:

Project Management Body Of Knowledge (PMBOK) Six Sigma DEAL/INTRo

5 Risk management 5.1 All projects contain an element of risk. These risks can be managed using the following

process:

(a) Risk identification – produce a list of risks (b) Risk analysis – decide size and probability (see below) (c) Risk prioritisation – rank (d) Risk management – decide strategy (see below) (e) Risk resolution – undertake strategy (f) Risk monitoring – ongoing monitoring

Risk analysis

5.2 Risk can be considered under three headings:

5.3 Quantitative Risk can be calculated using the equation p(E) x p(L) x M where:

p(E) probability of an event occurring P(L) probability of the event causing a loss M worst-case monetary loss


150

5.4 Qualitative risk can be used in the absence of sufficient numerical data to calculate quantitative risk. Instead of allocating a value to p(E) and p(L), projects are ranked in each category as high / medium / low. Projects with both high likelihood and high potential loss are ranked as highest overall risk.

5.5 Socially constructed risk reflects peoples’ perception of risk, regardless of the reality. For example, seat-belts on a plane do nothing to reduce the risk of injury in the event of a serious accident but they are provided because they make passengers feel safer.

Risk management strategies 5.6 (a) Transfer – pass the risk to a 3rd party (e.g. by taking out insurance)

(b) Avoid – remove the facts that give rise to the risk (c) Reduce – mitigate the likelihood of the risk occurring (d) Absorb – accept the risk on the grounds that it can be managed if it occurs

This can be remembered using the TARA mnemonic.

Uncertainty 5.7 Risk analysis assumes that a probability can be allocated to an event. In the absence of

any historical data to generate a probability, the outcome is described as uncertain.

For example, there is a risk that a clothing retailer may see a fall in sales due to external factors (weather, day of the week etc). However, if this retailer launched a revolutionary new garment made from photo cells that changed colour, the impact on sales would be uncertain.

5.8 It is impossible to reduce uncertainty as it has no quantifiable value to begin with. Its effects therefore need to be managed using contingency plans.


ABC Ltd has a project team working to update their IT systems. The team has identified a significant risk, about possible unauthorised access by hackers. To mitigate this, they invest more money into the security provisions of the system and consult experts. What strategy are they using?

A Transfer

B Avoid

C Reduce

D Absorb

Solution


151

6 Project planning tools – Gantt Charts 6.1 There are two common planning tools used for projects: Gantt Charts and Critical Path

Analysis (also referred to as a Network Chart). Both tools use the components generated by the Work Breakdown Structure and present them diagrammatically.

Gantt Charts 6.2 Gantt Charts are horizontal bar charts that present each component part of the project on a

timeline. The Gantt chart below shows the stages of a simple kitchen installation.

Activity Days

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

1. Measure existing kitchen

2. Agree new design & layout

3. Order units and other components

4. Strip out old kitchen

5. Prepare electrics & plumbing

6. Install new units

7. Connect up electricity & water

8. Tile walls

9. Install flooring

KEY : Estimate Current Time Line Actual

6.3 The Gantt Chart above suggests that, as at the end of Day 10, the project is probably running 1 day behind schedule due to a delay at the design stage (activity 2).

6.4 While Gantt Charts are easy to read (at least, for small projects) and show both estimated and actual performance to date, it is not always easy to see which activities are reliant on each other, especially as projects become more complex.


152

7 Project planning tools – Critical Path Analysis 7.1 Critical path analysis is used to prepare a network chart which helps with the planning and

controlling of complex projects. It works as follows:

(a) Projects are broken down into sequences of tasks. (b) The duration of each task is estimated. (c) The tasks are arranged in a logical sequence.

It is then possible to determine critical/non-critical activities, and the overall duration of the project.

Drawing a network chart

7.2 You will be given a list of activities that go to make up a project, together with details of:

(a) Times for each activity. (b) Any other activities which must be completed before that activity can start.

Each activity is denoted by an arrow, with the activity name above and the duration below:

Installation

5 days

Each activity must start and finish with an event, denoted by a circle. The circle is divided into three sections, each with a number:

1 indicates the event number. Each event is given a unique reference number so that it can be easily identified.

3 indicates the Earliest Event Time (EET). This indicates the earliest time that the subsequent activity (arrow) can be started.

5 indicates the Latest Event Time (LET). This indicates the latest time that the subsequent activity can be started without delaying the overall project.

7.3 The following conventions are followed when preparing a network chart.

(a) Sequence from left to right (b) One starting and one finishing event for whole project (c) No looped or crossed lines (d) All events should be linked together (e) No more than one path between any two events

3 1 5


153

Calculating the EET & LET 7.4 The EET of the first event is always Nil. The EET for each subsequent event is calculated

by adding the duration of the activity to the EET of the previous event. If more than one activity feeds into the same event, then the higher of the two EETs is always used.

7.5 Having established an EET for each event, the LET for the final event is always the same as its EET. The preceding LETs are calculated by subtracting the duration of the activity from the later LET. This may lead to an LET that is greater (but never less) than the equivalent EET.

7.6 Where the LET is greater than the EET, the difference is referred to as slack or float. This indicates the delay that can be experienced by preceding activities without delaying the overall project.

7.7 Where the EET and LET are the same, there is no slack. This is referred to as the critical path – the sequence of activities that cannot be delayed without delaying the overall project.

7.8 Each activity on the critical path is marked with a double line on the arrow:

Dummy activity 7.9 Even if two activities start at the same time and share the same the start event, they must

each have a separate end event.

If the next activity cannot commence until both previous activities have been completed, then a dummy activity, shown by a dotted arrow, is required. This activity has no duration and normally points from the event with the lower EET to the event with the higher one.

In the network chart above, activities C and D have the same starting event so must have different ending events. However, as activity E cannot commence until both C and D are complete, a dummy activity is needed to join events 3 and 4 together.

Alternative approaches 7.10 The process described above is referred to as the activity on line approach. An alternative

approach, activity-on-node, is also recognised by the examiner and included in published answers. Since either technique is acceptable in the exam, it is BPP’s policy to only teach the simpler activity on line approach.


154

C

3

D

4 E

Lecture example 5 Technique demonstration

Required

Construct a network diagram from the information provided.

Activity Duration Preceded by A 1 – B 2 – C 3 A D 4 B E 6 C,D

Solution

3 2

6 3

7 4


155


Calculate the float time for a project activity if the earliest start time is day 3, the latest finish time is day 25, and the total time needed for the work is 17 days. Give your answer to the nearest whole day.

Solution

Milestones & control gates 7.11 A Network Chart is designed to enable a project to be properly understood and managed.

In order to do this effectively, additional controls can be added.

7.12 Milestones are key events that measure how much of the project has been completed and how much remains outstanding. By monitoring when these milestones have been reached, the progress of the project can be objectively measured.

7.13 Sometimes, the milestone cannot be passed until the project has been reviewed and a decision taken whether or not to proceed. Such milestones are referred to as control gates.

Managing risk and uncertainty 7.14 A Network Chart requires accurate data about the duration of activities. In reality, there will

be a degree of risk and uncertainty attached to this data. This can be managed in three ways:

Project Evaluation & Review Technique (PERT)

Three estimates are created for each activity: optimistic (o), probable (m) and pessimistic (p). Expected values are used to calculate the expected duration, and these are then incorporated into the network diagram.

Contingency planning

Alternative plans are drawn up in case of a risk materialising.

Buffering

Slack time is added in to the activity durations. This should not be encouraged as it can lead to inefficiencies and complacency.


156

8 Project management software 8.1 The management of complex projects has been dramatically facilitated through the use of

specialised project management software. These packages can assist with:

Budgeting Scheduling Resource planning Activity planning (Critical Path Analysis) Linking activities / sub-projects Creating Gantt Charts / Network Charts / Resource Histograms Reporting


Required

Discuss the advantages and risks of using project management software to plan a project.

Solution


157

9 Project closure 9.1 Once the project has been completed, it should be reviewed to evaluate its success and

learn from the experiences gained. The key closure activities are:

9.2 Organising and filing project documentation

With the dispersal of the project team on completion of the project, it is important to have full records kept for future reference.

9.3 Receiving and making final payments

Checking that all accounts are fully settled.

9.4 Formal sign-off from the customer

Confirming that all the agreed goals and objectives have been met.

9.5 Appraising the project team

Ensuring that the project team have been recognised for their contribution and, where appropriate, are able to move on to another project.

9.6 Reviewing the business case

Reviewing whether the project has benefitted the business in the manner expected.

10 Post-completion audit

10.1 The post-completion audit is a formal review of the project and its activities. It can be performed internally (with members of the project team) or externally (with the customer).

The following aspects of the project should be assessed:

Has the required quality been achieved? How efficient were the operations? Were the costs properly managed? Was the deadline achieved? Was the management of the project effective? How were significant problems dealt with?


158

Summary

END OF CHAPTER

Initiation Planning Execution Control Closing

Focus on processes: Product-based planning Change control Quality reviews

Process: Identification Analysis Prioritisation Management Resolution Monitoring

Analysis: Quantitative Qualitative Socially constructed

Management: Avoidance Transference Reduction Absorption

Uses: Budgeting Scheduling Resource planning Activity planning (CPA) Linking activities Gantt Charts Reporting

Project management

What is a project?

Project planning

Critical path analysis

Gantt charts

Project management software

Risk management The project life cycle

Control methodologies

159

Introduction

Syllabus Area C/D Managing relationships

Managing change through projects

20%/30%

Lead learning outcome


Discuss the concepts involved in managing projects

Syllabus component

Evaluate the issues associated with building, leading and managing effective teams

Discuss management and leadership issues associated with projects, including the roles of key players in projects

Context This syllabus component introduces you to the various theories behind creating effective teams, and how this translates to a project environment. The role of the chartered management accountant is also emphasised here.

You will need an in-depth understanding of the rational planning model and its alternatives, and when is appropriate to use them.


Building effective and high-performing teams 4, 8 Leading and managing teams 2 Factors associated with effective team work 5 Motivating team members 7 Resolving problems and conflict in teams 6 Project structures, including matrix structure and their impact on project achievement 9 The role and attributes of an effective project manager 1 The role of the Chartered Management Accountant in projects 12 The role of other key players in a project 10 Managing key project stakeholders 11 The lifecycle of project teams 3 Leading and motivating project teams 2

The Project Team

10: THE PROJECT TEAM

160


Chapter 9

Introduction to Project Management




161

Overview

The project team

Project manager Project team Organisational structure

Managing key stakeholders

Role of the management accountant

Formation & development of

teams

Team dynamics

Team effectiveness

Problems with teams

Motivating team members

Team roles

High performance teams

Project stakeholders


162

1 The project manager 1.1 The person who takes ultimate responsibility for ensuring that the desired result is achieved

on time and within budget is the project manager.

The project manager is, in many respects, a manager like any other (see Chapter 4). However, to fully understand this position we must consider the project manager’s role, responsibilities and skills.

1.2 Norris et al (1993) identify three aspects of the project manager’s role:

(a) Managing people (project team, customers, other stakeholders) (b) Carrying out the processes (or ensuring that they are carried out) (c) Producing the final output

1.3 The project manager is responsible for leading the project team to ensure that the project objectives are carried out to satisfy the needs of the customer. These responsibilities can be categorised using Fayol’s structure as seen in Chapter 4a (Planning, Organising, Commanding, Coordinating, Controlling).


You have been asked to recruit a new project manager for your organisation.

Required

Describe the main skills that the successful candidate needs to be able to demonstrate.

Solution


163

2 The project team 2.1 A group is “any collection of people who perceive themselves to be a group” (Charles

Handy 1993).

A team (see Section 2) is “a small number of people with complementary skills who are committed to a common purpose... for which they hold themselves mutually accountable.” (Katzenbach & Smith, 1994)

Teams are a type of group but not all groups are teams.

2.2 Creating a cohesive and well-informed team will be a key task for the project manager. Some of the common problems the project manager may have to overcome include:

(a) Unclear goals and objectives (b) Lack of team structure (c) Lack of role definition (d) Poor leadership (e) Poor team communication (f) Lack of commitment

2.3 At a basic level, a project manager requires the same skills as any other manager in creating a team.

3 Formation and development of teams 3.1 Bruce Tuckman (1965) described four stages of development that a team goes through:

(1) Forming: individuals begin to get to know each other. (2) Storming: disagreements emerge due to differences of opinion. (3) Norming: guidelines and standards of behaviour are agreed. (4) Performing: group begins to work effectively together.


ABC Ltd has just set up a task force of eight employees who will be responsible for implementing a new accounting software system. Although each individual is experienced in this field, there has been an increasing amount of interpersonal friction as working patterns and priorities are debated.

The manager responsible for delivery of the new system is concerned that the group may fall behind schedule. At the forthcoming staff meeting, he plans to communicate a zero-tolerance attitude to disagreement, telling people to “stop moaning and get on with your work”.

Required

Use Tuckman’s theory of group development to identify the stage that this group has reached.

A Forming

B Storming

C Norming

D Performing


164

Solution

3.2 One of the things that differentiates a team from a group is that its members have “complementary skills”. Meredith Belbin (1981) identifies nine roles necessary for a successful team:

Coordinator stable, dominant extrovert who clarifies the group’s objectives Shaper an anxious, dominant extrovert with a strong drive to get things done Plant a high-IQ introvert who generates original ideas Monitor-evaluator another high-IQ introvert who analyses the plant’s suggestions Implementer a controlled individual who converts the decision into a series of tasks Resource investigator a stable extrovert who gets useful resources from outside the group Team worker a low-dominance extrovert who keeps the team together Completer-finisher an anxious introvert who is mainly concerned with meeting deadlines Expert provides the knowledge and skills to solve technical problems

This list can be remembered using the mnemonic:

Combining Skilful People Methodically Into Robust Teams Creates Efficiencies

3.3 There is no requirement for each role to be performed by a separate individual – in small teams, one person can fulfil two roles.

4 Team effectiveness 4.1 There is a risk that, by the time the team reaches Tuckman’s performing stage, its

objectives no longer coincide with that of the organisation. To reconcile individual and organisational objectives, the following factors need to be considered:

Membership factors

Size of group, homogeneity of members, alternatives, membership of other groups

Environmental factors

Task, isolation, climate of management and leadership

Dynamic factors

Constant change, success and failure

4.2 Charles Handy (1993) simplifies this list by arguing that a team’s effectiveness depends on:

Givens the team, the task and the environment Intervening factors leadership style, procedures, motivation levels Outcomes productivity of the group, satisfaction of members


165

5 Team dynamics 5.1 Team dynamics will impact on an individual’s performance. It is the manager’s responsibility

to ensure that this impact is positive. In order to achieve this, he/she can choose from four of Steiner’s models:

Additive model

Each individual contributes independently of anyone else. Output is inefficient.

Conjunctive (coordination) model

High sequential dependence between members. Output dependent on weakest member.

Disjunctive (collaboration) model

The idea of the most competent member is implemented. Good for problem-solving.

Complementary model

The task is divided into component parts with a different model chosen for each.

6 Problems with teams 6.1 There are four common problems that can emerge even in the most successful team:

Conformity Individuals are pressured to agree with the majority against their better judgement

The Abilene Paradox Team members accept an idea they don’t like in the belief that everybody else supports it. In reality, nobody does.

Groupthink A strong culture of self-belief means that ideas generated by the team are not critically evaluated.

Risky shift Individuals recommend higher risk strategies than they normally would because accountability is diluted across the whole team


166

7 Motivating team members


Required

How can the problems associated with team working be overcome?

Solution

8 High performance teams 8.1 Peter Vaill (1989) identifies five characteristics of high-performance teams:

(a) They perform excellently against previous achievements and external standards (b) They exceed what is assumed to be their potential best (c) They achieve these results with fewer resources than assumed necessary (d) They are judged by informed observers to be superior to comparable groups (e) They are seen to demonstrate the ideals of the organisation’s culture

8.2 Staff at the Digital Equipment Corporation (1989) were found to have improved productivity by initiating a new work design involving teamwork:

Autonomous teams of 6 – 12 self-managing staff without front-line supervision

Each team had full responsibility for a whole section of the manufacturing process

Production targets were negotiated between the team and their product manager

Team members had no job titles and were expected to share their skills

Team members were paid according to their skills, not the job they were actually doing

Team members were involved in recruiting and appraising colleagues

An open plan factory floor encouraged communication


167


Which of the following is a not a flaw with Vaill’s research into high performance teams?

A The teams will eventually become demotivated as they are always encouraged to improve

B It requires cultural acceptance before implementation

C It will create a more efficient workforce

D It tells us what a high performing team is, but not how to create one.

Solution

9 Organisational structure 9.1 If an organisation is governed by a strict functional structure, it can be difficult for a project

team to be formed. Organisations which initiate many projects will need to consider how departmental barriers can be broken down to allow project teams to develop.

9.2 Large scale projects require clear lines of authority at both functional and divisional levels. This makes a matrix structure, which merges the two levels, particularly appropriate.


168


Required

Explain the benefits and disadvantages of a matrix organisational structure.

Solution

10 Project stakeholders 10.1 Stakeholders are people who have an interest in the end results of the project. They are not

all necessarily involved in the day-to-day work, but may attend project meetings.

10.2 Key stakeholders in a project are:

10.3 Project sponsor

(a) Provides the necessary resources for the project (b) Gives authorisation for the project to go ahead (c) Responsible for budget provision

Project brief, allocation of funds, terms of reference passed down

Project proposals schedules, status reports passed up

Project Sponsor

Project Owner

Project Customer

Project Manager

Project Team


169

10.4 Project owner (client)

(a) Person for whom the project is undertaken (b) Wants required end results delivered (c) May not be the end user

10.5 Project customer

(a) End user whose needs should be satisfied by the project

(b) Constant involvement and interaction with the project avoids ongoing problems (particularly if the customer is a group with diverse needs)

10.6 Project champion

(a) Presents the project to the rest of the organisation (b) Communicates vision, objectives (c) Secures commitment and resources

10.7 Suppliers/subcontractors

(a) Provide valuable inputs to the project; labour or raw materials (b) Their opinions may conflict with other project stakeholders

11 Managing key project stakeholders 11.1 Project managers need to consider stakeholders when initiating their projects. Mendelow’s

Matrix analyses the power and interest of different stakeholder groups. It is used to:

(a) Track changes in the influence of different stakeholder groups.

(b) Assess the impact of a proposed strategy on stakeholders.

Level of interest

Low High

Low

A

Minimal effort

B

Keep informed

Leve

l of p

ower

High

C

Keep satisfied

D

Key players


170

Assessing stakeholder power

11.2 High power in the matrix is caused by the stakeholder’s:

Status – place in the organisational hierarchy, reputation, social standing

Their claim on resources – size of budget, number / level of staff in their department, volume of business transacted with them, % of workers they represent (trade union)

Formal representation in decision-making process – level of management, presence on committees, legal rights (e.g. shareholders, planning authorities etc)

Assessing stakeholder interest

11.3 The level of interest involves two factors:

What they want – the assumption is that stakeholders will pursue self-interest. Do they have the time or inclination to follow management decisions closely?

Strategies to deal with stakeholders

Level of interest

Low High

Low

These malleable stakeholders are likely to accept what they

are told.

Presenting the strategy as rational or inevitable will reduce the likelihood of

stakeholders joining forces with high power stakeholders.

Leve

l of p

ower

High

Reassure them of the likely outcomes of the strategy well

in advance.

Having had the need for change explained to them,

these stakeholders should be involved in discussion

solutions.

Lecture example 6 Technique demonstration

Required

The project manager of ABC Ltd’s task force responsible for implementing a new accounting software system has just had a bad run-in with a key stakeholder, which led to the team losing 10% of their budget. To prevent further problems, he has instructed the management accountant to complete a Mendelow’s Matrix, complete with recommendations on how best to manage each of the stakeholders.


171

Solution

Level of interest

Low High

Low

Le

vel o

f pow

er

High

Resolving conflicting objectives between stakeholders 11.4 Conflicting objectives can be resolved using rational, mathematical techniques:

(a) Prioritisation – management specifies criteria for objectives to meet (e.g. 10% ROI).

(b) Weighting and scoring – each option is ranked based on the extent to which it meets defined criteria.

(c) Composite measures – such as the balanced scorecard.

11.5 Alternatively non-mathematical approaches may be used.

(a) Satisficing – a hybrid of satisfying and sufficing – the strongest stakeholders are satisfied; the rest are given enough to suffice.

(b) Sequential attention – the organisation prioritises a particular goal for a period of time before moving on to another one.

(c) Side payments – if stakeholders are disadvantaged, they are offered compensation.

(d) Exercise of power – the use of force to resolve deadlock.

12 The role of the management accountant 12.1 One specialist project stakeholder is the management accountant. The skills of the

management accountant are well suited to supporting project teams as they are able to monitor project progress from a financial perspective. In the case of large scale projects it is common practice for the project team to be supported by a dedicated project accounting function distinct from the organisations main finance department.


172

12.2 The management accountant can support the project team in a number of ways, including:

(a) Conducting a cost-benefit analysis of the project proposal as part of the feasibility study

(b) Working with the project manager to produce project budgets and forecasts

(c) Updating the project accounting system to ensure that accurate project information is recorded

(d) Maintaining a complete audit trail of project documentation to facilitate the post-completion audit

(e) Arranging stage payments to project suppliers

(f) Monitoring project progress against the budget and investigating variances

(g) Interpreting variance analysis and communicating this to the project manager to help avoid project slippage (i.e. cost overruns)

(h) Analysing and interpreting management reports for project team members to facilitate project decision making

(i) Liaising with the project sponsor to discuss additional project resource requirements


173

Summary

The project team

Project manager Project team Organisational structure

Managing key stakeholders

Role of the management accountant

Formation & development of

teams

Team dynamics

Team effectiveness

Problems with teams

Motivating team members

Team roles

High performance teams

Project stakeholders

Norris:

1 Manages people

2 Carries out processes

3 Produces final output

Fayol: Planning Organising Commanding Coordinating Controlling

Matrix Advantages: Better decisions Improved communication Direct contact rather than formal control Develops managers

Disadvantages: Lack of clear responsibility Conflict between functions


174

END OF CHAPTER

175

You have now covered the Topics that will be assessed in Step 5 in your Achievement Ladder. This mainly focuses on the shaded topics below but will also include some recap questions on earlier topics.





1a

1b





4a

4b

Culture Culture 5







Introduction to project management 9

The project team The project team 10


Achievement Ladder

176

177

In the final run up to your exam, you should attempt Step 6 as the final check that you are fully prepared for your real CBA exam.

It covers all the Topics in your course. As ever, you will receive feedback on your performance, and you can use the wide range of online resources to help address any final areas where you need to fine tune your knowledge or technique.




1a

1b





4a

4b

Culture Culture 5







Introduction to project management 9

The project team The project team 10


Achievement Ladder

178

179

Answers to Lecture Examples

ANSWERS TO LECTURE EXAMPLES

180

Chapter 1a

Answer to Lecture Example 1 C

Because the consultant has been specific about functions, stores and departments’ contributions will help the overall strategy, this is a functional strategy. Corporate strategy is the setting of overall objectives, business strategy is the translation of those objectives into tasks at the business unit level. Competitive strategy considers how a company will respond to/beat its competition.

Answer to Lecture Example 2 Advantages:

Avoids short-termist behaviour Helps identify strategic issues Gives goal congruence Improves stakeholder perception of the business Provides a basis for strategic control Develops future management potential and ensures continuity

Disadvantages:

Too infrequent to allow the business to be dynamic. Prevents the development of radical or innovative strategies. Harder to implement due to lack of participation of middle / junior management. Loss of entrepreneurial spirit Impossible to use in uncertain business environments. Too expensive and complicated for a small business.

Answer to Lecture Example 3 Hooley’s five criteria for a mission statement should be used to structure your answer:

(a) Provide a basis for consistent decision-making. (b) Assist in translating direction into objectives suitable for assessment and control. (c) Provide a consistent purpose between different interest groups (stakeholders). (d) Establish organisational goals and ethics. (e) Improve understanding and support from key groups outside the organisation.

There is no single, correct answer to this, but the marker will look for a good balance between agreeing and disagreeing.

Answer to Lecture Example 4 D, E

For a services company these are the most important factors. Inbound logistics will probably be insignificant as there is little product to bring into the company. Procurement and firm infrastructure are support activities.


181

Answer to Lecture Example 5 The rational planning model is a structured process. The manager’s duty is therefore to complete each stage of the process in the prescribed order. This will involve gathering and analysing information from a variety of sources before identifying a range of options and selecting one. The manager will need to adopt a logical, bureaucratic approach to the task in order to ensure that key stages are not omitted. Having implemented the strategy, all members of the team will have a clear and defined set of criteria to measure performance against.

Although, according to Quinn, logical incrementalism can use a formal process such as the rational planning model, this approach emphasises the need to gain the consensus of stakeholders. A manager in this context will need to “sell” the changes, often through the use of political networking. This almost inevitably means that the change is more gradual, as stakeholders are given the opportunity to accept one change before the next is imposed. It also requires clear and consistent communication – something that can be lacking in many stages of the rational model. However, the incremental nature of the change means that the full strategy is not revealed (or sometimes even planned) in a single event. This means that the manager will need to manage staff by referring to a wider mission or corporate objective rather than a specific strategy. This will inevitably be less specific and invites a greater degree of discretion (not to say uncertainty) from all involved.

Answer to Lecture Example 6 B, C

The positioning approach means considering the external environment and then changing the business to fit the market. The market doesn’t necessarily have to be predictable, the business would change as the market changes. A resource-based view takes the opposite approach and focuses on internal competences that can be used to approach the market in any situation.

Chapter 1b

Answer to Lecture Example 1 Limited growth in traditional & home markets Increased competition in home markets Consolidation and development of trading blocks Liberalisation of trade, resulting in increased international investment Free trade opening up emerging markets Potential cost / market share advantages Lower production costs in developed countries Development in communication networks Developments in transportation technology Global financing.

Answer to Lecture Example 2 Widening differences in incomes and living standards in industrialised countries Increased demand for flexibility in workforces, both numerically and functionally Change in government policy to promote small firms, increased use of IT, attracting FDI Increased pressure for global governance


182

Answer to Lecture Example 3 B

A joint venture results in a separate legal entity being created and the sharing of risks and rewards.

Answer to Lecture Example 4 Transaction costs:

Negotiating / drafting the contract Monitoring the supplier’s compliance Pursuing legal action in the event of a breach Penalty / cancellation payments if the customer’s needs change

Difficulties in quantifying the above are caused by:

Bounded rationality

When the contract is entered into, neither party will be able to predict the future, and, by extension, their future needs.

Opportunistic behaviour

The supplier may try to exploit loopholes in the contract in order to further their own self-interest.

Answer to Lecture Example 5 Arguments in favour:

Firms may incur additional costs (e.g. paying staff more than minimum wage) Revenue may be reduced (e.g. not promoting alcohol to teenagers) Dividends could be diverted to charitable donations Management and staff time could be diverted to charitable projects

Arguments against:

To be sustainable, a firm cannot conflict with society. Attracts socially conscious investors and customers. Improves relations with governments and other regulatory bodies. Improves staff motivation and morale

Chapter 2


The management’s accountant’s research is national and has captured demographic factors. As such it belongs in the “national social” category.


183

Answer to Lecture Example 2 According to the World Trade Organisation, most nations have pledged to abolish protectionism.

Factors in favour of Free Trade:

The country would be able to utilise its resources to gain a global competitive advantage Encourages entrepreneurship and free rein Protectionism promotes international conflict Encourages most efficient use of resources Encourages general economic growth

Factors against Free Trade:

Undermines national culture (impact of goods from abroad) Big multi-nationals can exert significant power (e.g. Wal-Mart) Reduction in national security due to reduced border control

Protectionism protects small start-up companies and allows them to grow

Answer to Lecture Example 3 D

High competition would discourage new entrants, both a monopoly supplier and one large customer would make it harder for an organisation to break into a market and establish beneficial working relationships. Low competition could mean there is much to be gained from entering a market.


Strategy structure and rivalry consider whether a company’s culture, structure, and position in the market help or hinder a company. Demand in the home market is “demand conditions”, the presence of competitive supplier industries is “related and supporting industries” and demand in the global market is not an element of the diamond.

Chapter 3 Answer to Lecture Example 1

B

An industry competitor is where the companies sell the same products but are different in size and/or structure.

Answer to Lecture Example 2 Products & services Marketing HR Operations Management profiles Socio-political Technology Organisational structure Competitive intelligence capacity Strategy Customer value analysis Financial


184

Answer to Lecture Example 3 (a) Physical analysis (reverse engineering)

Ex-employees

Current employees (but this would be industrial espionage and therefore unethical. Not one to recommend in the exam!)

Generalisation based on own cost base

Industry experts/consultants

Physical observations (stand outside factory)

Sony’s published accounts (limited detail)

Trade and media coverage

(b) Sony’s strategy was to secure the Blu-Ray’s dominance over Toshiba’s HD-DVD as the successor to the DVD. By effectively giving the hardware away free, it succeeded. The question is whether the life cycle of Blu-Ray will be long enough to justify the cost of doing this.

Answer to Lecture Example 4 A

While big data does allow an organisation to hold more data that can be mined for insights and potentially lead to new revenue streams, it doesn’t necessarily mean that decisions will be made any faster.


Differentiation is a strategy whereby a company makes its products or services different from those of their competitors, thereby attracting a customer who is looking for a certain characteristic. It is not about competences, brand, or pricing.

Chapter 4a


Management is an admin role, the skills that a manager has should be transferrable to any organisation regardless of the product or service being sold. He should probably not admit that he isn’t the strongest candidate if he wants the job, and the other two options may not help him build a strong case either.

Answer to Lecture Example 2 Weaknesses:

Dehumanises work, presenting workers as machines Work study misused by management, provoking worker/manager/union conflict

Contemporary situations:

Anywhere where a simple, standard process is repeated many times e.g. McDonalds, call centres, hotel chamber maids


185


In a hospital it is important that staff be competent and that there are clear rules and procedures because the risks of something going wrong are high and the consequences devastating. Decisions and actions must be recorded so that patients don’t receive medication twice, for example. A lack of innovation is a problem because there may be better treatments waiting to be discovered but are not because everyone is following standard procedure.

Answer to Lecture Example 4 The “Hawthorne Effect” (aka The Experimenter Effect) is the increase in productivity simply because the staff were being observed. Each time the lighting was changed, it reminded staff that they were being watched and their productivity increased.

However, when Mayo repeated the experiment, the group dynamics were different – this time, the workers had agreed between themselves not to react to being observed.

The examiner mentions in passing that the first group (who changed) were female while the second group (who refused to) were male!

Answer to Lecture Example 5 A, C

HYGIENE FACTORS

Clear rules & procedures (when can you stop & search?) Fair supervision (probably a degree of trust / discretion given to PCs – i.e. not micro-managed) Salary (important to highlight as a hygiene factor, even if it is a generic point) Working conditions (as much safety as possible, manageable hours, a staff canteen)

MOTIVATIONAL FACTORS

Sense of achievement – making a difference in the communities he/she polices Level of responsibility – trusted to deal with potentially volatile situations Recognition – by superiors (promotion) and public (respect for the uniform?) New challenges – never the same day twice

Answer to Lecture Example 6 Advantages:

Gets employees involved in performance management More likely to achieve targets More realistic targets Training for lower level management Considers more than financial performance

Drawbacks:

Takes more time therefore costs more Could be open to abuse by individuals (although unlikely!) Disagreement over what objectives & measures should be Requires continued input


186

Chapter 4b


It looks like the Finance Director has referent power because his staff are loyal and committed to him and he fosters strong relationships. The fact that he is capable may mean that he also has expert power but the emphasis in this scenario seems to be on his likeability!

Answer to Lecture Example 2 Delegation is the process whereby a manager assigns part of his authority to a subordinate but the manager’s responsibility can never be delegated.

Answer to Lecture Example 3 Famous leaders could include Winston Churchill, Nelson Mandela, Mahatma Gandhi. Many (but not all) of their traits are highlighted in trait theory.


Trait theory is problematic because it is hard to measure characteristics like “charisma” effectively, there are so many traits that it might be unlikely for any one person to have them all, and exceptions to the rule are not considered. If trait theory is used in the search for a leader, it should be possible to choose a highly effective person.

Answer to Lecture Example 5 Country club – in a country club (!) i.e. when the organisation exists solely for the enjoyment of its members/staff. Also applicable if you are reliant on voluntary staff.

Authority compliance – in times of crisis (e.g. military combat; company liquidation looming) when survival depends on swift, task-focussed decisions. Note this approach is not sustainable in the long-term.

Chapter 5

Answer to Lecture Example 1 A, E

Values and beliefs are not observable but they have observable manifestations. A quality product, polite treatment of staff and prompt refunds are observable. Staff contentment and a “customer is king” attitude are not visible in themselves but will be manifested in staff attitudes toward their work and their customers.


187

Answer to Lecture Example 2 Stories – manager can influence but no more than any other member of staff. In fact, the manager may find themselves excluded from social conversations and therefore have less influence.

Routines – manager can assert a lot of control over routines

Rituals – these rituals can be set up by the manager. Attendance and participation can be enforced but not enthusiasm or support.

Symbols – entirely controlled by the organisation

Power structures – the management can allocate authority but not power

Control systems – this is decided upon by management, as is the organisational structure


Using a matrix structure that doesn’t follow a traditional functional hierarchy can be confusing to employees who now have more than one manager and may struggle to effectively prioritise their workload.

Chapter 6

Answer to Lecture Example 1 Avoidance strategies and HRM strategies are not viable options here, given the level of union membership and critical nature of employment.

Collective bargaining is the most obvious solution here. It recognises that there is a significant conflict that cannot be easily resolved. Given the nature of the relationship, it is likely that there have been similar issues in the past, and the process of collective bargaining is one that will be familiar to both parties.

In conjunction with collective bargaining, the government may offer alternative gain-sharing initiatives. This could include a salary increase to compensate for the loss of pension rights which could be weighted towards those with the longest service record who stand to lose the most under the new terms.

Ideally, the government and trade union should build a closer working relationship to prevent conflicts like this emerging in the future. The government could implement labour management teams in order to improve worker participation although, given the level of unionisation, this is likely to be difficult to sell to staff.

The alternative would be a partnership agreement, which would identify areas of common interest for the government, the union and the workers and would act as a point of reference in the event of any future disagreement.


Incurring more costs is not a benefit of offering flexible child care provisions because it will reduce profitability. Offering the provisions does have knock-on benefits however including employee retention, reduced absenteeism and a good reputation.


188

Answer to Lecture Example 3 On the surface, this sounds like discrimination, as discrimination legislation applies to all forms of discrimination, including the “positive discrimination” outlined here.

However, the scenario highlights that the police force is dominated by white, 25 - 35 year old men. There is no evidence of direct discrimination – in fact, there appear to be controls in place to prevent this. This suggests that there may be indirect discrimination taking place.

Indirect discrimination is when criteria are set that, while not obviously discriminatory, effectively prevent people from disadvantaged groups from applying. For example, if police officers were expected to be clean-shaven (for which there is no apparent requirement to perform the job), this would be indirectly discriminatory against Sikhs. Similarly, if recruitment advertising was limited to publications and locations not frequented by ethnic minorities, this could also be seen as indirect discrimination.

Given the duty of the NPF to police the whole community, there will be some situations that a white, 25 - 35 old officer may be ill equipped to deal with. Examples could include crimes of rape or religious / racial hatred. In such cases, the victim is more likely to report the crime if they feel they are going to be sympathetically dealt with by someone who understands their background and life experience.

It is legal (and advisable) to discriminate on the grounds of race, sex or religion if it is a requirement for the job. Given that the NPF is definitely not representative of the population as a whole, the Chief Constable would be advised to include religion, sex and ethnic background as considerations when recruiting police officers until a more reasonable balance is achieved. It would also be beneficial to review the recruitment policies to ensure that any indirect discrimination (however unintentional) is removed.


By including customer feedback in the appraisal system, Y is recognising that the manager does not always see the great customer service being given.

W Co’s method of appraisal fails to keep appraisals relevant because they are happening too infrequently.

X Co might use a 360 degree appraisal system because that system includes rating yourself.

Z Co is using an upward appraisal system because subordinates are rating their superiors.

Answer to Lecture Example 5 By being outside the official organisational structure, the mentor is free from operational issues and able to provide a degree of objectivity and independence.

Henri can therefore address broader issues such as Bruce’s choice of qualification, career goals and any interpersonal problems. He can give Bruce honest advice about his performance in order to identify his strengths and weaknesses. Because this is not done in a formal appraisal context, Bruce has the freedom to be entirely open and honest without fear of undermining his reputation within the workplace.

As the relationship between mentor and pupil develops, the mentor can act as a sounding board for ideas. This will allow Bruce to question and reflect on his experiences in a safe, supportive environment.

The support of a mentor provide the following benefits to Gotham plc:

Improved motivation on the part of Bruce

Lower levels of staff turnover – Bruce is less likely to leave Gotham plc if he has a wider support base


189

Faster career progress – Bruce can use this as an opportunity to develop his management skills (as opposed to his technical knowledge).

It is important, however, that Henri works alongside Alfred and the formal mechanisms within Gotham plc (e.g. appraisal). Both mentor and manager should have a shared goal of maximising the potential of the individual, even though they are coming at it from different perspectives.

Answer to Lecture Example 6 Work done slower Miscommunication of tasks and results Misunderstanding/lack of recognition of problems Poorer quality solution due to lack of collaboration

Chapter 7

Answer to Lecture Example 1 Classical school

Strict adherence to rules and procedures. Control systems such as standard costing and budgeting come in here. The problem is, this doesn’t recognise human aspects: such control is demotivating and, as a result, can lead to poor quality output.

Human Relations school

Control is based on interpersonal interaction rather than adherence to rules. I.e. obey what your manager tells you (rather than what the social group is telling you). This relationship allows the manager to listen to the workforce but relies on the manager acting in the best interests of the company.

Contingency theory

Control is a variable that depends on the particular situation. The control system is therefore unique and tailored. This makes it well-targeted but potentially expensive (in terms of cost and time) to create.


The Balanced Scorecard increases the number of performance indicators used to manage the business because it considers more than just financial factors (customers, internal business processes, and learning and innovation).

The Balanced Scorecard does not create strategy, it is a product of strategy. Any time period can be used for reporting. A “traffic-light” system could be used but this is not mandatory.

Answer to Lecture Example 3 This transition has led to many management accountants focusing their role to that of a business partner, adopting a more commercial, action-orientated approach. This means gaining broad knowledge of the business, participating as full members of operational teams and bringing financial expertise to the management process. They are expected to integrate management accounting information with strategic management accounting data.


190

Answer to Lecture Example 4 Benefits:

Cheaper (economies of scale) Access to specialist experience of outsourcer Release internal finance capacity for strategic decision-making support

Drawbacks:

Loss of control Erosion of internal knowledge / skills Loss of competitive advantage

Elements to outsource:

Transaction processing elements can be easily outsourced due to their routine nature. Strategic elements of investment and financing decisions are better kept in house where specialist knowledge can be applied. The main issues are the value added by the activities and whether they are considered to be core to the overall objectives of the organisation.


Collaborative working relationships should mean greater efficiency and motivation as staff understand each other and the business much better. This results in greater profit. This does not necessarily translate into staff retention.

Chapter 8

Answer to Lecture Example 1 A company could use environment scanning initially to ascertain the existence of any broad triggers of change. Triggers would then need to be analysed in more detail using primary research. It is important to identify the triggers of change so that a company can plan to deal with them.


A refers to adaptation C refers to reconstruction D refers to revolution


The unfreeze process is about disrupting the current state of affairs so all of the options can be part of the “unfreeze” phase.


Force field analysis identifies the forces driving change (for change) and the forces restraining it (against change). It does not necessarily help identify forces that facilitate change or people who can help. It does not only identify the factors blocking change.


191


Negotiation and agreement involves compensating employees for losses suffered as the result of a change – a prize would count here as “compensation”. Participation and involvement is asking for employees’ ideas before/during change implementation, facilitation and support involves addressing technical and emotional/psychological needs as a result of the change, and manipulation and co-optation involves encouraging staff to accept the change through indirect means such as making the members of a team put pressure on a resisting team member to change.

Chapter 9

Answer to Lecture Example 1 (a) Stakeholders with a vested interest in the outcome (b) A unique nature – something that has not been done before (c) Two sets of objectives:

(i) Completing the project within the time / cost / quality scope agreed. (ii) Helping the organisation to deliver its strategy.

(d) Allocated resources (money, people, time etc) (e) Schedules designed to manage time and resources (f) Customer satisfaction used as a measure of success (g) A degree of uncertainty due to the risks involved (h) A finite timescale (i) On completion, the team moves on to a new project

Answer to Lecture Example 2 Time – crucial factor here, even if quality / cost have to be compromised

Cost – high due to need for quality reasons below

Quality – actual house likely to be very poor quality (not enough time to take care) but labourers need to be fast, reliable and able to think on their feet

Scope – meet minimum technical requirements for the house (1 storey, small etc). Not important if it falls apart in a week’s time (?)

Resources – very high level of human resource (see quality) need contingency of people on hand to trouble-shoot

Risk – very high due to complex nature of project and excessively tight timescale. Pre-empt whenever possible (e.g. postpone if it rains)

Integration – stand-alone project that doesn’t impact on other building work (other than branding)

Communication – integral to a timely completion. Very clear structure for signing off each stage

Procurement – probably low quality materials, but may need to pay premium to get everything on site at the right time.


192


PRINCE2 is a project control methodology, designed to keep the project on track.

Increased bureaucracy and “red tape” is usually not a benefit to an organisation. PRINCE2 actually increases autonomy by allowing project managers to control the project themselves. Specialist knowledge is beneficial but not required. PRINCE2 is a detailed programme which means that people who lack expertise in project management can still do a good job of running a project.


The team have reduced the likelihood of hackers being able to gain entry to the system. Transfer – take out insurance Avoid – not to the thing that gives rise to the risk Absorb – go ahead regardless.

Answer to Lecture Example 5

Answer to Lecture Example 6 4 days

If the start time is day 3 and the finish time is day 25 there are 22 days to complete the project (25 – 3 = 22). If the project takes 17 days there are 4 days spare (22 – 17 = 4).

Answer to Lecture Example 7 ADVANTAGES:

Accuracy Affordability Ease of use Ability to handle complexity What-If analysis

RISKS:

Emphasis on maintaining plan rather than performing project Mythical man month (i.e. 10 people in 1 day can’t always do the work of 1 person in 10 days) Estimates used for planning purposes may not be correct. Work breakdown structure may not match how people actually work. Do people have 8 fully productive hours each day?

1 0

0

2 1 3

4 4

6

C

3

Critical Path: B D E

A

B

1

2 3

2

2 5

6

6

D

4 6

12

126

E


193

Chapter 10

Answer to Lecture Example 1 Leadership Communication Negotiation Delegation Problem-solving Change management


The correct answer is “storming”. At this stage the group will experience conflict. This is a normal part of team formation. Forming is where the team is first assembled, goals and roles are unclear. Norming is when the team settles into their roles and norms are established. Performing is when the team is executing the task to the best of their ability.

Answer to Lecture Example 3 Training and development Use of Tuckman in forming groups Regular feedback Team building exercises Demarcation of roles/responsibilities

Answer to Lecture Example 4 C A more efficient workforce can never be a bad thing! The other options are flaws in Vaill’s theory.

Answer to Lecture Example 5 Benefits:

Improves decision-making by bringing a wide range of skills and experiences from different departments

Improves communication between technical specialists

Encourages direct contact rather than formal controls

Allows managers in the business to develop by experiencing company-wide issues

Disdvantages:

Lack of clear responsibility

Conflict between functional and divisional reporting

Difficult for specialist to appraise the performance of those delivering a different technical discipline

Excessive time spent managing the matrix (interpersonal conflicts, prioritising tasks)


194

Answer to Lecture Example 6 Interest groups:

Users of the software Customers of the finance team The key stakeholder Suppliers of the new system

Methods of managing:

Communicate scope Request ideas & input Establish needs for reporting Payments on time Frequent dialogue

END OF ANSWERS TO LECTURE EXAMPLES


195


196

BPP House, Aldine Place, London W12 8AA

Tel: 0845 0751 100 (for orders within the UK) Tel: +44 (0)20 8740 2211 Fax: +44 (0)20 8740 1184

www.bpp.com/learningmedia

e2 Bpp Study Notes

Documents

Transcript of e2 Bpp Study Notes