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BUSINESS UNIT 4Laura Powell
CORPORATE AIMS AND OBJECTIVES
Corporate Aims: The long term intentions of a business.
Corporate Objectives: targets that must be achieved in order to meet the stated aims of the business.
Corporate Strategy - Medium to long terms plans of a business.
Key corporate aims and objectives:- Survival- Profit- Growth- Diversification- Market standing- Meeting the needs of other stakeholders
Mission StatementsMission Statement : a qualitative statement of an organisations aims.
It uses language intended to motivate employees and convince customers suppliers and those outside the firm of its sincerity and commitment.
Mission statements are designed to:
- Provide guidance for the overall direction of the business- State the overall goal- Help inform decision making at all levels- Create a shared focus for all employees, it should therefore be communicated.
Mission Statement
Corporate Aims
Corporate Objectives
Corporate Strategies
Low cost versus differentiation (Michael Porter’s Strategy)
Analysis of porter’s 5 forces, it’s a basic premise that a firm should be one thing or another and clearly focused on their choice of strategy. Strategic advantage
Low producer cost
High differentiatedStrategic
targetMass Market Cost
leadershipDifferentiation
Niche Market Focused cost leadership
Focused Differentiation
Ansoff’s Matrix
Differing Stakeholder Perspectives
Stakeholders - Anyone with an interest in the actions of a business.Stakeholders can be:- Internal (Managers and employees)- External (Consumers, suppliers and the community)
Stakeholder perspectives - the views that different stockholders have regarding the objectives and strategies of an organisation.There is often a conflict between interest between different stakeholders, e.g;- Shareholders want higher dividends through profit maximisation whilst workers want higher wages.
Employees- Degree of motivation - a motivated workforce is more effective.- Employee/employer relations - pressure on the business to improve working conditions.
Suppliers- Relationships with suppliers - ability to negotiate better payment terms and prices.- Looking after suppliers - paying a fair rate
Customers- Meeting customers expectations- ensuring products are a good quality.- Degree of competition to exploit the customer.
Shareholders- Maximising returns - short term payments of dividends as well as long term share value.- Ethical investment - priorities and views of individual shareholders.
Community- Environmental impact - on both the local and wider community e.g pollution- Social Responsibility - community projects and providing training.
Government- Legislation - meeting demands of existing and new legislation to protect customers, employees and the environment- impact of taxation and government spending
Stakeholders thoughts…
Impact of economic impactThe economic environment consists of the key economic factors that influence the behaviour of businesses and their customers. These include:
-The business cycle
- interest rates
-exchange rates
- inflation
-Unemployment
-Economic growth
The Business Cycle• Boom: high levels of consumer spending, business confidence, profits and investment. Prices and costs also tend to rise faster. Unemployment tends to be low as growth in the economy creates new jobs• Recession: falling levels of consumer spending and confidence mean lower profits for businesses – which start to cut back on investment. Spare capacity increases + rising unemployment as businesses cut back and reduce stocks
• Slump / depression: a prolonged period of declining GDP - very weak consumer spending and business investment; many business failures; rapidly rising unemployment; prices may start falling (deflation)• Recovery: things start to get better; consumers begin to increase spending; businesses feel a little more confident and start to invest again and build stocks; but it takes time for unemployment to stop growing
Interest RatesThe price of money - the cost of borrowing or the reward for saving money. They are used by the Monetary Policy Committee to control demand and therefore inflation.The BoE interest rate is currently set at 0.5%
How interest rates affect businesses;- Gearing (high gearing businesses are sensitive to IR change)- Supply (If IR are high it is expensive to buy equipment)- Demand (Higher IR means less disposable income ; higher mortgage rates which lowers demand)- Exchange Rates (Higher IR means foreign investors and making £ worth more and appreciate)
Interest Rate0.5%
Exchange RatesThe value of ones country’s currency in terms of another.
How do exchange rates affect businesses?- If the country has a strong exchange rate.
- Firms that import will be able to buy cheaper raw
materials and finished goods.- Firms that export will experience less demand
- If the UK has a weak exchange rate. - Greater demand for UK products- Input prices will increase if raw materials are imported.
Currency Rates£1 : $1.67£1 : €1.21£1 : ¥10.33
S trongerP oundI mportsC heaperE xportsD earer
InflationA general rise in prices or a fall in the value of money.
Consumer Price IndexJanuary 2014: 1.9%February 2014: 1.7%
There are two main types of inflation:
Cost Push - an increase in input prices. e/g raw materials and wages.
Demand Pull - an increase in demand allowing firms to raise prices.
There are two main measurements:
Retail price Index (RPI) - a measurement of a ‘basket’ of goods and services representative of what people buy in the UK.
Consumer Price Index (CPI) - similar to RPI buy it excludes housing costs. The governments target is 2% for CPI.
Retail Price IndexJanuary 2014: 2.8%February 2014: 2.7%
How does inflation affect businesses:- if the price is inelastic then increased costs can be passed onto the consumer, if not there could be lower profit margins.- if demand falls firms may reduce supply affecting operations management; capacity is reduced and firms rationalise with a greater focus on cost minimisation.- Difficult to maintain competitiveness if the firm has to raise price. If a firm exports then it may see customers move to companies abroad where prices aren't rising as fast.
Unemployment
Those people looking for work who cannot find a job.
Types of unemployment:- Structural (changes in the economy - whole industries decline)- Cyclical (linked to the business cycle - slump = unemployment)- Frictional (when people are between jobs)- Seasonal (holiday jobs and christmas temps)
How unemployment affects businesses:- Skills shortages/surplus- Demand is affected - consumers have less income- High/Low costs - wage rates are affected by number available
Unemployment Rate2.33% December 2013
Economic GrowthA rise in the value of GDP.
GDP measures the value of goods and services produced in an economy each year. Growth occurs because of changes in the factors of production and it focuses on an increase in supply rather than demand.
How does economic growth affect businesses:- Demand (consumers will have more disposable income)- New business start-ups (greater confidence in the economy)- Inflation (higher demand can lead to skills shortages and demand pull
inflation)- Negative economic growth occurs when the value of GDP starts to fall.
GDP4th quarter of 2013 0.7%
Globalisation of MarketsGlobalisation - The international economies leading to a world market.
Impacts on businesses:- opportunities for market development- relocation or outsourcing to low cost countries- increasing competitive nature of the organisational structure
Benefits Drawbacks
Opportunities to sell in new markets. Greater consumer choice
Economies of scale for global businesses
Communication and transport problems
Global marketing strategies can create a global brand increasing the power in the market for the business.
Global localisation to meet local tastes and cultures
Off shoring provides greater scope Bad reputation from withdrawing from UK
Increased competition improves efficiency
Exploitation of foreign workers and the environment can lead to bad publicity.
Developments in emerging markets
Emerging markets- countries with low to middle average income per person.
Include the BRIC (Brazil, Russia, India and China)
How can an emerging market benefit UK firms?
How can emerging markets cause problems for UK firms?
Emerging markets are rising starsOpportunities are created by:- rapidly rising consumer incomes- fast growing markets- exploitable natural resources- exploitable cheap labour
Problem children or dogsThreats are created by:- poor infrastructures - accusations of exploitation- cultural and legal differences
Government InterventionGovernment Regulation - Restrictions to control markets.These occur for a number of reasons:- Monopoly Power (to stop the public being exploited)- Merit and public goods (to provide things that are needed)- De-merit goods - to restrict the goods that harm society.- Protect employers and and consumers- Competition law -providing greater choice and lowering prices.
Government subsides: financial assistance given to individual and industries to provide goods/services.
Taxation: A financial charge by the government on an individual or a firm.
This helps reduce the price to the customer- To provide merit goods-To protect jobs or infant industries.
The government can change taxation to try to control the
economy (to stimulate or curtail)
Government PoliciesEconomic Policy - Actions taken by the government to stimulation/control economic activity.
Monetary policy - Government police to control the demand for money, this is done by interest rates and the supply of money. It is used to control inflation to achieve the target of 2%
Fiscal Policy - Government policy on taxation, expenditure and borrowing to control the economy.Contractionary fiscal policy- occurs when the government reduces expenditure and/or increases tax.Expansionary fiscal policy - entails increasing government expenditure and/or reducing tax.
Supply Side Policy - Government policy to help increase the supply of goods and services.
The key intention is to allow markets to operate efficiently in order to improve the quality and increase the quantity of output. Types of policies include:- Privatisation or nationalisation- Deregulation- Improving education and training of the workforce- Labour market reforms.
Nationalisation- The transfer of private sector organisations into the public sector.
Privatisation- The transfer of public sector organisations into the private sector.
Government might decide to nationalise key industries such as energy and transport. It may occur when the private sector does not provide certain goods and market
failure occurs.
Improved efficiency due to profit motive. Increased competition
leading to a lower price, greater innovation and improved quality.
The market forces determine what is produced. An earns revenue for
the state.
Political DecisionsPolitical environment - The key political factors that influence the behaviour of businesses and their customers.These include:- The provision of products by the government- Government intervention e.g. regulation, taxation and subsidies- Monetary, fiscal and supply side policies- Enlargement of the European Union and movement towards free trade.Benefits Drawbacks
Free movement of labour(cheap eastern)
Increased competition from foreign firms
Opportunities to sell into new EU markets
Communication and coordination problems
Economies of scales as firms expand
New languages and cultures
Cheaper raw materials from the EU Accuracy of market research
Free market with protection from tarriffs
European Union- An economic and political union established in 1993.
Freedom of trade - When there are no barriers to trade between nations.The EU is a free trade area where member states don't have to pay tariffs (tax on imports) or meet quotas (a limit on the volume of imports). Comparative advantage is the theory that countries produce what they are good at because they can produce these cheaply and more efficiently then trade with other countries.
Arguments for free trade Arguments against free trade
Comparative advantage Infant industries find it hard to compete
Trade creation from new markets Diversification of an economy so that a country doesn't rely on certain products for income.
Economies of scale
Competition leading to greater choice
Increase in world economic growth Protection of jobs in the UK
EnvironmentLegal Environment- Legislation that impacts activities of organisations.
Individual labour laws Collective labour laws for groups
Anti-discrimatory Laws 1970-date to outlaw discrimination on certain grounds like gender, race, disability, pay etc.
Employment Act 1980- Secondary picketing outlawed.
Trade Union Act 1984 - A secret ballot
required before strike action.
Working Time Regulations 1998 - employees can not be forced to work more than 48 hours a week.
Employment Act 1990 - outlawed closed shops where all workers were in one single union
Trade Reform Act 1993- unions must give employees at least 7 days notice before industrial action.
National Minimum Wage Act 1999 - minimum hourly wage introduced across the UK.
Employment Relations act 1999 - right to recognition of a union if 50% belong to a union.
Consumer Protection : Laws that protect the consumer from firms with regards the quality of goods or services sold.
Why we protect consumers? Impact on the firm
In order to maximise profits some firms may unfairly exploit consumers.
Safeguard the reputation of UK and EU firms
Consumerism places the interest of the consumer as the most important
factor in the exchange process.
Ensures that firms take into account consumers requirements and can not be taken to court which could increase
costs.Environmental Protection : Legislation that helps to ensure that the production of goods and services does not have a negative impact on the environment.
Why we have environment laws Impact on the firm
protection from the harmful impacts of a firms product, e.g. pollution and litter.
New environmentally friendly production processes.
To force firms to pay for negative externalities they create but don't have to
pay for.
New products that meet higher environmental standards.
Greater use of recycling.
Health and Safety : Legislation that looks after the health and safety of employees in the workplace
Why we have H&S laws? Impact on the firm
In order to protect employees from exploitation and the consequences
of poor H&S
There are significant financial costs associated with H&S eg providing the safe equipment.
Firms can now even be charged with murder
To maintain high standards in the UK workplace.
UK and EU firms may be less competitive having to meet with
laws.
Changes in the social environment
Social environment : The key social factors that influence the behaviour of businesses and their customers.Demographic factor : Demography is the statistical study of human populations and demographic factors are those that influence these populations
Demographic change Business Impact
An increase in the global population size
An opportunity for UK firms to move into new markets with new or
existing products.
An increase in the average age of UK society
Firms will modify their product range to satisfy the needs of older
people.
Falling EU birth rates As EU market size falls but the population gets richer, firms might
move into premium product markets.
Environmental issues : The variety of factors that impact on the environment due to the operations of organisations.
The main methods of helping the environment include:- Renewable clean energy sources (wind, solar and hydro power)- Waste Management- Recycling and composting rather than landfill- Eco-friendly products - green cleaning such as soap powders- Organic produce - foods produced using natural pest control.
The ethical environmentEthical environment: this looks at morality in decision making, inferring doing what is right.Corporate Social Responsibility: A firms devision to accept responsibility to its stakeholders for its social , environmental and ethical actions.Benefits of CSR to businesses Costs of CSR to businesses
Financial Benefits- ability to attract investment
- Avoidance of fines and environmental taxes
Mistakes and bad PR are expensive.
Not meeting corporate objectives- short term shareholders returns
- missed growth opportunities
HR Benefits- recruitment and retention of staff- attract
a wider pool of talent and skills
Financial Costs- looking after employees (training, pay
etc)- Ethical suppliers (direct and through
supply chain)- Environmentally friendly practices in
operations- Appointing a new director to be
responsible for CSR.
Marketing Benefits- greater customer loyalty
-potential for differentiation and a USP- positive rather that negative PR
recognition from external bodies such as fair-trade
Operational Benefits- lower production costs through efficient
procedures and recycling- positive relationships with suppliers.
Opportunity cost- time spent on CSR, policies, reports and
monitoring- day to day functions
Benefits of CSR to stakeholders Costs of CSR to stakeholders
Employees- inclusion and equal opportunities- health and economic wellbeing- sense of pride and greater job
satisfaction
Financial Costs-are the costs to the business passed
onto the consumer in the form of higher prices or are the business’ profit margins
reduced?- taxes imposed by the governmentCustomers
- informed decision making-sense of wellbeing e.g ethical behaviour
Supplier- fair prices and working conditions
Opportunity Costs- restrictions in availability of goods and services e.g. flight times to reduce noise
pollutionCommunity
- support for local economy e.g. local suppliers
- community support or projects
Government- achievement of environmental targets
- delegation of responsibility to businesses
Expectations on stakeholder behaviour
- ethical codes of practice for employees- suppliers forced to adopt policies and
procedures-pressure on consumers to change their
buying habits
Shareholder- long term profitability- ethical investments
Technological changeTechnological environment - The key technological factors that influence the behaviour of businesses and their customers.Technological change - The development and sharing of technological advances in products and processes
Marketing Opportunities:- New markets (Using the internet)- Databases (loyalty cards, identifying trends)- Charging higher prices (Latest tech updates - product with USP)- New methods of marketing, e.g. social networking and viral
marketing.
Business CultureBusiness culture will impact upon how willing and able an organisation is to embrace new technology
Traditional culture Find it harder to accept new technology as fear of change may lead to uncertainty and loss of security affecting levels of motivation
Power Culture Information will remain with the few people at the top and the effect of technological change will depend on their views.
Task Culture New technology is ideal for cooperation between departments. A selective group will be tasked with the introduction of the tech.
Entrepreneurial culture
Technological development and the spirit of risk taking are closely linked and new technology is technology is likely to be incorporated into the business.
Competitive EnvironmentCompetitive environment : This looks at the degree of competition in the market and the buying and selling power of customers and suppliers within that market.
The spectrum of competition
Zero competition High Competition
Monopoly Oligopoly Monopolistic competion
Perfect Competion
one firm dominates the
market
a small number of large firms dominate the
market
many firms compete in the market selling differentiated
products
many buyers and sellers in the
market with no influence on market price
Porters 5 Forces - Apple
Change in organisational size
Change occurs when a business alters its structure, size or strategy to respond to internal or external influences.
Reasons for change:- meet objectives- gain market share- increase shareholders returns- technological advances- economic, political and legal- consumer demand- employee pressures
Internal - Change in organisational size
Organisational size - The classification of how large a business is, normally based on, the number of employees, company turnover and company balance sheet.Organic growth - Internal growth occurs when a business expands in size by opening new stores, branches, functions or plants. Organic growth tends to be slower and less expensive than external growth.Retrenchment - the downsizing of a business; to reduce costs and increase competitiveness.Mergers - two or more firms agree to become integrated to form one firm under one management. Mergers allow firms to exploit economies of scale.Takeovers - when one firm gains control over another and becomes the owner. This can be achieved by obtaining 51% of the shares.
Internal - Change in organisational sizeHorizontal integration - The integration of two organisations at the same stage of the production process.- Large organisations can exploit economies of scale- Increase its control of a market (reducing competition)Vertical Integration - the integration of two organisations at different stages in the production process.Conglomerate - A form of business growth characterised by the integration of two or more unrelated firms.- diversification spreads risks across different markets- power is extensively delegated- can cause problems to focus on businesses in different industries.
Internal - New owners/leaders
Reasons for change by new owners/leaders:- own vision or mission- change in corporate objectives- overcome cultural differences- personal leadership style- desire to make a difference and introduce fresh ideas- self glorification
Possible problems:- clash of cultures or hostility towards new owners/managers- funding of the change- resistance to change by existing employees
Internal - poor business performance
When a business is failing to meet its objectives. If poor business performance is experienced then changes will need to be made as shareholders will demand answers and want actions.
Possible causes:- failure to keep up to date with the market- new entrants in the market- poor decision making- unsuccessful mergers/takeovers- poor leadership- economic environment/political or legal changes
Possible solutions:- change in ownership- improvements to the organisational structure- implement new strategy- introduction of more efficient processes.
Purpose of corporate plans
Corporate plans - a detailed, medium to long term plan outlining the actions a business will take to achieve its corporate objectives.
They include:- corporate aims and objectives- corporate strategies- functional objectives- contingency plans
Purposes of corporate plans:- provide a clear sense of direction- allocates specific responsibilities to key personnel- identifies and gives consideration to a range of strategic options- encourages progress to be tracked and reviewed against targets.
Contingency plans - the process by which organisations try to prepare for unexpected and potentially disastrous events.Value Limitations
- provides a sense of security- speeds up the recovery process- allocates responsibility prior to disaster- informs staff training
-costly and time consuming-needs revising on a regular basis-may never be used- lack of predictability
Internal and External factors on corporate plans
Value Limitations
- Shows strategic thinking and planning- Common sense of direction- Greater focus and chance to achieve the corporate objectives- Clear targets to monitor progress against- Greater understanding of the business- Informs investors and other stakeholders
- can’t take into account unpredictable changes in the business environment.- internal changes can change the plan- opportunity cost of time and HR- may affect ability to respond to change- long term planning has to be reviewed
Internal Influencesfactors within the businesses control
External influencesoutside it’s control
- The financial resources available- the HR skills available (quality of workers)- The operating capacity available- The marketing strengths eg the brand- The culture of the organisation- Leadership style and vision- Mission statement- Decision making process
-The economic environment- The legal environment- The political environment- The competitive environment- the social environment -ethical consideration- The technological environment
LeadershipLeadership - The ability to influence and direct people in order to meet the goals of a group.Leadership style - The approach a leader takes to achieving their objectives.Management - The process which company resources are used and decisions made in order to meet the objectives of the firm. (They can inspire and motivate workers and set objectives)McGregor’s Theory:
Theory X - management believe workers are las and avoid work, managers closely supervise the workforce.
Theory Y - management believe workers seek job satisfaction and enjoy responsibility, managers delegate more.
LeadershipAutocratic/ Authoritarian - A leadership style where all decisions are made at the top without consultation.- associated with a hard HR
strategy.- adopted with unskilled workforces- preferred style of leadership
during a crisis or rapid change- there may be resistance if change
is not clearly communicated
Democratic - The leader consults the team but makes the final decision themselves- associated with a soft HR strategy- requires a skilled workforce where workers can make strong contributions- decisions may be more informed- can find implementing change easier as they are more likely to gain acceptance
Laissez-faire - A leadership style where the leader allows their team to make decisions and complete their work without supervision.- associated with entrepreneurial culture- requires experienced staff who can make decisions them selves- may be inappropriate at times of change when it needs to be managed.
Paternalistic - The leader acts in a fatherly way towards the workforce.- decisions are based on the needs of the workforce- looks at the welfare of the workforce- leaders may find it easier to recruit
project champions at times of change as the business would be well explained.
Internal and external factors affecting leadership styles
Internal factors External factors
Expertise and experience of the workforce
Changes in the political and legal environment; it may require leaders to implement change without consultation with the workforce as the change isn't negotiable
Nature of the work and level of skill required
The personal traits of the leader
The power given to the leader
The economic environment and the impact on the business performanceThe time frame associated
with the task to be undertaken
The organisational structure Changing nature of the industry
Role of leadershipJohn Kotters 8 step change model Role of leadership - what leaders can do
Step 1 : create urgencyEmphasise the need for change
Start honest discussions that give dynamic and convincing reasons, this will get people talking and thinking.
Step 2:Form a powerful coalitionA project group
Bring together a team of influential people who have different amounts of power.
Step 3:create a vision for changeDetermine the central values
Develop a short summary (one or two sentences) that captures the future of the organisation.
Step 4 : Communicate the visionTalk often about the change vision
Openly and honesty address concerns and apply the vision to all aspects of operations
Step 5 : Remove obstaclesHuman or otherwise!
Appoint change leaders and identify change resisters
Step 6 : Create short term winsSuccess motivates employees
Look for short term projects that can be implemented quickly and reward people who meet the targets
Step 7 : Build on the changeReal change runs deep
Set goals to continue building on success.
Step 8 : Anchor the changes in the corporate culture
Talk about progress at every opportunity and recognise the key members of the change team
Organisational cultureOrganisational structure - The values and standards shared by people and groups within an organisation.
Entrepreneurial cultureThe ethos of a business where risk taking and innovation are actively encouraged and rewarded, whilst failure not criticised.- workers are given individual responsibility (high degree of delegation- decentralised decision making
Power cultureThe concentration of power amongst a few people central to the organisation.- Decisions can be made very quickly as there is little room for consultation- Assiosicated with centralised decision making and autocratic leadership
Task cultureA culture based on individual projects that are completed in small teams- The emphasis is on achieving set outcomes through cooperation- This requires support at senior level- associated with matrix structures and delegation
Reasons for changing organisational culture
Problems of changing organisational culture
- Change in owners/leaders- Change in corporate objectives- Poor business performance- Change in size, mergers etc because of difference in cultures- Responding to market conditions
- Resistance to change- Lack of trust- Period of adjustment- Alienation of: - Suppliers - Customers - Other stakeholders
Culture is important for the following reasons:- Impact on staff motivation- Effects decision making- Competitiveness of the business- Brand Image
Strategic decisions
Strategic decisions - The medium to long term plans made by a business in order to meet its corporate objectives.Information Management - The use of accurate and up to date information to aid decision making.IntuitionDecisions made that are based on instinct rather than scientifically
Scientific decision makingDecisions within an organisation that are made on basis of data
- This allows for quicker decisions to be made which may allow a business to gain first mover advantage- an experienced manager may understand the market- Decisions are subjective- Does not incur the potentially high costs
- Decisions are supported by research- Outcomes are tested which reduces risk- Decisions made are objective- Use qualitative and quantitative information Including financial accounts, market research, competitor analysis, SWOT and PEST analysis and market analysis.
Influences on corporate decision making
Internal Influences External Influences
Corporate ObjectivesAll decisions made are to help the business achieve its objectives
External environmentBusinesses may have to make decisions to respond to PESTLE factors.
Resources availableMay require high capital investment and need finance to back the decision
External stakeholdersPressure group actions are deliberately designed to try and influence behaviour and hence decision making of firms.
Internal stakeholdersA powerful owner may be able to override the decision of other board members
Techniques to implement change
Change - The adapting of business procedures in response to internal and external factors.
Project Management - The activity of delivering the required change within a predetermined set of resources. eg timeProject Champions - The people responsible for driving a project forward and gaining commitmentProject groups - A group of specialists from different backgrounds tasked with achieving the desired programme of change
Factors that promote and resist changeFactors that promote change (gaining acceptance from shareholders):Transparency and early involvement- Identify and share the reasons for change with stakeholders- Clearly state and communicate the objectives of changeKeeping lines of communication open during the process- Keeping everyone informed on progress- View change from different stakeholders perspectives
Resisting change (stakeholders reluctant to change)
Reason for resistance Possible solution
Parochial self interest (fear that change effects them personally)
Reassurance and training (offers reassurance on job security)
Misunderstanding and lack of information
Communication
Low tolerance to change - personal trait
Empathy and respect
Different assessments of a situation Given them a voice