Transcript business unit 4

BUSINESS UNIT 4
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 Statements
Mission 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 com
Mission Statement
Corporate Objectives
Corporate
Corporate Aims
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
Strategic
target
Low producer
cost
Mass Market Cost
leadership
Niche Market Focused cost
leadership
High
differentiated
Differentiation
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.
Stakeholders thoughts…
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 expectationsensuring 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
Government
- Legislation - meeting demands of
existing and new legislation to protect
customers, employees and the
Impact of economic impact
The 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 Rates
The 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 Rate
0.5%
Exchange Rates
Currency Rates
£1 : $1.67
£1 : €1.21
£1 : ¥10.33
The 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
S
materials and finished goods.
- Firms that export will experience less demand P
- If the UK has a weak exchange rate.
- Greater demand for UK products
- Input prices will increase if raw materials are
imported.
I
C
E
D
tronger
ound
mports
heaper
xports
earer
Inflation
Retail Price Index
January 2014: 2.8%
February 2014: 2.7%
Consumer Price Index
January 2014: 1.9%
February 2014: 1.7%
A general rise in prices or a fall in the value of money.
There are two main types of inflation:
Cost Push - an increase in input prices. Demand Pull - an increase in demand
e/g raw materials and wages.
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.
How does inflation affect businesses:
- if the price is inelastic then increased costs can be passed onto the consum
- if demand falls firms may reduce supply affecting operations management; c
- Difficult to maintain competitiveness if the firm has to raise price. If a firm ex
Unemployment
Unemployment Rate
2.33% December 2013
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
Economic Growth
GDP
4th quarter of 2013 0.7%
A 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.
Globalisation of Markets
Globalisation - 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 an
cultures
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
Problem children or
stars Opportunities are created dogs Threats are created by: by: - rapidly rising consumer
poor infrastructures incomes - fast growing markets - accusations of exploitation exploitable natural resources cultural and legal differences
exploitable cheap labour
Government Intervention
Government 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
Taxation: A financial charge by
assistance given to individual and the
industries to provide
government on an individual or a
goods/services.
firm.
This helps reduce the price to the
customer - To provide merit
goods -To protect jobs or infant
The government can change
taxation to try to control the
economy (to stimulate or curtail)
Government Policies
Economic 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.
Government might decide to
nationalise key industries such as
energy and transport. It may occur
Privatisation- The transfer of
public
sector organisations into the
private
sector.
Improved efficiency due to profit
motive. Increased competition
leading to a lower price, greater
Political Decisions
Political 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
European Union- An economic and political union established in 1993.
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
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
Economies of scale
Competition leading to greater
choice
Diversification of an economy so that a
country doesn't rely on certain
products for income.
Environment
Legal Environment- Legislation that impacts activities of organisations.
Individual labour laws
Anti-discrimatory Laws 1970-date
to
outlaw discrimination on certain
grounds
like gender, race, disability, pay etc.
Collective labour laws for groups
Employment Act 1980- Secondary
picketing outlawed.
Trade Union Act 1984 - A secret ballot
required before strike action.
Working Time Regulations 1998 Employment Act 1990 - outlawed
employees can not be forced to work closed
more than 48 hours a week.
shops where all workers were in one
single
union
Trade Reform Act 1993- unions must
give
Consumer Protection : Laws that protect the consumer
from firms with regards the quality of goods or services
sold.
Why we protect consumers?
In order to maximise profits some
firms may unfairly exploit consumers.
Consumerism places the interest of
the consumer as the most important
factor in the exchange process.
Impact on the firm
Safeguard the reputation of UK and
EU firms
Ensures that firms take into account
consumers requirements and can not
be taken to court which could increase
: Legislationcosts.
that helps to
Environmental Protection
ensure that the production of goods and services does
not have a negative impact on the environment.
Why we have environment laws
protection from the harmful impacts of a
firms product, e.g. pollution and litter.
To force firms to pay for negative
externalities they create but don't have to
Impact on the firm
New environmentally friendly
production processes.
New products that meet higher
environmental standards.
Health and Safety : Legislation that looks after the
health and safety of employees in the workplace
Why we have H&S laws?
In order to protect employees from
exploitation and the consequences
of poor H&S
Impact on the firm
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
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 environment
Ethical 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
Financial Benefits
- ability to attract investment
- Avoidance of fines and environmental
taxes
Mistakes and bad PR are expensive.
HR Benefits
- recruitment and retention of staff- attract
a wider pool of talent and skills
Marketing Benefits
- greater customer loyalty
-potential for differentiation and a USP
- positive rather that negative PR
recognition from external bodies such as
fair-trade
Costs of CSR to businesses
Not meeting corporate objectives
- short term shareholders returns
- missed growth opportunities
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.
Benefits of CSR to stakeholders
Employees
- inclusion and equal opportunities
- health and economic wellbeing
- sense of pride and greater job
satisfaction
Customers
- informed decision making
-sense of wellbeing e.g ethical behaviour
Supplier
- fair prices and working conditions
Community
- support for local economy e.g. local
suppliers
- community support or projects
Costs of CSR to stakeholders
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 government
Opportunity Costs
- restrictions in availability of goods and
services e.g. flight times to reduce noise
pollution
Government
Expectations on stakeholder
- achievement of environmental targets
behaviour
- delegation of responsibility to businesses - ethical codes of practice for employees
- suppliers forced to adopt policies and
Shareholder
Technological change
Technological 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 Culture
Business culture will impact upon how willing and
able an organisation is to embrace new technology
Traditional culture
Power Culture
Task Culture
Entrepreneurial
culture
Find it harder to accept new technology as fear of change
may
lead to uncertainty and loss of security affecting levels
of motivation
Information will remain with the few people at the top and the
effect of technological change will depend on their views.
New technology is ideal for cooperation between
departments. A
selective group will be tasked with the
introduction of the tech.
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 Environment
Competitive 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
one firm
dominates the
market
a small number
of large firms
dominate the
market
Monopolistic
competion
many firms
compete in the
market selling
differentiated
products
Perfect
Competion
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 size
Horizontal 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
toPossible
be made
as shareholders will demand answers and want
causes:
- failure to keep up to date with
Possible solutions:
actions.
the
market
- new entrants in the market
- poor decision making
- unsuccessful
mergers/takeovers
- poor leadership
- economic environment/political
or
- 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.
Purposes
of corporate
plans:
- provide a clear sense of direction
They include:
- allocates specific responsibilities to key personnel
- corporate aims and objectives
- identifies and gives consideration to a range of
- corporate strategies
strategic options
- encourages progress to be tracked and reviewed
- functional objectives
against targets.
- contingency plans
Contingency plans - the process by which organisations try to prepare for
unexpected and potentially disastrous events.
Value
Limitations
- costly and time consuming
- needs revising on a regular basis
- may never be used
- lack of predictability
Internal and External factors on corporate
plans
Internal Influences
factors within the businesses control
External influences
outside 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
Value
- The economic environment
- The legal environment
- The political environment
- The competitive environment
- the social environment -ethical
consideration
- The technological environment
- 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
- 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
Limitations
Leadership
Leadership - 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.
Leadership
Autocratic/ 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
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
Internal and external factors affecting leadership
styles
Internal factors
External factors
Expertise and experience of Changes in the political and
the workforce
legal environment; it may
Nature of the work and level require leaders to
implement change without
of skill required
consultation with the
The personal traits of the
workforce as the change
leader
isn't negotiable
The power given to the
leader
The time frame associated
with the task to be
The economic environment
and the impact on the
business performance
Role of leadership
John Kotters 8 step change model
Role of leadership - what leaders can do
Step 1 : create urgency
Start honest discussions that give dynamic and
Emphasise the need for change convincing reasons, this will get people talking and
thinking.
Step 2:Form a powerful
coalition
A project group
Bring together a team of influential people who have
different amounts of power.
Step 3:create a vision for
change
Determine the central values
Develop a short summary (one or two sentences) that
captures the future of the organisation.
Step 4 : Communicate the
vision
Talk often about the change
vision
Openly and honesty address concerns and apply the
vision to all aspects of operations
Step 5 : Remove obstacles
Human or otherwise!
Appoint change leaders and identify change resisters
Step 6 : Create short term
wins
Look for short term projects that can be implemented
quickly and reward people who meet the targets
Organisational culture
Organisational structure - The values and standards
shared by people and groups within an organisation.
Entrepreneurial culture The 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 culture The 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 culture A 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
Intuition
made that
based
Scientificmaking.
decision making Decisions
to
dateDecisions
information
toare
aid
decision
on instinct rather than scientifically
within an organisation that are made on
basis of data
- 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
Influences on corporate decision making
Internal Influences
External Influences
Corporate Objectives All
decisions made are to help the
business achieve its objectives
External environment Businesses
may have to make decisions to
respond to PESTLE factors.
Resources available May
require high capital investment
and need finance to back the
decision
External stakeholders Pressure
group actions are deliberately
designed to try and influence
behaviour and hence decision
making of firms.
Internal stakeholders A
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 time
Project Champions - The people responsible for
driving a project forward and gaining commitment
Project groups - A group of specialists from different
backgrounds tasked with achieving the desired
programme of change
Factors that promote and resist change
Factors 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 change
Keeping 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
Empathy and respect