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