Introduction to Business Management

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Introduction to Business & Management
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1. Concept, definitions and origins
1.1. Organisational behaviour
 Embraces an understanding of o The behaviour of people o Process of management o Organisation context o Organisational processes and execution of work o Interactions with the external environment Influenced by o The individual o The group o The organisation o The environment Behavioural approach involves the understanding of o Personality system (psychology) o Social system (Sociology) o Cultural system (Anthropology) The importance of the creative, critical and situation-defining characteristics of the individuals who make up the organisation The varieties of interest and goal among individuals and groups in the organisation, and the emphasis on conflict and political behaviour The interactions between the organisation and the general environment, and recognition that organisations make their environment as much as it makes them Operational core o Direct performance of the technical or productive operations Operational support o Actual flow of operational work i.e. quality control, progress planning Organisational support o Provision of services for the whole organisation, including the operational core Top management. o Concerned with the broad objectives and policy, strategic decisions, the work of the organisation as a whole and interactions with the external environment Middle management o Concerned with coordination and integration of activities and providing links between operations and top management Formal organisation o Deliberately planned and created, concerned with the coordination of activities, hierarchically structured with stated objectives, and based on certain principles and defined relationships of authority and responsibility Informal organisation





1.2. Common factors in organisations
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1.3. Basic components of an organisation
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1.4. Formal and informal organisation




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o Always present within a formal organisation o Involves  Emotions, personal animosities and friendships, informal leaders, prestige and power structures etc. o Functions to  Provide satisfaction of members’ social needs  Provide additional channels of communication  Provide a means of motivation

1.5. Evolution of management studies
 Classical approach o Developed by Frederick Taylor, from extensive time-and-motion studies of particular jobs, and led to significant changes in the organisation of work to achieve efficiency and increased productivity o Scientific management  Planning of a task is separated from the execution  Selection of workers based on rational decision making  Tasks should be simplified and standardised  ‘One best way’ of doing each task o Max Weber developed theory of bureaucracy  Need for stability and consistency in achieving efficiency  Workers selected on merit for clearly defined roles, and to work within set rules o Henri Fayol General Principles  Division of work  Produce more and better work from same effort; specialisation  Authority and responsibility  Exercising authority triggers formation of responsibilities, authority must be regulated by personal integrity  Discipline  Unity of command  In any action, an employee should receive orders from one superior only  Unity of direction  One head and one plan for any group of activities with the same objective  Subordination of individual interest to general interest  Remuneration of personnel  Satisfy both employee and employee  Centralisation  Scalar chain  Order  Material and social order  Equity  Satisfy employees throughout all levels of the scalar chain  Stability of tenure of personnel  Initiative  A source of strength for the organisation, and should be encouraged and developed 2







Esprit de corps  Should be fostered, as harmony and unity is a great strength o Criticisms  Lack of motivation for workers  Workers alienated and exhausted by doing mind-numbing, repetitive tasks Human relations approach o Hawthorne Experiments by Elton Mayo developed the Hawthorne Effect  Increases in productivity actually found to be related to the fact that employees were being studied.  Productivity was improved when workers had something interesting to think about and react with.  Opposite effect of what scientific management predicted o Maslow’s Hierarchy of needs  Includes  Physiological  Safety  Love  Esteem  Self-actualisation  To provide motivation for a chance in behaviour, managers must direct attention to the next higher level of needs that seek satisfaction  However, some people may not necessarily satisfy their higher-level needs just through the work situation  Also, people value different needs differently System approach o Pulls together some of the core components of both the classical and human relations theory o As organisations are open to the outside world, they interact with the external environment and are seen to be complex Contingency approach o Defies the classical approach’s search for a ‘one best way’, and emphasises that managers need to adapt their style to match changing conditions o Specific variables in each situation have to be considered o Decision-making approach  Need for good communication and information flows  Processing of this information is a key element of organisational effectiveness.  Complexity due to the systemic nature of business organisations o Unlike in Weber’s bureaucracy, where stability is valued, the contingency approach accepts and is more focused on uncertainty management. 

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2. Understanding the business organisation
2.1. A multidisciplinary view
   Focus on sociology, psychology, anthropology and economics Biology offers a view of the organisation as a functioning system and the idea of ‘survival of the fittest’ Math offers models and aids for decision making and for providing statistical information to managers -> Scientific management Machines - Efficiency Organisms – Dynamism Brains – Inventive and rational Cultures – Social development Political systems – Pursuit of special interests Psychic prisons – Trapped by constructs of reality or past Flux and transformation Instruments of domination Instrumental orientation o Individuals treat work not as a central life issue but a means to an end Bureaucratic orientation o Individuals treat work as a central life issue. Strong sense of obligation towards work Solidaristic orientation o Individuals treat work as an involvement in a group, work is more than just a means to an end Newspaper articles show that work is a large component of what gives meaning to people’s lives, while research shows that many are struggling to achieve work/life balance, albeit still deriving great satisfaction out of work. Peter Principle o In a hierarchy every employee tends to rise to their level of incompetence o Means of promotion  Pull – Relationship with a person above the employee in the hierarchy  Push - Abnormal interest in study, vocational training and selfimprovement Parkinson’s Law o Work expands so as to fill the time available for its completion o Two axioms  An official wants to multiply subordinates, not rivals – always pass work down, not laterally across  Officials make work for each other – With more people with the work, more work is created for each person

2.2. Organisational Metaphors
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2.3. Orientations to work

2.4. Organisational practices




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2.5. Sociological perspectives
 Involves o How people interact at work o Effects of organisational structures on people o B&M impacts on wider society Diversity o Managing diversity accepts that the workforce consists of a diverse population of people o The diversity consists of visible and non-visible differences which will include sex, age, background, race, disability, personality and workstyle. o Fully utilising all available talent, meeting organisational goals o Encouraging individuality while expecting team cooperation requires  High emotional intelligence on the manager’s part in personnel selection and understanding  Recognition of individuality while rewarding correct conforming behaviour  Sensitivity to individuals needs and differences especially in terms of their resilience when implementing organisational changes Industrial sociology o Involves  How work is organised, workplace conflicts, management-employee relations, divisions between work and leisure time, different labour markets o Goldthorpe’s embourgeoisement thesis  A rise in the income levels of the working-class employees results in their adopting middle class values o Grint treats concepts such as leadership, control and culture as social constructs, which meanings change when the society changes Gender relations at work o Currently there exists a glass ceiling in many organisations for women; Equal opportunities, treatment and progress towards females are required to fully optimise human resource management in an organisation o Economic theories  Human capital theory – individuals have to make substantial investment in forms of training and education for benefit in the workplace. The interrupted pattern of women’s employment therefore decreases the incentives for both women and employers to engage in their training  Dual labour market theory – women and ethnic groups are overrepresented in the secondary market o Psychological sex differences  Biological differences – the active energetic boy, and passive nurturing girl, from the way they are brought up since young. However, this alone is insufficient to account for the differences in women’s position. o Socialisation process  Gender shaping – females tend to take English and Humanities subject than males, and perform better than males across all educational institutions. 5







Despite the apparent academic superiority, women see themselves as intellectually inferior compared to the young men o Orientations and motivations towards work  Hunt’s studies revealed that decisions about working revolved around women’s primary responsibility for home care, while men were more concerned with ambitions and career progress o Working practices  Men and women receive different career advice  Gender stereotypes play a considerable role in recruitment  Paternalistic attitudes displayed by male managers cause females to not be sent for assignment or late meetings. The less exposure to less trying situations caused them to be disadvantaged in running for promotion. o Changing ideas on leadership  Women leaders fared better at traits required of a ‘nearby leader’  Encourage participation  Share power and information  Enhance the self-worth of others  Energise others 

2.6. Anthropology of organisations
 To understand the behaviour patterns, social groupings, rituals, symbols and language within the organisation or within a particular group of employee, in aiding the understanding of problems with organisational efficiency and social relations within the organisation. More important to understand the influence of national culture in the organisation in this age where more organisations operate globally Psychology involves the study of a worker’s decision making process, performance capabilities, their learning capacity, and response to changes Personality o Factors affecting the development of personality  Adult experiences at work – achievements, roles, working experience  Dynamics – abilities, physique, gender, motivation, attitudes  Early development – social, family, culture o Freud’s theory – when the going gets tough, workers adopt defence mechanism  Regression – adopting childhood patterns of behaviour  Fixation – inflexible and rigid attitudes  Rationalisation – elaborate concealment of ideas/motives  Projection – attributing feels and motives to others o Carl Jung’s Myers-Briggs Type Indicator MBTI o Applications within organisations  Recruitment criteria for certain industry e.g. hospitality  Training methodology  Prediction of an individual’s success in the managerial role  Prediction of an individual’s social integration into the workplace Stress o Due to job conditions, role in the organisation, relationships at work, career development, organisational rules and regulations, work-life balance issues 6



2.7. Psychology aspect
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o Harassment Ability o Nature (nativists) vs Nurture (empiricists) o Cattell’s theory  Fluid intelligence – abstract reasoning ability which is free of cultural influences  Crystallised intelligence – dependent upon learning ad general understanding of the world o Emotional intelligence  Accounts for 85% of outstanding performance in top leaders  Involves self-awareness, social awareness, self-management, and relationship management Psychological contract o A psychological contract is not only measured in monetary value or in the exchange of goods and services, it is in essence the exchange or sharing of beliefs and values, expectations and satisfactions. o Based on Mutuality; consensus and mutual understanding. Self-interest should be balanced with common interest to achieve a win-win situation o Unwritten agreement of what the organisation and the employee will both give and receive o Takes into account intangible yet significant values such as commitment, trust and loyalty o Stalker’s formula for balancing unwritten needs of employees with needs of company  Caring – for the people  Communicating – your vision, ideas, ideologies  Listening – and reading between the lines  Knowing – the people, their ambitions and concerns  Rewarding – good work o A changed, new moral contract in the 21st century  Organisation: People are no longer viewed as resources or assets, but instead a responsibility and a resource to be added to  Worker: Abandon the notion of stability of lifetime employment and embrace the concept of continuous learning and personal development General application o Assessment of employee attitudes, to identify conflicts with group/organisational goals o Understand consumer attitudes to better promote products for satisfaction o Motivation o Understanding of groups within organisations. As teamworking has become an important tool of management, psychological enables managers to understand the interaction of different personalities and their impact on the success of the groupwork

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2.8. Economic approaches to organisations
  The overall mission of the business organisation is to create as much profit for as long as possible Types of approaches o Behavioural theory – participants’ individual interest o Agency theory – process delegated to an agent while the principal partially observes the agent o Transaction cost economics – transactional costs together with production costs as being the main determining factor of organisational forms o Strategic management – game theory o Evolutionary – survival of the fittest Types o Primary – Directly involved on a permanent basis with the organisation o Secondary – More wide-ranging; do not have a constant involvement; often change as well e.g. customers, suppliers, government etc. Related to Douma and Schreuder’s behavioural theory o Each stakeholder receives inducements from the organisation (salary for employees) o As each stakeholder group has their own objectives, bargaining is needed to arrive at the decision that satisfies the different objectives most greatly o This is called “satisficing” Each stakeholder hold different amounts of power or involvement in the organisation Specifically enable us to understand the complexity of the organisational context

2.9. Stakeholder model of the firm




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3. The management role
3.1. Differences between managers
 Levels and functions of management o First-line managers – oversee the production of goods and services o Middle managers – General and functional managers such as marketing, sales, finance etc. o Senior managers – Top, strategic board-level managers Qualities of the individual manager o Gender affects style of management (see above section 2.5) o Culture influences the types of people described as managers, qualities valued in managers, the level and scope of managerial work and the styles of management Henry Mintzberg’s ‘folklore and facts of management’ o Reflective systematic planner vs Activities of brevity, discontinuity and stronglyoriented to action as opposed to reflection o No regular duties to perform vs Some regular duties, including ritual and ceremony, negotiations, processing of soft information o Senior management needs aggregated information best provided by a formal management information system vs Preference for oral media



3.2. Duties of a manager


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o Management as a science and profession vs A skill and habit Lawrence’s German-British manager survey supports the Mintzberg’s propositions Decision-making o Making effective strategic decisions that achieve goals Planning o Goal setting o Gathering information o Developing necessary actions to achieve the goal (resource co-ordination) o Setting targets to be reached along the way o Measuring the achievement of the goal o Evaluation and reviewing the goal and the effectiveness of the plan Leadership o Leadership as an aspect of personality vs leadership through learning o Types  Autocratic – manager makes all decisions  Democratic – the manager asks for suggestions and then makes a decision  Laissez-faire – the manager permits subordinates to make decisions o Traits approach  Produced a profile of personality characteristics of people who have leadership qualities  Found too many exceptions, as although certain traits may be necessary in a leader, they were not sufficient for good leadership o Behavioural approach  Rates a leader based on his response to the situation  The Blake and Mouton managerial/leadership grid measures concern for production and concern for people o Contingency approach  Different types of personality and behaviour are effective in different situations  Vroom-Yetton model – the leader-participation model. There are five leadership styles appropriate to different degrees of subordinate involvement in decision making  Path-Goal model – leadership style should be appropriate to needs of subordinates and situation task characteristics. Performance of the subordinates is related to the extent to which their manager satisfies their expectations. Four styles of management are, achievement oriented, directive, participative, and supportive o Transactional vs transformational leadership o Inspirational leadership o Leadership and gender  Women exhibit a different style of leadership that is more interactive o Leadership power  Power is central to the leadership process. Leaders have different power bases, some of it given and others due to the leader’s characteristics

3.3. Roles of a manager




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Motivation o Individual-specific  What motivates one person may not motivate another  People are better educated than they were in the past, and therefore have greater expectations  People require more interesting and challenging work, and want to feel valued and rewarded for good performance o Important because  It enhances individual performance  Less control required from management  Enables an individual to make causal attributions and explain others’ behaviour to him/herself o Types of approaches  Maslow’s hierarchy of needs  Herzberg’s two-factor model – hygiene factors prevent dissatisfaction e.g. salary, security, and motivation factors affect satisfaction levels but cannot lead to dissatisfaction e.g. recognition, advancement.  Vroom’s expectancy theory – Understanding how employees perceive possible outcomes is vital for knowing how to motivate them. Motivational force results from the combination of anticipated outcomes and the expectancy that it will actually be realized  Goldthorpe’s theory  Affluent workers motivated by money  Professional workers motivated by position  Traditional workers motivated by a sense of belonging Control o Over how resources are allocated and interact o Stages  Assess the necessary standards or goal to be achieved  Decide upon and implement a measure of outcomes  Make an ongoing comparison of current activities with the standards  Make changes to current behaviour to maintain standard

4. Strategic decision making and Organisational change
4.1. Types of decisions
  Programmed decisions o Made in response to a situation that that has occurred enough times to enable decision rules to be developed Non-programmed decisions o Made in response to situations that can be unique, poorly defined, ad largely unstructured. These decisions usually have important consequences for the organization. Be consciously aware of the situation Recognise the root of the problem Information needs to be gathered and alternative solutions developed 10

4.2. Stages in decision making
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o Nutt studied that alternatives are generated through benchmarking and innovation, which are better executed by private sector organisations The best solution is decided on The decision is implemented The implemented decision needs to be monitored and evaluated Any necessary changes or modifications need to be made Rational model o Decision making is seen to be a rational and objective process to achieve predictable results Herbert Simon model of bounded rationality o Decisions are often made under stressful and unstable conditions, and managers make decisions as best they can under the conditions they find, which may involve imperfect information o ‘hidden information’ (Arrow) occurs when one party in a potential transaction has more information o Leads to satisficing, where an option is which not the optimal solution, but one which satisfies the minimum requirements is chosen o May lead to managers making the easiest or first decision possible so as to avoid risk, but may in the process limit creativity Cohen, March and Olsen Garbage can model o Recognises complexity and uncertainty, which applies to turbulent situations, and introduces the element of chance or randomness o Decisions occur when the four streams of choice opportunities, participants, problems, and solutions Political model o Decisions are made based on particular interests and objectives of powerful stakeholders Game theory o Non-zero sum game and zero sum game o Cooperative and non-cooperative theory o One-shot and repeated games o Assumption of rationality o Objective is to identify an equilibrium  Dominant Strategy Equilibrium  Choice at both nodes  Nash Equilibrium  Ss is the prediction of what rational decision makers will choose  Pareto Equilibrium  Cc is the best case scenario o The game is assumed to have  Complete information  No first mover advantage o Risk and trust are important factors when analysing business decisions using game theory

4.3. Theories and models for making decisions



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4.4. Strategy
   Communicated within a corporate mission statement Strategic decisions contribute to achieving the organisation’s mission (statement) Formulating strategy o Awareness of current situation as well as external environment o All possible strategies identified and evaluated o Best strategy is chosen o Plan of action to be devised to implement the strategy o Monitoring and adapting the strategy Game theory in formulating strategy o Incentive schemes for employees  If the team cooperates and all members work hard, all benefit  The greater the expectancy of group members that everyone will work harder, the more likely that each individual will work harder  Vroom’s expectancy theory  A good approach for motivating staff



4.5. Analysing the environment
 SWOT analysis o Left hand side (internal factors) – strengths and weaknesses o Right hand side (external factors) – opportunities and threat o ‘Inside-out’ approach Other methods o Boston Consulting Group matrix – offers a view of the different parts of a business in relation to one another. Each business unit is analysed in relation to market growth and market share o Focus groups and brainstorming sessions o Simulation – queuing theory, where the need for equipment and staff may vary and is partly due to chance Despite the many models and theories developed to help managers make decisions, the decisions made are often of poor quality o A focus on the short term o A tendency to implement solutions that have the least risk o Spend time dealing with small problems that arise on a daily basis and need immediate solution Types o Planned change  Strategic decisions about the direction of the company  Overcome potential problems and create the best fit between the organization and the environment o Unplanned change  Decisions forced by particular circumstances rather than being the initiative of the top managers  React to and cope with external changes beyond management control Trigger o Cole categorises the possible triggers as either internal or external 12





4.6. Organisational change and development




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External: changing demand for goods, entry of new competitor etc Internal: planned strategic change, development of new product etc



Organisational development (OD) o Planned tuning of organisational goals and direction o Important because it involves the entire organisation o Usually involves a third party to act as the change agent e.g. consultant Social psychology (Lewin) three steps of change o Unfreezing – forces which support existing behaviour are reduced o Moving – new responses are developed based on new information o Refreezing – establish the new behaviours as accepted and established practice Ways of managing change o Education and communication – time is spent explaining the problems faced and the strategy for overcoming, but can be time consuming o Collaboration/participation – employees or special groups are involved (also TC) o Intervention – parts of the change delegated to different agents, controlled by still participative o Direction – change is conducted through the use of authority o Coercion/edict – change is forced through the overt use of power, employees unlikely accept this unless in crisis situations OD model six stages of managing change o Preliminary stage – discussion with change agent o Analysis & diagnosis – evaluate situation and gather information e.g. employees o Agreement about the aims of the programme o Action planning o Evaluation and review o Revised aims and plans Total quality management (TQM) o An integrative philosophy of management for continuously improving the quality of products and processes o 9 common TQM practices  cross-functional product design  process management  supplier quality management  customer involvement  information and feedback  committed leadership  strategic planning  cross-functional training  employee involvement

4.7. Managing the change process








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Business process re-engineering (BPM) o A holistic management approached focused on aligning all aspects of an organization with the wants and needs of the client o 5 categories of activities  Design of processes, protocols, SOPs  Modelling “what-if analysis”  Execution  Monitoring  Optimisation – identify bottlenecks and opportunities for improvements Why? o Change seen by employees as a threat to their job security, status or established patterns of behaviour o Triggered by turbulent & unstable business environment, leading to uncertainty Understanding this reaction o Woodward says that this resistance is a natural process, thus a strategy can be put in place to manage the resistance Lewin’s technique of forcefield analysis o Analysis of restraining forces and driving forces of change  Restraining: fear and threat of the unknown  Driving: definition and clear communication of objectives o Assessment of the importance of these forces o Actions to be taken to reduce the most important restraining forces and increase the most important driving forces  Employee involvement, to contribute to their ownership of the change  Build short term goals to demonstrate the positive and measurable benefits of the change

4.8. Managing resistance to change


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5. Managing the main functional areas
5.1. Difficulties
  A web of communications can make a simple functional division misleading; the duties of functional areas may overlap Drawing lines and divisions between the different functions of the organization provides a framework for analysis, but organisations in the real world are more complex Management accounting o Finance accounts take past data and create a current picture of business, while the output of management accounting takes the form of costing and investment appraisals o Management accounting is linked to financial accounting  Estimate of costs sometimes based on past financial accounts  Finance department usually leads in creating management accounts o Types of costs  Direct – specifically related to production process

5.2. Finance


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 Indirect - incurred from overheads or general running of business  Variable – costs which change according to the number of units produced  Fixed – same cost regardless of production levels o Problems  To include all costs, including hidden costs  Drawing the line between cost types o Upon completion of costing estimate, the investment appraisal can be made o The concept of depreciation is important in costing capital equipment. This may not be true for all assets, for example the actual premises of a company may become more valuable, but the machinery may be worth less Budgeting and financial control o Great emphasis is placed on financial control within most organisations Financial reporting o Balance sheet – used to report financial information relating to assets and liabilities of the business on the last day of the accounting year o The profit and loss account - Like the balance sheet, but relates to an accounting period, rather than the situation on a particular day Several reports are analysed to gain a full picture of a company’s standing o Tailored for specific audiences o Reports are as accurate as information gathered o Values of item such as company’s reputation or environmental and social costs of the company’s activity not reported Finance is dominated by planning (budget) and control (reports) Types of HRM o ‘Hard’ HRM – Emphasis on the resource part of the term ad aims to increase efficiency by control. Rooted in scientific management o ‘Soft’ HRM – Emphasis on the human element of the term and aims to increase efficiency through employee commitment. Rooted in human relations. o Control vs motivation HRM and decision making o HR decisions to be fully-coordinated with the overall strategy of the organization  High quality service business requires recruitment of the right personnel  Business plan to increase production by 50% must see the right changes to the workforce size and composition Developing the manager o Training programmes or the managers o Managers need to develop skills rather than learn tasks o Managers can be seen to be different from other employees because they are often more likely to take responsibility for their own development o Since the job scope of managers are dynamic and complex, the HR department cannot provide a consistent development programme for them Key to the survival and success of the organization Heavily dependent on the type of product because very different production methods exist and different products also require different emphases in the organization of operations 15

5.3. Human resource management (HRM)





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5.4. Production and operations



Design of the production system o Takes into account the type of product, production size, technology available, and resources available o Decisions have to be made with regards to the resources available  Investment in the latest machinery and equipment (linked to finance)  Staffing levels, types of skills required and patterns of work  Inventory management is the process of planning & controlling the levels of materials stored in relation to the demands of the production process  Just In Time (JIT) system, which aims to provide the exact qty to each stage of the production process at the exact time they are needed  Material Resource Planning (MRP) uses a computerized system to plan and manage inventories as well as to order new materials when needed  Total Quality Management (see above section 4.7) Organisation o For large organisations, the overall strategy will be set at the top level of the department, but each product would have its own marketing team o Necessary to market the qualities of each product to meet specific requirements of each target audience Responsibilities of a marketing manager o Identify the needs of the customers, and to segment the accordingly o Input into the design of the products and services o Price the products and services o Communicate to the prospective customer o To be involved in marketing the products and services o To provide the after sales service Philosophies/orientations to marketing o Production orientation – concentrate on production efficiency and high volumes instead of promoting desirability of the product o Product orientation – relies on product “selling itself”. The customer will favour products that offer high quality and performance features o Selling orientation – customer has to be convinced that they need it. Substantial selling and promotion effort o Marketing orientation – Establish the desires of customers and then satisfy them. Try to deliver more effectively than its competition  Will require market research to find out what customers think they want Marketing planning process o Strategy process o Analyse the market for opportunities o Segment potential customers into homogenous groups o Target these groups o Position its product or service in relation to its competitors The marketing mix – 4Ps o Product – core of the company’s marketing effort, and the success rate of a prototype is small. Products have limited life-cycle o Price – various pricing strategies  Skimming – setting a high price to attract a high profit per unit from less price sensitive customers 16

5.5. Marketing














 Penetration – setting a low price to build a mass market o Promotion o Place – distribution involves wholesalers, retailers, shippers, agents and manufacturers; these comprise the marketing channel Objective of marketing o To have a unique selling proposition, to lead consumers to become loyal customers of the product o Search for a niche or a gap in the market o Brands are a relatively recent way of finding and retaining niche markets  Fulfilling a lifestyle-want rather than a particular product-want  Efforts in selling a brand name can be used to sell a range of products Game theory and marketing o Price wars o Advertisement wars All functional areas require information to make informed decisions, and communication acts as a formalised link between the other 4 functional areas Types o Formal  Favoured by manufacturing, legal practice  Manager has to design the communication system, to ensure that it facilitates decision making processes well  All managers have a responsibility to ensure the system works  The managerial role of motivation is needed to encourage sharing of ideas and information, so that they can be better informed and also disseminate and explain the decisions they make o Informal  Favoured by advertising agencies, computer game companies  Manager can have control over informal links, but cannot make them happen by himself

5.6. Communications
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6. Key internal elements of the firm
   In practice, we must take into account the dynamics and inter-linkages of the factors Type of product offered by the business organization Ownership refers to the structure or pattern of owners o One person ownership – wish to retain the majority of control over operations and be actively involved in the management process  If owner does not have expertise in the area of management, it is necessary to delegate duties to professional managers o Shared ownership – directors, shareholders Publicly owned vs privately owned o Publicly owned organisations are increasingly under pressure to adopt management practices similar to that of privately owned organisations as they strive to improve efficiency o Privatisation 17

6.1. Type, ownership, strategy and size



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Selling of public companies to the private sector Ideology of the free market, where competition is seen as necessary for achieving efficiency Business strategy o Have an impact on the way work is organized and the activities of the organization, as well as the decisions manager make (Chapter 4) Size of the business o Measured by different ways, such as number of workers, production levels, profit levels, annual capital used, size of the market provided for, size of the premises, number of outlets etc. o A clear goal of organisations is to grow and expand, and increase profit levels o Size of business can be reduced through forced change for survival or planned strategy to specialize o Linked closely to ownership  Business owned by one person is often a relatively small business  When a business grows investors are needed, thus increasing number of owners  Business growth often involves diversification, which means there will be separate business units for each product   Importance o Decisions about structure will involve deciding how power and control of operations will be divided and how the activities will be coordinated o Determines job descriptions o People are a major resource of a firm, thus it is important to have a sound and suitable organizational structure Types of structure o Functional structures  Grouped based on functional areas i.e. finance, marketing, HRM etc. o Product based structures  Suitable when a company produces diverse products  Different products require different job skills, production methods, and marketing  Each product has its individual sub-functional structure o Location based structure  Suitable when a business has operations in more than one place  Takes into account the differences in the way business is organized in the different parts e.g. culture, expectations, methodologies o Holding companies  Formed when a business expands by acquiring other companies  A very general organizational mission is developed and specific goals set for each individual business unit o Matrix structures  Multiple lines of authority based on projects instead of hierarchical lines of command, project managers report directly to the CEO  Each project has its separate functional structure  Found to be unnecessarily complex

6.2. Organisational structure




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Organisation charts problems o Often out of date o Represents a static picture of the organisation o Only show the formal structure, not the informal ones which may be more important o Cannot explain fully the position or authority of individual employees especially in a large organization Centralised and decentralized structures o Flatter organization vs top-down approach o Determines at which level decisions are often made; decisions are often delegated to lower levels in flatter organisations o Advantages  Cutting out middle management reduces cost  More opportunity to capitalize on creativity and skills of employees, and give them more ownership over their work Structure and change o Recent trends towards decentralization; structure is not static but reacts to changes and other elements of the environment The flexible firm (Atkinson) o A business organized to consist of a core and periphery

o o Allows flexibility  Numerically – allow speedy changes to the number of workers  Functionally – Core employees are invested in and trained to multitask  Financially – Pay scheme will reflect the nature of workforce. Only permanent workers will receive regular wages that reflects their multiskills training

6.3. New technology and business organisations
 Important factor in an organisation o Affects the way the business operates o Its competitiveness o How successful it is Job of managers o to understand the nature of relevant technology and decide whether to adopt new technology o Technology changes all the time o Business changes style and product specifications every year to retain competitive edge



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Resistance to new technology o Fear that new technology will replace the need for some employees o Fear of a change in skills needed by employees; sometimes include a reduction in skill needed and lead to boredom for the employee (deskilling) o Important for good management to overcome resistance, and use technology to motivate and further increase skills of workers Managing and changing culture o The need to change/create a culture may be because the existing culture is seen as an obstacle to planned strategic change o The need to change a culture may also be to increase organizational performance o Managing organizational culture is a possible way to achieve the goal of employee commitment; a mode of ‘soft’ HRM Steps in changing culture o Assessment of existing culture, its problems and possibilities o Decision on the type of culture that would overcome current/future problems o Communication of the new culture to the rest of the organization  Involves activities and messages that aim to instill a new set of values Methods used to conveyance and understanding of OC o Mission statement – a shared vision o Myths and stories – from the origins of the company, often about overcoming great difficulties. To instill pride and determination in employees o Rituals – while may reduce efficiency, can play a large role in motivation or achieving positive intangible goals o Symbols – developed a shared sense of belonging and pride e.g. logo, uniform Difficulties in changing OC o Validity of link between organizational performance and culture adopted  Businesses studied by Peters and Waterman deemed to possess “excellent” characteristics were unable to sustain their success o Desire to change people’s values and attitudes is morally questioned o The possibility of a manager to even change OC, when culture is already so difficult to define and understand Culture and links with the rest of the internal environment o Culture is pervasive, and thus interacts with all other internal components o Links  Organisational strategy affects culture change  Size of organization affects the “feel” to work there  Structure of organization affects how degree of formality of a culture  Mode of ownership affects the culture; individuals’ personalities reflected  Managerial style and approach can impact organizational life o Important to note that culture is not homogenous within the organization, and there may exist conflicts between different subcultures – competitive pride? Stakeholder’s model? o Different stakeholders share different sense of culture o Culture is complex, intangible, and ever evolving. It is not possible to create a single best culture any more than a single best size, type, and strategy. Classifications of culture o Harrison and Handy, and Deal and Kennedy 20

6.4. Organisational culture (OC)












7. Key external elements of the business context
7.1. The economic environment
 GDP o An indication of a country’s general economic conditions, which influences the purchasing power of consumers o GDP per capita is more accurate representation, but fails to take into account gini o Takes a time period to become available Other indicators such as GNP, investment expenditure, employment rates, inflation, interest rates, currency exchange rates, consumer’s expenditure etc. Economic influences work together to create the economic environment for businesses Comprises o The type of political system o The approach of the dominant political party o The policies and activities of the government o The wider political environment beyond individual countries Government intervention o Positively promoting industries or products o Setting of interest rates and taxation levels Regulations o Labour law – hiring, employment, and ending an employment contract o Company law – setting up of a business, running, and closing down o Patent law – ownership claims on new ideas and use by other companies o Trading law – safety of products and consumers’ rights when purchasing them o Environmental law – company’s activity protects the natural environment Education policies o Affects skilled labour pool available o Achieve the right balance o Opportunities need to be available to keep unemployment down o Invest in skills required for the desired industries e.g. high tech, manufacturing International political factors o ASEAN – to increase trade between the member countries o International organisations exist to encourage trade to increase economic success (WTO) Determined by o Macroeconomic conditions of the country o Infrastructure and training policies adopted by the State Changes in transportation and communications make it easier, cheaper and quicker for most goods, people and information to travel around the world Open up new markets for products Ways culture affects organizational methods o Organisation of business – small businesses may be more common o Types of products 21

  

7.2. The political environment

 





7.3. The technological environment
   

7.4. The cultural environment



o Ways of promoting products o Ways of doing business o The business mission – focus on providing employment, on making profits etc. o Motivations to work – could value loyalty and commitment to employers o Management style Hofstede’s o Individualism vs collectivism – loyalty to self and family or to the wider group o Power distance o Uncertainty avoidance – tolerance of uncertainty and ambiguity o Masculinity vs femininity
Individualism More-developed latin Less-developed latin More developed Asian Less developed Asian Near eastern Germanic Anglo Nordic High Low Medium Low Low Medium High Medium Power distance High High High High High Low Low Low Uncertainty avoidance High High High Low High High Low-medium Low-medium Masculinity Medium none Medium medium Medium High High Low

7.5. Analysing the business environment
  SWOT analysis of the environment i.e. strengths, weaknesses of a country Porter’s five forces model o Potential new entrants as competitors o Bargaining power of buyers o Bargaining power of suppliers o Threat posed by similar or substitute products o Rivalry among competitors marketing their goods to the same audience Porter’s strategies o Differentiation of product o Cost leadership o Focus and specialization It is important to take into account the external environment of a business to understand the constraints and opportunities available to the business





8. The diverse and dynamic nature of the business context

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