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					Enterprise Operations
Operational level

   CIMA Paper E1
Aim of Paper

   • This paper addresses several functional
     areas of business, as well as introducing
     candidates to the economic, social and
     political context of international business.
   • This paper will prepare candidates for
     Paper E2, Enterprise Management, and
     Paper E3, Enterprise Strategy.
   • This paper is a discursive paper.

   The Global Business Environment   20%
   Information Systems               20%
   Operations Management             20%
   Marketing                         20%
   Managing Human Capital            20%
Exam Format

Section A – 20 marks
Variety of objective test questions each worth 2 to 4
Section B – 30 marks
Six compulsory short answer questions, each worth 5
marks. A short scenario may be given to which some or
all questions relate.
Section C – 50 marks
One or two compulsory questions. Short scenarios may
be given, to which the questions relate.
Session   1   Introduction to the
              Global Business
Overview Session One

   Introduction to the global business environment
   • Different economic systems
   • Cross cultural management
   • The BRIC economies
   • Outsourcing
   • Offshoring
   • Liberalisation and economic nationalism
   • International economic developments
Different economic systems


     Planned          Mixed      Free
    economic        economic    market
     system          system    economic
Cross cultural management

      Masculinity                  Individualism
        versus                         versus
      femininity                    collectivism

                      of culture   Long term
        avoidance                  orientation

The BRIC economies

   BRIC (Brazil, Russia, India and China) are the world’s
   largest emerging economies. Fast growth, strong
   economic foundations and large populations have
   made BRIC into the world’s most promising

   Outsourcing is the contracting out of aspects of the
   work of an organisation, previously done in-house,
   to specialist providers.
             Advantages                     Disadvantages
   • Lower costs                   • Future prices may rise
   • Increased capacity            • Loss of in-house expertise
   • Reduced capital expenditure   • Risk to continuity of supply
   • Reduced headcount             • Risk of loss of confidentiality
   • Focus on core competences     • Loss of competitive advantage
   • Supplier’s expertise          • Difficult to agree/ enforce
                                   contract terms

   Offshoring is the relocation of corporate activities
    Advantages for a UK company        Disadvantages for a UK
       relocating its activities       company relocating its
              overseas                   activities overseas

    • Cost savings                 • Cultural differences
    • Access to talented and       • Instability of the offshore
    motivated professionals        countries
    • Cheap, high quality          • Cost savings not always
    technology makes the process   realised
    more straightforward           • Job losses in the UK
    •Ease of communication since   • Increased risk that
    English is commonly spoken     confidential information is lost
    • Fast turnaround times
Offshoring continued

      Advantages for the recipient   Disadvantages for the recipient
       country that provides the        country that provides the
                services                         services

     • Much needed jobs              • Poor working conditions, e.g.
     • Improvement in skills         hours, wages
     • Advances in infrastructure/   • Technology transfer may not
     technology                      occur
Liberalisation and economic nationalism

   Liberalisation is a broad term that usually refers to
   fewer government regulations in the economy. As
   a result, free trade will be encouraged.
   Advantages of free trade
   • Countries can specialise in goods they produce
      most efficiently
   • Surpluses and deficits removed
   • Competition improves efficiency
   • Economies of scale
   • Closer political links
Liberalisation and economic nationalism cont.

   Economic nationalism refers to a set of policies that favour
   the home nation, e.g. the restriction of free trade or of
   foreign investment. As a result, international trade will be
   Advantages of protectionism (restriction of free trade)
   • Protection of infant industries
   • Prevents dumping
   • Prevents establishment of a foreign based monopoly
   • Reduces the influence of trade on consumer tastes
   • Prevents the import of harmful goods
   • Self-sufficiency
Liberalisation and economic nationalism cont.



                       to free
International economic developments

   The balance of payments records all of the
   transactions that have taken place between
   residents of a country and overseas residents
   during the period of a year.
                           Solving a balance of
                            payments deficit

     Reduce demand in the                   Increase expenditure on
      home economy, e.g.                     domestically produced
    increase interest rates or                rather than imported
            taxation                                  goods
International economic developments cont.

   Monetary policy refers to the management of
   money supply, i.e. the volume and price of money,
   within the economy. Changes in monetary policy
   will influence a business in a number of ways:
   • It changes the availability of finance
   • It impacts the cost of finance
   • Consumer demand will change
   • Inflation and exchange rates will change
International economic developments cont.

   Gross domestic product (GDP) = the total value of
   income/ production from economic activity within a
   Gross national product (GNP) = GDP + overseas
   income – income earned in the country by overseas
Session   2   Governance and
              Regulation in the Global
              Business Environment
Overview Session Two

   Governance and regulation in the global business
   • Stakeholders
   • Corporate governance
   • Social responsibility
   • Regulation
   • Business/ government relations
   • Risk

   A stakeholder is a group or individual, who has an
   interest in what the organisation does, or an
   expectation of the organisation. There are three
   categories of stakeholder

                             Internal, e.g.
                            employees and

                 External, e.g.
                                       customers and
Corporate governance

   Corporate governance is the set of processes and policies by
   which a company is directed, administered and controlled.
   It includes the appropriate role of the board of directors and
   the auditors of the company.
   • The need for corporate governance arises because of the
   separation of ownership and control.
   • It helps the business to achieve its objectives in a way that
   is acceptable to ALL stakeholders.
   • Governance should lead to sustainable wealth creation.
Corporate governance continued

                       Systems of corporate

     UK principles-based            US rules-based approach –
     approach – guidance on         the Sarbanes-Oxley Act
     non-executive directors,       requires auditor
     remuneration                   independence, an audit
     committees and audit           committee, an internal
     committees                     control report, increased
                                    financial disclosures and
                                    adherence to the US stock
                                    exchange regulations
Social responsibility

   Sustainable development: aims to balance
   economic, environmental and social needs.
   Corporate social responsibility: the company is
   sensitive to the needs of all stakeholders and not
   just shareholders. Benefits to the company include:
   • Improved profitability
   • Customer loyalty
   • Retention of key employees
   • Identification of new market opportunities
   • Monitoring of changing social expectations

                             Regulation in the

   Regulation of the level of     Regulation of         Regulation of externalities:
   competition:                   people in business:   i.e. costs or benefits of
   1. Competition Act prohibits   1. To prevent         production experienced by
      anti-competitive               insider trading    society but not by producers
      agreements or abuse of a    2. To prevent         or consumers themselves.
      dominant position              trading if the     Regulation using:
   2. Office of Fair Trading         company is         1. max/ min prices
      investigates businesses        insolvent          2. tax/ subsides
      suspected of breeching                            3. fines and quotas
      Competition Act
   3. The Competition
      Commission deals with
      cases referred by the
      Office of Fair Trading
Regulation continued


     The US Sarbanes-Oxley              Regulation of trade:
     Act 2002: only impacts             1. Free trade supported by
     UK companies that are                 the World Trade
     registered on the US                  Organisation
     stock exchange                     2. Regional trading
                                           organisations, e.g. EU
                                           and NAFTA, allow free
                                           trade between specific
Business/ government relations

   Businesses can influence government decision in a
   number of ways:
   • Lobbying government to gain their support
   • Awarding non-executive directorships to retired
   MPs/ civil servants
   • Public opinion, and hence legislative agenda, can
   be influenced, e.g. using advertising

   Political risk is the possibility of an unexpected
   politically motivated event in a country affecting
   the outcome of an investment.
                        Three main methods of
                        managing political risk

       Understand            Review risks         Take action
       political risk      regularly during        after the
         before             the period of           risk has
        investing            investment           materialised
Risk continued

   Country risk is the risk arising from operating or
   investing in a particular country, with risks relating
   to such matters as political interference, political
   stability, the social and economic infrastructure, the
   culture of the country and its attitude to foreign
                   Country risk can be analysed
                          in three ways

      Political             Financial             Economic
      analysis              analysis               analysis
Session   3   Information Systems
Overview Session Three

   • Introduction
   • Information systems for competitive advantage
   • IT enabled transformation
   • Emerging IS trends in organisations
   • Costs and benefits of information systems
   • Systems changeover methods
   • IS implementation – avoiding user resistance and non-
   • Outsourcing
   • Privacy and security

   Information systems (IS) refers to the provision and management of
   information to support the running of an organisation
   Information technology (IT) is the supporting equipment (hardware)
   that provides the infrastructure to run the information systems
   The IS/IT strategy is a major plan of action that determines the use of
   technology within the organisation. This strategy should be aligned with
   the business strategies developed within the organisation. Benefits of
   an IS/IT strategy include:
   • Competitive advantage
   • Improved productivity and performance
   • Development of new business
   • Structural change
   • Goal congruence
Information systems for competitive advantage

   Competitive advantage means having those factors which
   lead customers to consistently prefer your product or

   Porter suggested three overall competitive strategies that an
   organisation can implement:
   • Cost leadership
   • Differentiation
   • Focus
IS for competitive advantage continued

Porter also identified five forces that determine the extent of competition in
the industry. IT can be used to provide competitive forces within each of
                               Threat of
                             New Entrants

     Power of                                               Power of
                                 Rivalry                    Suppliers

                                Threat of
IT enabled transformation

                             New forms of

    Virtual companies:   Virtual teams within          E-commerce
    1. Operate with      organisations:                organisations:
       little physical   1. A team of people not       Conduct business
       presence             present in the same        electronically
    2. IT has allowed       office or organisation     through some sort
       people to         2. Work independently         of communication
       collaborate          but are guided by a        link
       without meeting      common purpose
       face to face      3. IT allows information to
    3. Outsource most/      be sent/ shared
       all functions        remotely and for virtual
                            meetings to be held
IT enabled transformation continued

       Benefits of virtual      Drawbacks of virtual
          companies                 companies
    • Can exploit             • Difficult to negotiate
    opportunities             revenue sharing
    • Look bigger than they   agreement
    are                       • Loss of control may
    • Flexibility             result in a fall in quality
    • Lower costs             • Loss of competitive
                              advantage if competitors
                              work for competition
IT enabled transformation continued

 Challenges of virtual    Potential solution to these challenges
1. Forming a team        1. Spending time getting to know each
   can be difficult         other, e.g. team identity, jokes
2. Knowledge             2. Regular and predictable
   sharing                  communication patterns
3. Difficult to          3. Training in technology and teamwork
   establish                plus clear roles and responsibilities
   processes/ goals
4. Leadership            4. Detailed, timely feedback between
                            the leader and the team members
5. Cultural              5. Pay attention to cultural differences
6. Morale                6. Choose independent and self-reliant
Emerging IS trends in organisations

        Enterprise-wide systems:                           Knowledge
           all of the data and                       management systems:
             processes of an                            create, capture,
       organisation are integrated                    distribute and share
            into one system                                knowledge

                                      Emerging IS
                                       trends in
                                                      Customer relationship
        Web 2.0 tools: social
                                                      management systems:
       networking tools used
                                                       used to get to know
          to listen to and to
                                                     customers better and to
        influence customers
                                                        serve them better
Costs and benefits of IS

         Tangible costs        Intangible costs
     • Design and set-up    • Staff disruption
     costs                  • Dysfunctional
     • Day-to-day running   behaviour
     costs                  • Learning curve
     • Storage costs        • Opportunity cost
Costs and benefits of IS continued

         Tangible benefits        Intangible benefits

     • Improved speed and      • Competitive advantage
     efficiency                • Improved customer
     • Reduced labour time     satisfaction
     • Reduction in errors     • Better information and
     • Use of lower skilled,   decision making
     cheaper labour            • Common systems result
     • Hold optimum level of   in consistency
     • Collect cash more
System changeover methods

                            Four methods of
                           system changeover

   Direct:           Parallel:          Pilot:         Phased:
   appropriate       appropriate        appropriate    appropriate
   when there is     when the           when the       when the
   confidence in     system has         system can     system can
   the new           not been           be operated    be
   system or it is   used               in different   implemented
   not a critical    elsewhere or       geographical   in distinct
   business          it is a critical   regions        parts
   system            business
System changeover methods continued

                       Advantages                 Disadvantages

    Direct     Quick                       High risk
    Parallel   Low risk                    Expensive
               Output can be verified      Slow
                                           Users rely on old system
    Pilot      Less risk than direct       Slower than direct
               Less costly than parallel   Riskier than parallel
    Phased     Staff have time to adjust   Slower than direct
               Less risky than direct      Links between part of the
                                           system make it difficult
IS implementation – avoiding user resistance
and non-usage
   Reasons for project failure:
   • Insufficient user involvement
   • Lack of management support
   • Project too complex
   • Poor planning
   • Unrealistic deadlines
   • Poor monitoring and control
   • IT staff don’t have the necessary management skills
IS implementation – avoiding user resistance
and non-usage continued
   Kotter and Schlesinger identified six methods of dealing
   with resistance:
   • Education and communication
   • Participation
   • Facilitation and support
   • Negotiation
   • Manipulation and co-optation
   • Power/ coercion
IS implementation – avoiding user resistance
and non-usage continued
   Kotter and Schlesinger identified six methods of dealing
   with resistance:
   • Education and communication
   • Participation
   • Facilitation and support
   • Negotiation
   • Manipulation and co-optation
   • Power/ coercion
IS implementation – avoiding user resistance
and non-usage continued
   Lewin’s prescriptive planned change theory:

       Unfreeze          Move          Refreeze
IS implementation – avoiding user resistance
and non-usage continued
 Lewin’s force field analysis maps out the driving forces that are pushing towards a
 preferred state (i.e. the implementation of the new system) and the restraining forces,
 which are pushing back to the current state.

              Objective of the Change Process

        Driving Forces                                      Restraining Forces

   IT outsourcing involves purchasing from outside the
   organisation the IS services required to perform business
                      Four approaches to IT

      Total        Multiple/          Joint       Insourcing
                   selective        venture/
Privacy and security

      Potential threat       Possible solution
      Physical damage        Fire procedures
      Human interference     Secure entry system
      Data corruption        Virus software
      Data theft             Data encryption
      Operational problems   Testing
      HR risk                Ergonomic design of
Privacy and security continued

   Data Protection Act (DPA) 1998
   • Personal information can be misused more
   effectively on a computer than on a manual
   • The DPA gives individuals a right to know
   what information is held about them
   (provisions of the Act) and provides a
   framework to ensure that information is
   handled properly (principles of the Act).
Session   4   Introduction to
Overview Session Four

   •   Definitions
   •   Mintzberg’s effective organisation
   •   Porter’s value chain
   •   Strategic issues
   •   Systems used in operations management
   •   Methods of managing operational capacity
   •   Sustainability in operations management
   •   Product/ service and process design

   • Operations involves the transformation of inputs
     into outputs in order to add value.
   • Operations management refers to the activities
     required to produce and deliver a product or
     service. It includes purchasing, warehousing and
   • Operations strategy – an organisation can
     achieve significant competitive advantage over its
     rivals through superior operating capabilities of
     its resources, e.g. assets, workforce skills,
     supplier relationships.
Mintzberg’s effective organisation

   Mintzberg said that an organisation is made up of
   five parts:
                     Strategic apex

         Techno-        Middle        Support
         structure       line           staff

                     Operating core
Porter’s Value Chain

 Porter developed his value chain to determine
 whether and how a firm’s activities contribute
 towards its competitive advantage. Margin, i.e. profit
 will be achieved if the customer is willing to pay more
 for a product/ service than the sum of the costs of all
 of the activities in the value chain.
 The approach involves breaking the firm down into
 five ‘primary’ and four ‘support’ activities and then
 looking at each to see if they give a cost advantage or
 a quality advantage.
Porter’s Value Chain

         Human Resource Management

  Inbound              Outbound Marketing
            Operations                       Service
  Logistics            Logistics and Sales
Strategic issues

   Strategic decisions in operations include:
   • New products services – innovate or copy competitors?
   • New production technology – introduce leading edge
   • Vertical integration strategy – operate in how many
      stages of the supply chain?
   • Structuring workforce – consider skills/ responsibilities
   • Capacity/ flexibility strategy – can the organisation
      forecast and react to demand?
   • Facilities improvement – how many locations?
   • Supply strategy – purchase from singe/ multiple
   • Inventory levels – what is the optimum level?
Systems used in operations management

                         management systems

   MRP: a system     MRP II: a       ERP: a          OPT: a system
   for planning      central         system that     that identifies
   the               database for    integrates      constraints and
   requirements      materials       data from all   uses these to
   of raw            planning that   operations      schedule
   material, work-   all functions   within the      production and
   in-progress and   have access     organisation    determines ways
   finished goods    to                              to eliminate the
Methods of managing operational capacity

   • Flexible manufacturing system – an automated
     manufacturing system enabling high volume
     flexible production.
   • Queuing theory – a technique that optimises the
     balance between customer waiting time and idle
     service capacity.
   • Forecasting – used to predict customer demand
     and to balance this with production.
Sustainability in operations management

   Sustainable development is about meeting the needs of the
   present without compromising the ability of future
   generations to meet their own needs.
   Sustainability impacts operations management in a number
   of ways:
   • Process design, e.g. designed to minimise waste
   • Product design, e.g. use of recycled inputs
   • Supply chain management, e.g. choose suppliers that
      adopt sustainable development policies
   • Quality management should help to improve efficiency
      and reduce waste
Product/ service and process design

   Stages in product/service development:

         1. Consider
                       2. Concept   3. Design   4. Time-to-   5. Product
                       screening     process      market        testing
Session   5   The Supply Chain and
              Supply Networks
Overview Session Five

   •   Definitions
   •   Reck and Long’s strategic positioning tool
   •   Supply networks
   •   Process maps
   •   Cousins’ strategic supply wheel
   •   Inventory management systems
   •   JIT

   • The supply chain includes the entire process from extracting raw
     materials to delivering the finished product to the end customer. The
     supply chain will involve a number of separate companies that will all
     play a part in satisfying the needs of the end customer.
   • A virtual supply chain is a supply chain that is enabled through e-
     business links.
   • Supply chain management is the management of all the activities
     aimed at satisfying the end customer in a way that maximises the
     effectiveness of the process.
   • A supply chain network is a group of organisations that relate to
     each other through the linkages between the different processes
     involved in producing the finished product.
   • A demand network is the evolution of a supply chain network and
     involves the collaboration between buyers to influence what goods
     are supplied.
Reck and Long’s Strategic Positioning Tool




Supply networks
   A supply network is a term used to describe the arrangements made by
   the organisation to obtain its supplies. There are four main sourcing
         Strategy                  Explanation
       Single         The organisation chooses one source of
       sourcing       supply
       Multiple       The organisation chooses several sources
       sourcing       of supply
       Delegated      The organisation chooses one supplier
       sourcing       and this supplier co-ordinates and works
                      with other suppliers to ensure the supply
                      requirements are fulfilled
       Parallel       The organisation uses a mix of the three
       sourcing       approaches
Cousins’ Strategic Supply Wheel




   Competences                    Cost/benefit
Inventory management systems

                               Methods of managing

   Continuous             Periodic            ABC system:       JIT system: a system
   inventory system:      inventory           managers focus    which produces or
   each addition and      system:             their attention   procures products or
   withdrawal is          inventory is        on inventory      components as they
   recorded and an        checked on a        items of high     are required by the
   automatic order is     regular basis and   value and there   customer for use,
   placed when            a variable order    is little         rather than for
   inventory falls to a   is placed           management        inventory
   pre-determined         depending on        control of
   level                  usage during the    inventory items
                          period              that are least

      Requirements for the successful operation of a JIT
      system include:
      • Flexible production
      • The speed of throughout should match demand
      • Elimination of non-value added activities
      • Higher quality and reliability
      • Lower costs
JIT continued

    Advantages of JIT                Disadvantages of JIT
    • Lower stock holding costs      • Little room for mistakes
    • Less working capital tied up   • Reliant on suppliers
    in stock                         • Requires a change in
    • Reduced obsolescence           culture
    • Improved quality               • Not suitable for all
                                     • No spare finished
                                     product to meet
                                     unexpected demand
JIT continued

   Advantages of close relationships with suppliers:
   • No rejects/ returns
   • On-time deliveries
   • Low inventory
   • Close proximity
Session   6   Quality Management
Overview Session Six

   •   Introduction
   •   Quality related costs
   •   TQM
   •   Methods of quality measurement
   •   Lean production

   Quality management involves planning and
   controlling activities to ensure the product or
   service is fit for purpose, meeting design
   specifications and the needs of customers.
Quality related costs

                             Four types of quality

    Prevention: cost   Appraisal: cost   Internal          External failure:
    of preventing      of quality        failure: costs    costs arising from
    defects before     inspection and    arising from a    a failure to meet
    they occur         testing           failure to meet   quality standards.
                                         quality           Occurs after
                                         standards.        product has
                                         Occurs before     reached the
                                         product has       customers
                                         reached the
Quality related costs continued

   • The traditional approach to quality management
     allows for built-in waste and therefore appraisal,
     internal failure and external failure costs would
     be high.
   • The contemporary approach to quality
     management aims to prevent errors before they
     occur and, as a result, prevention costs will be

  Fundamental features:
  • Prevention of errors before they occur
  • Continual improvement
  • Real participation by all
  • Commitment of senior management
TQM continued

  TQM tools:
  • Quality circles
  • Kaizen
  • 5-S practice
  • Six sigma
TQM continued

  Key writers on TQM
  • Deming: credited with the development of TQM in Japan
  • Juran: stated that 85% of quality problems are due to the
    systems that employees work within rather than the
    employees themselves
  • Feigenbaum: believed ‘prevention is better than cure’
  • Crosby: introduced concept of ‘zero defects’
  • Ouchi: recommended certain Japanese management
    practices to improve the success of American companies
TQM continued

  TQM and external quality standards
  • The most widely used external quality standards
    are those published by the international
    organisation for standards (ISO).
  Requirements include:
  • A set of procedures that covers all business
  • Keeping adequate records
  • Checking output for defects
  • Facilitating continuous improvement
TQM continued

  1. Senior      2. Establish           3.
                                                   4. Establish          5.         6. Monitor
 management    quality steering   Presentations
                                                  quality circles   Documentation    progress
 consultancy     committee         and training
Methods of quality measurement

   Servqual uses 22 questions to understand a
   respondent’s attitude about service quality. These
   questions are reliable indicators of five distinct
   • Tangibles
   • Reliability
   • Responsiveness
   • Assurance
   • Empathy

  Benchmarking is the process of systematic
  comparison of a service, practice or process. Its use
  is to provide a target for action in order to improve
  competitive position. Types include:
  • Competitive
  • Internal
  • Functional
Benchmarking continued

                                          1. Select
                                        process to be

                 7. Review                                           2. Assign
                  success                                         responsibilities

                                                                          3. Identify
          6. Implement                                                    partners to
           the change                                                     benchmark

                                                         4. Collect,
                         5. Identify best               analyse and
                             practice                     evaluate
Benchmarking continued

   Benefits of benchmarking include:
   • Improved performance and added value
   • Improved understanding if environmental
   • Eliminate complacency
   • Continuous improvement
   • Achievability
Lean production

   A philosophy that aims to eliminate waste, i.e.
   • Inventory
   • Waiting
   • Defective units
   • Effort
   • Transportation
   • Over-processing
Lean production continued

   Characteristics            Criticisms
   • Improved production      • High initial outlay
   scheduling                 • Requires a change in
   • Small batch or           culture
   continuous production      • Part adoption
   • Continuous improvement   • Cost may exceed
   • Zero inventory           benefit
   • Zero waiting time
Lean production continued

                              Six sigma

           manufacturing                      JIT

                           Six core methods
                                 of lean

                 TPM                          Kaizen

                             5-S practice
Session   7   Introduction to
Overview Session Seven

   •   Approaches to selling a product
   •   Understanding the marketing environment
   •   Consumer behaviour
   •   Factors affecting buying decision
   •   Types of consumer behaviour
Approaches to selling a product

                            Four possible approaches
                               to selling a product

    Sales                Production         Product        Marketing
    orientation: uses    orientation:       orientation:   orientation: starts
    aggressive           focus is on high   focus is on    by understanding
    promotional          volume             continual      the customers’
    policies to entice   production to      improvement    needs and then
    the customer         achieve a low      of products    produces products
                         unit cost          assuming       with benefits and
                                            customers      features to fulfil
                                            simply want    these needs. The
                                            the best       best approach.
                                            quality for
                                            their money
Understanding the marketing environment

   The following technique can be used to analyse
   the general environment:
   • Political
   • Economic
   • Social
   • Technical
   • Ecological
   • Legal
   Each of these factors can be applied to the
   marketing function.
Consumer behaviour

Consumers go through a five stage decision-making process in any purchase:

                          Need Recognition

                         Information Search

                      Evaluating Alternatives

                        Decision to purchase

                     Post Purchase Evaluation
Factors affecting buying decision

                     influences, e.g.
                    reference groups,
                   role models, family

             Personal            Psychological
         influences, e.g.       influences, e.g.
           age, family            motivation,
              status,             beliefs and
           occupation               attitudes
Types of consumer behaviour

   • Fast moving consumer goods are relatively
     cheap, habitual purchases, e.g. bread.
   • Durable goods are relatively expensive, irregular
     purchases, e.g. a car.
Session   8   The Market Planning
              Process and the
              Marketing Mix
Overview Session Eight

   •   The market planning process
   •   Market segmentation
   •   Targeting
   •   Positioning
   •   Market research
   •   The marketing mix
   •   Product
   •   Pricing
   •   Promotion
   •   Place
The market planning process

                Situation analysis

             Set corporate objectives

            Set marketing objectives

           Devise a marketing strategy

             Plan the marketing mix
Market segmentation

   Market segmentation is the sub-dividing of the
   market into homogenous groups to whom a
   separate marketing mix can be focused.

   Kotler suggested that segments should be:
   • Measurable
   • Accessible
   • Substantial
Market segmentation continued

                        Bases for segmentation

   Demographic:     Socio-         Psychological:   Situational:
   • age            economic:      • lifestyle      •occasion of use
   • sex            • occupation   • attitudes      •frequency of
   • geographical   • income       • values         purchase

   This is the process of selecting the most lucrative
   market segment(s) for marketing the product.
   Possible strategies include:
   • Concentrated marketing: specialises in one or
     two of the identified markets only
   • Differentiated marketing: the company makes
     several products each aimed at a separate
   • Undifferentiated marketing: the delivery of a
     single product to the entire market

Positioning involves the formulation of a definitive marketing strategy around
which a product would be marketed to a target audience. Porter identified a
number of potential strategies:
                            Low cost                     High cost

                    1.Cost leadership           2. Differentiation

       Narrow                                  3B. Differentiation
       target         3A. Cost focus
Market research

   Market research is the way in which organisations find out
   what their customers and potential customers need, want
   and care about.
                    Data gathering techniques

     Primary research:             Secondary research: data
     collected for the specific    that is already available,
     purpose of the research       e.g. market research
     in question, e.g. focus       agency data, Companies’
     groups, observation,          Annual Reports and
     interviews,                   Accounts, trade and
     experimentation               technical journals
The marketing mix

   The traditional marketing mix (4Ps):
   • Product: Factors such as quality, design, range,
   packaging, branding and warranties
   • Place: Where to sell the products, how to
   transport the goods, intermediaries to use
   • Promotion: Techniques such as advertising,
   personal selling, public relations, sales promotion,
   direct marketing
   • Price: level, discounts, credit policy and payment
The marketing mix continued

   Additional 3Ps for the service industry:
   • People: Relates to both staff and customers
   • Processes: Systems through which the service is
   • Physical evidence: Makes the intangible service
     more tangible

   Difficulties marketing services include:
   • Intangibility
   • Inseparability
   • Heterogeneity
   • Perishability
   • No transfer of ownership
  Product continued

                The product life-cycle

        Intro   Growth    Maturity       Decline


Product continued

   • Product item: the individual product
   • Product line: a collection of product items that
     are closely related
   • Product mix: total product lines. Consists of:
      – width: the number of product lines
      – depth: the number of product items within
        each product line
Product continued

   A brand is a name, symbol, term, mark or design that enables customers
   to identify and distinguish the products of one supplier from those
   offered by competitors.

   Brand equity is the premium that customers are willing to pay for a
   brand compared to a similar, generic product.
   Characteristics of a strong brand     Determinants of brand value
  • Consistency                        • High loyalty
  • A distinctive name                 • Name awareness
  • Distinctive product features       • Strong personality associations
                                       • Perceived quality
                                       • Other attributes, e.g. patents

   Pricing is influenced by the 3Cs, i.e. cost, customers and
   Price setting strategies include:
   • Market penetration
   • Market skimming
   • Premium pricing
   • Product-line promotion pricing
   • Going rate pricing
   • Cost-plus pricing
   • Target pricing
   • Intermediate customer pricing
   • Differential pricing

  The promotion mix comprises the blend of methods
  that a company uses to promote its products to existing
  and potential customers.
  Methods include:
  • Advertising
  • Personal selling
  • Public relations
  • Sponsorship
  • Sales promotion
  • Direct marketing, e.g. direct mail/ telemarketing
  • Online marketing
Promotion continued

   Three relatively new forms of marketing include:
   • Viral
   • Guerrilla
   • Experiential
Promotion continued

                            Mass media: aims to reach
                            the greatest number of

                                 Three classes
                                 of marketing
      Direct marketing: direct                 Interactive media: new
      communication with the target            technology allows
      audience                                 communication between the
                                               customer and the company

   The word place is used to describe the process of
   distribution from the producer to the purchaser. This
   often involves one or more intermediaries.

   Distribution strategies:
   • Pull strategy – advertising creates consumer demand
     forcing retailers to stock the product
   • Push strategy – retailers are offered high margins
     and therefore stock the product
Session   9   Further aspects of
Overview Session Nine

   •   Marketing in a not for profit context
   •   Differences between B2B and B2C
   •   Internal marketing
   •   Social marketing and corporate social
Marketing in a not for profit context

   There are two key problems associated with
   marketing in a not-for-profit context:
   • Multiple objectives: desire to meet customers’
     needs constrained by wider social objectives
   • Absence of markets: may not be a marketplace
     within which customers can choose competing
     goods and services
Differences between B2B and B2C


             Technical                                  Fewer
            complexity           Features of            buyers
                                    to B2C

                  relationship                    High
                    between                    purchasing
                   buyers and                    power
Internal marketing

   Internal marketing is the means of applying the
   philosophy and practices of marketing to the
   people who serve the external customers so
   • the best people can be employed and
   • the employees will do the best possible work.
Social marketing and corporate social
                            Acts as a
                          unique selling

                          Advantages of      Increased
        Change before       adopting a       sales, e.g.
        new legislation       socially     customers may
         is introduced     responsible      be willing to
                             approach         pay more

                          Lower costs,
                           e.g. due to
                           using less
Session   10   HR Theories and
               Practices Related to
Overview Session Ten

   •   Theories of HRM
   •   Taylor’s scientific management
   •   Maslow’s theory
   •   Herzberg’s two factor theory
   •   Handy’s psychological contracts
   •   McGregor’s Theory X and Theory Y
   •   Reward systems
   •   Workforce flexibility
   •   Knowledge workers
   •   Employee involvement
Theories of HRM

   Motivated employees are important to an
   organisation since motivation will increase
   productivity and quality of work and will reduce
   staff turnover.

   There are two broad classes of motivation
   • Content: what motivates employees
   • Process: how to motivate employees
Theories of HRM continued

        Theorist    Year                   Theory
      Taylor        1911   Scientific management
      Maslow        1954   Hierarchy of needs
      Vroom         1964   Expectancy theory
      Herzberg      1968   Two factor theory
      Handy         1976   Psychological contracts
      McGregor      1981   Theory X and Theory Y
      Lawrence      1994   One type of contingency theory
      and Lorsche
      Schein        1990   Four categories of worker
Taylor’s scientific management

   By organising work in the most efficient way, the
   organisation’s productivity will be increased and
   this will enable the organisation to reward its
   employees with the remuneration they desire.
Maslow’s theory



                        Social Needs

                    Security/Safety Needs

                  Basic/Psychological Needs
Herzberg’s two factor theory

   Hygiene factors are not sufficient to result in
   positive motivation but must be addressed to avoid
   Motivators will not cause dissatisfaction by not
   being present but can increase motivation if
   Herzberg went on to define three ways in which
   management can increase motivation:
   • Job enrichment
   • Job enlargement
   • Job rotation
Handy’s psychological contracts

   • Psychological contracts exist between the
     employee and the employer.
   • They can exert strong influence on behaviour
     because it captures what employees really
     believe they will get in return for what they give.
McGregor’s Theory X and Theory Y

   • Theory X assumptions: people dislike work, must
     be coerced to make an effort, prefer to be
     directed, avoid responsibility and want security
     above all else.
   • Theory Y assumptions: people enjoy work,
     exercise self-direction and self-control, enjoy and
     seek responsibility.
Reward systems

             To comply
                with                                      Attract/retain
            legislation/                                   quality staff

                                  Aims of a
          To achieve            reward system               Consistency
        organisational                                      and fairness

                     factors other                  Reward
                        than job                  performance
Reward systems continued

   There are three main types of incentive scheme:
   • Performance related pay
   • Bonus schemes
   • Profit sharing

   A total reward package draws together all the
   financial and non-financial benefits available to
Workforce flexibility


        Flexible working   Four types of   Financial
         arrangements       workforce      flexibility

Knowledge workers

   Knowledge workers are people who create
   knowledge and produce new products and services
   for the organisation to sell. For example:
   • Research staff
   • Chemists
   • Architects
Employee involvement

   Employees should be given the opportunity to
   contribute to the organisation. High performance
   work arrangements rely on all employees for their
   ideas, intelligence and commitment to make the
   organisation successful.
Session   11   Human Resource
Overview Session Eleven

   •   Definition
   •   Human resource planning
   •   The HR cycle
   •   Recruitment
   •   Selection
   •   Induction
   •   Training and development
   •   Appraisals
   •   Legal issues
   •   Ethics

   Human resource management (HRM) can be
   viewed as a strategic approach to acquiring,
   developing, managing and motivating an
   organisation’s key resource. This should help the
   organisation achieve its stated objectives through
   the best use of its employees.
Human Resource Planning
           Stage 1: Strategic analysis

             Stage 2: Internal analysis

               Stage 3: Identify gap
                supply and demand

           Stage 4: Put plans in place to
                   close the gap

                Stage 5: Review
The HR cycle

                                             1. Recruitment

                    5. Termination                                     2. Selection

                             4. Appraisal,
                              training and                    3. Induction

     Legal and ethical issues should be considered at each stage of the HR cycle

                         The recruitment plan

   Job analysis –   Job             Person            Source
   detailed study   description –   specification –   candidates
   of the job       purpose and     characteristics
                    duties of the   and qualities
                    job             looked for in
                                    job applicants
Recruitment continued

   A person specification is developed as part of the
   recruitment process. It defines the personal
   characteristics, qualifications and experience
   required by the job holder in order to do the job
   well. It therefore becomes the specification for the
   attributes sought in a successful candidate for the
   job, a blueprint for the perfect person to fill the
Recruitment continued

   Rodgers recommended that the following
   categories should be covered in a person
   • Background/circumstances
   • Attainments
   • Disposition
   • Physical make-up
   • Interests
   • General intelligence
   • Special attributes

   Selection is aimed at choosing the best person for
   the job from the field of candidates sourced using

   The selection method must be:
   • Reliable
   • Valid
   • Fair
   • Cost effective
Selection continued

   The purpose of an induction is to ensure the most
   effective integration of staff into the organisation,
   for the benefit of both parties.
   Benefits include:
   • Quick assimilation of employees into the
   • The process reassures employees which increases
      motivation/ performance
   • Increased employee commitment
   • Reduces staff turnover
Training and development

   Training: formal learning to achieve the level of skills,
   knowledge and competence to carry out the current role
   Development: the realisation of a person’s potential
   through formal and informal learning to enable them to
   carry out their current and future role
   Honey and Mumford suggested that there are four different
   learning styles:
   • Activists
   • Reflectors
   • Theorists
   • Pragmatists
Training and development continued

Kolb’s experiential learning cycle:

                     Concrete Experience

  Testing Ideas                            Reflection

                       Concept Creation
Training and development continued

   The stages in the training and development process:

   Appraisal is the systematic review and assessment of an
   employee’s performance, potential and training needs. It
   will involve the following steps:
   • Identifying the criteria for assessment
   • Preparation of appraisal report by manager
   • Appraisal interview between job holder and manager
   • Agreement of future objectives and solutions to problems
   • Manager’s supervisor reviews the assessment for fairness
   • Follow up
Appraisals continued

   Lockett’s barriers to effective appraisal
   • Confrontation
   • Judgement
   • Chat
   • Bureaucracy
   • Annual event
   • Unfinished business
Legal issues

   Disciplinary procedures
   The purpose of discipline is not punishment but is to
   improve the future behaviour of the employee and other
   members of the organisation.

   Key requirements of any disciplinary policy include:
   • Immediacy
   • Advance warning
   • Consistency
   • Impersonality
   • Privacy
Legal issues continued

   Redundancy should be considered as the last

   True redundancy arises when the role the employee
   performs is no longer required, perhaps due to
   restructuring. An employee may claim unfair
   dismissal if, in fact, the position was not redundant.

   In order to achieve the objectives of the
   accountancy profession, CIMA qualified
   accountants have to observe six fundamental
   • Integrity
   • Objectivity
   • Competence
   • Confidentiality
   • Professional behaviour
   • Technical standards

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