Information Technology

Related Links

Student Accountant hub page

The Paper P3 syllabus for December 2014 and June 2015 has expanded section E,
Information Technology. Section E1 is a new subject area:
E INFORMATION TECHNOLOGY
1. Principles of information technology
(a) Advise on the basic hardware and software infrastructure required to support
business information systems.
(b) Identify and analyse general information technology controls and application
controls required for effective accounting information systems.
(c) Analyse the adequacy of general information technology controls and application
controls for relevant application systems.
(d) Evaluate controls over the safeguarding of information technology assets to ensure
the organisational ability to meet business objectives.
In particular, in (a) above, knowledge and skills relating to hardware and software
infrastructure have expanded from a focus on e-business to more general business
information systems. (b), (c) and (d) above all relate to controls which were not mentioned at
all in earlier syllabuses or study guides.

Infrastructures to support business
information systems
Very large companies began to use of computers in the 1960s. The first applications were for
wages and salaries processing, the production of sales invoices and receivables ledger
accounting. These applications automated existing operations allowing greater accuracy,
more speed and cheaper processing. At this time the IT operations would have been called
‘data processing’.
Once transactions are processed by computer it is easy to analyse those transactions to
produce information that could be useful for management. For example, once the sales ledger
is computerised it is easy to produce aged receivables listings. These additional management
reports became common in the 1970s (and are still important) and IT operations became
known as ‘management information systems’ (MIS). The systems could also be programmed
to make simple decisions such as comparing inventory levels to production plans to enable
automatic stock ordering. The simple decisions are known as programmable or structured
decisions, meaning that there is a well-defined way of getting to the correct answer. MIS
primarily allows companies to keep their costs down, helping them to move towards cost
leadership, through a combination of automation and rationalisation.

At the beginning of the 1980s, spreadsheets were invented and this allowed computers to be
used to help managers make unstructured (non-programmable) decisions. For these decisions
there is no definitively right answer. For example, what should next year’s budget look like?
At what price should a new product be launched? Financial models on spreadsheets allow
managers to try out 'what if?' experiments where they try out different combinations of
assumptions and try to home in on a credible answer. These systems are known ‘decision
support systems’ (DSS): they do not make the decision but help managers make decisions.
More sophisticated DSS systems can combine, for example, computer aided design and
computer aided manufacturing systems to enable new products to be brought to market more
quickly: data warehousing (recording historical transaction data) and data mining (trawling
through that data to learn more about customers’ preferences and buying patterns). Both of
these techniques can help with differentiation and focus strategies.
Somewhat later, around the 1990s, executive information systems were developed. These
were of particular use to senior managers and they have a particular emphasis on giving
access to external information that is needed for operational and strategic planning. It was, of
course, in the 1990s that the Internet began to expand rapidly and much more external
information became available. Executive information systems also emphasise flexibility so
that executives can see company data in a wide variety of ways. Typically, such systems
would initially present sales for the group, but upon double-clicking on that figure, it would
split into sales by division. Double-clicking on one of those figures might show the sales to
the division’s 10 key customers, compared to the comparable period last year. This process is
known as drilling down.
Databases are by far the preferred way to hold data. Databases allow a wide range of users
and applications to use the data flexibly and to update it. Each user can be given a unique,
personalised and relevant view of the data which they can easily search and manipulate.
The increasing reliance on computers by all levels within a company requires careful design
of the information technology (IT) infrastructure. IT usually refers to the hardware:
computers, connections, disk storage.

Networks
Only the very smallest of businesses will have stand-alone computers, computers not
connected to other computers. Even in small businesses employees need to share data and
very soon after personal computers were invented networks of computers were introduced.
There are two main types:

Local area network (LAN): Here the network extends over only a relatively small
area, such as an office, a university campus or a hospital. The small area means that
these networks use specially installed wiring to connect the machines.
Wide area networks (WAN): Here the network can extend between several cities
and countries. Each office would have its LAN, but that connects to LANs in other
offices and countries using commercial, public communications systems. At one time
this would have been done by the organisation leasing telephone lines for their private
use to transmit data from office to office. However, this is expensive and inflexible
and the common system now used is known as a virtual private network (VPN)

VPN’s allow data to be transmitted securely over the internet between any two locations. For
example, an employee working from home or a hotel can access the company system as
though being in the office. Information will pass over many different circuits and connections
but the system gives the impression that you are operating over a dedicated, private
communications link. Hence, the name: virtual private network. Because data is being
transmitted over public systems it is particularly vulnerable to interception and it is very
important that adequate security measures are in place to safeguard the data. There are three
essential steps in the security measures:
1. Access control and authentication – this ensures that unauthorised users do not
access the system. Typically this will be accomplished through a log-in procedure.
Many organisations, such as banks, may require a password, answers to security
questions (such as ‘What is the fourth letter of your secret word?’), and also a code
number generated by a security device that has been issued to the user. Use of the
latter technique means that anyone logging on has both to know a password and to be
in possession of the security device.
2. Confidentiality – this ensures that data cannot be intercepted and read by a third
party whilst being transmitted. This is achieved using encryption.
3. Data integrity – this ensures that the data has not been altered or distorted whilst in
transit. To ensure this, the message could have special check digits added to ensure
that the data complies with a mathematical rule.

Centralised and decentralised (distributed) architectures
Consider an office local area network. There are three main ways in which the data and
processing can be arranged: centralised, decentralised (distributed) and hybrid.
Centralised systems
In these systems there is a powerful central computer which holds the data and which carries
out the processing. The main advantages of such systems are:




Security: all data can be stored in a secure data centre so that, for example, access to
the data and back-up routines are easier to control.
One copy of the data: all users see the same version of the data.
Lower capital and operational costs: minimal hardware is needed at each site. There is
also less administrative overhead.
The central computer can be very powerful: this will suit in processing-intensive
applications.
They allow a centralised approach to management. For example, a chain of shops
needs to keep track of inventory in each shop and to transfer it as needed. There is
little point in a shop that is running low ordering more of a product if another branch
already has a surplus of that product.

The main disadvantages of such systems are:

Highly dependent on links to the centralised processing facility. If that machine
fails or communication is disrupted then all users are affected.

a report will be held on the server. In a client-server arrangement. The main advantages of such systems are:     Resilience: if one machine breaks down. Client-server and peer-to-peer systems These concepts are similar to centralised and decentralised. Easy expansion: simply add another computer. Multiple versions of data: users might have their own version of data that should be uniform. Obviously there . but although files might be held centrally on the server they will often be processed locally. For example. each user has local processing power and will hold data locally. but are not quite identical. The edited version will be saved back to the server where other users can then access it. Potentially higher costs: each local computer has to have sufficient processing power and each location might require an IT expert. Flexibility: local users can decide which programs and software should be installed to meet local needs. but when it is being edited it is downloaded to the user’s local machine (client). They are more useful where each location can operate more or less separately from others. There is an element of centralisation here. For example.  Processing speed: will decrease as more users log-on Lack of flexibility: local offices are dependent on suitable software and data being loaded centrally. Decentralised (distributed) systems In these systems. web-browsing and word-processing might be local but critical business applications might be centralised. a powerful computer (the server) is dedicated to providing a service to other computers in the network (the clients). The main disadvantages are:    More difficult to control: data storage and processing are in many locations and correct access. processing and back-up of data are more difficult to enforce. Hybrid systems In these systems some data and processing are local and some are centralised. others are unaffected. Typical services provided are:    File storage (file servers) Handling printing (print server) Handling the sending and receiving of emails (mail servers).

Hardware. Controls in IT systems IT poses particular risks to organisations’ internal control and information systems. In peer-to-peer networks. increased costs.will be great disruption if the server fails. Unauthorised changes to systems or programs so that they no longer operate correctly and reliably. but what they are really seeing is the program operating in the server. For example. Whenever you want to write an email you log into the web email account and the processing is carried by the system’s computer cloud – not your computer. requiring no specialist operating system or specialist staff and many home systems are like this. two or more computers are connected directly without the need for a server. reporting inaccurate. Client machines can be ‘thin-clients’ which are not very powerful as they do not have to store much data and software nor do they have to carry out much processing. misleading results . With cloud computing. This is a simpler system to set-up. say. It appears to each user that they have a local version of the software. All it has to do is to handle the interface. Particular risks may arise where multiple users access a common database on which everyone in the organisation relies. improper changes to data. Traditionally. Unauthorised access to data leading to destruction of data. this approach has changed. though the system is vulnerable to service disruption. Word for Windows. The disadvantage of this is that each machine in the network needs a copy of Word and if the company was upgrading its software all copies of the program would have to be changed. software and maintenance costs are greatly reduced. Providing the software initially for all machines and its subsequent management is very expensive. Access rights to files are given by individual users to specified other users. or inaccurate recording of transactions. There is only one copy of the software on the server within a web-based interface. in client server networks each client would have had a copy of. It is a much more distributed system than client server systems and therefore has back-up and security issues. changing a selling price or credit limit. Documents would have been downloaded from the server for local editing then saved back to the server. Risks include:        Reliance on systems or programs that are inaccurately processing data. The possibility of IT personnel gaining access privileges beyond those necessary to perform their assigned duties. Unauthorised changes to data in master files. Users log into the web system and their processing is then carried out on the server or a ‘cloud’ of servers. incorrect decisions and reputational damage. Access rights to files are set centrally and typically enforced by users’ log-on information. Hotmail and Gmail provide examples of this approach. . This can lead to their operations being severely disrupted and subsequently to lost sales. processing inaccurate data.or all three. Failure to make necessary changes to systems or programs to keep them up-to-date and in line with legal and business requirements.

Organisations should also have disaster recovery plans in place to minimise damage caused by events such as floods. Where IT is critical to an operation’s business these plans might include having a parallel system operating at a remote location that can be switched to immediately. For example. development. Application controls . Physical access to file servers should be carefully controlled. Application system acquisition. Just as much damage can be done by the incorrect operation of software as by inputting incorrect data. Access to processing should also be restricted. General controls These are policies and procedures that relate to the computer environment and which are therefore relevant to all applications. such as Windows or Apple’s OS. System software refers to operating systems. Access security. fire and terrorist activities. The update had been corrupted by RBS technical staff so that customers' wages. typically through the use of log-on procedures and passwords. and maintenance. anti-virus software and firewalls to prevent hackers gaining access. System software acquisition. General IT controls that maintain the integrity of information and security of data commonly include controls over the following:     Data centre and network operations. All software amendments must be carefully specified and tested before implementation. For many customers the disruption lasted for around a week. They support the effective functioning of application controls by helping to ensure the continued proper operation of information systems. Many customers were unable to withdraw cash using automatic teller machines and were not able to see their bank account details. A data centre is a central repository of data and it is important that controls there include back-up procedures. for example. Others faced fines and surcharges for late payment of bills because the system could not process direct debits. Controls in computer systems can be categorised as general controls and application controls. This is where the company keeps it data and it is essential that this is safeguarded: data will usually endow companies with competitive advantage. This could prevent. Management could be led to withdraw products that are in fact very popular. Potential loss of data or inability to access data as required. Applications systems are programs that carry out specific operations needed by the company – such as calculating wages and invoices and forecasting inventory usage. These systems often undergo updates as problems and vulnerabilities are identified and it is important for updates to be implemented promptly. the processing of internet sales. think of the damage that could be done if sales analyses were incorrectly calculated and presented. change and maintenance. Example: Royal Bank of Scotland A software update was applied on 19 June 2012 to RBS's system which controls its payment processing. payments and other transactions were disrupted.

where one piece of data implies something about another (you have probably had a travel booking rejected because you inadvertently had a return date earlier than the outward date). Online. processed and reported. UK and European VAT numbers use this method: VAT number = GB 2457193 48 (the last two digits. wages and payments to suppliers. Format checks ensure that data is input in the correct format (credit card numbers should be 12 digits long). Drop down menus which constrain choices and ensure only allowable entries can be made. Dependency checks. Examples include: Edit checks of input data Checks on input data are very important because once data has been input it is often automatically processed thereafter without the further chance of human scrutiny. Here. For example. unusually large quantities being ordered. 6. real time systems can pose particular risks because any number of employees could be authorised to process certain transactions. the system could be programmed to prevent. such as the processing of sales orders. where a number. and are completely and accurately recorded. Methods include:     Range tests can be applied to reject data outside an allowed range. which is subsequently compared to the total of the data actually submitted. when accepting orders through a website. have been processed. constraining delivery choices to ordinary post or express delivery. such as cheques. 2: So 2 x 8 + 4 x 7 + 5 x 6 + 7 x 5 + 1 x 4 + 9 x 3 + 3 x 2 = 146 Subtract 97 until the result is zero or negative: 146 – 97 – 97 = -48 The resulting number is the check digit. These controls help ensure that transactions are authorised. Check digits. is specially constructed to comply with mathematical rules.    Numerical sequence checks to ensure that all accountable documents. 5. Batch total checks. The chances of someone incorrectly typing in a VAT number which accidentally followed these rules are very small. or at least query. 7. 3. or presenting a list of allowable account codes. are the check digits) The first seven numbers are multiplied by the weighting factors 8. the data is first added up to create a control total. here 48. such as an account number. 4. Anonymity raises the prospect of both carelessness and fraud so it is important to be able to trace all transactions to their originator. For example.Application controls are manual or automated procedures that typically operate at a business process level. This can be done by requiring users to log-on and then tagging each transaction with the . For example.

firewalls authentication and access controls. Log-in security. Each user is provided with tailored rights that allow them to see only certain data. April 2011. Ebay states that the information was encrypted and there is no evidence that is has been decrypted (yet). whether through passwords or biometrics. but to remember their changing passwords many users start to write them down – a potential breach in security. Quite obviously the theft of valuable know-how will undermine a company’s competitive advantage and it is essential that for organisations to defend themselves as far as possible against these threats. Increasingly. mailing addresses and other personal information) relating to 145 million users had been stolen. Governments.identity of the person responsible. Cyber-espionage is also a growing threat. competitors and criminals attempt to steal intellectual property or information about customers and contracts. Ebay announced that three months earlier that information (including passwords. Many business systems enforce a rule that requires passwords to be changed every few months. birth dates. email addresses. Conclusion This article has mentioned encryption. For example:    November to early December 2013. Target Corporation (turnover around $70bn) announced that data from around 70 million credit and debit cards was stolen. May 2014. biometric measurement. Logging on should require passwords and it is important that members of staff keep these confidential. This is fine in theory. can be used to control access. also helps to control both processing and access to data. Sony experienced a data breach within their Playstation Network that the information of 77 million users was compromised. It is important to realise that even with these measures in place that organisations can be damaged by lapses in computer security. Ken Garrett is a freelance lecturer and writer . change only certain data and to carry out only specified processing. such as fingerprint or retina recognition.

Management would. with growing industrialisation craft industries gave way to large manufacturing companies. Scientific management Job design can be thought of as starting with the work of Frederick Taylor (1856–1915) who devised ‘scientific management’ in the early 20 th century. In a woodwork business instead of employing skilled carpenters to make entire chairs it is easier and cheaper to have one employee who only cuts lengths of wood. (b) Explain the human resource implications of knowledge work and post-industrial job design. Taylor believed that it was a duty of management to discover the best way of accomplishing tasks and then to instruct their workforce in these methods. but it was largely left up to each worker to get on with it. It will seem odd to you now. management was reluctant to interfere with the detail of work practices. for example. another . When this approach was combined with Henry Ford’s invention of the production line (where workers had little control over the speed at which they had to work) the jobs were repetitive. As a result of these investigations.Job design Related Links  Student Accountant hub page This article covers sections H2 (a). of course. (c) Discuss the tensions and potential ethical issues related to job design. It was certainly difficult to take a pride in the finished product and quality often suffered. but before Taylor’s ideas. make sure that workers came to work and would even set production targets. This omission in the management function probably arose because until the middle of the 1800s many jobs and professions were more like crafts where the craftsmen were assumed to know best. However. (b) and (c) of the Paper P3 Study Guide: H PEOPLE 2. workers should become more productive – and boost their earnings. but until Taylor. by timing operations and analysing their component parts. pressurised. and neither satisfying nor motivating. job enrichment. low skilled. Strategy and people: job design (a) Assess the contribution of four different approaches to job design (scientific management. Japanese management and re-engineering). However. Management’s discoveries were to be based on scientific methods such as trying out different approaches and measuring the results. Often management’s scientific experiments concluded that maximum productivity was achieved by breaking down processes into small steps and then requiring each worker to repeatedly carry out one step only. the de-skilling of jobs provided employers with more power over their workforce. management played little part in determining how workers could best achieve their tasks.

recognition and a feeling of advancement through learning new skills. Managers should act accordingly. The human relations school In the late 1920s and the 1930s Elton Mayo supervised a series of experiments at Western Electric's Hawthorne factory. responsibility. Motivation improvements from better working relations and interactions. recognising achievement and soliciting suggestions. implies that the job specialisation production line automaton approach might not be the most successful approach. for example taking an interest in employees. Job design theory . matching their approach to what their employees will respond to. Theory X people like certainty and direction whereas Theory Y people prefer more challenge. two of their widely believed discoveries were:   The power of peer pressure (groups norms) Motivation (and performance) can be improved by establishing better working relationships and social interactions. These became known as the ‘Hawthorne experiments’. Each of these employees is low-skilled. Maslow claimed we have higher order needs. risk and freedom. motivation at work was achieved through motivating factors such as challenge. but three of the earliest. are:    Maslow’s hierarchy of needs Herzberg’s hygiene factor theory McGregor’s Theory X and Theory Y Without getting into too much detail.employee who only drills holes and so on. Herzberg suggested that after basic (hygiene) factors had been put in place. If the work environment can supply these then employees will be motivated. ego needs and self-actualisation needs. such as social needs. Peer pressure and group norms can be used to increase the performance of a worker who is in a team because of the disapproval of other team members if the employee lets the team down. easily replaced and cheap. McGregor suggested that not everyone wants the same things from work. dating from the 1950s. Theories of motivation There are many theories of motivation. Although there is considerable criticism of the methodologies and conclusions drawn from the Hawthorne experiments.

In the 1960s and 1970s these considerations gave rise to the job redesign movement which attempted to improve jobs (and employee performance) by deliberately designing ‘better’ jobs. All suggest that there is more to successful work practices than simply requiring people to unthinkingly repeat simple tasks: challenge. either society in general. in which each person does only a repetitive simple task. Undoubtedly there will be some situations where traditional production lines. However. A useful way consider a job’s design elements is the job characteristic model (Hackman and Oldman. contribute to the meaningfulness of the work or job. leading to high productivity High job performance (quality) High employee satisfaction Low absenteeism Low employee turnover Job design in practice The practice of deliberate improvement in a job’s characteristics can be called ‘job enrichment’ of which there are three types: job enlargement. Poor quality because employees do not identify with what they are producing. The costs of staff shortages. . above. those calculations would not take into account:     The costs of recruitment and training caused by high staff turnover that is likely to result if employees dislike their jobs. Hackman and Oldman suggested that these characteristics should produce the following outcomes:      High intrinsic motivation. recognition and team-work are all seen as valuable contributors to motivation and productivity. and discretion in scheduling the work and in determining the procedures to be used in carrying it out? Feedback (knowledge of the results of work): Is the employee provided with feedback about effectiveness and performance? The first three. initiative.The theories of Maslow and Herzberg have a resonance with the human relations school started by Mayo. Disengagement of employees from trying to improve production methods. will minimise the marginal cost of production. variety. job rotation and (with rather confusing terminology) a method known as job enrichment. 1980) where five core job characteristics were identified:      Skill variety: Does the job require various activities that in turn require workers to develop a variety of skills and talents? Task identity: Does the job allow the employees to identify with the work in hand (the finished item or service)? Task significance: Does the job impact other people’s lives. independence. the firm or a sub-group within the firm? Autonomy (responsibility): Does the job provide the employee with significant freedom.

the company built a much larger plant at Uddevalle where each team was responsible for entire car construction. Fairly obviously. Job rotation moves employees round.Job enlargement means allowing an employee to take on more tasks. Japanese work practices Japanese work practices are important because of the great success of Japanese mass production that began in the late 1970s. multi-skilled teams and instead of the production machinery being arranged linearly. The third day would be a different set of tasks. Neither factory lasted for long. or might be responsible for reporting production problems. Not only does this increase task significance but it adds to autonomy. you are now asked to fit the front and rear wheels and the bumpers (fenders). from one simple task to another. but productivity was reduced because this approach took about twice as long to build a car as it would in a conventional production line. but still at the same level. Again this introduces the employee to some additional skills (though all at the same level) reduces boredom and is perhaps beginning to give more insight into task identity: building a car. such as the wiring system. The group of employees working in a cell are semiautonomous so that they can be flexible in their approach – provided targets for quality and quantities are met. Job enrichment is a vertical change because it gives an employee some responsibility. . In 1974 the Volvo car company built a new plant at Kalmar in Sweden which was based on teams of workers responsible for entire sub-units of car assembly. discretion and authority that would previously been exercised by supervisors and managers. one day the car worker might be on wheels and bumpers. There are several key components: Flexibility: frequently seen in the concept of cellular manufacturing in which a team of workers is responsible for the production of complete items. As explained below. Feedback can also become more comprehensive. these arrangements promote better job-design in terms of Hackman’s and Oldman’s core job characteristics. However. there is some more variety and therefore less boredom. Encouraged by these results. So if you were working on a car assembly line. instead of merely fitting the front wheels. Note however. Employees were happy. The employees are in semiautonomous. the final irony was that Volvo was sold to Ford (still with its conventional production lines) in 2000. The job cycle time is increased (you would spend longer on each car). Japanese work practices make use of these techniques. repetitive assembly tasks. it will often be in ‘U’ shape to allow workers to be involved in variety of tasks. that all of these tasks are at the same level: basic. So now the car worker might be expected to perform some quality control checks as the car is being worked on. the next day the worker might be fitting the front and rear windows. So. perhaps on a daily basis. quality was improved. the Volvo experiment in fully autonomous group working should not be seen as evidence that all forms of group working and job enrichment are undesirable.

. rationalisation could provide employees with much greater flexibility. rationalisation and business process re-engineering (BPR) will all have an effect on job content and so job design should be taken into account during these processes. quality. leaving the employee more time to concentrate on more interesting and demanding tasks. Recommendations for changes can be referred to more senior managers. automation could remove the need for employees to exercise skill and talent and could simply turn them into machine minders. Re-engineering Automation. service and speed' (Hammer and Champy. The goods were ordered and received. peer pressure and the concept of Kaizen in which continuous small improvements are sought. QCCs can greatly enrich jobs by providing outlets for higher skills. 1993) This is far beyond what could be called process improvement and process redesign. It can be defined as: 'The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost. All have the potential to make employees’ jobs either better or worse. productivity and safety. wait for goods received note. Ford then told their suppliers not to send invoices. by freeing employees from frustrating bottlenecks in the flow of material or information. job rationalisation might result in employees being forced to work in a traditional production line where they have no influence on the rate that work has to be done. Suddenly prices and invoices didn’t have to be checked nor compared to goods received notes. For example: Automation could remove low skilled drudgery from a job. at the start of each day) and discuss work-related problems such as quality. wait for invoice and then check that the prices and calculations are correct. the invoice posted and then paid. An enormous amount of employee time was taken up with the dull process of matching documents.Quality control: quality is promoted by identification with the final product. Minimum waste: flowing naturally from quality control and flexibility but also promoted by technologies such as just-in-time inventory management. One of the most famous examples of BPR was in the accounts payable department of Ford Motor Company. Or. Similarly. variety. After the goods were received Ford would send payment without the need for an invoice. Hammer reported that Ford managed to reduce its staff in accounts payable by around 75%. That had been run on traditional lines: order. Ford knew what they had ordered at what price and whether or not the goods had been received. Quality control circles (QCC) are an important aspect of the Japanese approach as workers meet regularly (for example. task significance and feedback. BPR is the most radical type of change a business can attempt. Alternatively. Presumably the employees who were left had most of their time taken up by the more interesting tasks of dealing with problems rather than repetitive clerical work. comparing amounts and reperforming calculations.

Therefore post-industrial job design would be expected show:        Wide flat organisation structures. The job design for the knowledge workers in these organisations must embrace these essentials. A shorter distance means faster and more accurate flows. Even if mass production were used.Post-industrial job design Knowledge work can be distinguished from ‘ordinary work’ by its information content. The quick formation of temporary teams to address new. Task identity so that employees fully understand the unique task that they have been assigned to. Some people want a relatively . keep it up-to-date and to use it. better one. these qualities also give rise to more risks for employees: they might make a wrong decision. perhaps fleeting. Ethical issues of job design Finally. each product would have a short life and would soon be superseded by a new. colleagues and customers because performance cannot be measured by. autonomy and variety. Feedback. Success for these organisations depends on:     Flexibility to provide new products and services. Mass production is less likely in these organisations than is providing bespoke products and services. units produced. For example. Being open to new knowledge and ideas. the knowledge that is of value to it is likely to be widely disseminated and not confined to top management. for example. This is essential to shorten the distance knowledge has to flow between the bottom and top of the organisation. Knowledge work requires knowledge workers to carry it out and these employees will be highly trained to acquire the relevant knowledge. its non-routine nature and its requirement for problem-solving. a new. young employee is likely to know more about the importance of social media in marketing than the manager who has been with the company for 20 years. Grabbing opportunities as they arise. this article briefly mentions some ethical issues that can arise from job design:  Although the article has championed how employees appreciate more challenge. McGregor’s Theory X and Theory Y mentioned above recognised that not everyone wants more freedom. Multi-skilled employees to provide the flexibility to form the required teams. Exploiting knowledge quickly before it goes out of date. opportunities. Within an organisation. Knowledge workers are hungry for feedback from managers. Autonomy for teams to solve problems so that solutions are delivered to customers. Different employees will have different knowledge specialities which will have to be combined from time-to-time to address customer needs. An openness by managers to learn from new and junior employees.

For these employees. Bullying can become an issue. Some writers view BPR as a fraud on employees. BPR can therefore be used as a cloak to disguise other company objectives. BPR is often driven or justified by the need to alter the business radically so as to recognise that. In such an environment members of the team who are perceived as ‘weak links’ could be subjected to severe bullying and ridicule. Teams of employees are given tasks such as completing a certain number of units in a day. Some aspects of redesign bring with them additional employee monitoring. They might be competing against other groups to win an award. above all. and they often allow customers to rate the employee. Their colleagues might hope that this will force them to leave so that a better team member can be employed. Unless workers are prepared to change their work patterns (that is.    quiet undemanding job that they can go home and forget about. how long each conversation lasts. employees will be expected to judge the mood of a customer and to use their judgement in how to deal with that customer. It is important to take equal pay for equal work. Ken Garrett is a freelance lecturer and writer . job enrichment is likely to be unwelcome. But call centres record details of conversations. For example. customers must be given what they demand. Multi-skilled teams are all very well provided each team member is properly trained so that they can carry out the required variety of tasks efficiently and safely. in call centres. equal opportunities and safe working into account. adopt new job designs) then they get what’s coming to them: redundancy.

You will see that IR has many elements which easily relate to Paper P3. IR has been introduced to the syllabuses of many of the Professional level papers. the accounting profession and non-governmental organisations. Exhibit 1 shows a summary of the definition. investment appraisal. environmental and economic context. This article aims to show how the idea of integrated reporting is relevant to the Paper P3 syllabus. standard setters. Note that the IR framework is principles-based with the aim of achieving a balance between flexibility and prescribing strict headings and contents. regression analysis. If you are not familiar with these you should read through that summary before going on. Demonstrates the links between its financial performance and its wider social. Despite these accretions. a global coalition of regulators. project management and information technology. time series. investors. contribution analysis. The definitions of IR is:    A concise communication of an organisation’s strategy. It is useful to imagine yourself investigating a company about which you know nothing to . aims. companies. guiding principles and contents of an integrated report. a more important use is to plan for the future so that the business can identify suitable strategies that promise sustained competitive advantage. Show how organisations create value over the short. medium and long term. It is also important to analyse how changes can be implemented through examining business change processes and project management.Integrated reporting Related Links     International Integrated Reporting Council (IIRC) ACCA embeds integrated reporting ACCA's Integrated Report 2013–14 Student Accountant hub page Integrated reporting (IR) has been developed and promoted by the International Integrated Reporting Council (IIRC). Relevance to Paper P3 The emphasis of Paper P3 has changed since it was first examined in December 2007 and now contains more material on costing. the Paper P3 syllabus can still largely be looked at as:    Strategic analysis Strategic choice Strategic implementation Although business analysis can be used retrospectively to see where things went wrong. governance and performance.

stakeholder analysis. Similarly a strong brand name creates greater opportunities for future revenue streams. Opportunities and risks These must cover both internal and external matters. In the UK at the moment many supermarket . Think of this section as setting the context of the organisation and providing some background detail. Some risks can be quantified (for example. Going to the latest annual report and financial statements would probably be your starting point. their future plans or how they intend to achieve sustainable competitive advantage. The report should also mention how the risks are being managed and mitigated. A qualitative indication should be provided about both internal and external risks. but investors cannot make an informed decision about an investment without an appreciation of the associated risk. set up new factories or expand to new markets? Perhaps it intends to move up-market to escape the fierce competition it currently faces at the lower end. IR aims to fill the gaps so that existing or prospective investors better understand the company. You will learn relatively little about the company’s business activities (though segmental reporting helps). but it is essential to also look internally. by sensitivity analysis) but it is unlikely that quantified amounts would appear in an IR. A weakness (for example arising from gaps in new product development) is a risk to future revenues.decide whether or not you want to invest in it. but you will be left with many unanswered questions – certainly if the company shows the minimum information required by law and the accounting and financial reporting standards. An article entitled 'ACCA embeds integrated reporting' (see 'Related links') suggests that the following IR Content Elements are particularly relevant to Paper P3:      Organisational overview and the external environment Opportunities and risks Strategy and resource allocation Business model Future outlook Let's add some detail and examples to these elements: Organisational overview and the external environment What does the organisation aim to do? Who are the major stakeholders? Where is it located? How is it structured? What external events will affect if most? Fairly obviously the organisation’s mission. Historically. the board of companies would tend to emphasise a company’s opportunities. The traditional SWOT analysis usually categorises opportunities and threats (risks) as external. This section of the IR can make extensive use of Porter’s generic strategies. Strategy and resource allocation Does the organisation intend to develop new products. their competitors. organisation chart and a PESTEL analysis would be relevant to this section of the IR. Ansoff’s Matrix and the value chain.

Inputs are the major inputs such as raw material or human resources. if you were a stakeholder in a conventional television company you should want to know how the company will address challenges from internet-based companies such as Netflix. External environment    We are seeing new economies and sectors emerging and developing at faster rates In the post-recession world. trains and retains staff. through its business activities. and what are the potential implications for its business model and future performance? (IIRC) PESTEL and a five forces analysis are likely to be particularly relevant here. The business activities include not just the manufacturing process. Future outlook An integrated report should answer the question: What challenges and uncertainties is the organisation likely to encounter in pursuing its strategy. there is a greater demand for and understanding of the importance of financial stability as an underpinning for economic stability Consumers are more sophisticated and demanding. It is making profits now. It would be valuable to investors to be told how their company is going to respond to these changes in the market. In addition there is a change of shopping habits because many more customers now prefer to go more frequently to local stores rather than once a week to a very large store on the edge of town. what its after-sales services are. If a company does not understand where it adds value then the company is existing in a temporary state of good fortune. For example. Business model An organisation’s business model is 'its system of transforming inputs. but also how the company innovates. Examples from the ACCA’s Integrated Report Here are some relevant extracts from ACCA's Integrated Report 2013–14 (see 'Related links') demonstrating some of the reporting of the elements set out above. the IIRC guidelines are principles based and organisations can change element headings and groupings. The value chain is particularly relevant here: it explicitly sets out inputs. so chance of continued success must low.chains are having to reassess their long term strategies in response to cheaper foreign supermarkets that have opened. Remember. how it delivers its goods and how it acquires. how much it might cost to achieve the new strategies and by when the strategic shifts should be achieved. medium and long term' (IIRC). with an increasingly tech-savvy audience expecting a personalised and tailored experience . Outputs are the key products and services. processes and outputs and requires organisations to understand how value is added so that profits can be made. carries out its marketing. but does not understand why. into outputs and outcomes that aims to fulfil the organisation’s strategic purposes and create value over the short.

digitally-enabled developments for an online. The impact of each risk is assessed and mitigation measures are explained. measured by student and member satisfaction] the innovation perspective. measured by gross operating surplus] the members’ perspective. joint initiatives. Strategy ACCA’s strategy map shows the relationships between 12 outcomes from four perspectives:     the governance perspective. qualifying and regulating professional accountants to high standards. that help grow economies sustainably and safeguard the interests of the public and society. worldwide legislative complexity. Societal benefit: Businesses in all sectors that are run efficiently and responsibly. customer satisfaction. Operational: exam process issues. asking what council wants [example of an outcome: sustainable growth. The competitive environment is much broader. IT infrastructure. Key outputs [include]: professional. ethical accountants. monitored and tested. . maintaining and developing a global brand that attracts students around the world. asking what drives members to invest in the ACCA Qualification [example of an outcome: accountancy qualifications which are required by employers. For example. asking what ACCA needs to learn and develop to continue creating value for its stakeholders [example of an outcome: technology-enabled. best-in-class products and services. widespread recognition. measured by member retention] the process perspective. Business model      Key resources [include]: market offices supported by global headquarters. Key outcomes [include]: support and opportunities for members. with more and different players and with technology enabling greater international competition Risks [include]:   Market risks: trade protectionism. suppliers. global mobility for our members. people. partners. Policies in place to address data security risks which are regularly reviewed. asking what ACCA must excel at in order to meet the expectations of its key stakeholders [example of an outcome: development of relevant products. pricing decisions. selfservice world. loss of UK audit recognition. intellectual property and brand. financial capital. global economic stagnation. generating globally-relevant technical insight with public interest at its heats. on cybercrime and data protection:   Impact: Potential corruption or loss of organisational data which could lead to legal liability and reputational damage as more ACCA services are provided on-line Mitigation: ACCA’s Information Security Officer monitors and advises on data security. Key value-adding activities: creating global networks. services and brand. cybercrime and data protection.

When the opportunities in the SWOT model are identified it highlights areas where new knowledge. experimentation. Wheelwright. The learning of an organisation is determined by the learning of the individuals. which has always recognised that there’s much more to appraising organisations than simply looking at their financial results. Garvin lists these as skills in systematic problem solving. to sustain their position in the dynamic marketplace. The organisation as the whole is the sum of the individuals. intelligence or insight has to be created or combined in order to take hold of these opportunities. Identifying threats at an early stage places the organisation in a knowledgeable position to counteract.Integrated and efficient global infrastructure. Strategic and operational learning . minimise or convert the threats. their skills and abilities. Christensen. learning from past experience and best practices of others and transferring this knowledge quickly across the organisation (Burgelman. and economic trends are examples of sources of these threats to the organisation. 2004). Organisations need to continue to learn and retain that learning. consumer changes. which have to be developed. the boundary within which people complete tasks to reach an end goal. Threats are events or activities that occur in the macro and microenvironments. Competitors. measured by % of IT service-level agreements met] Conclusion The inclusion of IR in the Paper P3 syllabus should not cause major difficulties for students. The learning organisation or learning needs of the organisation can start to evolve and be driven from the early stages of strategic analysis. Learning organisations can be described by their skills. Ken Garrett is a freelance lecturer and writer The learning organisation Related Links  Student Accountant hub An organisation is a structure that formalises a connection between individuals. The individual learning leads to organisational learning and there is a need to ensure this contributes to sustainable competitiveness. In many ways it is corporate reporting catching up with what is in the Paper P3 syllabus. Threats indicate what knowledge areas the organisation is leaving itself open to and learning can help to reduce the threats. Weaknesses identified in the SWOT can be viewed and handled similarly.

Leaders should establish the environments.In exploring organisational learning a strategic and operational view is taken. These hard issues that require management start with the use of the analytical tools. At the strategic level the leadership perspective on learning is to influence not interfere. The initial questions. time and effort has to be put in to network development. To optimise this learning we can categorise the issues to manage as soft and hard issues. These types of leaders are suitable for this as they are leaders who are there at a time of change. when the highest level of learning is required. The strategy of the organisation should be the driver of the learning and through goal alignment will guide this learning. mechanisms and facilities through which learning can occur. The hard includes policy and process. as considered under change management classifications. learning events and integrated systems are required. will the owners dictate what is to be learned. This should result in the creation of networks of people and an understanding of how people really communicate and share knowledge within the various areas of the organisation. culture and facilities for creative learning without interfering with the learning processes. are the ones that tend to be able to create a learning organisation. integrate and share each network’s knowledge. At the operational level. As with any capability or resource it needs to be managed. the soft includes mainly people and social networking. Managing learning For learning to be effective. as the individual will tend to learn faster if there is benefit to them as well as benefit to the organisation. for any organisation exploring where they are in becoming a learning organisation. For the networks to perform – ie for the individuals in the various groups or social networks to be able to learn – problem-solving activities. who will influence all of these factors – for example. Network development is the identification and facilitation of social networks in the organisation. From this we can identify who has the most . Methods should then be identified as to how these networks can crossover. the group or team structure. Learning within the organisation helps to expand the ability of the organisation to maximise its opportunities. Transformational type leaders. These activities or learning processes help to incorporate the knowledge into the social networks and embed it in the organisation. such as Mendelow’s matrix or classifying stakeholders as internal. connected or external. The first tool to use is a stakeholder analysis. the internal leaders or managers. the identification of the strategic organisational goals as drivers for learning have to be aligned with those of the individual to ensure value to both. At the strategic level. the learning process and its outcome can be perceived as a capability or resource. are:     What do individuals learn in the organisation? What determines how they learn? Which mechanisms are used to help learning? Which individuals are going to do the learning and how is this learning facilitated? In addition.

significant influence on the thinking of individuals and can influence them to think
differently, an essential part of the learning process – for example, learning from the
customer via customer feedback, the manager learning via performance management and the
board from their strategic success and failures.
Feedback is the most freely available, continuous source of efficient and effective learning
that exists in organisations, when used positively and productively. Some feedback
mechanisms are: appraisal systems – for example, 360-degree employee appraisals,
performance metrics, such as using the balance scorecard, e-marketing (for example, social
websites, virtual communities and forums). Feedback and its effect on organisational
behaviour needs to be considered when implementing any feedback method as it can be used
as contribution to the no-blame culture or the opposite that would create an insecure
environment.
At the operational level, meetings and technology are the general practical methods employed
to allow people to get work done. The issue with these types of methods are their level of
formality or (in)flexibility and the other issue is the level of system integration that exists. If
the systems are not integrated – ie they are silo systems – there is no platform for learning or
sharing. For example, at the level of reporting, the integrated reporting systems, by design,
ensures that various sources of information from across the enterprise and the people within it
are connected and the information then shared.
Systems need to be built to capture, store, categorise and disseminate information and
knowledge. The systems also need to detect anomalies. With that the organisation needs to
ensure availability of systems analysis expertise, to review what goes wrong, learn from it
and feed that learning back into the system.
Another hard element to be analysed for its contribution to facilitate learning is the
organisational structure. These are the structures within which people work and that defines
their roles, in a somewhat limiting manner. These can be redrawn as social network diagrams
that facilitate a way to allow people interact, which might then design and assign members to
various cross-functional teams.
Some formal tools and techniques that are helpful to drive learning are as follows:

reverse scenario building (which is a method of identifying the opportunity the
organisation wishes to pursue and then build the scenario backwards from that
optimum position, in order to establish what has to be implemented, to maximise this
opportunity)
a mass media channel – for example, a company newsletter to spark new ideas and
which is open to suggestions and which can inform of what is happening in other
areas.

Another method is that of action learning, hands-on complex problem solving and problemsolving methodologies sharing within groups sessions.
It is one thing for learning to occur but there is also a need to disperse that learning, which is
the connection between these hard and the soft elements. The hard issue can facilitate the
learning; the soft issues will diffuse and embed the learning.

The soft issues to manage, for learning to occur, require the identification and understanding
of the needs of the individuals, their groups and their tasks at hand, to develop a balance
between those demands. Organisations have to look at how people perceive where they fit
within the structures in order to determine how they learn – for example, how they see their
contribution in their department, group or team. These structures tend to contain or retain
their learning internally. A learning organisation works on shared knowledge.
Another soft issue is that of the feeling of security or trust. People tend to offer more ideas
and tend to be more creative in a no-blame culture. Security, or the perception of both job
security and knowing the accepting reaction of others before offering up ideas, will
significantly alter the willingness of people to think, develop and share. Security as a feeling
in the work environment can be created through an analysis of the organisation culture, using
the cultural web model, and through human resource policies on training and contracts that
allow time for employees to construct reflect and think. Communication mechanisms and
mediums will also determine how, where and what is shared and discussed; communication
for learning needs to be free of formality, such as having less formal reports and more
managed online forums.
The main soft issue that requires the greatest management effort is the individuals.
Individuals have mental models that they develop based on experience. In order to facilitate
learning in general these mental models have to change. Change to these mental models
according to Labiaca, Gray and Bass occurs in four phases:
1. Motivation to change – a want to learn has to exist driven by the organisation or the
group or business need
2. New model generation – where the new information is drawn into the collective
knowledge,
3. Comparison phase – where old knowledge is compared to the new and decisions
made as to which is best suited and
4. Where the new mental model just developed becomes embedded in the organisation
(Hannah, Lester, 2009).

The approaches that can create ways for new mental models to evolve are as follows:










Question the taken for granted and develop innovative new ways.
Articulate a collective vision to gain support for innovative changes.
Encourage and facilitate the acquisition of skills needed for collective learning.
Support values and openness to new knowledge, so as to create a learning culture.
Help people understand cause-effect relationships and the determinants of
performance for the team or organisation.
Help people recognise when learning has occurred.
Gain external support and financing for the acquisition or application of new
knowledge (for example, acquisitions or joint ventures).
Encourage experiments to gain more knowledge.
Encourage teams to conduct after-activity reviews.
Create decentralised subunits with authority to pursue learning and entrepreneurial
activities in a responsible way.
Develop support programmes that will encourage and reward discovery of new
knowledge and its diffusion (Yukl, 2009).

Enterprise and Networks

Click organisation chart to enlarge
The concept of an organisation has given way to the concept of an enterprise. An organisation
gives the perception of a top-down, very structured and somewhat bureaucratic administrative
structure. The enterprise concept tends to give a more integrated flattened approach in which
learning can be better facilitated via greater sharing, greater access, integration of knowledge,
ideas, innovation and communications. More importantly, enterprise leads to the integration
of people, away from the functional departmental roles to develop a more collective team.
Learning, therefore, can be embedded more successfully in an organisation taking the
enterprise perspective based around integration and the establishment of an appropriate
culture, rather than the more traditional bureaucratic structure. For example, in the more
traditional top-down bureaucratic structure, leaders tend to determine what should be done
and how it should be done; with the enterprise approach, the outcome tends to determine
what should be done and how it should be done via the combination of people, processes,
systems and structures. These should be aligned again with the overall business strategy to
ensure that the appropriate learning occurs.
Learning as a process needs to be a continuous evolving process and needs to be championed
from the top. Leaders should influence, not interfere, and embed it by ensuring processes and
systems are integrated – therefore integrating ideas and communication across the social
networks and, therefore, the enterprise.
The establishment of an enterprise culture – by considering the elements of the cultural web –
should create an environment that is open to learning both by sharing, innovating and
drawing from external influences via networks. Network creation starts with the selection of
the right people when employing them, the identification of those that are already learners,
and the identification or appointment of gatekeepers. Gatekeepers are those individuals who
can link the social networks inside the organisation together or use their outside links to learn
from external stakeholders and external knowledge sources.
Learning is reliant on people collaborating via these social networks. The networks need to
be fluid and flexible network structures. This is in opposition to the older concepts of
department boundaries defining jobs. The network structure allows for the creation of new
groups of people to come together quickly for problem solving or creative development,
depending on their skill. It is similar to small agile project teams being established within the

combining various degrees of people. A. Morley. Edmondson. How can SMEs assess the risk of organisational knowledge Scarbrough. (2008). The risk of not being a learning organisation is stagnation or elimination. value networks and supply chain management . Sustainable learning leads to increased competitiveness. Christensen. E. but driven by the need for knowledge. S. There is a significant risk in an organisation that does not form a learning culture and environment that does not establish learning systems and processes. The people inside the organisation. (2005). (2010). A critical appraisal of the performance of Royal Ditch Shell as a learning organisation in the 1990s Hannah. (2009). C. and their capacity. M. D. Leading organisational learning: Reflections on theory and research Biblography      Durst. (2004). Foley. Sustainable learning Organisations as enterprises need sustainability across multiple areas. E. A learning organisation is a sustainable enterprise. M. Modern Management Cannon. and an ability to survive in the dynamic markets and chaotic macro and microenvironments in which business has to operate. (2008). chapter 4 Burgelman. Failing to Learn and Learning to Fail (Intelligently): How Great Organisations Put Failure to Work to Innovate and Improve Value chains. Strategic Management of Technology and Innovation. Enterprise learning is ultimately totally reliant on the people that are in the organisation. S. R. which results in a drain on the learning and knowledge on which the organisation currently relies. facilitate organisational learning. better resource usage. the organisation itself cannot learn.enterprise. A multilevel approach to building and leading learning organisations Yukl. PB. Leyer. Organisations risk losing the right people. H. Wheelwright. Building a learning organisation Tiernan. Fearghal McHugh lectures on ACCA Qualification Papers P3 and P1 References    Boyle. (2014). (2002). The evolution of business knowledge. G. Lester. ST. Reading V-1 Garvin. M. S. processes and systems in an evolutionary way. increased innovation and a sustainable position in the marketplace.

Customers either cannot carry out the activities at all. All activities have costs and successful businesses organise and carry out their activities in such a way that value is added. Value chains and supply chains have featured explicitly in the pilot paper. December 2009 and June 2012 exams. but not exclusive. It is the value added that allows revenues to exceed costs so that profits are made. E2 and E3 of the Syllabus and Study Guide relate to value chains and value networks. For example:  knowhow – suppliers often use knowhow that customers simply don’t have  economies of scale – suppliers often produce efficiently in huge volumes with each customer buying only a small proportion.Related Links  Student Accountant hub page This article considers writer Michael Porter’s value chain framework. otherwise customers would presumably carry out the activities themselves. In addition. The activities are divided into primary activities and secondary activities. To add value. Suppliers’ economies of scale simply cannot be replicated by each customer . and Sections E2 and E3 of the Paper P3 Syllabus and Study Guide relate to the supply chain with particular. which has been described as a powerful analysis tool for companies in strategic planning to create value. or don’t want to carry on the activities and so are willing to pay others to carry them out instead. or cannot match costs. the organisation must be doing more for its customers than simply carrying out the ‘face value’ of the activities. It also highlights the various definitions of supply chain management put forward by different writers Sections A4. The value chain and value networks Porter’s value chain displays groupings of all the activities that organisations carry out. reference to the application of e-business. value chains can often be used in position analysis. December 2007.

As always. For example: ‘A concept whose primary objective is to integrate and manage the sourcing. success in business arises from one of Porter’s generic strategies – cost leadership or differentiation – each with or without focus. So. The supply chain and supply chain management There is no generally accepted definition of the term ‘supply chain management’ and many different definitions can be found in relevant literature. customer satisfaction and value added depend on all parties working well together. while doing it yourself usually entails more fixed costs. This is acknowledged in the idea of value networks: Value networks recognise that few companies stand alone and that what is ultimately supplied to and paid for by customers depends on activities carried on by many suppliers. yet has sales and marketing in primary activities. indeed. Ultimately.’ La Londe and Masters (1994) ‘The objective of managing the supply chain is to synchronise the requirements of the customer with the flow of materials from suppliers in order to effect a balance between what . In modern manufacturing companies this disparity does not make a lot of sense because what is important is the complete chain from suppliers to customers. the value chain adds value by enabling low cost production. distributors and. if cost leadership is the strategy. logistical companies. Curiously. flow and control of materials using a total systems perspective across multiple functions and multiple tiers of suppliers. risk – suppliers might shoulder production risks that customers don’t want  location – suppliers might be in a low-cost area while customers are in a high cost area  flexibility – suppliers are variable costs. Value chains have to underpin the chosen generic strategy. the value chain relegates procurement (the purchase of goods and non-current assets) to a support activity.

Supply chains are often divided into upstream and downstream operations in an analogy with material floating down a river.  Inbound logistics – receiving raw materials. For businesses that manufacture their own products.  Supply chain management covers the flow of materials suppliers through to customers  Potentially many suppliers and customers. material and equipment.’ Cooper et al (1997) From these definitions. However. flow and control of materials. the upstream supply chain will be taken to consist of the following value chain activities:  Procurement – purchasing inputs such as supplies.are often seen as conflicting goals of high customer service.  Simultaneously achieving good levels of customer service and low costs for the company. holding inventory and issuing to manufacturing operations as required. processed and despatched to customers. You will note that procurement and marketing and sales do not . services. Downstream supply chain will be assumed to consist of:    outbound logistics – the storing and distribution of finished goods.  Synchronising of materials received. it can be seen that supply chain management has the following features:  Integrating and managing the sourcing. marketing and sales – identifying customer needs and generating sales. low inventory management.  Downstream – the flow of materials from the organisation to the customers. these terms might sometimes have to be interpreted liberally as materials can go directly from supplier to customer with the organisation itself acting as a co-ordinator of the flow. and low unit cost. into and then out of operations:  Upstream – the flow of materials into the organisation.’ Stevens (1989) ‘…an integrative philosophy to manage the flow of a distribution channel from supplier to the ultimate user.

Wise and skilled purchasing. The important additional emphasis in this presentation is on collaboration between up-stream suppliers and the down-stream customers. . Push/pull supply chain models A push model of the supply chain relies on manufacturers producing according to historical demand patterns and pushing products out to distributors and customers. in a pull model demand stimulates production and delivery. By contrast. or their equivalent. Inventory is held at various points as a buffer against unexpected demand or production delays.themselves involve any movement of goods. You will readily understand that collaboration can often be greatly facilitated by the use of information technology. sales. Service can also be included here as certainly the supply of elements such as consumables. but these activities initiate the flows of raw materials. Essentially. they form the value network that creates value through the appropriate operation of the whole chain to improve efficiency. marketing and services) are combined into sales  ‘production’ is used instead of ‘operations’ in Porter’s value chain. A useful view of supply chain management is suggested by Meyr. Wagner and Rohde (2004): Here. which can integrate online orders received from customers with manufacturing inventory management and purchases of raw materials and components from suppliers. Procurement is a central part of the supply chain and not merely a support function. so need to be included as part of supply chain management. No orders are raised nor production started until there is downstream demand. Together. components and finished products. as well as the physical movement of goods. cost reduction and inventory minimisation. maintenance and training can be valuable sources of value added and need to be managed. delivery accuracy and times. will be capable of creating value  customer-facing activities (previously. just-in-time inventory control is a pull model as ordering and production are triggered by customers’ orders. This is more precise (but perhaps more restricted). in contrast to Porter:  procurement is seen as a primary activity and will include inbound logistics.

then subsequently offers can be made to sell ink or toner cartridges. or processes that take time (such as growing crops) make pull systems more difficult to organise. Information technology is of great assistance in moving towards a pull model as it influences the downstream supply chain through the 6I’s of e-business:  Intelligence – for example. This is covered further below under logistics. and inventory will accumulate there.Of course. orders then arrive ‘out-of-the-blue’ at suppliers. who either have to have sufficient production capacity or who have to hold inventories to respond quickly. However. Information can be fed directly into a data warehouse for subsequent analysis and data mining. better-organised companies who make use of sophisticated ordering and delivery solutions. If someone has bought a particular printer. pure push or pull models exist only in theory: demand for a product will never cause a supply chain to start mining iron ore and producing steel. once an order has been placed.  Independence (from location) – the location of the supplier is largely irrelevant provided a good procurement and distribution system is in place. At some point. Supply chain choices Supply chain pathways can be complex: . internet sites can track user activity and from that analyse which products are growing or falling in popularity. Nor will a push model guarantee that products made will be bought. For example. production and despatch. probably by electronic data interchange (EDI). Better synchronisation and lower inventory levels have been achieved. once inventory falls below reorder level.  Individualisation – for example. suppliers will be much better able to anticipate demand and produce accordingly. Supplies can be dispatched even without having to wait for an order. demand push will meet demand pull. the pull process can begin by scheduling component ordering. in every supply chain. However.  Interactivity – internet customers can customise their purchases. inventory can be minimised and customer service improved if all parties in the supply chain can be better synchronised and have the ability to react quickly. a traditional model of replenishing inventory in supermarkets would rely on each supermarket issuing an order to suppliers. In this way. Note that large geographical distances between suppliers and customers.  Integration – following on from interactivity. some computer companies build to order allowing different combinations of hardware and software to be chosen. For example.  Industry (structure) – fast responses to customer demand is liable to affect industry structure as it will often favour larger. relevant offers can be made to each customer. A better way is to give suppliers access to supermarkets’ inventory records through an extranet so that inventory levels and rates of change can be monitored. There are fewer and fewer places in which poor performers can hide.

(5) Who is responsible for quality assurance and proper handling of the goods? (6) How should returns be handled? (7) How can fast and responsive deliveries by arranged? (8) Who handles customs clearance? Supply chain examples Pharmaceutical: Many pharmaceuticals. as this would imply refrigerated warehouses. the supplier. air freight and transportation in every country supplied. to hospitals and pharmacies can be guaranteed to have complied with the storage required and that this can be verified and demonstrated. 5°C to maintain their efficacy and safety. labelling. or completion tasks are carried out by the organisation and which by other parties? (Kitting relates to processes such as adding batteries). it can be inefficient for manufacturers to do this and frequently logistics companies carry out locally the packaging. outsourcing is increasingly used in supply chain management. adding both weight and volume to products. Manufacturers therefore need ensure that their worldwide distribution. Some of the main choices to be made in supply chain pathways are as follows. (1) Who transports the goods? The main solutions are:    the buyer transfers them using own transport the seller transfers them using own transport a logistics company transfers them (2) What delivery pathways are best? (3) Who stores the goods? The organisation. are temperaturesensitive and have to be stored below. printing instructions and labelling. by air and road. and we will see some examples below. kitting. or a logistics company. Many logistics companies offer suitable services.As with many other functions. . packaging. It is not realistic for pharmaceutical companies to carry out such specialised distribution themselves on a worldwide basis. Therefore. Packaging: Transporting packaging is wasteful. Logistics companies can perform many supply chain functions more efficiently and economically than they can be done in-house. say. (4) Which manufacturing. such as insulin and flu vaccines. an efficient distribution solution can be to export the basic products and then package those locally with using language-specific packaging. Once again.

However. With regard to organisational culture. the constituent parts of the cultural web – but fail to apply findings to the scenario and to suggest the implications of their findings.Customs clearance: Each country tends to have its own import regulations and tariffs. Navigating through these requires considerable local expertise and logistics companies are often used to facilitate the efficient international movement of goods. candidates tend to describe a theory – for example. and refers to the importance of organisational structure and configuration Part C (1). the work of three academics is mentioned: . Distribution: Imagine you distribute a product throughout Europe and customers need stock replenished frequently and quickly. The logistics company can both warehouse the goods locally and provide transport to customers allowing a more just-in-time approach to be taken. Organisational culture was described by Handy as ‘the way we do things round here’. iCompute As is so often the case in Paper P3 exams. Knowledge brought forward from Paper F1 In the ACCA Qualification. college or employer: we want to see ‘how they do things round there’. Frigate in December 2011 – Question 2(a). Accountant in Business. National Museum in June 2009 – Question 2(a). One solution would be to set up your own warehouses and distribution vehicles in every country. you will realise that this would require vast resources. Most of us are very sensitive to organisational culture and tread warily when joining a new school. and the importance of organisational structure and configuration The Paper P3 Study Guide refers to the impact and evaluation of culture (using the cultural web) in Part A (6). Rock Bottom in December 2010 – Question 3. Almost certainly it would be better to outsource this to a logistics company as that is likely to enjoy great economies of scale. organisational culture and structure first arise in Paper F1. These topics have been tested regularly:     in December 2008 – Question 1(b). Ken Garrett is a freelance lecturer and author Culture and configuration Related Links  Student Accountant hub page This article focuses on two areas of Paper P3's syllabus on preparing and evaluating a cultural web of an organisation.

goals and objectives of the organisation. Espoused values. This culture is much more responsive to environmental and competitive developments. Flexibility is encouraged and it is more important to serve customers and clients well than to defend one’s role. The December 2010 exam question Frigate gives an excellent example of a power culture. particularly where the name of the business is the same as the name of the boss. For example. Fast – but perhaps arbitrary – decisions can be made. Here. . They can be called a ‘paradigm’. Barristers’ chambers. and each employee has a distinct role and job specification. an emphasis on low cost or an emphasis on excellent service. For example. it is sometimes seen in large organisations. splitting the roles of chief executive and chairman. and interacts with the organisation as little as possible. Here. Hofstede recognised that people in different countries often have different outlooks and that these will influence organisational culture. Cultures that favour low power distance expect power relations to be relatively consultative or democratic. As businesses grow. In high power distance countries. Person culture. These are the influences on culture that can be seen.(1) Handy’s four cultural stereotypes. However. which is a set of assumptions held in common. but can lead to inflexibility and can slow down response to change as employees defend their roles and rewards. and balancing executive and non-executive directors. the layout of the office. the emphasis is on getting the job done. how employees dress. and many of the corporate governance rules are there specifically to spread power and reduce risks. These are:    Artefacts. This culture is often found in small. holding regular board meetings to encourage collective responsibility. architects’ partnerships and small consultancy firms often have this person orientation. power is concentrated in the hands of one person. the less powerful accept power relations that are more autocratic. The organisation structure is as minimal as possible. the individuals are clustered together. These are:     Power culture. Basic assumptions and values. The organisation is seen as serving the individuals within it. family businesses. it becomes more difficult for one person to wield absolute power simply because of the demands on their time and ability. In the person culture the employee is following a personal ambition in the context of the organisation. These are the strategies. the way in which people behave. Role culture. (3) Hofstede’s international perspectives on culture. In this culture the individual is the central point. For example. a small galaxy of individual stars. (2) Schein’s determinants of organisational culture. The influences are:  Power distance. These are the taken-for granted beliefs. This culture can be efficient in a stable environment in which employees are expected to do the same tasks year-in year-out. This is characterised by a traditional organisational structure in which jobs are arranged by function and seniority. ‘the boss’. but then it is usually taken as a danger sign. Task culture.

    Individualism v collectivism. feminine cultures place greater emphasis on relationships and consensus. People in cultures with high uncertainty avoidance tend to be more cautious and proceed by careful planning. As businesses grow. Individualistic societies place stress on personal achievements. For example. it is unfair to expect the most junior member of the trio to make the decision. the quality control manager would put pressure on the employee to carry out full testing. In collectivist societies. A matrix structure is very common in project-led organisations as it allows multiskilled teams to be set up for each project. departmental. Masculinity v femininity. However. It then often makes sense to set up separate divisions for each market and product group as this allows specialisation. Then a functional organisation has taken on the characteristics of a role culture: intense interest in role rather than getting the job done. and the North American division will develop expertise for that market. So. Uncertainty avoidance. individuals act predominantly as members of a group or team. This structure can be efficient and can lead to economies of scale. With regard to organisational structure and configuration. customer preferences in Europe. the person shown below is responsible to the Project B manager and to the quality control manager. Short-term oriented cultures emphasise tradition and meeting social expectations. Low uncertainty avoidance cultures feel relatively comfortable making unstructured situations and dealing with changing and novel environments. but as departments increase in size and power. An entrepreneurial structure tends to be found in new businesses. the Paper F1 Study Guide mentions: Entrepreneurial. they can begin to look after their own interests more than the organisation’s. . as managers and as more experienced employees. However. where the entrepreneur is still a hands-on manager. flexibility and a willingness to change. A power culture and an entrepreneurial structure will normally go hand-in-hand. and so on. it will mean that an employee is responsible to two superiors. the European Division will know about pricing. research and development. competitors. A functional (and departmental) structure is a conventional structure with different departments for accounting. there is often a degree of diversification as new products and new markets are developed. Masculine cultures include competitiveness and assertiveness. should get together to resolve the problem. The wrong way for the employee to choose what to do is to comply with the wishes of the manager who shouts louder. functional. Long-term orientation v short-term orientation. divisional and matrix structures     An entrepreneurial structure is one in which the owner (the entrepreneur) dominates. It is easy to imagine a situation where the project manager puts pressure on the employee to cut out some tests because the project is slipping and. at the same time. Long-term oriented cultures attach importance to the future and place emphasis on persistence. sales and marketing. anyhow. the matrix structure could empower the employee to point out to the two managers that there is a conflict and that they. and this was anathema to classical management theory.

many organisations made a determined effort to move from tall-narrow to wide-flat.(1) Tall and flat organisations Tall-narrow organisations are characterised by having many management layers. In the 1990s and 2000s. once again many managers might be involved. . the message might have to pass through many layers of managers. This process is known as ‘delayering’ or ‘flattening’ the organisation. and it was recognised that costs could be saved by getting rid of many of the middle management layers. The tall-narrow structure fragments the organisation and imposes many layers between the bottom and the top of the organisation. new recruits are likely to have valuable information that top management needs to know. misunderstanding and distortion. Wide-flat configurations have relatively few layers. in a strictly run organisation. Slow. people at the bottom of organisations rarely needed to communicate with the top. For example. poor communication. In stable environments. leaving scope for delay. If Person A in the diagram above needs to communicate with the chief executive officer at the top. However. The drivers behind this structural change are:   Cost. with each manager looking after only a few subordinates. nowadays. If Person A needs to communicate with Person B. the use of social media such as Facebook in marketing and stakeholder communication. but each manager has many subordinates. There was increasing price competition from products made in developing countries.

management needs to keep a coordinating role. The movement to wide-flat can also provide job enrichment because if a manager has more people to look after. where one division or department makes a decision that hurts the group overall. less time can be given to each. Decentralisation means that decision making is passed down through the group. and this implies a power culture. Moving to a flat-narrow configuration can address these problems. On the downside. and are made with an awareness of local conditions. Giving decision-making responsibility is an excellent example of job enrichment. Specific Paper P3 matters (1) The cultural web This is usually depicted as follows: . To reduce the chance of this.   Decisions are made by technical experts. rather than a chief executive from an accounting background based in London. and this brings the following advantages: Top management has more time to concentrate on the most important decisions. and employees are therefore almost inevitably given more responsibility. The best person to decide about advertising in Brazil is almost certainly someone with a marketing background resident in Brazil. if the organisation needed to change to respond to environmental developments. Inflexibility. whereas the wide-flat structure is more likely to have a task culture. Motivation of staff. the large number of managers can be obstructive so as to defend their positions. there is an increased chance of dysfunctional decision-making. Many layers of management imply many grades of pay and benefits and. (2) Centralisation and de-centralisation Centralisation means that most decision making is retained at the top of an organization. are made more quickly. Note that the tall-narrow structure is likely to exhibit a role culture.

this is a list of the factors that influence culture. Support staff: departments such as accounting. The middle line: middle managers responsible for carrying out the decisions of the strategic apex. the chain of command down through the organisation. The operating core: the workers. personnel and IT. espoused values. and basic assumptions and values.In essence. . An approximate correlation between the two approaches is: The cultural web is a very useful way of analysing organisational culture and could have been used to great effect in all of the questions mentioned at the start of this article. It is a more detailed list than Schein’s artifacts. (2) Mintzberg’s organisational configurations Mintzberg suggested that an organisation consisted of five elements:     The strategic apex: the board and top management.

Interaction of configuration and cultures It is important to realise that cultures and configurations go hand-in-hand. each job is unique and is therefore not capable of standardisation. Indeed. They are cultures. the partners (strategic apex) have to discuss directly the problems and findings of the accounting or legal staff who were closely involved with the work (the operating core). In contrast. It is also needed in highrisk environments where careful supervision of subordinates is needed. quality. a tall-narrow hierarchical structure will usually imply a role culture and a machine bureaucracy with great emphasis on control. nor even just power systems. The size and importance of these elements depends on the type of organisation being described. The technostructure is small because. This consists only off the strategic apex and the operating core: it is the boss and the workers and equates to Handy’s power culture and to entrepreneurial organisations. with good communication between the top and bottom of the organisation. responsiveness. This refers to the structure that is common in massmanufacturing industries. This refers to the structure that is typically found in firms of lawyers or accountants. titles. the paradigm is more likely to be based around customer service. Here. Machine bureaucracy. the simple structure is often known as the entrepreneurial structure. it is essential that production. The professional form of organisation appears wherever the work of the organisation is dominated by skilled workers who use procedures that are difficult to learn. and diagrams can be drawn to illustrate this. with little emphasis on symbols of hierarchy. differentiation and innovation. with many management layers. a wide-flat structure will more often imply a task culture and a professional bureaucracy. The middle line is relatively short. . the internal control system. universities and hospitals are prime examples. and strict power relations. this can work well in stable environments. Mintzberg has said that ‘configurations are not just cultures. making large numbers of identical items. implying tall-narrow. the quality control system. The technocracy: the people responsible for devising and enforcing standards and procedures such as the personnel manual. but the diagrams are not needed for the exam. Schools. Because each job is unique. Indeed. The technocracy is large because in manufacturing companies. The characteristics of three of Mintzberg’s organisational stereotypes are as follows:    The simple structure. yet are well defined. implying wideflat.’ For example. As mentioned earlier. The National Museum scenario (in the December 2008 exam) was an example of a professional bureaucracy. and fewer stultifying controls. safety training and finance are carefully and repeatedly regulated. more participative decision making. health and safety rules. although documentation can be standardised. The professional bureaucracy. symbols. The middle line is lengthy. where the paradigm will often be based round efficiency and cost leadership.

A similar issue arose in the iCompute exam question. Question 3 of the December 2010 exam. then the problem of change . and had about 3. It allows the examiner to examine aspects of culture and configuration in context without suggesting that one culture is better than another. Later it became listed and inevitably had to adopt much more of a role culture. where a new director attempted to change both structure and culture to the fury of established personnel. where the work routines effectively excluded female staff and customers were treated as lazy and incompetent. Autonomy was a relatively young. The record was 52 to 1. The survival of some organisations is threatened by clinging to a culture that is no longer appropriate. (4) Change management If a culture or organisation structure has to be changed. symbols and the organisational paradigm. Neither the founder nor existing staff enjoyed the new situation. almost certainly both culture and configuration will have to change. either within the industry sector or within society as a whole. Another example was seen in National Museum. Question 1(b) of the December 2008 exam. Culture and configuration have to be changed to allow survival – however hard that is on individuals currently employed in the company. Given that one of the main reasons for the acquisition of Autonomy was to acquire software skills and brainpower. entrepreneurial software company based in Cambridge. but the staff then employed disliked those changes.700 employees. HP is predominantly a hardware company and employed about 350.Application of culture and organisational configuration to scenarios Culture and organisational configuration could be examined in the following contexts: (1) Culture clashes A good example of this is seen in Frigate. A clash of cultures is likely to continue to appear in future questions.000 people worldwide. UK. controls became tighter and public scrutiny affected rituals. and how it should be managed. HP took over Autonomy in 2011 for $12bn and all of Autonomy’s top level executives had left within about nine months. losing a large proportion of staff is probably not a good result for HP. if an organisation wanted to change its generic strategy from cost leadership to differentiation. A recent real-life example is seen in the Hewlett-Packard (HP) takeover of Autonomy. ‘We kept a running tally of the number of HP staff to Autonomy staff on conference calls. Finally. where there was a power culture that a new employee tried (unsuccessfully) to change to a role culture. (2) Inappropriate cultures and configurations For example. 24 May 2012).’ said a former employee (Financial Times. claiming that the bureaucracy they encountered at HP was more than they could bear. (3) Different stages of an organisation’s lifecycle Question 2 of the June 2009 exam explored how a business’s culture and structure changed throughout its lifecycle. Formal controls were non-existent and the company was fun to work in. happier days. about 25% Autonomy’s staff also left. The company started in an entrepreneurial/power culture with a charismatic leader who recruited like-minded employees. the founder bought back the company and tried to turn the clock back to earlier.

comparing the results of different branches). Benchmarking and the strategic planning process Benchmarking can be used in all three steps of the classical. We will examine the sources of data in more detail later. data about employee sick days). data about other companies (for example. particularly with reference to the cultural web and Mintzberg’s configuration stereotypes. those in the same industry) and government data (for example. Mismatch of cultures and configurations is likely to be a recurring theme. Benchmark data validates objectives. of comparators that allow relative levels of performance to be identified. Candidates must ensure that they can apply theories and principles to the case study scenario. by the collection of data. rational model of strategic planning: Assess the strategic position (internal and external factors)Frequently. but these will be of little use because they are likely to be arbitrary and without any validity. How can we encourage employees and other stakeholders to willingly embrace the change – or at least not to oppose it actively? Communication. Conclusion Culture and configuration is regularly examined in the Paper P3 exam. and comparators during and after the period. strategic planning starts by defining the mission or mission statement.management arises. The sources of data that can be used include internal data (for example.’ Benchmarking can be thought of as a scientific way of setting objectives that will act as targets before and during the operating period. and comparators during and after the period Benchmarking can be defined as: 'The establishment. The phrase ‘by the collection of data’ is crucial: anyone can establish objectives without the collection of data. education and participation in the change process are usually advised. Ken Garrett is a freelance author and lecturer Benchmarking Related Links  Student Accountant hub page Benchmarking can be thought of as a scientific way of setting objectives that will act as targets before and during the operating period. BMW states that its mission . For example.

However. Similarly with opportunities and threats. and so budget targets need to be benchmarked against these. if it is found that the quality and reliability of a competitor’s products are inferior to one’s own products. This strategy is always more complex than cost leadership. benchmarking can be used to: . however. What are competitors’ costs? What are the benchmarks for cost leadership? If the organisation has little hope of equalling or bettering those costs. brand. competitive advantage can be obtained through either cost leadership or differentiation (each with or without focus). it must be something that beats the competition – better quality. the SWOT analysis should be based as far as possible on facts. or a technological development that promises a better product in terms of cost-benefit. data that has been collected and transformed into benchmark standards. the use of comparators is inherent in a SWOT analysis: if you can say that something is a ‘weakness’ or a ‘strength’ you must be carrying out some sort of comparison when making that value judgement. without comparison through benchmarking. If cost leadership is to be attained. Strategic implementation (strategy into action) Setting objectives is a major tool for implementing a strategy. where the main criterion is simply to lower unit costs while maintaining average quality. style. According to Michael Porter. However.’ So. For example. of course. Differentiation. departments and individuals and. measuring how competitors perform in these metrics is essential. Whatever the secret of differentiation is. Once again. budgets have to be both challenging (to stay competitive and generate motivation) and attainable (to be taken seriously). can be attained in a multitude of ways: quality. In all cases. or one that produces products more cheaply. then cost leadership is not a sensible strategy to attempt. budgets consist of objectives or targets. Therefore. innovation. Consider strategies and make choices Chosen strategies are those that should lead to competitive advantage. Strategic plans are often communicated by issuing budgets to divisions.is: ‘The BMW Group is the world’s leading provider of premium products and premium services for individual mobility. an assessment of potential attainability should be based on the results that other organisations achieve. Note that a benchmarking exercise can also highlight where a competitor’s performance is weaker and so point out the areas where that competitor is vulnerable and might be fruitfully attacked. or an organisation that has a stronger brand name. Once again. how does BMW know that it is delivering premium products and services? Assessment of an organisation’s current strategic position can be summarised in a SWOT analysis. stronger brand attributes. Similarly with differentiation. better style or more radical innovation. A factor is a threat to us only because it is better or stronger than we are in that area – whether it is an organisation that is better financed. then an advertising campaign emphasising quality of our products could be effective. then an organisation must know what costs it needs to beat.

if the best branch achieved a net profit percentage of 15%. If last period’s actual results showed that it took 12 minutes to produce each unit. The potential danger with these approaches is that they are both inward-looking. easy and cheap it might be the only method if there are no external suitable companies for comparison it might be the only approach possible where other companies’ data is confidential and difficult to obtain. In this approach. the efficiency of rubbish collection by different local authorities and the exam success of children in different schools. Industry benchmarking can be divided into:   non-competitor benchmarking competitor benchmarking. such as:    access to the required data should be quick. but what if competitors routinely achieve 18%? Similarly. last year’s production time of 12 minutes might be way in excess of more efficient producers. Industry benchmarking. . It’s all very well saying that our best branch achieves 15% net profit. then it might be valid to set a benchmark of 11. Note that Porter talks of the need to achieve competitive advantage. Therefore:   No attention has been paid to what other organisations. then that might be a valid target to set all branches. such as competitors. Examples of non-competitor benchmarking can be seen in comparing treatment results for hospitals in different towns. A common categorisation of the approaches is as follows: Internal benchmarking. are achieving. the exchange of data should be relatively open.  push people in the directions where improvement is required provide measures as to whether that required performance has been attained or to indicate what improvement is still needed. internal benchmarking can have advantages. Additionally.5 minutes for the next period. Similarly. benchmarks are set by looking at what other organisations in the same industry achieve. Types of benchmark There are a number of different ways in which benchmarks can be established. Because the different organisations are not in competition. If an organisation does not realise that competitors are better. though an organisation that thinks it is performing poorly might be reluctant to release its data. Internal benchmarks are likely to be set by looking at historical performance or performances achieved by different branches or divisions. Therefore. the opportunities for learning are small. This does not mean simply inventing an objective internally out of thin air because benchmarking implies comparison. not only is that dangerous in itself. However. but the organisation will never be inspired to try to find out how competitors do better.

an organisation might not be perceived as a competitor (and therefore not used for benchmarking) when in fact it is in competition. there will be both routine operations to be carried out efficiently . However. So. there is no point in being a really efficient producer of inexpensive stand-alone digital cameras when that market is being supplanted by the increasing quality of cameras in mobile phones. Best-in-class benchmarking. In addition. Each company will be able to recognise its own data and therefore judge how it is performing relatively. Data can be shared either openly (where there is no competition) or anonymously (where there is competition) so that the whole industry can make use of the data to improve. in the UK each year the Department for Business. it would probably be valid to make allowance for schools in different parts of town. Similarly. a hotel business might learn a lot from studying how airlines change their fares in response to demand. Both of these are relatively easy to measure because they are very visible and you can be sure that airlines keep a close watch on their competitors’ statistics. you will appreciate that many of the most interesting pieces of data about a competitor will not be easily accessible and that competitors will often try to keep this information confidential to try to maintain their own competitive advantage. Innovation and Skills (a government department) publishes key performance indicator data (around 700 datasets) for the construction industry. The hope is that by publishing the data. It is common. One of the most famous examples of best-in-class benchmarking is that of airlines improving their turnaround times by benchmarking themselves against Formula One racing car pit-stop operations. the individual activities of an organisation are compared to those activities in other organisations where the activities are carried out really well. Sometimes. publish statistics as it is recognised that this is important information for managers. poorer performers will be motivated to improve their game and to learn from good performers. Although industry benchmarking might seem to be almost foolproof. for car companies to buy a competitor’s new model and to dismantle it carefully as the basis for estimating production costs and time. Thus.governments often insist that state enterprises. A school in a relatively rich area where many parents are well-educated and supportive of their children might be expected to outperform a school in a poorer area. In both cases. rather than comparing entire organisations. Therefore. In this approach. Both hotel room vacancies and unoccupied aircraft seats are perishable commodities and maximising profits in both industries depends on enticing in the last guest or traveller at the maximum marginal revenue. organisations in a particular sector set up collaborative benchmarking. there is a danger that benchmarks are inappropriate because comparisons are made with the wrong organisation or because no allowance has been made for important differences. when comparing the performance of children in schools. Examples of competitor benchmarking can be seen in aircraft turnaround times (how long the aircraft is on the ground between flights) and the load factor (what percentage of seats are occupied) for different airlines. From a pricing perspective. staff. such as schools or hospitals. for example. Manufacturing companies sometimes use reverse engineering to attempt to calculate competitors’ costs. For example. it would be valid for a telephone-based bank to compare its call answering times to those in an organisation in a different sector that had a very good reputation in dealing promptly with phone calls. users of the facilities and government. the exercise would be of limited use in comparing the costs of customer interactions in a traditional bank with those of a purely online bank.

perhaps a very slick website in a travel site. Of course. The great strength of best-in-class benchmarking is the high degree of learning that is encouraged. If cost leadership is the generic strategy adopted by a supermarket. and then must compare its performance to that of companies like Mercedes (same industry) and perhaps to a company such as Amazon for customer service and delivery of spares and accessories. will often generate radical innovation and improvement in an organisation’s competitive strength. Welltrained teams. however.and occasional emergency or unexpected repairs and replacements of components. then the following might be worth benchmarking against competitors:        Turnover/employment costs Shop rent/m2 Inventory turnover Inventory costs Wastage Number of inventory lines stocked (keep low to minimise costs) Gross profit percentage If. wherever found. so that slick websites are expected everywhere. very good performance in one aspect of a certain industry. and ambitions stated there should be benchmarked. What should be benchmarked? Priority should be given to benchmarking performance areas that result in an organisation’s success. technician availability will be essential to the success of both operations. innovation. an organisation’s success should be defined by its mission. BMW needs to devise measurements that address its mission to make premium products and to deliver premium services. Furthermore. So. . In profit-seeking organisations competitive advantage can be achieved either by cost leadership or differentiation. As mentioned above. but a cost leader lives or dies by keeping costs very low while a differentiator depends on high levels of service. the supermarket attempted to compete through differentiation and presented itself as an upmarket brand. The observation of very successful processes and activities. is likely to raise customers’ expectations in many different industries. then the following might be particularly worth benchmarking:       Number of inventory lines stocked (keep high to offer choice) Number of new products brought to market Number of unique products Gross profit percentage Check-out queuing times Customers’ impressions of quality. this is not to say that the upmarket supermarket would not care about wastage and so on. uniqueness. style and quality. spares inventories.

dispatch time for orders. then the supermarket should be comparing its range to those in competing supermarkets. some aspects of performance will be more challenging. use benchmarking to establish the duration of project activities). For example. In other words. difficulty in measurement . money and effort carrying out the various activities. turnaround time for aircraft. benchmark the cost of running the corporate internet) processes (for example. Examination of generic strategies and the value chain shows that benchmarking can be applied to:      functions (for example. time taken for producing a unit. it must then establish metrics for those: how can performance be measured? Some items will be easy to measure. However. if a supermarket believes that its customers are loyal because it stocks a very wide range of food. Benchmarking metrics Once an organisation has decided which aspects of its performance should be benchmarked.Another approach that can indicate where benchmarking would be particularly useful is to examine an organisation’s value chain. For example. the organisation manages to make a profit. and capability of staff. benchmark how long it takes to deal with a customer complaint) branches/facilities (for example. Therefore. Or the organisation might be using know-how that customers do not possess. because of its size the organisation might have access to economies of scale that are not available to customers. benchmark how our strategy of organic growth for market entry compared to growth by takeover or merger) projects (for example. So the organisation must be doing more than is explicitly depicted on the value chain: this is the value added. Whatever gives rise to the value added is the source of profit and should therefore be benchmarked: poor performance there compared to competitors will eventually lead to declining profits. customers are willing to spend more on what the organisation produces than all the activities leading to production actually cost. For example. as a result of an organisation spending time. flexibility to customer requirements. customer service. However. Porter set this out as follows: The rationale behind the value chain is that. the amount of material used. benchmark the efficiency of an entire factory) strategies (for example.

It is important that the data is as accurate and as representative as possible. After deciding what to measure and how to measure it. For example. Ken Garrett is a freelance lecturer and writer Strategic planning in an age of turbulence Related Links  Student Accountant hub page . For example. For example. Employees know that whenever performance targets or objectives are set. cheap purchases are likely to be bought more on impulse. often to the detriment of overall desirable performance. Benchmarking does not itself explain why an organisation might not be performing properly. The whole exercise is rather pointless if efforts are not made to understand the causes of an organisation’s shortcomings. in the UK National Health Service. and finding out how good companies achieve high performance.is no excuse for not attempting to measure and set benchmarks if an element of performance is thought to be important. Benchmarks for hospitals are then issued. there is always a danger that a benchmark might not be appropriate. full attention is paid to whatever is measured. although best-in-class benchmarking looks at best performances from different industries. Even if set correctly initially. For example. data has to be collected that will form the basis of the benchmark. Even where these have been properly established. Whatever is measured is changed. otherwise the benchmark will be misleading. then almost certainly appraisal will follow. Potential problems with benchmarking As explained above. there might be little point in setting benchmarks during a period of either very low or very high activity as there are likely to be distortions at these extremes. it remains vital to ensure comparability. it is probably unrealistic to benchmark how often a visit to a travel website results in a sale against the sales rates obtained by a website that sells low-value consumer goods. there is a risk that it is not updated so that organisations become complacent and aim at the wrong things. a way to quickly and cheaply reduce waiting lists in orthopaedic departments could be to carry out lots of relatively quick simple operations and to relegate seriously ill patients who need more time-consuming surgery. Therefore. governments are very sensitive to accusations that patient waiting lists are too long. managers can sometimes become defensive and begin to defend their performance by attacking the credibility of the target. Instead of using benchmarking as a push towards improvement. Similarly. Consumers are likely to make several visits to a website when they are buying highvalue goods before they make up their minds. they can distort the healthcare provided by hospitals.

These events would often be identified. the former US Secretary of Defense. there is a huge range in what we are capable of foreseeing and with what reliability. an organisation might know that its drug patents will expire in three years. though somewhat clumsily expressed: ‘There are known knowns. These types of unknown can be handled by making estimates and possibly . the disintegration of the Warsaw Pact. A decade ago.’   The known knowns – for example. But we know something unexpected always happens. in the middle of a turbulent period. Knowns and unknowns All planning requires us to peer into the future as far as we can. Of course. interest rates. But the environment as a whole didn’t spring too many nasty surprises and businesses felt confident to plan for the future. World War 2. as shown above in the examples of external events. even during this period of relative stability. which should have major implications on how organisations can plan for their long-term survival For an organisation.This article considers the inevitability of turbulence. once turbulence is established it can be some time before things settle down again. How different the last few years have been. and a company like Kodak was trying to tackle the impact of digital cameras. an organisation might know that its competitors are going to launch an important new product but it is not sure exactly what the characteristics of that product will be. The known unknowns – for example. These events are relatively easy for planners to handle and to build into budgets and objectives. organisations might know that interest rates will rise but are not sure when or by how much. So we are now. economic growth. and based on what we see and our forecasts we devise plans. But there are also unknown unknowns – the ones we don't know we don't know. (Think of the launch of the Apple iPad: everyone knew something was coming. Furthermore. there are things we know we know. though few people recognise that. through a PESTEL or Porter’s 5 Forces analysis. events following the attack on the World Trade Center.) Or. External events are much more wide-reaching. He was derided at the time but – at least in this matter – he made perfect logical sense. that is to say. turbulence can be defined as unpredictable and swift changes in its external or internal environments that affect its performance. It is useful to divide future events into three classes. as did Donald Rumsfeld. though not necessarily predicted. However. We also know there are known unknowns. perhaps because its cause and effect cannot be predicted in any detail. music companies were trying to work out how to respond to MP3 downloads. Internal events usually limit their effect to the organisation in which they occur. or that it will be relocating in six months. Our current environment is not uniquely turbulent and there are many examples of turbulent periods from the last 100 years or so: World War I. but no one outside Apple knew any details. undoubtedly. Turbulence seems to be inevitable. we know there are some things we do not know. the great depression of the 1930s. social changes in the 1960s. often affecting all organisations or all organisations within an industry sector. the impact of the internet and so on were moving in fairly stable patterns. The inevitability of turbulence should have very important implications for how organisations should plan for their long-term survival.

no one knew. in a period of turbulence. Black swan theory was developed by Nassim Taleb to explain:    the huge impact of unpredictable. one of which is that the world will advance in a gradual. that Lehman Brothers would fail. by definition. strategy is greatly influenced by taken for granted assumptions. We are. Developments that arise are evaluated. Unknown unknowns cannot be planned for. Strategy as ideas. unpredictable and changing environments. Strategy as experience. we don’t know if there will ever be one. The unknown unknowns – do you know when there will be a powerful earthquake that flattens the city of London? (Of course. The phrase ‘black swan event’ is therefore used as a metaphor for the frailty and limitation of any system of thought and planning: bounded rationality. but organisations should assume that they will happen and should therefore build into their plans robustness to protect themselves against negative events and an ability to exploit positive ones. Strategy as design.) In 2007. linear and relatively predictable way. by assigning probabilities to the various outcomes. likely to suffer from bounded rationality even with the known knowns because of imperfect research or pressure of time. strategy development is a process of logical and rational thought. expected values. do not have time to evaluate them). 3. resources allocated and specific strategies are followed. anyhow. So how should organisations respond to the threat of unknowns while still trying to move forward in terms of gaining competitive advantage? Planning approaches Three approaches to strategy are summarised in Johnson. Decision trees. Strategies are needed to cope with uncertain. rare events that are outside our normal experience and without historical precedent the non-computability of the effect of these rare events because there is no data on which to base calculations the psychological bias that blinds us to the possibility and impact of rare events. strategic development is the adaptation of past strategies based on experience. no one could imagine the existence of a swan that wasn’t white. Scholes and Whittington’s strategic lenses: 1. These unknown unknowns are by far the most difficult to manage. and sensitivity analysis are all very useful techniques. 2. However. There are analogies here with a suggestion made by Professor Vijay Govindarajan – namely that organisations should place their planning projects into three boxes: . more events will be in the last two categories and this makes planning more difficult. We tend to assume that things (such as property price increases) will continue in a predictable way. or suspected. In this view. They are sometimes termed ‘black swan events’ (1) because before black swans were discovered in Australia. Here. in practice. Here. This means that we cannot know all-important factors that will affect the future (and.

Note that even under conditions of stability. At the same time. Medium-term – projects here concern ‘selectively forgetting the past’ and they are driven by non-linear changes such as the Internet and the ‘Arab Spring’. They become obsessed about clinging to the safe and familiar. but perhaps reduce the number in each. this approach allows attention still to be paid to the long-term future of the organisation by insisting that longer-term projects are always important. companies that are panicked will have projects in category 1 only. or should attempt to predict. In relatively stable times. Very speculative. a better approach would be to keep projects in all three categories. They suggest that organisations need to plan to be:    responsive – the ability to react quickly to change robust – the ability to withstand stresses and to cope well with change without losing functionality resilient – the ability to rebound to a position of success. Responsive. It is important to realise that the three approaches in each model are not mutually exclusive and that all three will be carried on in parallel:    It is important that the present is managed carefully and making use of experience and expected developments. In turbulent times. However.   Short term – projects here are about managing the present and would include process improvement. HR management would need to be:  responsive – it might be necessary to block all hiring. Long term – entirely new business ventures. However. and important longer-term projects might be abandoned. a company might divide its projects and efforts over the three categories in the ratio 50/30/20. to ban overtime. It is also important that organisations move forward steadily and adapt to changing opportunities. to freeze pay and to make redundancies . Although those changes might not be in place for 10–20 years. substantial effort should be given to long-term projects. Consider human resources management when there is a severe and unexpected turndown in business. Reducing the number in each provides some safety because less investment spent on projects provides something of a buffer in turbulent conditions. Projects here are aimed at moving into areas neighbouring the organisation’s core activities. robust and resilient Kotler and Caslione (2) address the problem of chaotic or turbulent environments. These projects are in response to linear (therefore non-turbulent) changes in an industry. product and market development. organisations should be aware of. more radical longer-term changes. work to prepare for them might have to begin now. and based on many assumptions.

One of the standard criticisms of the rational planning approach is that it lacks or inhibits flexibility (though that is more a criticism of how the plan is used rather than a criticism of planning itself). Sensitivity analysis Investigate the effect of assumptions about the future changing. Investigate sensitive assumptions more to get greater assurance. For example. If successful the operations can be extended and can make use of experience gained joint ventures to spread risk and finance. Practical approaches Flexibility Responsiveness. Then. Look for ways of defusing high risk areas. Expected . the company is ready to bounce back immediately without a delay for recruitment. so those permutations can be eliminated. some companies that relied on just-intime inventory had problems after the Japanese earthquake because their supplies were quickly exhausted. and to make use of a wide range of expertise. Decision trees Decision trees can be used to map out the various patterns of events that can occur. For example. Now manufacturers try to build flexibility into their supply chains stand-by and disaster recovery plans for IT systems a mix of permanent and sub-contracting staff pilot operations to gain experience in new ventures.  robust – care is needed when choosing who should go so as not to jeopardise functionality. arranging lines of credit having break-clauses or extension options in lease agreements building in the ability to upgrade or extend operations use of currency options buying from a range of suppliers. it might be better to ask employees to move to shorter working weeks so that valuable talent is not lost for ever. Examples of building in flexibility include:          leaving headroom in any financing plan. then there is no point considering a scenario of the new government reducing public expenditure and increasing interest rates as that is an implausible scenario. if an election is likely and we believe that a change in government would lead to a cut in public spending and a drop in interest rates. This greatly helps to reduce the number of ‘universes’ we have to consider and allows the organisation to concentrate on the few most likely ones and plan its response to each of the plausible scenarios. Not all the events that could happen are likely to happen together. For example. when the economy recovers. robustness and resilience are really an expansion of the concept of flexibility. Scenario planning Scenario planning attempts to take into account the many things that could happen and from those to build a number of believable. care is also needed to preserve motivation and to try to keep good staff resilient – instead of redundancies. It is essential to try to build flexibility into any strategic plan – even in relatively stable conditions. alternative futures.

4 x (-5) = $2m However. Let us assume that the project lasts 10 years and that all financial flows are in present value terms. it is beholden on companies to look for flexibility. This is not unreasonable as the passage of time allows more information to be collected that can be used for further analysis. consecutive five-year blocks. the project could be abandoned at the end of the first five years for no further cost. The initial cost will be $5m and this will generate half of the original amounts: either a profit of $10m or a loss of $2. or if probabilities are too difficult to estimate. robustness and resilience. but has now opened up. Quandary Co could spend $8m and then either have earnings of $20m with a probability of 0. Cash flows and probabilities are both subject to change and the company seems to be signing up to a 10-year project that is all or nothing.6 x 20 + 0. For example. irrespective of any attempt at enhancement. so ignoring the downside risk (and there might also be additional unknown ones) is certainly not a robust methodology. events that had been a long way off are now closer and easier to predict. All of these require attention to detail. the possibilities can be examined under conditions of uncertainty. This possibility wasn’t even suspected at the very start of the project. Now assume that further investigation shows that the project can be broken down into two.values can be used to evaluate the possibilities. this positive result conceals the 40% chance that the company will have an adverse cash flow of $13m ($8m cost and then a $5m loss). Assume that after the first five years have passed. does not show responsiveness or resilience. If the company wants to continue after five years. Expected value calculations reduce detail into a single figure. expenditure of another $4m will be needed to generate the same earnings as would have been earned with the original one-stage investment ($3m to bring the cost up to the original $8m plus a premium of $1m for the delay). Often.6 or could make a loss of $5m with a probability of 0. Alternatively. this approach to strategic planning is almost always inappropriate. Note. that is usually not ‘expected’ to occur. and this is the reverse of what is required to encourage responsiveness. the income figures shown below for the second five years are not known at the outset but are known after the first five years. If Quandary didn’t wish to invest further funds after five years. however.4. The expected value of this project is: -8 + 0. this approach. Furthermore. enhancement expenditure of $8m would then increase earnings to $12m or $15m depending on the state of the world economies (this will be known after five years). that type of adverse outcome could lead an organisation into liquidation. that although expected values are often calculated. it will be poor in the second five also. If the outcome had been poor in the first five years. as presented.5m. . Therefore. Although sometimes the nature of a project will mean there is little or no flexibility. Also. the company will have gained information that allows it to predict with certainty what the outcomes of the second five years will be.

spend $8m in the hope of earning either $12m or $15m.5 -5).5m (-2. Within that figure there is a high chance the loss will occur and the company should have a good hard look at whether it is robust enough to stand a loss of $7.6 x 5 – 0.) These provide responsiveness and also resilience because Quandary Co has been able plan to spend to rebound if economies improve. the company can reassess what it should do then.abandon the project.5 = 0). As far as has been forecast. none of these happened. The expected value of the first five years alone would result in break-even (0. If Quandary Co embarks on the project and makes a loss in the first five years.The choices and outcomes are now: The company’s game plan could now be as follows: 1. as it turned out. in fact. All homes and businesses. presumably not spend $8m to earn $12m because that profit of $4m is less than the profit of $6m that the first option gives. then. including Quandary Co. Its choices are: . to avoid further loss.4 x 7. this will either be a net profit of $5m (10 – 5) or a loss of $7. This could be done if the economy then looked very poor so that the company didn’t want to risk a further $4m or didn’t feel robust enough to do so . profits of $4m or $7m. 2. within a radius of 20 km had to be abandoned. (The company would. 3. Assess the likely outcomes from the first five years. If Quandary Co embarks on the project and makes a profit in the first five years.spend $4m to earn $10m. This option provides responsiveness. the project can be abandoned. Of course. a profit of $6m .5m (plus a bit more for headroom). Ken Garrett is a freelance lecturer and writer References . A black swan was sucked into the cooling inlet pipe of the local nuclear power station causing a meltdown of the core.

mission statements are usually assumed to address:   what business is the company in? whom does the organisation serve? . shareholders and employees. Many other writers attempt to expand the definition of a mission statement by adding detail to it. Terminology An organisation’s mission is its basic purpose: What is it for? Why does it exist? What is its ‘raison d’être’? A mission statement formalises the organisation’s mission by writing it down. Taleb NN. Kotler and Caslione. Chaotics. shareholders and employees. some writers and textbooks wring their hands attempting to distinguish between the terms ‘vision’ and ‘mission’. This article will:      briefly describe what the terms ‘mission’. Scholes and Whittington define a mission statement as ‘a statement of the overriding direction and purpose of an organisation’. Amacom. Business Analysis syllabus relates to how an organisation communicates its core values and mission to the public. However.(1) The Black Swan. it is important in practice and it is a challenge that many organisations take very seriously. This is an objective which can easily get overlooked in the rush to master environmental analyses. 2010 (2) Chaotics. This is an objective that can easily get overlooked in the rush to master environmental analyses. strategic choice and outsourcing decisions Learning objective 6(g) of the Paper P3. Some companies refer to ‘vision statements’ instead of mission statements. Penguin. However. strategic choice and outsourcing decisions. Johnson. 2009 Communicating core values and mission Related Links  Student Accountant hub page This article focuses on the syllabus area relating to an organisation’s core values and mission to the public. ‘mission statement’ and ‘core values’ mean suggest why their communication to stakeholders is important describe a commonly used model of communication briefly describe communication methods that are available describe and give examples of how organisations might undertake the communication process. the distinction does not achieve much and the Paper P3 exam will treat the terms as meaning the same. In summary.

… We offer sustainable. it’s crucial that our shareholders value Tesco highly. Nike’s ‘Just do it’ is a powerful advertising slogan. That’s why one of our values is ‘Treat people how we like to be treated’. Here are several examples of mission statements and core values: Tesco (a UK supermarket chain): Our vision To be the most highly valued by: The customers we serve Our core purpose is to create value for customers to earn their lifetime loyalty. . Work can be a large part of our lives so our people deserve an employer who cares. However. Scholes and Whittington define core values as ‘principles that guide an organisation’s actions’. Our shareholders As the owners of the business.  what benefits are to be delivered? what are the organisation’s values and ethics? The final line above introduces the concept of values or core values. it is worth distinguishing between a mission statement and a slogan. The communities in which we operate For Tesco to be considered a force for good. there is no standard format or list of contents for mission statements. This objective sits right at the heart of our business as one part of our Values – ‘No one tries harder for customers’. Our loyal and committed staff We know that if we look after our staff. and organisations are completely free to write their own. but under most definitions does not qualify as a mission statement. they will look after our customers. We are committed to providing opportunities for our people to get on and turn their jobs into careers. and across all of our markets we offer a wide range of competitive benefits. Intel (a manufacturer of computer chips): Our mission This decade we will create and extend computing technology to connect and enrich the lives of every person on earth. profitable growth from a combination of a strong core UK business and exposure to rapidly growing emerging markets. we must be a good neighbour and a responsible member of society. Shareholders want a good return on their investment and that’s what we will continue to deliver for them. Johnson. Remember. for most purposes.

Innovation: we create new and unexpected possibilities. Customers may wish to know what the organisation promises. and how it intends to add value and to compete. business and finance achieve and promote the highest professional. free from artificial barriers.Our values Customer orientation Results orientation Great place to work Quality Discipline Risk taking ACCA ACCA's mission is to:     provide opportunity and access to people of ability around the world and support our members throughout their careers in accounting. to people around the world – whether students. Why communication of mission and core values to stakeholders is important     Investors need to know how the organisation intends to make profits or fulfil some other ambition. This should guide management and staff as they make day-to-day strategic. providing innovative solutions for the future. All stakeholders should want to know how the organisation intends to conduct its operations. ACCA's core values are:      Opportunity: we provide opportunity. For example. Integrity: we act ethically and work in the public interest. members or employees and we support them in their careers. tactical and operational decisions. treating people fairly and honestly. working together to deliver a quality service and to promote the best interests of our stakeholders. Accountability: we accept individual and corporate responsibility for our actions. its moral and ethical ‘compass’. we encourage the same from others. Directors and other employees need to know the organisation’s purpose. the principles that guide its actions. it is clear from Tesco’s mission statement that it places the highest emphasis on its long-term relationship with customers. ethical and governance standards advance the public interest be a global leader in the profession. embracing diversity in our people and in our output. Diversity: we respect and value difference. To a large extent the other three .

and to train them to be even better so they can look after the product and customers. Perhaps the juxtaposition of discipline’ and ‘risk’ is most noteworthy. customer facilities. forecasting. Nothing surprising there. mission and core values are long-term public commitments and promises. Intel places its sphere of business in the technology sector and has an international outlook. customers do not need to know about detailed cost objectives given to employees). presumably ACCA would be much more likely to concentrate on a narrow. Stakeholders are made aware that a high tech company will only survive by taking risks (not all research and development will pay off). in the right areas. and it is vital that they are consistent otherwise they are quickly undermined. but this must be counter-balanced by a disciplined approach to market research. This will influence management. In response to this. If Tesco had not placed such emphasis on its customer relationships it is likely that the goods it stocks. if customers are well looked after and are loyal. prices and quality would all subtly change. their families and friends will be part of the community. ACCA states very plainly that at its heart is the provision of opportunities to all nationalities and a diverse population. Without the strong international reference. Tesco is saying to all that it lives or dies by the strength of its customer relations. Communicating objectives to stakeholders is likely to require different messages to each stakeholder group (for example. Of course.parts of their vision statement flow from the first: customers. A communication model A commonly-used model of communication is the Shannon-Weaver model. There is no point preaching to customers that the company aims to have a low carbon footprint while at the same time telling employees not to bother with recycling. sales promotions. there is great emphasis on ethics and accountability. so it is important to deal fairly with that. Inconsistencies and half-heartedness will quickly be exposed and are likely to cause the organisation reputational damage – at the very least. local market. the chief executive said that the company needed to reconnect with its customers and that Tesco needed to sharpen up its act in the quality and availability of its goods and the service it offered customers. staff are the company’s interface with its customers. However. a strong and focussed mission does not guarantee success and in January 2012 Tesco suffered a 16% fall in share price after it announced its results. employees. students and members. Additionally. expenditure and deadlines. good financial results should follow. The company planned to invest cash to put more people into the right stores. but interesting detail is added in its core values. This depicts the communication process as: .

letters.For communication to be successful the message has to get from the sender to the recipient and be understood and acted upon. Typical sources of noise are:       language difficulties – ensuring that the message is properly translated into foreign languages and that any terminology used can be understood information overload – too much information so that recipients are overwhelmed and fail to see the most important information failure to receive – wrong email addresses. the five elements would typically be:      information source: the board transmitter: encoding the message – deciding what needs to be said or what needs to be shown and designing the message the communication channel – eg internet. Communications can break down very easily and the organisation’s management might not even be aware of this. Communication methods (channels) . customers. shareholders. meetings. A survey carried out by the Boston Consulting Group (1) found that although around 27% of bosses believe their employees are guided by a ‘set of core principles and values that inspire everyone to align around a company’s mission’ only 4% of employees agree. trying to display Flash animations on iPhones reluctance to receive the message – eg employees might be reluctant to change their behaviour and might ignore the communication status differences – eg management stays remote from employees and is reluctant to hear bad news about the organisation’s performance inappropriate communications channels – eg expecting employees to read and digest a long text on the organisation’s core values when a training course. Noise can prevent or distort communication. video presentation or discussion might be much more effective. Similarly. Only 14% of employees believe this. quite obviously there are serious communications failures relating to the core values of the organisations in the survey. So. These are listed more fully in the next section the receiver: decodes the message – eg a web-browser displaying a page destination – employees. 41% of bosses say their firm rewards performance based on values rather than merely on financial results. When communicating core values and mission. Noise can interfere with the message at any stage and this can be termed a barrier to communication.

Generally. Examples of organisations communicating mission and core values Good communications requires a plan and typically this would have the following steps:   Listing your communications stakeholder groups (here. instead of sending printed financial statements to every shareholder. newsletters and mail shots financial statements meetings. Similarly. the nature of the message and expense. in the order in which the techniques became available over time: talking to one’s employees face-to-face came long before Tweeting to one’s valued employees. very approximately. Although messages and sentiments must be consistent. This shift in communication methods is an example of a common organisational core value in action – the wish to minimise environmental impact and to promote sustainability. time and environmental impact. cheaper and causes less environmental impact than producing and despatching printed copies. there is a wide choice as to which types of communication are likely to work best for each stakeholder group. such as the AGM company stationery company merchandise presentations training courses press releases and other public relations activities collaboration video SMS (texting) internet (organisation’s web site) and intranet email social media. many companies now email a web link to shareholders showing where the financial statements can be viewed online and downloaded if required. There is no point in shareholders believing that they are investing in an innovative company if perceptions of customers and employees are quite different. such as journals. Twitter and LinkedIn This list is set out. Methods of communication include:                 conversations and discussions advertising publications. such as Facebook.Mission and core values cannot guide behaviour or support performance and create a common understanding among the various stakeholders if they are not effectively communicated. employees and customers) Defining what has to be communicated to each stakeholders group (here mission and core values) . sending newsletters by email is faster. shareholders. both in terms of money. For example. any communications campaign will use a mix of techniques and the methods chosen will depend on which audience is being targeted.

Ask your school to sign up <http://. serious and relatively permanent features of organisations and it would be difficult to communicate these as statements appropriately via Facebook or Twitter where information tends to be more ephemeral. Mission and core values are fundamental. for example. However. The huge variety of people who ‘write on ACCA’s wall’ is evidence of ACCA’s success at being a global organisation and of welcoming diversity.> Both of these are illustrative of Tesco’s wish to be valued within the communities in which they operate and the messages will automatically appear on the Facebook pages of anyone who ‘Liked’ Tesco. if not trivial. social media can be used successfully to communicate examples of mission or core values in action.. . which is an integral part of the ACCA Qualification. not every organisation uses social media.> YOU can take a giant leap for people with dementia and sign up for a parachute jump or abseil! Find more details HERE <http://. makes practically no use of Facebook or Twitter... This will be an effective. HSBC. I’m doing a parachute jump to support Tesco’s current Charity of the Year.> and Hi. find out more here <http://. Of course. however. This. information about recording practical experience requirements (PER)..    Identifying suitable communications methods and events Allocating resources Developing a communications event schedule Monitoring the effectiveness of the communications events Facebook – Tesco Let’s say that a company wanted to communicate some of its core values to its customers. However. a lot of material on their website about sustainability.. of itself promotes ACCA’s mission and core values and will encourage people from a very wide range of backgrounds to participate. There is.. amongst those it also has. To be one in a million. one of the world’s largest banks and financial services organisations. the Alzheimer's Society. almost subliminal way of communicating a core value of Tesco to its customers. working with stakeholders. …I work at Tesco Express in Eastbourne.. Amongst Tesco’s many recipes and competitions posted by them on their Facebook wall (and therefore appearing in the Facebook pages of Tesco’s ‘friends’) are postings such as the following: TESCO’S GREAT SCHOOL RUN is looking for five to 11 year olds to slip on the trainers for a 2 km fun run.. as part of their ‘Leap Year Challenge’! Follow my nervous build up to the big day HERE! <http://.> Exercise can be a fun part of everyday life and we hope to get one million children on the move.. Facebook – ACCA ACCA uses Facebook to post many routine messages about exam results. studying and membership fees....

vision of a more elegant flight experience. a belief that nothing is impossible.youtube. PR is often promoted via press releases which are sent to newspapers and broadcasting organisations (who are always on the look-out for features and news items) in the hope that mention will be made of the organisations. as the term suggests. The Cooperative Group is a diverse UK organisation that includes supermarkets. Television/video – The Cooperative Group Television advertising is often used to promote values and mission. can play a very important role in communicating to external stakeholders: the public. here are some press releases recently made by ACCA:  28 November 2011: Accountants have key role to play in fight against climate change. reporting. continual growth.com/watch?v=BTl0qM6swYc). It is communicating the company’s ecological values: www. says ACCA. multinational crew. the Irish Electricity Supply Board. The profession [accountancy] has extensive experience of measuring.com/citizenship/sustainability). Television/video – Etihad This video example is too long for a television advert but was used for staff recruitment and training. change. see things differently. embrace optimism and creativity. hospitality. insurance. owned by its customers and has been very successful in differentiating itself by promoting a very ethical approach to business.protecting the environment and investing in communities (see http://www. challenge and creativity. legal services and funeral care. travel. investment in customers.com/watch?v=aAYFS-3hY_Y Public relations/press releases – ACCA Public relations (PR). continual striving. Listen to the words relating to mission and values that the film packs in: challenging the status quo. all of which will be vital for any . but shows the care and expense that the organisation went to try to communicate its values (www. innovative design.youtube. attempt to meet diverse needs.youtube.hsbc. A 60-second advert will never contain a vast quantity of detailed information but a well-shot short film can be very effective indeed at getting across an organisation’s ethos. It is a mutual organisation. The ad is quite long. particularly to external stakeholders.com/watch?v=YHzBltFKHAw). Television/video – ESB The final ad to look at is by ESB. and validation mechanisms. For example. No doubt it would be effective if viewed by customers also (www. vision is to be a driving force of change in the industry. a bank.

and to spur R&D into new treatments for diseases where none currently exist.’ 30 January 2012: GSK joins new global partnership to help defeat 10 neglected tropical diseases by 2020: …We are committed to playing our part in helping to achieve universal coverage of intervention programmes for diseases that can be controlled or eliminated by existing treatments. Just because large amounts of money are spent on communicating mission and core values does not mean that the messages are understood or acted upon.ac. we want to explore the link between diversity and innovation and in particular the benefits to organisations in encouraging diversity to achieve business benefits.  17 November 2011: The challenge of diversity in the workplace: experts to offer solutions for the future. as the communications model shows sending messages is not the same as successful receipt of those messages (in terms of changing or sustaining behaviour) by the intended audience. The company also emphasises its work with communities:  22 March 2011: GSK launches London 2012 initiative with King’s College London to inspire young people into science careers: …The programme comprises a series of free events running between now and the Olympic and Paralympic Games in 2012.credible action on climate change. These events offer local school children the opportunity to experience a day at a university and through a series of sports based lectures and interactive workshops aims to encourage 11–14 year old students to take their science studies further and consider a career in science. More can be found at www.uk/acca/.esrc. The ACCA and the ESRC are collaborating on this project and collaboration is likely to extend ACCA’s reach beyond its normal audience. Its mission is to: ‘Improve the quality of human life by enabling people to do more. Conclusion Communicating an organisation’s mission and core values to shareholders. Public relations/press releases – GlaxoSmithKline This is a multinational pharmaceutical company. However. Consider News Corporation. For ACCA and the ESRC [Economic and Social Research Council]. Their standards of business conduct (which includes the company’s core values) can be downloaded from the News Corporation website . The profession must use its expertise to make a positive contribution to the formulation of credible policy frameworks and agreements. feel better and live longer. employees and customers is very important.

Substantial damages have already been agreed with 37 victims (the 15 settlements made public total around $1m). there is reputational damage to the organisation which will affect its relationship with shareholders. The Economist. However. in the UK. the ‘National Governance.It contains sections on commitment to the public. the activities of News Corporation’s newspapers has caused public outrage and provoked a public enquiry into the behaviour of the press in hacking into mobile phone voice mails. Culture and Leadership Assessment’. employees and the global community. September 2011 . Additionally. employees and customers for years to come. stockholders. Ken Garrett is a freelance lecturer and writer Reference (1) Boston Research Group.