1.3 Organizational objectives To.accomplish great things, we must not only act, but also dream, not only plan, but also believe. Anatole France (1844-1924), Nobel Prize winner for Literature, 1921 SL/HL content Assessment objective Vision statement and mission statement A02 Aims, objectives, strategies and tactics, and their relationships 03 Theneed for organizations to change objectives and innovate in response A03 to changes in internal and external environments Ethical objectives and corporate social responsibility (CSR) A01 The reasons why organizations set ethical objectives and the impact of A03 implementing them The evolving role and nature of CSR 03 SWOT analysis of a given organization ‘803, AOS Ansoff matrix for different growth strategies of a given organization 803, AOS ©180, 2014 Vision statements and mission statements Vision statement and mission statement. AO2 example, a school might set its mission as ‘provision of wide 6180, 2014 opportunities and achievement for all. Unlike objectives, ————_. wo example, “To be the leading sports brand in the world” is the vision of Adidas, the German sportswear and sports equipment giant (Figure 1.3.a). Vision statements also tend to relate to the attainment of success, ie. Visualisation of what success would look lil ‘Martin Luther Although vision and mission statements are quite often King Juniors famous “I have a Drea speech shows how confused, they do serve complementary purposes. The main 1 clear vision can bring about radical change. differences are: + The vision statement addresses the question ‘what do we want to become?’ whereas the mission statement deals with the question ‘what is our business?” —— = whereas mission statements can focus on the medium or Figure 1.3.a The Adidas logo Jong term. + Hence, mission statements are updated more frequently than vision statements. 29+ Vision statements do not have to be actual targets that : ceaeN Ty) must be achieved (this is the purpose of setting mission [EXO AUREEMMIESS LUE ASSES statements). Instead, vision statements allow people to see AGILE) what could be. Defines the orgar Outlines what the organizati +The mission statement tends to outline the values of the ree Cue cu) business, ie. its beliefs and guiding principles that set the EAMMNIMIS RMU Moc. framework for how managers and employees operate on e for growth in a creative a daily basis. ane Ey Despite the advantages of vision and mission statements, there Dee are some limitations. Critics argue that such statements are rho more than a public relations stunt. After all, the ultimate purpose of most businesses, they argue, is to maximise profits, Constructing vision and mission statements can also be very time consuming; it is very difficult to draft a statement that caters forall the dynamics ofa business, Even the best thought- ‘out statements might not be supported by all stakeholders, such as employees on part-time or temporary contracts. In such cases, it can be. lengthy process to convert people’ beliefs and behaviour. Sree rent Pee ear ae ae Question 1.3.1 Vision and mi ion statements + Tobe the most successful premium manufacturer in the industry ~ BMW. +The company exists to benefit and refresh everyone it touches ~ Coca-Cola + To organize the world’s information and make it universally accessible and useful - Google + Creating the finest ice cream — Haagen-Dazs + To solve unsolved problems innovatively ~ Mary Kay Cosmetics + Tohelp people and businesses throughout the world realise their full potential - Microsoft + Ajust world without poverty = Oxfam + Tomake people happy Walt Disney Company Source: Company websites (a) Define the term mission statement. [2marks} (b)_ Using the above examples, examine the role of vision and mission statements in business organizations. [6 marks] 30UM leeElureleca Lledo ord Aims, objectives, strategies and tactics ‘Aims, objectives, strategies and tactics, and their relationships. 103 © 180, 2014 ‘Aims are the general and long-term goals of an organization ‘They are broadly expressed as vague and unquantifiable statements, eg. ‘to provide high quality education to all or ‘to promote social and environmental integrity. Aims serve to give a general purpose and direction for an organization and are often expressed in a mission statement. Aims are usually set by the senior directors of the organization. Objectives are the short-to-medium-term and specific targets an organization sets in order to achieve its aims. They are more specific and quantifiable (measurable). For example, a school’s objective could be to achieve a 95% pass rate within two years’ or ‘to encourage the use of ICT to enhance teaching and learning. Objectives must be consistent with the firms aims. They can be set by managers and their subordinates (Table 1.3.2). Without having clear aims and objectives, organizations have no sense of direction or purpose, Itis rather like getting into ‘taxi and not knowing where you want to go! Organizational aims and objectives are important for three reasons: + To measure and control = Aims and objectives help to control a firms plans as they set the boundaries for business activity. They provide the basis for measuring and controlling the performance of the business as a whole. + To motivate — Aims and objectives can help to inspire ‘managers and employees to reach a common goal, thus helping to unify and motivate the workforce. They also encourage managers to think strategically and plan for the Tong term. Table 1 + To ditect + Aims and objectives provide an agreed clear focus (or sense of purpose) for all individuals and departments of an organization. They are the foundation for decision-making and are used to devise business strategies. Ce TET use the terms ‘aims’ and ‘objectives ue) i interchangeably. This reveal aati) and application of these con Strategies are the plans of action to achieve the strategic objectives of an organization. Tactics are short-term methods used toachievean organization's tactical objectives. Both strategy | and tactics serve matching purposes, i.e, how a business plans to get to where it wants to be. Once a business has decided on its short and long term goals, it can then decide on the most suitable methods to achieve these targets. ‘There are several levels of business strategy: + Operational strategies are the day-to-day methods used to improve the efficiency of an organization. These are aimed at trying to achieve the tactical objectives of a business, ‘eg.a restaurant might investigate how to reduce customer waiting time without compromising the quality of its service. CORE + Generic strategies are those that affect the business as a whole, Porter's Generic Strategies look at ways in which a business can gain a competitive advantage in order to ‘meet its goals + Corporate strategies are targeted at the long term goals of a business, ie. they are used to achieve the strategic objectives of an organization. For example, a firm might aim for market dominance through mergers and takeovers of rivals in the industry. 1a Summary of differences between aims and objectives Aims Objectives What the business wants to achieve What the business has to do to achieve the Not necessarily time-bound Time-bound \Vague or abstract goal Specific and measurable target What a business wants to happen What a business needs to happen Set by senior leaders Set by managers or their subordinates 31CORE Section 1 Business organization and environment ‘Tactical objectives are short-term goals that affect a section of the organization. ‘They are specific goals that guide the daily functioning of certain departments or operations, e.g. to raise sales by $10 million within the next year or to keep staff turnover below 10%, Tactical objectives tend to refer to targets set for up to 12 months, such as: + Survival - New and unestablished businesses are likely to encounter a number of problems (see Unit 1.2) such as limited recognition from customers and/or intense competition from existing firms. Hence, survival becomes a key priority. Survival can also be important for more ‘established organizations, e.g, an economic recession (see Unit 1.5) can quite easily threaten the survival of many businesses. Alternatively, ifa business becomes a takeover target (see Unit 1.6), then its survival as it currently exists could easily become the key tactical objective. + Sales revenue maximisation - New businesses strive to ‘maximise their sales revenue to establish themselves inthe marketplace. Sales staff and agents, such as those selling insurance or real estate, favour this tactical objective as their earnings are linked to the level of sales. However, sales revenue is not profit (the surplus that remains after all costs are paid). In the long run, a firm with high sales but low or no profit will struggle to survive. Strategic objectives are the longer-term goals of a business, Some examples are outlined below (but note that these vary between businesses, based on their own circumstances and priorities): + Profit maximisation ‘Traditionally, the main strategic objective of most private sector businesses is to maximise profits. Profit provides an incentive for entrepreneurs to take risks in setting up and running a business. For incorporated businesses (Unit 1.2), a proportion of the profits (known as dividends) is distributed to their shareholders. Without profit, owners and investors find it difficult to justify the existence of the business, + Growth ‘the growth of a business is usually measured by an increase in sales revenues or by market share (the percentage of the industry's sales made by the business). Growth is essential for business survival, especially with the exposure of businesses to mergers and takeovers (see Unit 1.6). The failure to grow may result in declining competitiveness. 32 + Market standing. ‘This refers to the extent to which 1a business has presence in the industry. For example, Microsofthas high market standingas the market leaderin the computer sofiware industry. Walmart has high market standing for being the world’ largest retailer. Toyota gained higher market standing when it overtook General Motors as the world’s largest car producer in 2012. Apple has high market standing due to its innovative products and designs. The Body Shop has high market standing for being a socially responsible business. their image and reputation. A bad image, pethaps portrayed by the media, can turn customers against a firm’s products and services and tarnish the corporate image of the business. Increasingly, businesses strive to deliver improved levels of customer service, better facilities and superior afier-sales care. Employees are more likely to bbe motivated and proud if the business has a positive corporate image. This helps to attract high-calibre staff during recruitment. Suppliers also prefer to do business with businesses that are reputable and reliable. + Imageand reputation Businessesmay striveto enhance Inpracticebusinesseshavea combination oftheaforementioned strategic objectives. ‘These objectives will also change from time to time, such as survival being a key objective if a firm is threatened by a takeover. The organizational culture and ‘whether a business operates in the private or public sector are also factors that affect the aims and objectives it sets. cunt erent? objectives, strategies and tactics Sa acl eee ete Coenen eee Meas hare Ree ee eee eee eee rene EI cae Dee Reena eee aetnaQuestion 1.3.2. Lenovo Chinese multinational technology firm Lenovo acquired the personal computers division of IBM in 2005. Lenovo's aim was to establish itself outside of the Asian market by owning IBM's globally recognised brands such as ThinkPad laptops. Lenovo is committed to four key valu + Customer service - serving customers + Trustand integrity + Teamwork across cultures + Innovation and entrepreneurial spirit Lenovo has tried to increase its market presence by sponsoring key sporting events and teams, such as McLaren, the British Formula One (Grand Prix) Team, the Williams Formula One racing team, the National Basketball Associ jon (NBA), and the 2008 Beijing Olympic Games. in 2012, Lenovo became the official sponsor of the National Football League (NFL), its largest sponsorship in America. Its strategy has helped the company to gain market share around the world (a) Define the terms strategy and market share. (b) Explain why is it important for Lenovo to specify its organizational objectives. (€)_ Examine the barriers that might prevent Lenovo meeting its objectives, The need for changing objectives The need for organizations to change objectives and innovate in response to changes in internal and external environments. AOS © 180, 2014 ‘There are various factors that can cause the aims and objectives, of an organization to change, requiring innovative responses to these factors. Some of the internal factors (those within the control of the organization) include: + Corporate culture (the accepted norms and of a business) — Firms with a flexible and adaptable istoms organizational culture are more likely to have innovative objectives over time. + Typeiand size of organization {see Unit 1.2) ~ Any change in the legal structure of a business is likely to cause a change in its objectives. With a separation of ownership and control, such as in public limited companies, various stakeholder objectives need to be considered, including managerial objectives (eg. higher bonuses) and shareholder objectives (eg. higher profits) Source: walenov.com [marks] f4marks} [6 marks} Private versus public sector organizations ~ Unlike most private sector firms, public sector organizations do not strive for profit maximisation but to provide a service to the general public. Age of the business ~ Newly established firms tend to have break-even and survival s their key objectives. Established firms might strive for growth and higher market share, janice ~ The amount of available finance will determine the scale ofa firms objectives. For example, a huge sum of money is needed ifthe objective isto expand into overseas markets, Risk profile - If managers and ownershave arelatively high willingness and ability to take risks, then more ambitious objectives are likely to be set, such as the pursuit of new innovations. Crisis management ~ Businesses may face internal crises such as unexpectedly high rates of staff absenteeism and staff turnover, falling productivity and motivation problems, liquidity problems (see Unit 3.7), or issues about quality standards. 33 1.3 Organizational objectives faey tsSection 1 Business organization and environme External factors (those beyond the control of the organization) ccan change the objectives of business. These factors include: CORE + State af the economy ~ The state of the economy (see Unit 15) can change organizational objectives, eg. booms (when national income and employment are high) provide opportunities whereas slumps (when unemployment is high and consumption is low) cause threats. + Government constraints - Some government rules and regulations (see Unit 1.5) can limit what a business might strive to achieve. For example, environmental protection laws can limit the ability of firms to maximise profit due to the higher costs of compliance. +The presence and power of pressure groups — Pressure groups (see Unit 1.4) can force a business to review its approach to ethics through their lobbying. Pressure groups may harm a firm's image if it is not adopting a socially responsible approach to conducting business. + New technologies - New technologies and innovat (Figure 1.3.b) can create many new business opportunities, thus change organizational objectives. Innovative firms such as Samsung were able to exploit digital technologies to dominate the smartphone and smart TV industries. The use of e-commerce (see Unit 4.8) has also revolutionised how most businesses operate, isc ThUony TES aera peel ue ans earn Pease reuse canoe cs Bree a cen m ore Reus Bia NMR ae 34 Figure 1.3.b Self check-in technology provide cost-saving benefits to airlines It should be noted that objectives have the potential to conflict. For example, employees may demand better pay and working conditions which may subsequently reduce profits, at least in the short term. Nevertheless, in the pursuit of success, managers must base their strategy on achieving the organizational objectives. As US media mogul William Randolph Hearst (1863-1951) said, “You must keep your mind on the objective, not on the obstacle.” Ethical objectives Ethical objectives and corporate social responsibility (CSR). AQ) The reasons why organizations set ethical objectives and the Impact of implementing them. AO3 ‘The evolving role and nature of CSR, AOS ©180,2014 Ethies are the moral principles that guide decision-making and strategy. Morals are concerned with what is considered to be right or wrong, from society's point of view, e.g. the use of direct marketing techniques aimed at children is banned in many countries. Health and Safety at Work legislation (such as regular rest breaks and a safe working environment) helps to prevent exploitation of employees. Business ethics are therefore the actions of people and organizations that are considered to be morally correct. An ethical and socially responsible business acts morally towards workers, customers, shareholders and the natural environment (see Figure 1.3.c, and Boxes 1.3.b and ¢)Figure 1.3.¢ Littering is considered to be an unethical act in most societies Pressures to act ethically might come from within the business, eg, employees might demand better opportunities for training, development and promotion. Ethical behaviour might also be imposed upon a business by external factors. Customers, for instance, do not want to be associated with businesses that earn profit through illegal, immoral or irresponsible actions. Theory of knowledge Some people argue that by targeting children, especially in an era of growing child obesity in many parts of the world, parents face unnecessary pressure to buy their children fast-food products. Do you consider McDonald's marketing of its Happy Meal! as unethical? Justify your answer. Carts cece totais ieee oem ml end etn cee Deion eae Eu Increased recycling of Offering staff sufficient Cae eeatct Cee Tae Comet scout tutaie Peet See eee met aac emis ntation of its financial accounts (which is also illegal). There might Ee ee tae coc u aia expenses incurred by the directors (unethical but not flees Environmental neglect and damage often occur as on eRe ue MLR oe ie neue ne Meee me tenes depletion of non-renewable resources. Brean Mn Cee a eter ec ae W em oa employee welfare, Many multinational compani been criticised for the poor pay and working conditions to staff in LEDC: Exploitation of suppliers happens Carlet oy controversial, fr Beast Pent ea cae to iegan not passed onto consumers in terms of lower prices. Moet eae ea Pee ee ements ard Reece Teo nRC USMC ecco Le a Te MERU ce power by charging excessively high prices este were told to lose weight or tsklosing heir ecu(aor S-yol df MM STURT alee Melee ri PLce ARTO M VAULTS Socially esponsiblebusinesses are those thatact morally towards their stakeholders (See Unit 1.4), such as their employees and the local community. These obligations are known as corporate social responsibility (CSR). For example, McDonald's staff regularly go on litter patrol to collect rubbish (including trash not generated by McDonald's customers) in the vicinity of their restaurants, Lenovo, China’ largest computer-maker, commits 19 of its pre-tax income to good causes as part of its CSR p ‘There are three broad views and attitudes towards the role of, businesses in delivering CSR: + The self-interest (non-compliance) attitude The role of businesses is to generate profits for their owners. Governments, not businesses, are responsible for sorting out social problems, In pursuing the profit motive, firms become more efficient and prosperous, thereby helping society indirectly (through employment, wealth creation and corporation tax payments). + The oliruistic attitude Humanitarian and unselfish behaviour, ie. altruistic businesses do what they can to improve society such as willingly donating money to charity or investing in local community projects, regardless of whether their actions help to increase profits. + The strategic attitude This view argues that businesses ought to be socially responsible only if such actions help them to become more profitable. Such firms see CSR as a method of long-term growth ‘To achieve their ethical objectives, an increasing number of businesses have adopted an ethical code of practi¢e and publish this in their annual report. Thé code refers to the documented beliefs and philosophies of the business: It is important because people need to know what is considered acceptable or not acceptable within an organization, e.g. guidelines and expectations on employee behaviour, such as having personal integrity and consideration for others, These values might differ from one individual to another and from one business to another. Hence, a code of ethics can provide a framework for consistency and uniformity. Case study Faced with negative publicity in best-sellers like Fast Food Nation and movies such as Supersize Me, McDonald's responded to public demand for improvements by broadening its product range to include fresh salads and other healthier alternatives. 36 Theory of knowledge Discuss whether it is reasonable for an employee or an organization to be deceitful for the benefit of charity. Theory of knowledge In reality, is it possible to determine whether CSR Is genuine altruism from selfish acts used to improve a firm's comporate image? Does this even matter?UEC ure mes) ath Table 1.3.b Advantages and limitations of ethical behaviour Improved corporate image Improved corporate image ‘Acting ethically and in a socially responsible way can help to enhance the corporate image and reputation of a business. Conversely, the media will report unethical business behaviour which could setiously damage the firm's corporate image. ‘Compliance costs The costs of being socially responsible are potentially very high, e.. organic agricultural products ae far more expensive to harvest than genetically modified crops due to the additional time and money involved Increased customer loyalty Customers are more likely to be loyal toa business that does not act immorally.For example, The Body Shop has established a large customer base worldwide based on its ethical policy of not testing its products on animals Lower profits If compliance costs cannot be passed onto consumers in the form of higher prices, profitability is likely to fall. An ethical dilemma for the business exists when ethical decision-making involves adopting a less profitable course of action. Cost cutting Ethical behaviour can help to cut certain costs, eg. being environmentally friendly can reduce the amount ‘of (excess) packaging, Socially responsible businesses can benefit from avoiding litigation costs (expenses associated \with legal action taken against business) due to unethical and irresponsible business activities, ‘Stakeholder conflict Not all stakeholders are keen on the business adopting CSR, especially if this conflicts with other objectives suchas profit maximisation. Speculative shareholders and financial investors are more concerned with short term profits than its long term ethical stance. So, managers may be pressured into pursuing goals other than ethical ones, improved staff morale and motivation Ethical and socially responsible behaviour can help a business to attract and retain highly motivated staff. People are more likely to be proud of the business they work for if it acts ethically and within the law. Thus, itis a driving force for improved productivity and employee loyalty. Ethics and CSR are subjective Views about what is considered right or wrong depend on the beliefs and principles held by individuals and society. Legislation can help to provide uidelines about what is socially accepted. The evolving role and nature of CSR Attitudes towards CSR may change over time. What was once considered acceptable by society, such as smacking or caning disruptive students in school, may no longer be the case. Environmental protection was not a major issue prior to the 1980s. Some countries do not think it is necessary to impose @ national minimum wage, whilst others feel that this should prevent some businesses from paying unethically low wages to their employees. The advertising of tobacco products is considered socially immoral in many parts of the world (where advertising of tobacco products is banned), but this is not the case in other countries. The nature of CSR is rather subjective = what is considered ‘right’ or ‘wrong’is largely based on public opinion, which tends to change over time. Tor instance, objectives and strategies have changed in recent times due to a more positive attitude towards the hiring and Promotion of female staff, Through education, there has also been a greater tolerance and acceptance of multiculturalism and this has directly affected employment practices (see Unit 2.1), Media exposure in many countries has meant that large ‘multinational companies are expected to donate part of their Profits to charity. Customers are more careful about spending ‘money on products from socially irresponsible firms. Investors are more wary of placing their money with unethical firms, stich as those that employ child labour, ‘Through pressure group action and educational awareness, an increasing number of businesses are actively trying to do their part for the environment. Climate change and environmental damage are huge concerns of governments and citizens around the world, so businesses are changing their objectives to reflect their part in the preservation of the planet. Businesses that continue to pollute and damage the environment are likely to earn themselves a poor corporate image with devastating consequences, Hence, ot considered socially mora wll iret afet afm view of its Sr CSR is further complicated when businesses operate in different ‘ouniries. What is considered acceptable in one country may be tally undesirable in others. For example, Greece and Japan are huge consumers of tobacco and therefore cigarette advertising is less stringent than in other countries such as the UK or Singapore, Australia and Canada judge environmental concern asa key indicator of CSR, whereas India and China place less emphasis on environmental protection. Finally, some analysts argue that itis not the role of managers to decide what is right or wrong, This is because managers do not use or risk their own money when making decisions about 7 CORESection 1 Business organization and environment Cee). 13 what they personally believe to be socially responsible, Instead, ‘managers are employed to run abusiness on behalf ofthe owners who seek profit, rather than using money in socially responsible ‘ways such as donating money to charity. Moreover, it can be difficult to measure or monitor the extent to which a business is socially responsible due to the subjective and evolving nature of CSR. Nevertheless, the potential benefits of being socially responsible suggest that managers have a role in promoting and encouraging CSR in the workplace (see Box 1.3.¢). Case study In 1991, McDonald's became the world’s first company, to voluntarily phase out the use of chlorofiuoracarbons (CFCs) in the production of foam packaging. CFCs were associated with ozone depletion, so their withdrawal by the world’ largest restaurant chain helped to reduce the harmful effects on the ozone layer. Theory of knowledge Using any two Ways of Knowing, discuss how it is possible to’know’ what is right for managers to do. The evolving role and nature of CSR means that businesses must adapt to meet their social responsibilities. There are numerous ways they might do this, such as by: + Providing accurate information and labelling - This can help consumers to make better informed decisions, e.g, food manufacturers might provide truthful nutritional information + Adhering to fair employment practices ~ Firms can fulfil their social responsibilities to their employees by providing decent working conditions, fair remuneration and training opportunities. Conversely, some multinational companies have been criticised for exploitation of child labour by hiring under-aged workers in less economically developed countries. + Having consideration for the environment ~ Firms may seek to use more recycled materials in the production process, recycle a greater proportion of their waste ‘materials and aim to reduce any pollution caused by their operations. + Active community work ~ This includes voluntary and charity work, helping to give something back to society, eg. sponsoring and participating in local community events, Figure 1.3. Many businesses support local ‘community events such as charity runs Businesses have long realised that a good reputation (how others view the organization) can give them an important Competitive edge. According to Fortune magazine, the top 500 American firms donate over 2% of their post-tax profits ty. This might be due to their goal or desire to act in a socially responsible way, oritcoilld be due to the fear of negative to publicity caused by non-compliance. Acting responsibly can help to improve a firm’s reputation, but the compliance costs will add to its expenses. For staff to help the organization meet its ethical objectives, they must be convinced that CSR is in their best interest too. Box 1.3.d Encouraging corporate social responsil reste ene Bites ic eee: skills n deliverin een SRR Un ee ena ee nr le guidelines and parameters for the w fase) pee ener race ees and social n Peete: Beets nea cure1.3 Organizational objectives Question 1.3.3 McDonald's versus Burger King Ronald MeDonald House Charities [RMHC) is a non-profit organization, created by McDonald's. The charity's mission statement is to “directly improve the health and well-being of children’, Operating in 58 countries, RMHC has helped to make a difference to millions of seriously ill children and their families. Source: wwramheorg Burger King, the world’s second largest fast-food chain and the largest rival of McDonald's, has used humanely-sourced meat and eggs since 2007. This means Burger King gives priority and better deals to suppliers that provide cage-free chickens and free-range pigs. Burger King operates two national charitable organizations: the Have It Your Way Foundation (which focuses on hunger alleviation, disease prevention and community education) and the McLamore Foundation (providing scholarships to students since 2000), Source: wwnw bkmclamoreroundation ora a) In the context of the above case studies, describe the meaning of ethical business behaviour. (2marks} (b) Discuss whether acting ethically ultimately provides McDonald's and Burger King with commercial and competiti advantages. [6 marks) fe Despite the driving forces for setting ethical objectives, whether a business acts in a socially responsible way depends on several | Theory of knowledge interrelated factors: Does the awareness and knowledge of ethics bring + The involvement, influence and power of various | aboutan obligation for businesses to behave morally? stakeholders, such as pressure groups + Corporate culture and attitudes towards CSR + Societal expectations, i. the general public’ awareness of concerns for CSR issues Theory of knowledge + Exposure and pressure from the media Does the study of Business Management tend to + Experience — quite often it takes acrisis or bad experience steer people towards ethical or self-centred decisi to precipitate attention to CSR ‘making? Does this matter? + Compliance costs, ie. the human and financial resources needed to implement CSR policies + Laws and regulation, Le. legislation that govern how firms conduct themselves responsibly. 39Section 1 Business organization and environment CORE Question 1.3.4 Walmart Walmart is the world’ largest retailer and largest private sector employer in the USA. The company has, on numerous ‘occasions, been fined millions of dollars by the US government for violating air and water pollution legislation. This obviously harmed the iinage of the global retailer, with the media alle Walmart asa result ofits neglect of the environment. 19 that 8% of customers had stopped shopping at Labour unions have criticised Walmart’s unethical business practices which have caused staff turnover rates of around 70% in some stores. Walmarthas also been taken to court for not paying employees for overtime, forcing them to work without proper rest breaks and discriminating against female workers for pay and promotion. (a). State two possible barriers to socially responsible business behaviour. (2 marks} (b)_ Discuss whether it is morally correct for businesses such as Walmart to put profits before the environment and the ‘welfare of their employees. SWOT analysis SWOT analysis ofa given organization, AO3 and AOS 180, 2014 SWOT analysis isa simple yet very useful decision-making tool SWOT isan acronym for Strengths, Weaknesses, Opportunities ‘and Threats. It can be used to assess the current and future situation of a product, brand, business, proposal or decision. SWOT analysis considers both internal factors (strengths and weaknesses) and external factors (opportunities and threats) that are relevant to the issue or problem under investigation, + Strengths are internal factors that are favourable compared with competitors, eg. strong brand loyalty, a good corporate image or highly skilled workers. Strengths help the business to better achieve its objectives. Hence, strengths need to be developed and protected. + Weaknesses are internal factors that are unfavourable when compared with rivals, ie. they create competitive disadvantages. Weaknesses are therefore likely to prevent or delay the business from achieving its goals. Hence, to remain competitive, the business needs to reduce or remove its weaknesses. + Opportunities are the external possibilities (prospects) for future development, Le. changes in the external environment that create favourable conditions for a business. For example, India and China present many business opportunities, such as a huge customer base and rapid economic growth. Hence, SWOT analysis can help firms to formulate their business strategy. 40 {8 marks) + Threats are the external factors that hinder the prospects, for an organization, ie. they cause problems for the business, Examples include: technological breakdowns, product recalls, changes in fashion, price wars, oil crises, recession, natural disasters, and infectious diseases. SWOT analysis can be an extremely useful tool for investigating all sorts of business situations. It can, for example, be used to provide a good framework for: + Competitor analysis, eg, the threats posed by a rival or the strengths of a competitor. + Assessing opportunities, e.g, the development and growth of the organization, + Risk assessment, e.g the probable effects of investing in a certain project or location, + Reviewing corporate strategy, e.g, the market position or direction of the business + Strategic planning, eg. the decision to diversify or expand overseas.1.3. Organizational objectives Table 1.3.4 Advantages and disadvantages of SWOT analysis Disadvantages i Completing a SWOT analysis can be quite simple and quick. Itis rather simplistic and does not demand detailed analysis. Ithas a wide range of applications, e.g. reacting to the threat of rivals entering the market. ‘The model is static whereas the business environment is always changing, so the shelf life of a SWOT analysis is rather limited. ‘SWOT analysis helps to determine the organization's position in the market and therefore aids the formulation of business strategy forts long-term survival. ‘The analysis is only useful if decision-makers are open about the weaknesses and willing to act upon them, i. devoting ‘time, people and money to tackling weaknesses and threats. It encourages foresight and proactive thinking in the decision- making process. SWOT analysis is not typically used in isolation, Better decisions are made if more information is available, so other strategic tools are also used. It can help reduce the risks of decision-making by demanding objective and logical thought processes. URRGG.6 2 pois bloke | seheTEGH bnelioteprieieTtion® espirate pot Hs smilon Sona /ARS outbreak. The cost to the global economy was i censor Exam tip! Come ill requir fone cy ane one Cc uetea ae Enel SWOT analysis properly. Remember that the strengths the TCO Ei eee rentand internal p eR Tee ne es) Ce nes c from a STEEPLE analysis of the external environment (see Vira tu Tes eae Mee Ne Sea strengths and weaknesses are the internal factors that an organization currently faces. Opportunities and threats are the external factors that the organization is likely to Cee aia cuniy een ee meee eee meen? nt the SWOT in tabular form. Using such a for pres Seen en oko Me auc iae to fit inside the table student). Instead, lanations and justifications. Itis acceptable to write in bullet point format under See EO ae me wea ae) the reasoning behind your arguments Drs anagin 41Section 1 Business organization and environment faery Table 1.3.¢ SWOT analysis template (illustrative example)" + Corporate image and reputation + Demotivated and/or unproductive workforce + Accreditation, endorsement or official support + Limited sources of finance + Core competencies, e.g, product quality. + Lack of spare capacity + Technological developments / innovations + Pressure group action, e.g. protests + Government spending programmes ‘Mergers and acquisitions of rival firms ‘Adverse changes in fashion and tastes Outbreak of infectious diseases * Note: what might be strengths for one firm, such as its brand reputation and human capital, might actually be weaknesses for ‘another business. Equally, some threats, such as @ change in weather, mightalso be considered as opportunities for other businesses. Question 1.3.5 Kidzplay Bouncy Castles Kidzplay Bouncy Castles is a private business that caters for children’s parties and events in London, UK. Explain whether each of the following scenarios represents a strength, weakness, opportunity or threat to the business: (a) Limited competition in a niche market (b) Limited traffic on its newly launched website (wwwkidzplaycastles.com) ind retain sultable staff (6) Struggling to reen (d) Demand in the winter months is low (e) Highly profitable earnings could attract new competitors. {10 marks} 42The Ansoff matrix Ansoffmatixfor different growth strategies ofagivencrganization 03 and KOH 180,201 ‘The Ansoff matrix (1957) is an analytical tool that helps managers to choose and devise various product and market growth strategies. Professor Igor Ansoff (1918-2002) showed the different growth strategies a firm can take depending on ‘whether it wants to sell new or existing products in either new or existing markets (see Figure 1.3.e). The four product-market growth strategies, or growth options, are explained below. Existing New 2 Market Product 3 penetration development Figure 1.3.¢ The Ansoff matrix Market penetration “This isa low-risk growth strategy as businesses choose to focus on selling existing products in existing markets, i. to increase their market share of current products. This might be achieved by offering more competitive prices or by improved advertising to enhance the desirability of the product. In addition to stracting more customers, firms might attempt to entice ‘existing customers to buy more frequently, perhaps by offering ‘customer loyalty schemes, Brands might also be repositioned (See Unit 4.2) to achieve market penetration. ‘An advantage of market penetration is that the business focuses oon markets and products that itis familiar with. Hence, market research expenditure (see Unit 4.4) can be minimised. It is also the safest of the four growth strategies. A limitation is that competitors, especially stronger rivals, will retaliate to firms tying to take away their customers and market share, This can lead to aggressive reactions, such as price wars, thereby harming profits (in the short run at least). Also, once existing markets become saturated, alternative strategies are required if the business is to continue its growth, PE Melee relic eleva es Product development ‘This is a medium-risk growth strategy that involves selling new products in existing markets. Apple’ launch of the iPhone revolutionised the mobile phone industry. McDonald's frequently adds new products to its menu. Car manufacturers introduce new models and occasionally limited editions of their cars, Product development tends to rely heavily on product extension strategies to prolong the demand for goods and services that have reached the saturation or decline stage of their product life cycle (see Unit 4.5). Product development is also reliant on brand development (see Unit 4.5) to appeal to the existing market, For example, well-established firms such as Sony or Nike can use their brands to launch new products to the market as there are fewer risks of introducing a new product under a well-known brand name. Product development is also 2 reason for acquiring other companies. For example, Tata Motor’s acquisition of Jaguar Land Rover in 2008 meant it could cater for different types of customers without the huge ‘costs and risks of starting a new company. Market development Market development is a medium risk growth strategy that involves selling existing products in new markets, ie. an established product is marketed to a new set of customers. This might be done through new distribution channels such as selling the existing product overseas (although this could be quite risky if the business is unfamiliar with local market conditions and cultures). Alternatively, promotional strategies could be tweaked to make the product more appealing to the new audience, Prices could also be changed to attract different ‘market segments. A key advantage of this growth strategy is, that the firm is familiar with the product being marketed. 43Section 1 Business organization and environment CORE Examples of developing new markets for existing products are sportswear manufacturers Nike and Adidas successfully ‘marketing their clothing products for leisure rather than specifically for sport, Nokia uses market development to sell its mass produced mobile phones that have @ short product life cycle in economically developed countries (where customers frequently upgrade their phones) by selling these in lower income countries such as India, Sti Lanka, Indonesia and Nigeria. However, the success of a product in one market does not necessarily guarantee its success in other markets. For example, French retailing giant Carrefour pulled out of ‘Thailand, Malaysia and Singapore in late 2010 after failing to establish a market presence. Google also struggled to establish itself in China, where local firm Baidu maintains about 70% ‘market share. Diversification Diversification isa high-risk growth strategy that involves selling new products in new markets, For example, The Virgin Group is a diversified company with its various strategic business units such as Virgin Atlantic, Virgin Mobile, Virgin Trains, Virgin Cola, Virgin Hotels and Virgin Books. In addition to gaining market share in established markets, a key driving force for diversification is to spread risks by having a well-balanced product portfolio (see Unit 4.3). Diversification is also suitable for firms that have reached saturation and are seeking new ‘opportunities for growth. One way to diversify is to become a holding company. This is a business that owns a controlling interest in other diverse companies, ie. it owns enough shares to be able to take control of other businesses. Holding companies (or parent companies) can benefit from having @ presence in a range of markets in different regions of the world. An example is Time Warner, the parent company of subsidiaries (firms owned by a holding company) such as Warner Brothers, CNN, HBO and Time Inc. (owners of Fortune, Marie Claire and Sports Illustrated magazines). Table 1.3.0 Summary of the Ansoff matrix ‘There two categories of diversification, Related diversification occurs when a business caters for new customers within the broader confines of the same industry. For example, large commercial banks have diversified to offer insurance services. Toyota, Nissan and Honda have strategic business units (Lexus, Infiniti and Acura, respectively) that cater for higher income customers. are By contrast, unrelated diversification refers to growth by selling completely new products in untapped markets. An ‘example is Samsung, with operations in consumer electronics, shipbuilding, construction, retail, chemicals and insurance. Related diversification is less risky as it builds on the product and market knowledge of the business. Nevertheless, diversification remains the riskiest of the four growth options as the business is not on familiar territory when launching new products in markets it has litle, if any, experience of. For example, UK clothing retailer Next failed to establish itself in the tablet computer market in 2010. New distribution channels also need to be established and this could be time consuming and costly. Such distractions can mean an organization loses focus of its core business, with serious consequences, ‘Same products for existing | New products for existing | New customers for existing | New products for new customers customers, products customers ‘Minimal risk Moderate risk Moderate risk High risk Seek to maintain or increase | Innovation to replace existing | Entering overseas markets | Spreading risks market share products Intense competition Product improvements New distribution channels | Use of subsidiaries and strategic business units 441.3 Organizational objectives Question 1.3.6 The Ansoff matrix Use the Ansoff Matrix to explain the growth strategies in the following cases: a) Cadbury, the chocolate manufacturer, launches new products under the names of Créme Eggs, Flake, Crunchie and Heroes in order to compete with existing rivals. [Bmarks} {b) Nissan, a mass market car manufacturer, launches a new line of upmarket cars under the Infiniti brand to cater for ‘wealthier customers, (3 marks) (9) Tesco, the world’s second largest retailer, expands to provide petrol and financial services to its customers. Organizational objectives and the CUEGIS concepts Management experts Peter Drucker (1909-2005) and Tom Peters (born 1942) argue that successful businesses have a lear vision of their aspirations and a mission that outlines their ultimate purpose. These serve to provide a clear focus and a shared sense of purpose for business strategy. The use of ‘organizational objectives is the starting point to achieving the vision and mission of a business. Businesses must be able to assess the effectiveness of their objectives. One way to do this, put forward by Peter Drucker, is to set SMART objectives: + Specific ~ Objectives need to be precise and succinct rather than being vague. + Measurable ~ Objectives should be quantifiable, eg. to increase market share, raise sales revenue or reduce staff absenteeism by a certain amount. + Achievable - Objectives must be practically feasible (attainable). One variation ofthis criterionis thatobjectives should be Agreed, ie. be accepted and understood by key stakeholders. + Realistic - Firms should ensure that their objectives are reasonable given their limited resources, e.g. itis irational for a new business to strive to become the market leader within its first few months of operating in an established industry. + Time constrained ~ There should be a specified time frame within which the objectives should be achieved. (Bmarks} Strategies can then be devised to achieve these targets. For example, Drucker believed that effective communication and the development of people could prevent a ‘them and us culture at work (a psychological divide between management and subordinates). He also argued that employees need to be given opportunities to develop personally, which would ultimately benefit the business. Hence, managers and workers are dependent on each other to fulfil their functions. Drucker argued that business strategy only works ifthe people involved clearly know what the objectives are Drucker believed that every manager should be involved in strategic planning, especially as the business environment is always undergoing change. He felt that businesses ought to recognise the importance of change and embrace change. For example, in periods of difficult trading times, such as during a business start-up or during an economic downturn, the ‘main organizational objective is survival. Struggling firms are not likely to worry too much about public opinion caused by job losses. Conversely, during favourable trading periods, businesses have to decide whether to expand for future growth orto reap the benefits of higher profits for its owners. Ultimately, there is no single organizational objective that is suitable for all businesses to follow. However, he recommended that businesses should avoid meaningless change, especially since change can be very expensive. Furthermore, change that is not communicated clearly to employees can cause major demotivation among the workforce. Nevertheless, having clearly defined and realistic objectives with sufficient resources to implement appropriate business strategies can make success more likely. The concepts of globalizsation and culture have also impacted corporate social responsibility, which has become a major focus of business strategy for many organizations. With increasing educational awareness and media exposure of ethical issues, it 45 Cae)s13CORE Section 1 Business organization and environment is important for organizations to adopt a socially responsible attitude to the way they conduct business. Firms such as The Body Shop usetthisstrategy to theiradvantageby marketingtheir ethical code of practice as a unique selling point. A reputation for CSR that exceeds societal norms and expectations can provide a business with competitive advantages: an enhanced corporate image, motivational effects on the workforce, attracting high- calibre staff joining the organization and further investment in the business. However, the financial costs of complying with ethical and socially responsible behaviour can be too high for many businesses. For example, a profit-seeking business may lose unprofitable divisions of its business even if it results in job losses and negative effects on the local community. Consider how the concepts of change, culture, ethics, globalization, innovation and strategy apply across the content discussed in this unit on organizational objectives. REVIEW QUESTIONS 1. How do mission and vision statements differ from one another? 2 Why are aims and objectives important to business “organizations? 3. Differentiate between strategic objectives and tactical objectives. 4. Why is there a need for organizations to change objectives? 5. What is meant by ethical objectives and corporate social responsibility (CSR)? 6. What are the advantages and disadvantages of ethical behaviour and CSR? 7. How does the evolving role and nature of CSR impact on business aims and objectives? 8. What does it mean to set SMART objectives? 9. Why do objectives have changing significance in different situations? 10. Outline two recent changes in society's expectations of business behaviour KEY TERMS Aims are the long-term goals of a business, often expressed in the firms mission statement. They are a general statement of a firm's purpose or intentions and tend to be qualitative in nature. ‘The Ansoff matrix (1957) isan analytical tool to devise various product and market growth strategies, depending on whether businesses want to market new or existing products in either new or existing markets. Corporate social responsibility (CSR) is the conscientious consideration of ethical and environmental practices related to business activity. A business that adopts CSR acts morally towards its various stakeholder groups and the wellbeing of society as a whole, An ethical code of practice is the documented beliefs and philosophies of an organization. Ethics are the moral principles that guide decision-making and strategy. Morals are concerned with what is considered to be right or wrong, from society's point of view. A. mission statement refers to the declaration of an organizations overall purpose. It forms the foundation for setting the objectives of a business. Objectives are the relatively short term targets of an organization. They are often expressed! as SMART objectives SMART objectives are targets that are specific, measurable, achievable, realistic and time constrained. Strategies are plans of action that businesses use to achieve their targets, ie. the long-term plans of the whole organization, SWOT analysis is an analytical tool used to assess the internal strengths and weaknesses and the external opportunities and threats of a business decision, issue or problem. ‘Tactics are the short-term plans of action that firms use to achieve their objectives. {Avision statement is an organizations long-term aspirations, ie. where it ultimately wants to be.