2023-24 MMS 7201 Lecture 4 - Business Issues in Product Development

2/11/2024
MMS 7201 Product Design and Introduction
LECTURE 4
Business Issues in Product Design
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Lecture Four Outline
4. Business Issues in Product Design
4.1 Organizational Structures and Business Systems and Environments
4.2 Business Evolution: Business and Financial Strategies and Planning
4.3 Risk Management in Organizations
4.4 Commercialization of Products
4.5 Barriers to Business Growth
4.6 Global Issues in Business
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4. Business Issues in Product Design
❑ Definition of a Business Entity?

✓ A Business Entity is a system of activities and behaviors that enable humans
and their machines to accomplish goals and objectives.
✓ A business entity has a joint function of human characteristics and the nature
of the task environment.
❑ Organizations:
✓ Organizations are 'complex adaptive systems' that use people, tasks and
technologies to achieve specified goals and objectives.
✓ Examples of organizations include: Industrial organizations, Government
Ministries and Departments, regulatory bodies, professional bodies,
Universities, etc.
❑ Organizational Theory refers to how organizations are structured and managed.
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4.1 Organizational Structures and Business Systems and Environments
❑ The benefits of Organizational Theory include:
1) Enables managers and employees of organizations to understand how the

organization operates and why they work in the ways they do so that each member
of the organization contributes effectively in achieving the goals of the organization.
2) Enables managers to identify possible solutions to organizational challenges by

learning from other similar organizations provided the solutions selected take into
account cultural values and other key aspects and not simply replication of what is
done elsewhere.
3) Useful to managers of complex organizations with many inter-related functions and

areas that need to be coordinated and managed to achieve the organization’s goals
and objectives while being adaptive to changes in the environment in which the
organization operates, e.g. political, economic, social, and technological (PEST)
conditions.
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Drucker Theory: Criteria for Effective Organizations
❑ Drucker theory suggests the three criteria for effective

organizations as:
1. They must be organized for business performance.
2. Their structure should contain the least number of

management levels.
3. Organizational structure should facilitate training and

testing of future organization leaders.
Drucker Theory: Levels of the Organization

❑ According to Drucker 2. Managerial level: 3. Community level: Concerned with the
theory, organizations Concerned with the broad objectives and the work of the
are layered into co-ordination and organization as a whole.
three main levels: integration of work,
✓ Decisions made at community level
at the technical
1. Technical level: will include the selection of operations,
level, e.g. resource
Concerned with development of organizations in
allocation,
specific operations relation to external agencies and the
administration and
and defined tasks, wider social environment, e.g. Board of
control of the
with actual jobs to be Directors of companies, governing
operations of the
done, and with bodies of universities.
technical function.
performance of the ✓ Control by legislation, codes of
technical function. standards, professional or trade
Inter-relates with associations, political or government
managerial level. action and public interests.
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Organizational Management and Power of Decision Making in an

Organization
❑ Organizational management is concerned about 1. Centralized system: Is when all the
how the organization manages the structure, power for decision making rests at a
the resources, and the activities within the single point in the organization;
organization and how the organization ultimately the decision making power lies
measures and monitors the resulting in the hands of one person or group.
performance towards achieving the declared
2. Decentralized (or distributed) system:
goals and objectives of the organization.
Is when the power for decision making in
an organization is dispersed among many
❑ The power for decision making in an people/groups.
organization can be centralized or
decentralized. ✓ Note that some functions such as
research, planning, finance,
personnel are less amenable to
✓ Centralization and decentralization should
decentralization than others, e.g.
not be treated as absolutes, but rather as
contracting, client services, etc.
two ends of a continuum (range).
Advantages and Disadvantages of Decentralized Organization

Structures
❑ Advantages of Decentralization
1. Frees top management of routine every day decisions to concentrate on strategic
responsibilities.
2. Decisions are more local, quicker, more responsive to clients.
3. Increased awareness of cost effectiveness through the organization.
4. Increased motivation and satisfaction by junior management.
❑ Disadvantages of Decentralization
1. Requires good communication and adequate control to and from the centre.
2. Need for centre to co-ordinate/integrate.
3. Can lead to inequity in treatment of clients.
4. Need individuals willing to take on additional responsibilities.
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Grouping of Key Activities in Organizations
❑ The different ways of organizing roles and tasks of individuals in an

organization involve grouping key activities in the organization and then
allocating roles/tasks to individuals.
❑ The grouping of key activities in the organization usually fall into the
following categories:
1. Functional systems
2. Product/ Service systems
3. Geographical systems
4. Divisional systems
5. Matrix systems
1. Functional Systems
❑ Functional systems involve grouping of major functions of the organization,

e.g. Finance, Personnel (Human Resources), Research and Development
(R&D), Manufacturing, Procurement, and Sales and Marketing.
❑ Advantages of Functional Systems
1. Increases utilization and co-ordination of groups of people with

technical/ specialized expertise.
2. Increases development and career opportunities for people in

departments
❑ Disadvantages of Functional Systems

1. Encourages sectional interests and conflicts
2. Difficult for organization to adapt to product/service diversification.
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2. Product/Service System
❑ Product/Service systems involve grouping the organization’s activities

according to Service/ Product.
▪ i.e. Orthopaedic, Surgical, Psychiatric, etc., rather than Medical, Nursing,

Paramedical, Hotel Services (Functional).
❑ Advantages of Product/Service Systems
1. Increases Diversification
2. Adaptability Increased If Service/ Product Requires Technical Knowledge

Or Large Equipment
❑ Disadvantages of Product/Service Systems
1. Encourages Service Conflicts
3. Geographical Systems
❑ Geographical systems involves grouping of activities based on a

nationalized service delivered in regions, areas or district , e.g. Primary
Care Trusts, Strategic Health Authorities
❑ Advantages of Geographical Systems
1. They are more responsive to local/ regional issues and different

cultures, national/ state laws etc.
❑ Disadvantages of Geographical Systems
1. They can lead to localities/ regions conflicting with each other.
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4. Divisional Systems
❑ Divisional systems involve grouping of services and/ or geography and

functionality but with functions such as finance, personnel, planning
retained at headquarters.
✓ Suitable for international companies who are highly diversified,

working in more than one country, e.g. Pharmaceutical company
with divisions in each country producing and marketing products
developed by parent company.
❑ Advantages of Divisional Systems
1. They have corporate strategic control with production and

marketing independence at divisions.
5. Matrix Systems
❑ Matrix Systems involve ❑ Advantages of Matrix Systems

grouping of projects 1. Combines vertical and lateral lines of communication and
and functions, e.g. authority.
NASA, Highly Complex
2. Combines stability and efficiency of systematic structure
Industries, etc. It needs
with the flexibility and informality of non-systematic
more than one critical
structure
orientation to the
operations of the 3. Emphasizes project aims are all-important
organization; needs to ❑ Disadvantages of Matrix Systems
process simultaneously 1. Potential conflict between project leader and functional
large amounts of leader regarding resources.
information; and need 2. Project may be jeopardized if project members as well as
for sharing of leaders enter the conflict on opposite sides.
resources. 3. Does not tolerate diversification well.
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Organization Structure
❑ Organization structure is a representation of the division and distribution of work among

members (managers and employees) of the organization, and the co-ordination of activities so
that they are directed towards achieving the goals and objectives of the organization.
✓ Involves division of labour and coordination mechanisms that affect how the organization
functions.
✓ Establishes how an organization operates and assists an organization in obtaining its
goals (and also allow future growth) by dividing the organization's mission into discrete
roles and tasks of individuals (positions) within the organization.
✓ Defines tasks and responsibilities, work roles and relationships, and channels of
communication. In other words, the organizational structure is a system used to define a
hierarchy within an organization by identifying each job, its function and where it reports
to within the organization. Subsequently, the organization structure provides the pattern
of relationships among positions in the organization.
✓ The organization structure is illustrated using an organizational chart.
Objectives of an Organization Structure
1. Enhance accountability for areas of work undertaken by groups and

individual members of the organization.
2. Enable co-ordination of different parts of the organization and different

areas of work.
3. Enhance effective and efficient organizational performance, including

efficient resource utilization.
4. Enable monitoring of the activities of the organization.
5. Provide flexibility in order to respond to changing environmental factors.
6. Enable social satisfaction of members (managers and employees) of the

organization.
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Dimensions of an Organizational Structure
❑ Child (1988), identifies six major dimensions of an organizational structure as:
1. Allocation of individual tasks and responsibilities: Job specialization and job

definition.
2. Levels of authority and spans of control: Formal reporting relationships.
3. Grouping together of sections: Departments, divisions, and larger units.
4. Systems for communication of information: Integration of effort and participation.
5. Delegation of authority and procedures for monitoring and evaluating the action.
6. Motivation of employees through systems for performance appraisal.
Consequences of Organization Structural Deficiencies
❑ According to Child (1988), the consequences of organizational

structural deficiencies include:
1. Low motivation and morale of employees
2. Late and inappropriate decisions
3. Conflict and lack of co-ordination
4. Poor response to new opportunities and external change
5. Rising costs, e.g. diseconomies of scale
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Principles of Organizational Design and Diagnosis
❑ Organizational structures fall into five basic categories, namely:
1. Simple Structure: Centralized, autocratic arrangement typical of the entrepreneur-founded

company; little hierarchy or control exercised by the Chief Executive.
2. Machine Bureaucracy: Best at mass produced tasks and is characterized by many layers
of management and formal procedures.
3. Professional Bureaucracy: Independent professional bodies; it tends to be more

democratic and more highly motivated, with its lines of authority less clearly set.
4. Divisionalised form of Bureaucracy: Applies more to multinational or industrial

corporations where a small central core controls key guidelines for a number of autonomous
units.
5. Adhocracy: Management approach needed to achieve a specific purpose; often found in new
technological industries which need constantly to innovate and respond to changing markets.
1. Simple Organizational Structure
❑ The key part of the simple structure is its strategic apex; it uses direct
supervision, and employs vertical and horizontal centralization.
✓ The simple organization structure consists of the top manager and a few
workers in the operative core. There is no technostructure and the support
staff is small; workers perform overlapping tasks. Coordination is informal and
maintained through direct supervision because the organization is small.
✓ Simple structure organization can rapidly adapt to environmental changes.
✓ Examples of simple organization structures are:

▪ relatively small corporations,
▪ new government departments,
▪ medium-sized retail stores, and
▪ small elementary school districts.
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2. Machine Bureaucracy Organizational Structure
❑ The technostructure is the key part of the Machine bureaucracy; machine bureaucracy
uses standardization of work processes as its prime coordinating mechanism, and
employs limited horizontal decentralization.
✓ It has a high degree of formalization and work specialization.
✓ Decisions are centralized.
✓ The span of management is narrow, and the organization is tall —that is, many
levels exist in the chain of command from top management to the bottom of the
organization. Little horizontal or lateral coordination is needed. Furthermore,
machine bureaucracy has a large technostructure and support staff.
✓ The environment for a machine bureaucracy is typically stable, and the goal is to
achieve internal efficiency.
✓ Examples of machine bureaucracy are automobile manufacturers, steel
companies, and large government organizations.
3. Professional Bureaucracy Organizational Structure
❑ Professional bureaucracy has the operating core as its key part, uses standardization of skills as
its prime coordinating mechanism, and employs vertical and horizontal decentralization.
✓ Professional bureaucracy organization is relatively formalized but decentralized to provide

autonomy to professionals; here highly trained professionals provide non-routine services to
clients.
✓ Top management is small; there are few middle managers and the technostructure is small.
✓ However, the support staff is typically large to provide clerical and maintenance support for
the professional operating core.
✓ The goals of professional bureaucracies are to innovate and provide high -quality services.
✓ Existing in complex but stable environments, they are generally moderate to large in size
and coordination problems are common.
✓ Examples of this form of organization include universities, hospitals, and large law firms.
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4. Divisionalized Form of Bureaucracy Organizational Structure
❑ The key part of the divisionalized form of Bureaucracy is the middle line,
✓ The divisionalized form uses standardization of output as it prime

coordinating mechanism, and employs limited vertical decentralization.
✓ Decision making is decentralized at the divisional level.
✓ There is little coordination among the separate divisions. Corporate - level

personnel provide some coordination. Thus, each division itself is relatively
centralized and tends to resemble a machine bureaucracy.
✓ The tecnostructure is located at corporate headquarters to provide services to

all divisions; support staff is located within each division.
✓ Large corporations are likely to adopt the divisionalized form.
Adhocracy Organizational Structure
❑ The adhocracy has the support staff as its key part, uses mutual adjustment as a
means of coordination, and maintains selective patterns of decentralization.
✓ The structure tends to be low in formalization and decentralization.
✓ The technostucture is small because technical specialists are involved in the
organization’s operative core.
✓ The support staff is large to support the complex structure.
✓ Adhocracies engage in non-routine tasks and use sophisticated technology
with the primary goal of innovation and rapid adaptation to changing
environments.
✓ Adhocracies typically are medium sized, must be adaptable, and use
resources efficiently.
✓ Examples of adhocracies include aerospace and electronics industries,
research and development firms.
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Mintzberg's Nine Organization Structure Design

Parameters
❑ The following questions are central in organization structural design:
1) How many tasks should a given position in the organization contain, and how specialized
should each task be?
2) To what extent should the work content of each position be standardized?
3) What skills and knowledge should be required for each position?
4) On what basis should positions be grouped into units and units into larger units?
5) How large should each unit be; how many people should report to a given manager?
6) To what extent should the output of each position or unit be standardized?
7) What mechanisms should be established to facilitate mutual adjustment among positions
and units?
8) How much decision power should be delegated to managers of line units down the chain of
authority?
9) How much decision making power should pass from the line mangers to the staff
specialists and operators?
Work Design
❑ Work can be combined in various forms; the decisions on the methods of

groupings of work will consider the following:
1. Need for co-ordination
2. Identification of clearly defined divisions of work
3. Economy
4. Process of managing activities
5. Avoiding conflict, and
6. Design of work organization which takes into account the nature of staff
employed, their interests, and job satisfaction.
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Factors Influencing Work
1. Nature of organization, complexity of work, range of responsibilities
2. Ability and personal qualities e.g. capacity of manager
3. Time available to spend with subordinates
4. Ability and training of subordinates
5. Effectiveness of co-ordination, communication, control systems
6. Physical location of subordinates
Line Organizational Structure
❑ A line organizational structure has only direct vertical relationships

between different levels in the firm.
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Line Organizational Structure
❑ Advantages of a line organizational structure:

1. Tends to simplify and clarify authority, responsibility and accountability relationships.
The levels of responsibility and authority are likely to be precise and understandable.
2. Promotes fast decision making and flexibility.
3. Simple to understand; line organizations are usually small so managements and
employees have greater closeness.
❑ Disadvantages of a line organizational structure:
1. As the firm grows larger, line organization becomes more ineffective.
2. Improved speed and flexibility neglects specialists in planning.
3. Managers may have to become experts in too many fields.
4. Overloads key people as there is a tendency to become overly dependent on the few key
people who can perform numerous jobs.
4.2 Business Evolution: Business (Financial) Strategies and Planning
❑ Financial Strategy and Financial Planning: A company’s financial strategy is a plan

for achieving the objective of maximizing the shareholder wealth.
✓ The strategic plan requires both long-term and short-term financial planning that brings
together forecasts of the company’s sales with financing and investment decision-making.
✓ Budgets (e.g. cash budget and the production budget) are used to manage the information
used in financing planning.
✓ Performance measures (e.g. balanced scorecard and economic value added) are used to
evaluate progress toward the strategic goals.
❑ A business should deploy its assets to the best possible use in order to create value and
enhance efficient allocation of resources.
✓ Stakeholders in the business (namely: owners, employees, customers, etc.) are all
better off when its management makes decisions that puts its assets to the best use.
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4.3 Risk Management in Organizations
4.3.1 Risk Management Strategies and Processes

4.3.2 Risk Management Approaches
Risk in Organizations
❑ A risk can be defined as the probability that a threat will exploit a vulnerability to
cause harm or loss to the organization’s capital, products, assets, earnings, and
reputation.
✓ In other words, a risk is anything that can go wrong to impede the
achievement of the main objectives/goals of the organization.
✓ A risk arises from a negative outcome which may result from recognizing an
uncertain situation.
✓ Perception of risk arises from the perception and quantification of uncertainty.
▪ In scientific settings and financial contexts, risk is usually expressed in
terms of the probability of occurrence of adverse events.
▪ In other fields, such as political risk assessment, risk may be very
qualitative or subjective.
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Sources of Risk (Threats) in Organizations
❑ Threats (or risks) could stem from a wide variety of sources including:
a) Financial uncertainty
b) Competition from competitors
c) Legal liabilities
d) Strategic management errors
e) Accidents and natural disasters
Risk Management in Organizations
❑ Risk Management is the process of identifying, assessing and

controlling threats to an organization's capital, products and earnings.
✓ As a result, a risk management plan increasingly consists of the

companies' processes for identifying and controlling threats to its
digital assets, such as:
▪ Proprietary corporate data.
▪ Customers personally identifiable information.
▪ Intellectual property.
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Risk Management Standards
❑ Risk management standards have been developed by several organizations, including

the National Institute of Standards and Technology and the ISO.
❑ The purpose of designing Risk Management Standards is to enable organizations to:
1. Identify specific threats applicable to their organization.
2. Assess their unique vulnerabilities so as to determine the organization’s risk.
3. Identify ways to reduce the organization’s identified risks.
4. Implement risk reduction efforts according to the organizational strategy.
❑ The ISO 31000 principles of risk management provide frameworks for risk
management process improvements that can be used by companies.
ISO Standards for Implementing Risk Management
❑ The ISO standards and others like it have been developed worldwide to help
organizations systematically implement risk management best practices.
✓ The ultimate goal for these standards is to establish common frameworks and
processes to effectively implement risk management strategies.
❑ The ISO Standards for Implementing risk Management are often recognized by
international regulatory bodies, or by target industry groups.
✓ The risk management standards are also regularly supplemented and updated to
reflect rapidly changing sources of business risk.
✓ Although following the risk management standards is usually voluntary, adherence

may be required by industry regulators or through business contracts.
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International Organization for Standardization (ISO) Principles of Risk

Management (1)
❑ The ISO identifies the following principles of 7. Be tailored to the project.

risk management:
8. Take into account human factors,
1. Create value for the organization: Resources including potential errors.
expended to mitigate risk should be less
than consequence of inaction. 9. Be transparent and all-inclusive.
2. Be an integral part of the overall 10. Be dynamic, iterative and responsive
organizational processes. (adaptable) to change.
3. Be part of the company's overall decision- 11. Be capable of continual improvement and
making process. enhancement.
4. Explicitly address any uncertainty and 12. Be continually or periodically re-assessed.
assumptions.
▪ Risk management should be
5. Be a systematic and structured process. continuously monitored and improved
6. Be based on the best available information. upon.
4.3.1 Risk Management Strategies and Processes
❑ All risk management plans follow the same steps that combine to
make up the overall risk management process and these are:
1. Risk Identification
2. Risk Analysis
3. Risk Assessment and Evaluation
4. Risk Mitigation
5. Risk Monitoring
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Risk Management Strategies and Processes

1. Risk Identification: The company identifies and 4. Risk Mitigation: During this step,
defines potential risks that may negatively influence companies assess their highest-
a specific company process or project. ranked risks and develop a plan to
2. Risk Analysis: Once specific types of risk are alleviate them using specific risk
identified, the company then determines the odds of controls. These plans include risk
it occurring, as well as its consequences. The goal of mitigation processes, risk prevention
the analysis is to further understand each specific tactics and contingency plans in the
instance of risk, and how it could influence the event the risk comes to fruition.
company's projects and objectives.
5. Risk Monitoring: Part of the
3. Risk Assessment and Evaluation: The risk is mitigation plan includes following up
then further evaluated after determining the risk's on both the risks and the overall
overall likelihood of occurrence combined with its plan to continuously monitor and
overall consequence. The company can then make track new and existing risks. The
decisions on whether the risk is acceptable and overall risk management process
whether the company is willing to take it on based on should also be reviewed and updated
its risk appetite. accordingly.
4.3.2 Risk Management Approaches (1)
❑ After the company's specific risks are identified and the risk
management process has been implemented, there are several different
strategies companies can take in regard to different types of risk:
1. Risk Avoidance
2. Risk Reduction
3. Risk Sharing
4. Risk Retaining/ Acceptance
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Risk Management Approaches (2)
1. Risk Avoidance: While the complete elimination of all risk is rarely possible, a risk
avoidance strategy is designed to deflect as many threats as possible in order to avoid
the costly and disruptive consequences of a damaging event.
2. Risk Reduction: Companies are sometimes able to reduce the amount of effect
certain risks can have on company processes. This is achieved by adjusting certain
aspects of an overall project plan or company process, or by reducing its scope.
3. Risk Sharing: The consequences of a risk is shared, or distributed among several of

the project's participants or business departments. The risk could also be shared
with a third party, such as a vendor or business partner.
4. Risk Retaining/Acceptance: Sometimes companies can decide that a risk is worth

it from a business standpoint, and decide to retain the risk and deal with any
potential fallout. Companies will often retain a certain level of risk when a project's
anticipated profit is greater than the costs of its potential risk.
4.4 Commercialisation of Products

❑ Commercialisation is the process of introducing a new product or production method into
commerce by making it available on the market.
✓ Commercialization targets entry into the mass market (as opposed to entry into earlier
niche markets), but also includes a move from the laboratory into even a limited
market.
✓ Many technologies begin in a research and development laboratory or in an inventor's

workshop and may not be practical for commercial use in their infancy (as prototypes).
✓ The "development" segment of the "research and development" spectrum requires

time and money as systems are engineered with a view to making the product or
method a paying commercial proposition.
✓ The product launch of a new product is the final stage of new product development - at
this point advertising, sales promotion, and other marketing efforts encourage
commercial adoption of the product.
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Process of Commercialization
❑ The commercialization process has three (3) key aspects:
1. The funnel
▪ It is essential to look at many ideas to get one or two
products or businesses that can be sustained long-term.
2. Commercialization is a stage-wise process

▪ Each stage has its own key goals and milestones.
3. Early involvement of key stakeholders

▪ It is vital to involve key stakeholders early,
including customers.
Questions Raised during Commercialization of a Product (1)
1. When to Launch the Product? 2. Where to Launch the Product?

✓ Factors such as potential ✓ A potential vendor can start marketing in
cannibalization of the sales of a single location, in one or several regions,
a vendor's other products, or in a national or international market.
any requirement for further
improvement of the proposed ✓ Existing resources (in terms of capital, and
new product, or unfavorable operational capacities) and the degree of
market conditions may managerial confidence may strongly
operate to delay a product influence the proposed launch-mode.
launch.
✓ Smaller vendors usually launch in
attractive cities or regions, while larger
companies may enter a national market at
once.
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Questions Raised during Commercialization of a Product (2)
3. Whom to Target? 4. How to Launch the 3. Global Roll-Outs

Product?
✓ Research-and test- ✓ These are the preserve of
marketing may identify ✓ Prospective vendors multinational conglomerates,
a primary consumer should decide on an since they have the necessary size
group. The ideal action plan for and make use of international
primary consumer introducing a distribution systems (e.g.,
group should consist of proposed product - a Unilever, Procter & Gamble).
innovators, early plan shaped by
addressing the ✓ Other multinationals may use a
adopters, heavy users
questions 1,2 and 3 "lead-country" strategy of
and/or opinion leaders.
above. The vendor introducing the new product in
This will encourage
has to develop a one country/region at a time (e.g.
adoption by other viable marketing- Colgate-Palmolive), in Uganda
buyers in the market mix and to structure case Wavah Water was first
during the product- a corresponding launched in South Sudan.
growth period. marketing-budget.
4.5 Barriers to Business Growth
❑ The different Barriers to business growth include:
1. Mindset: The owners mindset could hold the business from growing
2. Working in the business rather than working on the business.
3. Lack of strategic planning and a vision.
4. Lack of knowledge, experience and skills.
5. Lack of innovation in work processes: Doing the things as you have always done.
6. Inefficient systems, processes and procedures.
7. Lack of quality management systems and procedures.
8. Being too risk-averse; being reluctant to take any risks.
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4.6 Global Issues in Business
❑ The significant challenges for international business, include:

1. International company structure
2. Foreign laws and regulations
3. International accounting
4. Cost calculation and global pricing strategy
5. Universal payment methods
6. Currency rates
7. Choosing the right global shipment methods
8. Communication difficulties and cultural differences
9. Political risks
10. Supply chain complexity and risks of labor exploitation
11. Worldwide environmental issues
Global Issues in Business (1)

1. International Company 2. Foreign Laws and
Structure Regulations
To be competitive globally, the company

must consider the organization structure Along with getting a suitable company
and the location of the organization teams; structure in place, there is also need to
e.g. will the company be run from one central understand the local laws and
headquarters? regulations governing the target
markets. Tax implications, trading
Will there be offices/representative teams in laws, and legal requirements are
key markets abroad? If so, how will these important functions for successful
teams be organized? What autonomy will international business. Significant
they have? How will they coordinate working considerations associated with entry into
across time zones? new markets, include: (1) Eligibility to
And will the organization consider hiring trade, (2) Potential tariffs, and (3) Legal
experts in local market who understand the costs.
culture of the target markets?
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3. International Accounting 4. Cost Calculation and Global Pricing Strategy
Tax compliance is a crucial legal consideration Setting the price of products and services is
when doing international business. Different challenging when doing business overseas. The
tax systems, rates, and compliance pricing strategy should consider costs to remain
requirements can make the accounting function competitive while still ensuring profitability. It is
of a multinational organization significantly important to benchmark the prices of direct, local-
challenging. Multinational businesses may be market competitors while still ensuring that your
liable for corporation tax abroad. Accounting company’s pricing is favorable to your business,
strategy is key to maximizing revenue, and the e.g. the cost of production and shipping, labor,
location where the business is registered can marketing, and distribution, as well as profit
impact on tax liability. Mitigating the risk of margin, must be a taken into account for your
multiple layers of taxation makes good business business to be viable. Pricing also depends on how
sense for any organization trading abroad. a company positions their brand; (1) a high
Being aware of tax treaties between countries product price could reflect luxury status, and (2) a
where the business is trading helps to ensure low product price could be helpful in penetrating a
avoidance of unnecessary double taxation. new market.
5. Universal payment methods 6. Currency rates
The international e-commerce

websites have enabled selling Fluctuation of currency rates is challenge in
goods overseas much easier and international business. A company engaged in
more affordable for businesses international business must monitor exchange
and consumers. However, rates. Global economic volatility can make it
payment methods that are difficult to forecast profit. Major currency rates
commonly accepted in in local fluctuations can have a serious impact on the
markets may bot be available business expenses and profit resulting in a much
abroad. Determining acceptable smaller margin — or even a loss; e.g. for a company
payment methods and ensuring that is paying suppliers and production costs in a
secure processing must be a stronger currency, e.g. U.S. dollars, while selling
central consideration for their products in markets with a weaker or more
businesses who seeks to trade unpredictable currency, e.g. Uganda shilling.
internationally.
25
2/11/2024
7. Choosing the Right Global 8. Communication Difficulties & Cultural Differences

Shipment Methods
Good communication is important for effective
Online sales is an international international business strategy but communicating
business opportunity for retailers in across cultures can be a challenge; it’s even more than
the 21st century but finding reliable, just a language barrier as nonverbal communication
fast, and cost-effective shipment and can also make or break business deals. Effective
distribution methods is difficult in communication with colleagues, clients, and customers
some markets such as in developing abroad is essential for success in international
countries. Depending on the volume business. It is important to understand different
and destination of the shipments,
the shipment methods include: land, cultural values and norms, it is important to be aware
sea, air. The choice of shipping of acceptable business etiquette and how things like
method can be a major influence on religious and cultural traditions can influence business
the company’s revenue and may be a will be helpful in avoiding potential communication
limiting factor to the products’ sales problems in international business, e.g. shaking hands
overseas. may influence the way you communicate in a
professional context.

10. Supply Chain Complexity and 11. Worldwide
9. Political Risks Risks of Labor Exploitation Environmental Issues
A risk assessment of the economic In the light of
and political landscape is critical environmental risks and
when considering expansion into a Suppliers and supply chains
management can be a effects of climate change,
new market. Political uncertainty/ international businesses
instability is a risk factor in difficult process when
sourcing products and must look into
international business. Emerging
markets offer opportunities for services from overseas. The implementing
expanding global businesses but length and complexity of environmentally
may also be more politically risky supply chains increases the sustainable business
that the more established markets. chance of working with models. International
Unstable policies and corruption suppliers who have legislations and strategies,
tendencies are common problems in unethical business practices. such as the UN’s
emerging markets. Also changes in A growing concern in Sustainable
governments due to political international business is the Development Goals, have
instability can be accompanied by risk of forced labor and placed environmental
changes in policy, regulations, and worker exploitation. issues at the forefront of
interest rates which hinder foreign international business
business investment. development.
26
2/11/2024
References
1. Child J., 1988. Organization. 2nd Ed., Paul Chapman.
2. Drucker Peter, 1998. On the Profession of Management, Harvard Business School
Press.
3. Mintzberg H., 1979. The Structuring of Organisations, Englewood Cliffs. N Jersey,
Prentice Hall.
4. Lunenbur F. C., 2012. Organizational Structure: Mintzberg’s Framework,
International Journal of Scholarly, Academic, Intellectual Diversity, Volume 14,
Number 1, 2012.
5. World Intellectual Property Organization, http://www.wipo.int/ardi
6. United States Patent and Trademarks Office (USPTO), 2018. Trademark, Patent, or
Copyright?, Retrieved 13th December 2018 from https://www.uspto.gov/trademarks-
getting-started/trademark-basics/trademark-patent-or-copyright
7. Etti Baranoff, and Patrick Brockett, 2009. Risk Management for Enterprises and
Individuals, 2009, ISBN 13: 978-0-9823618-0-1, Saylor Foundation
27

2023-24 MMS 7201 Lecture 4 - Business Issues in Product Development

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2/11/2024

MMS 7201 Product Design and Introduction

Business Issues in Product Design

2/11/2024 2023/2024 MMS 7201 Product Design and Introduction 1

Lecture Four Outline

4. Business Issues in Product Design

4.1 Organizational Structures and Business Systems and Environments

4.2 Business Evolution: Business and Financial Strategies and Planning

4.3 Risk Management in Organizations

4.4 Commercialization of Products

4.5 Barriers to Business Growth

4.6 Global Issues in Business

2023/2024 MMS 7201 Product Design and Introduction

4. Business Issues in Product Design

❑ Definition of a Business Entity?

2023/2024 MMS 7201 Product Design and Introduction 3 2/11/2024

4.1 Organizational Structures and Business Systems and Environments

❑ The benefits of Organizational Theory include:

1) Enables managers and employees of organizations to understand how the

2) Enables managers to identify possible solutions to organizational challenges by

3) Useful to managers of complex organizations with many inter-related functions and

2023/2024 MMS 7201 Product Design and Introduction 4 2/11/2024

Drucker Theory: Criteria for Effective Organizations

❑ Drucker theory suggests the three criteria for effective

1. They must be organized for business performance.

2. Their structure should contain the least number of

3. Organizational structure should facilitate training and

2023/2024 MMS 7201 Product Design and Introduction 5 2/11/2024

Drucker Theory: Levels of the Organization

2023/2024 MMS 7201 Product Design and Introduction 6 2/11/2024

Organizational Management and Power of Decision Making in an

2023/2024 MMS 7201 Product Design and Introduction 7 2/11/2024

Advantages and Disadvantages of Decentralized Organization

2023/2024 MMS 7201 Product Design and Introduction 8 2/11/2024

Grouping of Key Activities in Organizations

❑ The different ways of organizing roles and tasks of individuals in an

2023/2024 MMS 7201 Product Design and Introduction 9 2/11/2024

❑ Functional systems involve grouping of major functions of the organization,

❑ Advantages of Functional Systems

1. Increases utilization and co-ordination of groups of people with

2. Increases development and career opportunities for people in

❑ Disadvantages of Functional Systems

2023/2024 MMS 7201 Product Design and Introduction 10 2/11/2024

❑ Product/Service systems involve grouping the organization’s activities

▪ i.e. Orthopaedic, Surgical, Psychiatric, etc., rather than Medical, Nursing,

❑ Advantages of Product/Service Systems

2. Adaptability Increased If Service/ Product Requires Technical Knowledge

❑ Disadvantages of Product/Service Systems

1. Encourages Service Conflicts

2023/2024 MMS 7201 Product Design and Introduction 11 2/11/2024

❑ Geographical systems involves grouping of activities based on a

❑ Advantages of Geographical Systems

1. They are more responsive to local/ regional issues and different

❑ Disadvantages of Geographical Systems

1. They can lead to localities/ regions conflicting with each other.

2023/2024 MMS 7201 Product Design and Introduction 12 2/11/2024

❑ Divisional systems involve grouping of services and/ or geography and

✓ Suitable for international companies who are highly diversified,

❑ Advantages of Divisional Systems

1. They have corporate strategic control with production and

2023/2024 MMS 7201 Product Design and Introduction 13 2/11/2024

❑ Matrix Systems involve ❑ Advantages of Matrix Systems

2023/2024 MMS 7201 Product Design and Introduction 14 2/11/2024

❑ Organization structure is a representation of the division and distribution of work among