Enterprise OperationsOperational level

CIMA Paper E1

Aim of Paper

• This paper addresses several functional areas of business, as well as introducing candidates to the economic, social and political context of international business.

• This paper will prepare candidates for Paper E2, Enterprise Management, and Paper E3, Enterprise Strategy.

• This paper is a discursive paper.

Syllabus

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

Exam Format

Section A – 20 marksVariety of objective test questions each worth 2 to 4

marksSection B – 30 marksSix compulsory short answer questions, each worth 5

marks. A short scenario may be given to which some or all questions relate.

Section C – 50 marksOne or two compulsory questions. Short scenarios may

be given, to which the questions relate.

11SessionSessionIntroduction to the Global Business Environment

Overview Session One

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

Different economic systems

Three economic systems

Planned economic system

Mixed economic system

Free market

economic system

Cross cultural management

Hofstede’s five

dimensions of culture

Power distance

Individualism versus

collectivism

Long term orientation

Uncertainty avoidance

Masculinity versus

femininity

The BRIC economies

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

Outsourcing

Outsourcing is the contracting out of aspects of the work of an organisation, previously done in-house, to specialist providers.

Advantages Disadvantages• Lower costs• Increased capacity• Reduced capital expenditure• Reduced headcount• Focus on core competences• Supplier’s expertise

• Future prices may rise• Loss of in-house expertise• Risk to continuity of supply• Risk of loss of confidentiality• Loss of competitive advantage• Difficult to agree/ enforce contract terms

Offshoring

Offshoring is the relocation of corporate activities overseas.

Advantages for a UK company relocating its activities

overseas

Disadvantages for a UK company relocating its

activities overseas

• Cost savings• Access to talented and motivated professionals• Cheap, high quality technology makes the process more straightforward•Ease of communication since English is commonly spoken• Fast turnaround times

• Cultural differences• Instability of the offshore countries• Cost savings not always realised• Job losses in the UK• Increased risk that confidential information is lost

Offshoring continued

Advantages for the recipient country that provides the

services

Disadvantages for the recipient country that provides the

services

• Much needed jobs• Improvement in skills• Advances in infrastructure/ technology

• Poor working conditions, e.g. hours, wages• Technology transfer may not occur

Liberalisation and economic nationalism

Liberalisation is a broad term that usually refers to fewer government regulations in the economy. As a result, free trade will be encouraged.

Advantages of free trade• Countries can specialise in goods they produce

most efficiently• Surpluses and deficits removed• Competition improves efficiency• Economies of scale• Closer political links

Liberalisation and economic nationalism cont.

Economic nationalism refers to a set of policies that favour the home nation, e.g. the restriction of free trade or of foreign investment. As a result, international trade will be discouraged.

Advantages of protectionism (restriction of free trade)• Protection of infant industries• Prevents dumping• Prevents establishment of a foreign based monopoly• Reduces the influence of trade on consumer tastes• Prevents the import of harmful goods• Self-sufficiency

Liberalisation and economic nationalism cont.

Barriers to free trade

Embargoes

Subsides

Administrative regulations

Tariffs

Quotas

Government action

International economic developments

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

Solving a balance of payments deficit

Reduce demand in the home economy, e.g.

increase interest rates or taxation

Increase expenditure on domestically produced rather than imported

goods

International economic developments cont.

Monetary policy refers to the management of money supply, i.e. the volume and price of money, within the economy. Changes in monetary policy will influence a business in a number of ways:

• It changes the availability of finance• It impacts the cost of finance• Consumer demand will change• Inflation and exchange rates will change

International economic developments cont.

Gross domestic product (GDP) = the total value of income/ production from economic activity within a country

Gross national product (GNP) = GDP + overseas income – income earned in the country by overseas residents

22SessionSessionGovernance and Regulation in the Global Business Environment

Overview Session Two

Governance and regulation in the global business environment

• Stakeholders• Corporate governance• Social responsibility• Regulation• Business/ government relations• Risk

Stakeholders

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

Corporate governance

Corporate governance is the set of processes and policies by which a company is directed, administered and controlled. It includes the appropriate role of the board of directors and the auditors of the company.

• The need for corporate governance arises because of the separation of ownership and control.

• It helps the business to achieve its objectives in a way that is acceptable to ALL stakeholders.

• Governance should lead to sustainable wealth creation.

Corporate governance continued

Systems of corporate governance

UK principles-based approach – guidance on non-executive directors, remuneration committees and audit committees

US rules-based approach – the Sarbanes-Oxley Act requires auditor independence, an audit committee, an internal control report, increased financial disclosures and adherence to the US stock exchange regulations

Social responsibility

Sustainable development: aims to balance economic, environmental and social needs.

Corporate social responsibility: the company is sensitive to the needs of all stakeholders and not just shareholders. Benefits to the company include:

• Improved profitability• Customer loyalty• Retention of key employees• Identification of new market opportunities• Monitoring of changing social expectations

Regulation

Regulation in the UK

Regulation of the level of competition:1.Competition Act prohibits anti-competitive agreements or abuse of a dominant position2.Office of Fair Trading investigates businesses suspected of breeching Competition Act3.The Competition Commission deals with cases referred by the Office of Fair Trading

Regulation of people in business:1.To prevent insider trading2.To prevent trading if the company is insolvent

Regulation of externalities: i.e. costs or benefits of production experienced by society but not by producers or consumers themselves. Regulation using:1. max/ min prices2. tax/ subsides3. fines and quotas

Regulation continued

International regulation

The US Sarbanes-Oxley Act 2002: only impacts UK companies that are registered on the US stock exchange

Regulation of trade:1.Free trade supported by the World Trade Organisation2.Regional trading organisations, e.g. EU and NAFTA, allow free trade between specific countries

Business/ government relations

Businesses can influence government decision in a number of ways:

• Lobbying government to gain their support• Awarding non-executive directorships to retired

MPs/ civil servants• Public opinion, and hence legislative agenda, can

be influenced, e.g. using advertising

Risk

Political risk is the possibility of an unexpected politically motivated event in a country affecting the outcome of an investment.

Three main methods of managing political risk

Understand political risk

before investing

Review risks regularly during

the period of investment

Take action after the

risk has materialised

Risk continued

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

Country risk can be analysed in three ways

Political analysis

Financial analysis

Economic analysis

33SessionSessionInformation Systems

Overview Session Three

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

usage• Outsourcing• Privacy and security

Introduction

Information systems (IS) refers to the provision and management of information to support the running of an organisation

Information technology (IT) is the supporting equipment (hardware) that provides the infrastructure to run the information systems

The IS/IT strategy is a major plan of action that determines the use of technology within the organisation. This strategy should be aligned with the business strategies developed within the organisation. Benefits of an IS/IT strategy include:

• Competitive advantage• Improved productivity and performance• Development of new business• Structural change• Goal congruence

Information systems for competitive advantage

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

Porter suggested three overall competitive strategies that an organisation can implement:

• Cost leadership• Differentiation• Focus

IS for competitive advantage continued

Power of Buyers

Power of Buyers

Power of Suppliers

Power of Suppliers

Threat ofNew Entrants

Threat ofNew Entrants

RivalryRivalry

Threat of Substitutes

Threat of Substitutes

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

IT enabled transformation

New forms of organisation

Virtual companies:1.Operate with little physical presence 2.IT has allowed people to collaborate without meeting face to face3.Outsource most/ all functions

Virtual teams within organisations:1.A team of people not present in the same office or organisation2.Work independently but are guided by a common purpose3.IT allows information to be sent/ shared remotely and for virtual meetings to be held

E-commerce organisations:Conduct business electronically through some sort of communication link

IT enabled transformation continued

Benefits of virtual companies

Drawbacks of virtual companies

• Can exploit opportunities• Look bigger than they are• Flexibility• Lower costs

• Difficult to negotiate revenue sharing agreement• Loss of control may result in a fall in quality• Loss of competitive advantage if competitors work for competition

IT enabled transformation continued

Challenges of virtual teams

Potential solution to these challenges

1. Forming a team can be difficult

2. Knowledge sharing

3. Difficult to establish processes/ goals

4. Leadership

5. Cultural differences

6. Morale

1. Spending time getting to know each other, e.g. team identity, jokes

2. Regular and predictable communication patterns

3. Training in technology and teamwork plus clear roles and responsibilities

4. Detailed, timely feedback between the leader and the team members

5. Pay attention to cultural differences

6. Choose independent and self-reliant people

Emerging IS trends in organisations

Emerging IS trends in

organisations

Knowledge management systems:

create, capture, distribute and share

knowledge

Customer relationship management systems:

used to get to know customers better and to

serve them better

Enterprise-wide systems: all of the data and

processes of an organisation are

integrated into one system

Web 2.0 tools: social networking tools used

to listen to and to influence customers

Costs and benefits of IS

Tangible costs Intangible costs

• Design and set-up costs• Day-to-day running costs• Storage costs

• Staff disruption• Dysfunctional behaviour• Learning curve• Opportunity cost

Costs and benefits of IS continued

Tangible benefits Intangible benefits

• Improved speed and efficiency• Reduced labour time• Reduction in errors• Use of lower skilled, cheaper labour• Hold optimum level of inventory• Collect cash more quickly

• Competitive advantage• Improved customer satisfaction• Better information and decision making• Common systems result in consistency

System changeover methods

Four methods of system changeover

Direct: appropriate when there is confidence in the new system or it is not a critical business system

Parallel: appropriate when the system has not been used elsewhere or it is a critical business system

Pilot: appropriate when the system can be operated in different geographical regions

Phased: appropriate when the system can be implemented in distinct parts

System changeover methods continued

Advantages Disadvantages

Direct QuickCheap

High risk

Parallel Low riskOutput can be verified

ExpensiveSlowUsers rely on old system

Pilot Less risk than directLess costly than parallel

Slower than directRiskier than parallel

Phased Staff have time to adjustLess risky than direct

Slower than directLinks between part of the system make it difficult

IS implementation – avoiding user resistance and non-usage

Reasons for project failure:• Insufficient user involvement• Lack of management support• Project too complex• Poor planning• Unrealistic deadlines• Poor monitoring and control• IT staff don’t have the necessary management skills

IS implementation – avoiding user resistance and non-usage continued

Kotter and Schlesinger identified six methods of dealing with resistance:

• Education and communication• Participation• Facilitation and support• Negotiation• Manipulation and co-optation• Power/ coercion

IS implementation – avoiding user resistance and non-usage continued

Kotter and Schlesinger identified six methods of dealing with resistance:

• Education and communication• Participation• Facilitation and support• Negotiation• Manipulation and co-optation• Power/ coercion

IS implementation – avoiding user resistance and non-usage continued

Lewin’s prescriptive planned change theory:

IS implementation – avoiding user resistance and non-usage continued

Objective of the Change Process

Driving Forces Restraining Forces

Lewin’s force field analysis maps out the driving forces that are pushing towards a preferred state (i.e. the implementation of the new system) and the restraining forces, which are pushing back to the current state.

Outsourcing

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

Four approaches to IT outsourcing

Total Multiple/ selective

Joint venture/ strategic alliance

Insourcing

Privacy and security

Potential threat Possible solutionPhysical damage Fire proceduresHuman interference Secure entry systemData corruption Virus softwareData theft Data encryptionOperational problems TestingHR risk Ergonomic design of

workstation

Privacy and security continued

Data Protection Act (DPA) 1998• Personal information can be misused more

effectively on a computer than on a manual system.

• The DPA gives individuals a right to know what information is held about them (provisions of the Act) and provides a framework to ensure that information is handled properly (principles of the Act).

44SessionSessionIntroduction to Operations Management

Overview Session Four

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

Definitions

• Operations involves the transformation of inputs into outputs in order to add value.

• Operations management refers to the activities required to produce and deliver a product or service. It includes purchasing, warehousing and transportation.

• Operations strategy – an organisation can achieve significant competitive advantage over its rivals through superior operating capabilities of its resources, e.g. assets, workforce skills, supplier relationships.

Mintzberg’s effective organisation

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

Strategic apex

Operating core

Middle line

Support staff

Techno-structure

Porter’s Value Chain

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

Porter’s Value Chain

Inbound Logistics

Operations ServiceMarketingand Sales

OutboundLogistics

Procurement

Technology

Human Resource Management

Infrastructure

Margin

Strategic issues

Strategic decisions in operations include:• New products services – innovate or copy competitors?• New production technology – introduce leading edge

technology?• Vertical integration strategy – operate in how many stages

of the supply chain?• Structuring workforce – consider skills/ responsibilities• Capacity/ flexibility strategy – can the organisation

forecast and react to demand?• Facilities improvement – how many locations?• Supply strategy – purchase from singe/ multiple

suppliers?• Inventory levels – what is the optimum level?

Systems used in operations management

Operations management systems

MRP: a system for planning the requirements of raw material, work-in-progress and finished goods

MRP II: a central database for materials planning that all functions have access to

ERP: a system that integrates data from all operations within the organisation

OPT: a system that identifies constraints and uses these to schedule production and determines ways to eliminate the bottleneck

Methods of managing operational capacity

• Flexible manufacturing system – an automated manufacturing system enabling high volume flexible production.

• Queuing theory – a technique that optimises the balance between customer waiting time and idle service capacity.

• Forecasting – used to predict customer demand and to balance this with production.

Sustainability in operations management

Sustainable development is about meeting the needs of the present without compromising the ability of future generations to meet their own needs.

Sustainability impacts operations management in a number of ways:

• Process design, e.g. designed to minimise waste • Product design, e.g. use of recycled inputs• Supply chain management, e.g. choose suppliers that

adopt sustainable development policies• Quality management should help to improve efficiency

and reduce waste

Product/ service and process design

Stages in product/service development:

55SessionSessionThe Supply Chain and Supply Networks

Overview Session Five

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

Definitions

• The supply chain includes the entire process from extracting raw materials to delivering the finished product to the end customer. The supply chain will involve a number of separate companies that will all play a part in satisfying the needs of the end customer.

• A virtual supply chain is a supply chain that is enabled through e-business links.

• Supply chain management is the management of all the activities aimed at satisfying the end customer in a way that maximises the effectiveness of the process.

• A supply chain network is a group of organisations that relate to each other through the linkages between the different processes involved in producing the finished product.

• A demand network is the evolution of a supply chain network and involves the collaboration between buyers to influence what goods are supplied.

Reck and Long’s Strategic Positioning Tool

PassivePassive

IndependentIndependent

SupportiveSupportive

IntegrativeIntegrative

Supply networks

A supply network is a term used to describe the arrangements made by the organisation to obtain its supplies. There are four main sourcing strategies:

Strategy Explanation

Single sourcing

The organisation chooses one source of supply

Multiple sourcing

The organisation chooses several sources of supply

Delegated sourcing

The organisation chooses one supplier and this supplier co-ordinates and works with other suppliers to ensure the supply requirements are fulfilled

Parallel sourcing

The organisation uses a mix of the three approaches

Cousins’ Strategic Supply Wheel

StructureStructure

CompetencesCompetences Cost/benefitCost/benefit

Performancemeasures

Performancemeasures RelationshipsRelationships

Strategy

Inventory management systems

Methods of managing inventory

Continuous inventory system: each addition and withdrawal is recorded and an automatic order is placed when inventory falls to a pre-determined level

Periodic inventory system: inventory is checked on a regular basis and a variable order is placed depending on usage during the period

ABC system: managers focus their attention on inventory items of high value and there is little management control of inventory items that are least used

JIT system: a system which produces or procures products or components as they are required by the customer for use, rather than for inventory

JIT

Requirements for the successful operation of a JIT system include:

• Flexible production• The speed of throughout should match demand• Elimination of non-value added activities• Higher quality and reliability• Lower costs

JIT continued

Advantages of JIT Disadvantages of JIT• Lower stock holding costs• Less working capital tied up in stock• Reduced obsolescence• Improved quality

• Little room for mistakes• Reliant on suppliers• Requires a change in culture• Not suitable for all companies• No spare finished product to meet unexpected demand

JIT continued

Advantages of close relationships with suppliers:• No rejects/ returns• On-time deliveries• Low inventory• Close proximity

66SessionSessionQuality Management

Overview Session Six

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

Introduction

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

Quality related costs

Four types of quality cost

Prevention: cost of preventing defects before they occur

Appraisal: cost of quality inspection and testing

Internal failure: costs arising from a failure to meet quality standards. Occurs before product has reached the customers

External failure: costs arising from a failure to meet quality standards. Occurs after product has reached the customers

Quality related costs continued

• The traditional approach to quality management allows for built-in waste and therefore appraisal, internal failure and external failure costs would be high.

• The contemporary approach to quality management aims to prevent errors before they occur and, as a result, prevention costs will be high.

TQM

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

TQM continued

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

TQM continued

Key writers on TQM• Deming: credited with the development of TQM in Japan• Juran: stated that 85% of quality problems are due to the

systems that employees work within rather than the employees themselves

• Feigenbaum: believed ‘prevention is better than cure’• Crosby: introduced concept of ‘zero defects’• Ouchi: recommended certain Japanese management

practices to improve the success of American companies

TQM continued

TQM and external quality standards• The most widely used external quality standards

are those published by the international organisation for standards (ISO).

Requirements include:• A set of procedures that covers all business

processes• Keeping adequate records• Checking output for defects• Facilitating continuous improvement

TQM continued

Methods of quality measurement

Servqual uses 22 questions to understand a respondent’s attitude about service quality. These questions are reliable indicators of five distinct dimensions:

• Tangibles• Reliability• Responsiveness• Assurance• Empathy

Benchmarking

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

• Competitive• Internal• Functional

Benchmarking continued

Benchmarking continued

Benefits of benchmarking include:• Improved performance and added value• Improved understanding if environmental

pressures• Eliminate complacency• Continuous improvement• Achievability

Lean production

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

Lean production continued

Characteristics Criticisms• Improved production scheduling• Small batch or continuous production• Continuous improvement• Zero inventory• Zero waiting time

• High initial outlay• Requires a change in culture• Part adoption• Cost may exceed benefit

Lean production continued

77SessionSessionIntroduction to Marketing

Overview Session Seven

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

Approaches to selling a product

Four possible approaches to selling a product

Sales orientation: uses aggressive promotional policies to entice the customer

Production orientation: focus is on high volume production to achieve a low unit cost

Product orientation: focus is on continual improvement of products assuming customers simply want the best quality for their money

Marketing orientation: starts by understanding the customers’ needs and then produces products with benefits and features to fulfil these needs. The best approach.

Understanding the marketing environment

The following technique can be used to analyse the general environment:

• Political• Economic• Social• Technical• Ecological• Legal

Each of these factors can be applied to the marketing function.

Consumer behaviour

Need RecognitionNeed Recognition

Information SearchInformation Search

Evaluating AlternativesEvaluating Alternatives

Decision to purchaseDecision to purchase

Post Purchase EvaluationPost Purchase Evaluation

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

Factors affecting buying decision

Types of consumer behaviour

• Fast moving consumer goods are relatively cheap, habitual purchases, e.g. bread.

• Durable goods are relatively expensive, irregular purchases, e.g. a car.

88SessionSessionThe Market Planning Process and the Marketing Mix

Overview Session Eight

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

The market planning process

Situation analysisSituation analysis

Set corporate objectivesSet corporate objectives

Set marketing objectivesSet marketing objectives

Devise a marketing strategyDevise a marketing strategy

Plan the marketing mixPlan the marketing mix

Market segmentation

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

Kotler suggested that segments should be:• Measurable• Accessible • Substantial

Market segmentation continued

Bases for segmentation

Demographic: • age• sex• geographical area

Socio-economic:• occupation• income

Psychological:• lifestyle• attitudes• values

Situational:•occasion of use•frequency of purchase

Targeting

This is the process of selecting the most lucrative market segment(s) for marketing the product.

Possible strategies include:• Concentrated marketing: specialises in one or

two of the identified markets only• Differentiated marketing: the company makes

several products each aimed at a separate market• Undifferentiated marketing: the delivery of a

single product to the entire market

Positioning

1.Cost leadership 2. Differentiation

3A. Cost focus 3B. Differentiation focus

Low cost High cost

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

Broad target

Narrow target

Market research

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

Data gathering techniques

Primary research: collected for the specific purpose of the research in question, e.g. focus groups, observation, interviews, experimentation

Secondary research: data that is already available, e.g. market research agency data, Companies’ Annual Reports and Accounts, trade and technical journals

The marketing mix

The traditional marketing mix (4Ps):• Product: Factors such as quality, design, range,

packaging, branding and warranties• Place: Where to sell the products, how to

transport the goods, intermediaries to use• Promotion: Techniques such as advertising,

personal selling, public relations, sales promotion, direct marketing

• Price: level, discounts, credit policy and payment methods

The marketing mix continued

Additional 3Ps for the service industry:• People: Relates to both staff and customers• Processes: Systems through which the service is

delivered• Physical evidence: Makes the intangible service

more tangible

Product

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

Product continued

Maturity DeclineGrowthIntro

Time

Sales

The product life-cycle

Product continued

Terms• Product item: the individual product• Product line: a collection of product items that

are closely related• Product mix: total product lines. Consists of:

– width: the number of product lines– depth: the number of product items within

each product line

Product continued

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

Brand equity is the premium that customers are willing to pay for a brand compared to a similar, generic product.

Characteristics of a strong brand Determinants of brand value• Consistency• A distinctive name• Distinctive product features

• High loyalty• Name awareness• Strong personality associations• Perceived quality• Other attributes, e.g. patents

Pricing

Pricing is influenced by the 3Cs, i.e. cost, customers and competitors.

Price setting strategies include:• Market penetration• Market skimming• Premium pricing• Product-line promotion pricing• Going rate pricing• Cost-plus pricing• Target pricing• Intermediate customer pricing• Differential pricing

Promotion

The promotion mix comprises the blend of methods that a company uses to promote its products to existing and potential customers.

Methods include:• Advertising• Personal selling• Public relations• Sponsorship• Sales promotion• Direct marketing, e.g. direct mail/ telemarketing• Online marketing

Promotion continued

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

Promotion continued

Three classes of marketing

communication

Three classes of marketing

communication

Direct marketing: direct communication with the target audience

Direct marketing: direct communication with the target audience

Interactive media: new technology allows communication between the customer and the company

Interactive media: new technology allows communication between the customer and the company

Mass media: aims to reach the greatest number of viewers

Mass media: aims to reach the greatest number of viewers

Place

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

Distribution strategies:• Pull strategy – advertising creates consumer demand

forcing retailers to stock the product• Push strategy – retailers are offered high margins

and therefore stock the product

99SessionSessionFurther aspects of marketing

Overview Session Nine

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

responsibility

Marketing in a not for profit context

There are two key problems associated with marketing in a not-for-profit context:

• Multiple objectives: desire to meet customers’ needs constrained by wider social objectives

• Absence of markets: may not be a marketplace within which customers can choose competing goods and services

Differences between B2B and B2C

Internal marketing

Internal marketing is the means of applying the philosophy and practices of marketing to the people who serve the external customers so that:

• the best people can be employed and retained

• the employees will do the best possible work.

Social marketing and corporate social responsibility

1010SessionSessionHR Theories and Practices Related to Motivation

Overview Session Ten

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

Theories of HRM

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

There are two broad classes of motivation theory:

• Content: what motivates employees• Process: how to motivate employees

Theories of HRM continued

Theorist Year Theory

Taylor 1911 Scientific management

Maslow 1954 Hierarchy of needs

Vroom 1964 Expectancy theory

Herzberg 1968 Two factor theory

Handy 1976 Psychological contracts

McGregor 1981 Theory X and Theory Y

Lawrence and Lorsche

1994 One type of contingency theory

Schein 1990 Four categories of worker

Taylor’s scientific management

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

Maslow’s theory

Basic/Psychological Needs

Security/Safety Needs

Social Needs

Ego

SelfFulfilment

Herzberg’s two factor theory

Hygiene factors are not sufficient to result in positive motivation but must be addressed to avoid dissatisfaction.

Motivators will not cause dissatisfaction by not being present but can increase motivation if present.

Herzberg went on to define three ways in which management can increase motivation:

• Job enrichment• Job enlargement• Job rotation

Handy’s psychological contracts

• Psychological contracts exist between the employee and the employer.

• They can exert strong influence on behaviour because it captures what employees really believe they will get in return for what they give.

McGregor’s Theory X and Theory Y

• Theory X assumptions: people dislike work, must be coerced to make an effort, prefer to be directed, avoid responsibility and want security above all else.

• Theory Y assumptions: people enjoy work, exercise self-direction and self-control, enjoy and seek responsibility.

Reward systems

Reward systems continued

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

A total reward package draws together all the financial and non-financial benefits available to employees.

Workforce flexibility

Knowledge workers

Knowledge workers are people who create knowledge and produce new products and services for the organisation to sell. For example:

• Research staff• Chemists• Architects

Employee involvement

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

1111SessionSessionHuman Resource Management

Overview Session Eleven

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

Definition

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

Human Resource Planning

Stage 1: Strategic analysisStage 1: Strategic analysis

Stage 2: Internal analysisStage 2: Internal analysis

Stage 3: Identify gap between

supply and demand

Stage 3: Identify gap between

supply and demand

Stage 4: Put plans in place toclose the gap

Stage 4: Put plans in place toclose the gap

Stage 5: ReviewStage 5: Review

The HR cycle

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

Recruitment

The recruitment plan

Job analysis – detailed study of the job

Job description – purpose and duties of the job

Person specification – characteristics and qualities looked for in job applicants

Source candidates

Recruitment continued

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

Recruitment continued

Rodgers recommended that the following categories should be covered in a person specification:

• Background/circumstances• Attainments• Disposition• Physical make-up• Interests• General intelligence• Special attributes

Selection

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

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

Selection continued

Induction

The purpose of an induction is to ensure the most effective integration of staff into the organisation, for the benefit of both parties.

Benefits include:• Quick assimilation of employees into the

organisation• The process reassures employees which increases

motivation/ performance• Increased employee commitment• Reduces staff turnover

Training and development

Training: formal learning to achieve the level of skills, knowledge and competence to carry out the current role

Development: the realisation of a person’s potential through formal and informal learning to enable them to carry out their current and future role

Honey and Mumford suggested that there are four different learning styles:

• Activists• Reflectors• Theorists• Pragmatists

Training and development continued

Concrete ExperienceConcrete Experience

ReflectionReflectionTesting IdeasTesting Ideas

Concept CreationConcept Creation

Kolb’s experiential learning cycle:

Training and development continued

The stages in the training and development process:

Appraisals

Appraisal is the systematic review and assessment of an employee’s performance, potential and training needs. It will involve the following steps:

• Identifying the criteria for assessment• Preparation of appraisal report by manager• Appraisal interview between job holder and manager• Agreement of future objectives and solutions to problems• Manager’s supervisor reviews the assessment for fairness• Follow up

Appraisals continued

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

Legal issues

Disciplinary proceduresThe purpose of discipline is not punishment but is to

improve the future behaviour of the employee and other members of the organisation.

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

Legal issues continued

RedundancyRedundancy should be considered as the last

alternative.

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

Ethics

In order to achieve the objectives of the accountancy profession, CIMA qualified accountants have to observe six fundamental principles:

• Integrity• Objectivity• Competence• Confidentiality• Professional behaviour• Technical standards.