3737Activity 37.1 (page 648): New goals for Cadbury plc
1 What do you understand by the term ‘corporate plan’? [4]
Th is is a plan containing an organisation’s central objectives and the strategies to achieve them. For example, Cadbury plc had an objective to increase its market share profi tably.
2 Explain how Cadbury plc might measure its success in achieving the two goals outlined in the case study. [6]
Goal: Deliver superior shareholder returns
Th is could be measured by considering changes in the share price and comparing the dividend yield off ered by Cadbury plc with other companies.
Goal: Be the best regional beverages business
Consider market share in diff erent regions relative to competitors.
3 Analyse two factors that might make it diffi cult for Cadbury plc to achieve the two goals contained in the case study. [8]
Answers may comment on:Changes in the external business environment, e.g. economic recession aff ecting • share prices, could make it diffi cult for Cadbury plc to achieve the two goals. During an economic recession, company profi ts are falling and some businesses are bankrupted due to the diffi cult trading conditions. In those circumstances, stock markets can be very volatile and share value lost by many fi rms.Competitor decisions could also have an eff ect. Th e marketing decisions of • Coca-Cola and PepsiCo will have a signifi cant impact on outcomes for Cadbury plc. For example, the launch of innovative beverages will reduce market share of Cadbury plc. Innovation is not guaranteed to be successful; customer reaction to new • products is rarely certain.
A 4 Evaluate the usefulness of corporate planning to a multinational business such as Cadbury plc. [12]
Benefi ts include:Th e plan provides the directors and senior managers of Cadbury plc with a clear • focus for what the company should be trying to achieve for the next three years.If communicated to lower levels of management eff ectively, it provides a sense • of purpose and helps ensure that all employees are moving the business in a uniform direction. It acts as a means for control and review. Actual outcomes can be compared • with the objectives set and the performance of Cadbury plc can be assessed.Th e planning process itself is useful. It encourages directors and managers to • consider the current situation of the fi rm and to set objectives accordingly. It helps ensure that resources are used eff ectively and that all departments are • working together.
Limitations:Th e main limitation is that the business environment can change so rapidly, • particularly for a multinational company that is operating in a large number of markets. Change to the business environment will make parts of the plan outdated. Th e planning process should try to identify how the fi rm should react to a variety of changes in the environment.Cadbury plc must be prepared to adapt the corporate plan in response to • changes in the business environment. A failure to do so means that the fi rm will be striving to achieve potentially inappropriate objectives.For a large multinational company, it is unrealistic to think that all employees • will identify with the long-term objectives of the business. However, a corporate plan provides the foundations for departmental and even individual targets.
Evaluation may consider:Most businesses, however large, have some sort of long-term plan; this suggests that the process of planning and its outcomes are a useful exercise. However, the objectives at the heart of the plan should be realistic and achievable.
A multinational company, such as Cadbury plc, also needs a corporate plan to communicate its goals and strategies to existing and potential investors. If Cadbury plc wishes to raise capital from the stock market, then a corporate plan is necessary to persuade investors to invest.
Activity 37.2 (page 649): Corporate culture
1 Suggest, for each of these diff erent types of culture, one business situation in which it would be the most appropriate culture to adopt.
Power culture – in response to a crisis, as it is important to make decisions quickly.
Role culture – where stability is needed, e.g. it would be appropriate in a large bank.
A Task culture – where product life cycles are short and, therefore, there is a need to be adaptable, e.g. in technology industries.
Person culture – where an organisation has individuals working abroad on their own. In this case, it is important that the individuals are able to make decisions without referring everything back to governors.
Entrepreneurial culture – in a highly competitive industry where it may be necessary to encourage risk taking in order to gain a competitive edge.
Activity 37.3 (page 650): Changing culture
1 Identify and briefl y explain two further situations that might require a change of business culture. [8]
A business which has suff ered losses due to a culture that encourages risk • taking (e.g. many banks in the UK and USA in the years before 2008) − In this situation a role culture may be more appropriate as this does not encourage creativity and people in the organisation operate within the rules. It is a more bureaucratic approach.A business that is suff ering from a high labour turnover − a person-based • culture might help to motivate employees by giving them more responsibility and the freedom to express themselves.
Activity 37.4 (page 650): Porsche culture contributes to success
1 Explain how the merger of two businesses with diff erent cultures can make success of the expansion less likely. [10]
If organisational cultures are diff erent, then expansion is less likely to be successful because:
Th e cultures of the merged businesses will confl ict and this leads to confl ict at • all levels of the new organisation.Th e fi rms have diff erent ways of operating. For example, if a business with a • power culture merges with a business that has a person culture, the role of the individual is very diff erent. Autocratic leaders in the fi rst business would fi ght to maintain their power, whilst employees in the second business would resist any loss of freedom to express themselves fully.Confl ict will cause ineffi ciency in decision making.• Th e merged business will not share the same values.• If cultures are diff erent, there will be no synergy between the merged • businesses.
As Porsche adopts more of a stakeholder view of its role, if it merges with a fi rm adopting a shareholder view that puts the shareholder fi rst, there will be confl ict between the management of the two fi rms.
A Aft er a merger, the business may have to adopt a single culture. Changing the value system of a business and attitudes of staff is never an easy task.
Th e success of an expansion depends, in part, on the businesses sharing common values and goals.
Activity 37.5 (page 652): President Supermarkets – a case study in cultural change
1 Explain one possible reason why Sally thought it necessary to change the organisational culture of President Supermarkets. [4]
Th e culture is not suffi ciently shareholder orientated; President Supermarkets • does not take risks and rewards loyalty rather than dynamic leadership potential. Consequently, profi ts are satisfactory rather than good. Sally believes that a change in culture will unlock shareholder value, that is increase the value of shares through increasing short-term profi t. As a public limited company, the business may need to focus more on its shareholders than in the past.
2 Outline the type of culture that Sally seems to be introducing at President Supermarkets. [6]
Power cultureSally appears to have taken an autocratic approach; directors and managers • have been replaced. Suppliers’ terms have been changed.Few decisions are taken collectively.• Few layers of hierarchy are required because the views of middle managers are • considered unimportant.Decision-making power rests fi rmly at the top of the organisational structure.•
3 Analyse the key steps that Sally should have taken to manage cultural change more eff ectively. [8]
Answers may suggest some of the following:Sally should have tried to obtain the support and commitment of existing • directors to drive through the changes she believed were required. Replacing 50% of directors and key managers within fi ve weeks is likely to cause confl ict and demotivate employees who were used to the old culture that rewarded service.Sally should have explained to the workers that as it is a very competitive • market the culture needed to change.It would be useful to allow discussion and for employees to be able to propose • alternatives rather than imposing change on them.Sally should have adopted and communicated a new mission statement that • refl ected the values of the organisation without completely removing the positive aspects of the old culture. Sally could have focused more on some of the good aspects of the business that promoted staff loyalty and contributed to high customer service.
A 4 To what extent will the change in culture guarantee future success for this business? [12]
Answers need to identify the benefi ts of the change in culture and the weakness of the existing culture. Th ese might include:
Th e old culture promoted a complacent attitude toward business growth.• Low profi tability threatens the future competitiveness of the business due to a • lack of funds for investment.Promoting staff for long service does not guarantee that they will be competent • to do the job. It also reduces the exposure of the business to new ideas.Th e change in culture has enabled the business to make cost savings through • driving supplier prices down and changing pension arrangements for new staff .
Problems:Th e change in culture will have signifi cant short-term costs due to employee • resistance and the disruption caused by the loss of 50% of the key managers and directors.Th e power culture adopted by Sally extends to treatment of suppliers. Does an • adversarial relationship with suppliers guarantee the best long-term prices and quality?Has the change been introduced in the wrong way?•
Evaluation may consider:Is the culture being introduced by Sally the right culture? Does a power culture always get the best out of an organisation’s resources?
Th e culture is being changed to meet the expectations of shareholders . Th ese expectations may focus on short-term profi t at the expense of the long-term viability of the business. Th e culture at President Supermarkets was benefi cial in promoting a stakeholder view of the role of the business; it may be argued that such a view provides a fi rm foundation for long-term success.
Businesses that involve staff may be more profi table in the long term because the staff will be more dedicated to achieving the goals of the business. At President Supermarkets, Sally appears to be alienating staff .
Activity 37.6 (page 654)
1 Identify and explain three recent changes in the external business environment that have occurred that have an incremental impact on businesses. [6]
Answers may be country specifi c:Smoking ban in pubs introduced in Ireland in 2004 – the ban was introduced • aft er long discussion and was known to be coming into force beforehand. Pubs needed to fi nd ways of ensuring that they did not lose custom from smokers.Accession of Romania to EU in 2008 – this was an incremental change as • preparation for joining the EU began in the 1990s giving businesses a long time to adjust to the rules of the European market.
A Increases in the minimum wage in Japan – this adds to labour costs of business. • Changes are known in advance and businesses can plan workforce needs accordingly.
2 Identify and explain three other recent changes that have occurred that have had a dramatic impact on business. [6]
Hyperinfl ation in Zimbabwe – in 2008, it was estimated that infl ation in • Zimbabwe reached over 500 quintillion per cent. Infl ation of that magnitude eff ectively destroys the ability to operate business. Barter starts to replace money as a means of conducting business.Banking collapse in Iceland in October 2008 – this led to the virtual collapse of • the Icelandic economy. Repercussions were felt by organisations that had placed money in the Icelandic banking system.2001 foot-and-mouth crisis in the UK – foot and mouth is a disease aff ecting • farm animals. Th e 2001 outbreak led to the deaths of nearly four million animals in the UK, and destroyed thousands of farmers’ livelihoods. It brought devastation to much of the tourist industry and the rural economy.
Activity 37.7 (page 656): Project champions
1 What are likely to be the key qualities needed by this project champion? Explain your answer. [10]
Qualities likely to include:Diplomacy – as senior managers are opposed to the new IT system, the project • champion must be able to encourage them to accept the change. Th e champion must be a skilled relationship manager and bridge builder.Strong communication skills – s/he must act as a conduit for keeping • stakeholders informed of the project’s status. S/he must also be able to ensure that everyone understands the project goals.People-management skills – the project champion has to be able to infl uence • and motivate people.Drive and enthusiasm – the project champion must be able to push the project • forward.Problem-solving skills – the project champion has to remove as many obstacles • as possible.
Activity 37.8 (page 658): Constant change a feature of modern industry
1 Why is almost constant change likely to occur within businesses such as Britax? [6]
As a manufacturing business, technology is constantly changing how products • can be manufactured, e.g. the production resource planning system that was recently introduced.
A Th e aircraft industry is signifi cantly aff ected by changes in the economic • environment. A recession forces change on businesses as they struggle to survive.It is a competitive market. To gain market share, fi rms have to continually • develop their products and tailor them to consumer needs.
2 Outline two ways in which Britax reduced resistance to change. [6]
Communicating the need for change – this reduces resistance to change as • employees will understand why the organisation has to adapt.Training – as Britax has introduced a complex computer system, it is critical to • provide employees with suitable training. Training reduces the fear of modern technology that might be felt by some employees.Build a strong project team – this will help identify and fi nd solutions to likely • problems.
3 Analyse how either force-fi eld analysis or a project champion could have helped during this change. [8]
Force-fi eld analysis:identifi es driving forces for change, e.g. intense competition, need to increase • productivity and reduce stock levels to be competitiveidentifi es forces constraining change, e.g. employee opposition as the change • requires diff erent work practices and skillsencourages management to fi nd ways to increase the drivers for change and • reduce the forces constraining change.
Project champion:overall role to promote the change being sought• objective to smooth the process of change – remove obstacles• argues the case for making change with senior managers• communicates the need for change and ensures that everyone understands the • change being proposedsecures suffi cient resources to make the change a success.•
4 Evaluate the most important stages in the process of implementing and managing large-scale changes within a business. [12]
Answers might follow Kotter’s eight-stage change model:Create a sense of urgency – identify why change is necessary. Change is easier • to implement if everyone in the organisation wants it. At Britax in the 1990s, the business underwent signifi cant change when it sold off some of its activities. At the start of that process, a discussion was needed about what was happening in Britax’s markets to build a sense of urgency that change was required.Create an eff ective project team to lead the change – strong leadership • supported by key individuals from diff erent departments is needed to lead change. In a large organisation, such as Britax, it is not possible to introduce change without the support of key individuals.Develop a vision and a strategy for change – a clear vision based on values • that are central to the change and which is easy to remember will help people understand why change is necessary.
A Communicate this changed vision. • Empower people – get rid of obstacles to change.• Build short-term gains – introduce change that will benefi t as many people as • possible. Success will motivate people. Short-term targets that are achievable will help maintain momentum of change.Consolidate the gains – real change runs deep in an organisation. Kotter argues • that many projects fail because they do not build on their successes.Change as part of the culture of the organisation – the link between change and • improved performance needs to be communicated eff ectively.
Which of these is most important to a business such as Britax? Why? Can any of them be considered unimportant?
Activity 37.9 (page 659): Stop and think: Cadbury had a plan ready
1 Outline two other incidents or ‘disasters’ that could have a major impact on Cadbury’s sales and reputation. [8]
Incident Commentary
Environmental disaster, e.g. allowing pollutants such as the vegetable oils used in manufacturing chocolate to be released into rivers
Pollution of local waterways by Cadbury would lead to negative press coverage in the national press. Local residents and businesses near the Cadbury factory might be concerned about the consequences of pollution entering the water supply. As environmental issues are increasingly important to consumers, this could have an impact on sales.
Industrial action by the workforce
Strike activity would disrupt supplies of Cadbury’s products to retailers and potentially lead to consumer dissatisfaction. As consumers switch to rival brands, Cadbury would lose market share. Th e fall in sales could persist beyond the industrial dispute due to a loss of consumer loyalty.
2 Evaluate the importance of contingency planning in this case. [12]
Th e contamination of food products with salmonella was a potentially disastrous crisis for Cadbury, whose reputation could be undermined with the consequent loss of confi dence in its products. Th us, contingency planning for such an event is critical to protect the market position of Cadbury. Th e benefi ts of contingency planning include the following:
Swift action will minimise the damage to Cadbury’s reputation.• Th e public will be reassured by a decisive response to the problem. Retailers • will also be encouraged by the proactive approach adopted by Cadbury in immediately recalling a million chocolate bars and providing compensation for the stock destroyed.Th e existence of a contingency plan will highlight Cadbury’s commitment to • consumer safety.
A Contingency planning should reduce the risk of such an outbreak. However, • even though Cadbury’s safety measures failed to prevent the contamination, the authorities will be reassured that Cadbury takes these potential problems seriously.Appropriate action following the identifi cation of the contamination will reduce • the risk of further injury to consumers. Having made a plan the response from Cadbury will be more measured and not just a knee-jerk reaction. Management is less likely to make mistakes in managing the situation.
Evaluation might consider:However, the contingency plan will not prevent crises and it is not possible to anticipate all possible problems that could occur. Contingency planning will also consume valuable resources of the business.
Th e contamination is estimated to have cost Cadbury over £30 million – the cost might have been signifi cantly more without a contingency plan on which to draw. Crisis management is typically about damage limitation. In this case, the eff ective implementation of a contingency plan ensured that there was only short-term damage to Cadbury’s image.
Activity 37.10 (page 659): Setting the scene: planning for the worst pays off
1 Explain whether you think the time spent by this business in planning for disasters was worthwhile or not. [12]
Arguments supporting the value of contingency planning include:Without a plan the response of the business to the crisis might have been less • coordinated and therefore less eff ective. Important issues could have been overlooked, causing customer dissatisfaction. For example, FDS recognised the importance of arranging meetings with customers quickly.Th e plan enabled the business to ensure that it was fully operational within • three days of the disaster, thus minimising the impact on customers. Allison Williams commented that ‘most of our customers are blue-chip businesses and they wanted the reassurance that we could be operational again as soon as possible.’Employees will have been reassured by the decisive action taken.•
Arguments against include:Planning is both costly and time consuming. Staff must be trained and diff erent • disaster scenarios practised. As contingency planning involves preparing for the unexpected, there is no certainty that the ‘right’ crises will be planned for. Contingency plans must be constantly updated, as the number and range of • potential disasters can change over time.It is better to avoid disasters.•
A EvaluationEff ective contingency planning allows a business to take steps to minimise the potential impact of a disaster. In this case the plan helped coordinate a systematic response to the crisis. Contingency planning is like any other form of insurance and may feel like a waste of money if nothing happens; although disasters are rare, the destruction of premises by fi re is suffi ciently common for it to be worth creating a contingency plan.
2 What problems might this business have experienced if it had not ‘prepared for the worst’? [8]
Problems might include:Delay in relocating the business and thus loss of potential clients to competitors.• Loss of data and therefore disruption to marketing campaigns being planned • for clients. Th is could lead to loss of future contracts with their blue-chip clients.Delay in payment from the insurance company. Th is could result in cash-fl ow • problems.
3 Do you think that even very small businesses should engage in some form of contingency planning? Justify your answer. [16]
Arguments in favour of contingency planning:A disaster such as fi re could destroy a small business due to its lack of resources.• A well-designed contingency plan will reduce the impact of a crisis.• Contingency planning can help prevent crises.• It reassures staff and customers that concerns for safety are a priority.• It will minimise the impact of a crisis on customers and thus help retain a • positive long-term relationship.
Arguments against:Th e resources of a small business are insuffi cient to make detailed contingency • planning feasible. For example, eff ective planning may require the response to each type of crisis to be simulated.An incomplete or poorly prepared contingency plan may cause more harm than • good if a crisis does develop. Th e chances of most crises happening are too low to make it worthwhile to • devote resources to considering how the fi rm should respond to them.
Evaluation: Th is should balance the diffi culties of undertaking planning for events that may never occur with the consequences of failing to respond appropriately to a crisis.
Although it is primarily large fi rms which draw up detailed contingency plans for a range of possible disasters, all fi rms may face crises. Small fi rms are just as likely to have to deal with crises such as fi re, earthquake, IT failures or accidents; thus they will have to make quick decisions and act to minimise the negative impacts of a disaster and ensure survival. Small fi rms should therefore engage in some form of contingency planning even if it is less formalised and on a smaller scale than very large fi rms.
Ready Business is an initiative from the US government to help owners and managers of small businesses prepare their employees, operations and assets in the event of an emergency. Th e following link highlights a number of examples of the benefi ts of planning for small businesses.http://www.ready.gov/business/other/testimonials.html
Revision case study 1 − answer provided on Student’s CD-ROM.
Essay2 Evaluate the view that: ‘Contingency planning is a waste of resources as major
accidents are oft en unavoidable but, in any case, they rarely occur.’ [25]
Defi nition of contingency planning: this involves making preparations for how to respond to unlikely events. For example, a business might create a contingency plan for how to respond to a fi re at its factory.
Answers may provide examples of businesses that have made specifi c contingency plans; for example, in 2009, hospitals in the UK had to draw up contingency plans to deal with staff absences in the event of a widespread outbreak of swine fl u.
Benefi ts of contingency planning:Unplanned events (e.g. a food-poisoning outbreak at a restaurant) can be very • damaging to a business. If a contingency plan has been developed, then the business will be able to organise resources more eff ectively to neutralise the problem.Some events can be very costly for the business; for example, an IT system • failure at a stock exchange could result in lost data and a temporary cessation of trading. In such cases it is critical to have a plan of action to deal with the problem and implement solutions.Contingency planning reduces the risk of some unlikely events actually • occurring as preventative measures can be taken.Planning may demonstrate that the fi rm is concerned about safety; for example; • a chemical factory having a detailed plan of how to deal with a release of chemicals into the environment. Th e plan should reduce the impact of the crisis on customers and therefore • reduce the loss of sales.
Limitations:Th e planning process is costly in terms of staff time. Th ere are further costs • associated with training staff for something that may never happen or purchasing equipment that may never be used.If the accident is very unlikely to happen, is there any point devoting resources • to developing a plan to deal with the accident? Businesses can’t plan for all possible events, so will have to make choices about • which events to plan for.
A Evaluation may consider:Contingency planning may be expensive but the cost of some accidents is even more drastic. Th e question is whether a business can aff ord not to develop a contingency plan. Th is will depend on an assessment of the likelihood of an event occurring, the cost to the business if it does occur and the cost of having a contingency plan. Th e cost of resources may also be justifi ed by the process of planning making the accident less likely to happen.
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