1.3. Organisational Objectives
Syllabus Content
- Vision statement and mission statement
- Aims, objectives, strategies and tactics, and their relationships
- The need for organisations to change objectives and innovate in response to changes in internal and external environments
- Ethical objectives and corporate social responsibility (CSR)
- The reasons why organisations set ethical objectives and the impact of implementing them
- The evolving role and nature of CSR
- SWOT analysis of a given organisation
- Ansoff Matrix for different growth strategies of a given organisation
Vision statement and mission statement
The Mission Statement
The mission of an organization can be thought of as an affirmation of its ‘reason for being’. An organization’s mission essentially attempts to answer the question ‘what is our business’? Mission statements are usually broad in their scope in that they indicate the long-term aims of the organization.
Reasons why an organisation should have a mission statement
▪ To ensure a single focus within the organization
▪ To provide a basis or standard for distributing resources
▪ To establish an organizational climate or culture
▪ To serve as a focus for individuals to identify with the organization’s purpose
▪ To aid in the translation of organizational objectives into the work structure involving the assignment of tasks within the organization
Contents of a mission statement
The following framework suggested by David (1999) is very useful:
1. Customers – a statement making reference to who the organization’s customers are
2. Products or services – a description of the firm’s major products or services
3. Markets – a statement of where the firm competes
4. Technology – a report stating whether technology is of concern to the organization
5. Concern for survival, growth and profitability – a statement of the broad economic objectives of the firm
6. Philosophy – an affirmation of the basic beliefs, values, and philosophical priorities of the organization
7. Self concept – a statement of the organization’s strengths and competitive advantage
8. Concern for public image – a statement as to the extent to which public image is of concern to the organization
9. Concern for employees – a declaration of the firm’s attitude towards its employees
Examples of mission statement
Apple's current mission statement as of 2017 is:
"Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App store, and is defining the future of mobile media and computing devices with iPad."
Tesla’s mission statement (pre-2016):
Tesla’s mission is to accelerate the world’s transition to sustainable transport
Tesla’s mission statement (post-2016):
Tesla’s mission is to accelerate the world’s transition to sustainable energy
Pixar’s mission statement
Pixar's objective is to combine proprietary technological and world-class creative talent to develop computer-animated feature films with memorable character and heartwarming stories that appeal to audiences of all ages.
Task: Identify which of the mission statements above you find most appealing and why
Vision Statement
A vision statement is a statement about what your organization wants to become. It should resonate with all members of the organization and help them feel proud, excited, and part of something much bigger than themselves. A vision should stretch the organization’s capabilities and image of itself. It gives shape and direction to the organization’s future. Visions range in length from a couple of words to several pages.
Apple’s vision statement
Apple’s current vision statement was introduced by CEO Tim Cook, who stated, “We believe that we are on the face of the earth to make great products and that’s not changing. We are constantly focusing on innovating. We believe in the simple not the complex. We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution. We believe in saying no to thousands of projects, so that we can really focus on the few that are truly important and meaningful to us. We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot. And frankly, we don’t settle for anything less than excellence in every group in the company, and we have the self- honesty to admit when we’re wrong and the courage to change. And I think regardless of who is in what job those values are so embedded in this company that Apple will do extremely well.”
Tesla’s vision statement
Tesla’s vision statement is “to create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.”
Task 1: Question on Mission Statements
1: The following are the mission statements of four organisations. Evaluate the mission statements using the criteria and matrix below. Tick the relevant box
Mission Statements
Company A
Our statement of mission is to enhance the value of ours shareholders’ investment by using the strengths of our people and our integrated operations to provide our customers with products that are high in quality and competitive in price.
Company B
To become the premier company in meeting the durable goods and services needs of domestic and global customers. To accomplish this we must be the best at what we do, having the highest quality people, products and services all aimed at continually meeting customer needs on a world-wide basis.
Company C
Company C is dedicated to a century-old heritage helping people control their world. Control technology began with a Company C invention. It grew with Company C innovations. It remains the care of our business as we provide control that enables people around the world to live better and work more productively.
Company D
Is dedicated to:
(a) Offering new customers a selected range of goods of high quality and good value
(b) Working in close cooperation with our suppliers to develop this product range
(c) Always buying British, providing the goods that British suppliers produce represent high quality and good value
(d) Developing and maintaining good human relations with our staff, suppliers and our customers.
Mission Statements
How to create a mission and vision statement
Aims, objectives, strategies and tactics, and their relationships
One of the key tools used in Strategic Planning and Implementation is the M.O.S.T. Analysis. This helps to clarify where the business intends to go (Mission), the key goals which will help to achieve this (Objectives), analyses what options there are for proceeding forward (Strategies) and how these strategies are going to be put into action (Tactics).
The key is for this whole process to hang together from top to bottom and also in reverse. From the top, clarifying the mission drives the objectives, which creates strategic options which forces tactical actions to be taken. From the bottom, every action at tactical level should help to make the strategies work, all strategies should help to achieve the objectives, and all the objectives should take the business towards the mission.
- What is a Goal? A goal is defined as a broad aim toward which your efforts are directed. It’s a “what,” not a “how.” In other words, it tells you where you are going rather than how you will get there.
Typically, goals are broad statements, such as:
o Educate customers on healthy eating
o Grow employee participation in wellness program
- What is an Objective? Objectives are closely tied to goals. And the two terms are often used interchangeably—but goals and objectives are different. An objective is a specific and measureable milestone that must be achieved in order to reach a goal. Some examples:
o Increase customer attendance at health fairs
o Increase employee registration for weight management program
- What is a Strategy? A strategy is a plan of action designed to achieve an objective. Strategies tell you how you’re going to get there, the overall direction you are going to take. For example,
o Inform customers of health fair through loyalty program
o Work with store directors to inform employees about weight management program
- What is a Tactic? A tactic is a specific action step required to deliver on a strategy. Tactics are what you do, and for every strategy, there are a number of tactics.
o Send all customers in loyalty card database a postcard with details about the health fair
o Provide store directors with fact sheet about weight management program to distribute at weekly meeting
Businesses fall into many traps by attempting to tackle strategy internally -
- Getting distracted from moving the business forward by day-to-day actions or demands from customers, suppliers and competitors
- Failing to clarify where it wants to get to and in what timescale
- Omitting to get Board and management agreement to this mission
- Not clarifying the key objectives that need to be reached (and in what timescale) for the mission to be successful
- Not getting external and objective assistance in analysing the strategic options available to satisfy the key objectives
- Missing out the strategy stage altogether by going straight from objectives to tactics which leads to a lot of "dead ends"
- Not ensuring that everything done at tactical level helps to ensure success of the strategies
- Failing to properly define timescales, responsibilities, monitoring and control procedures to ensure that implementation moves forward at the necessary speed
Source - http://www.sacredcowdung.com/archives/2005/05/most_analysis.html
Task 2: Take note of how the presenter differentiates between aims (goals), objectives, strategies and tactics
Task 3: In the article Chen states, 'we plan to shift our growth model from an extensive, subsidy-driven model to a more user experience-driven and operation efficiency approach'. What does this mean and why has Meituan decided to change its strategic objective?
The following table presents a hierarchy of objectives with an example/purpose column
- Using the information in the graphics below, complete tasks 4 & 5
SMART acronym
Task 4: Question on strategic and operational decisions
Complete the following table
Task 5: Match the individual strategy with the type of strategy - tick the relevant box
Task 6: What is strategy? Watch the video below - take note of the four questions that an organisation needs to answer during the development of strategy, and IKEA's example of strategic implementation
Task 7: What are the differences between strategies and tactics? Take note of the differences and also the examples given (Starbucks & Netflix).
The need for organisations to change objectives and innovate in response to changes in internal and external environments
Aims and objectives are not fixed, but will change from time to time in response to changes in the internal and external environments, which offer opportunities or pose threats.
Internal environment:
This is the part of a business under its control and includes factors such as developing human resources, financial planning and marketing.
The drivers to change in the internal environment may be negative or positive.
Negative changes may include:
● High staff turnover and/or absenteeism
● Falling quality standards
● Loss of productivity and falling motivation and morale
● Liquidity problems
● Increasing costs
These negative changes are a threat to the business and must be addressed.
Positive changes may include:
● The recruitment of talented and experienced individuals
● Improving productivity and quality
● Successful innovation
● Exceeding performance measures
Again positive changes should elicit some changes in business activity. These might involve changing budgets or success criteria or strategic objectives. If change does not happen the firm may still perform well, but below its capabilities.
External environment:
This external environment is the 'world beyond the firm', and is not controllable by it. It includes political, economic, social and technological change which impacts on the business and its markets. The external environment provides the opportunities for business growth and development and poses threats to its financial and operating activities.
The drivers to change in the external environment may be negative or positive.
Negative changes may include:
● Recession
● New competition
● Innovation and new products from competitors
● New laws and regulations which increase the firm's costs
● Changes in social behaviour and trends which will decrease demand for a firm's products and services
These negative changes are a threat to the business and must be addressed. Although the firm cannot change the external environment - it may alter its business practices and operations to reduce their effects.
Positive changes may include:
● Economic recovery and boom periods
● New technologies that will reduce production and/or operating costs
● Changes in consumer behaviour that favour the firm's products and services
● Reductions in taxes
As with internal changes, changing external factors should lead the business to review its corporate objectives and strategy and adjust its plans for the future.
The firm must consider how significant the changes are, and how important it is to change... and in what time span. Change can be expensive and involve considerable organisational adjustments. It also may unsettle stakeholders.
Task 8: The need for organisations to change objectives and innovate in response to changes in internal and external environments
Using the following risk situation matrix, place the following planning situations in the appropriate box:
(a) ‘You’re asking us to commit $2 million to this project over the next 10 years but we actually have no idea what the market will look like in 10 years time’
(b) ‘$2 million is a lot of resources but the Government is guaranteeing our investments’
(c) ‘I know that Just in Time stock systems are being employed in the industry. Trouble is I’m worried about us getting it wrong. Missing customer delivery dates in this competitive environment could really damage us’
(d) ‘It’s highly unlikely that he’ll find a solution but the R&D manager says he is only asking for an extra $ 500 to conduct the necessary experiments. Do we give him the allowance?’
Ethical objectives and Corporate Social Responsibility
We can define ethics as an individual’s personal beliefs regarding right and wrong behaviour. There are a number of important elements identified by this definition:
- Ethics is defined in the context of the individual which means that people have ethics, organisations do not.
- What constitutes ethical behaviour can vary from one person to another
- Ethics is relative not absolute. However, many talk about ethical behaviour and usually mean behaviour that conforms to generally accepted social norms.
Factors that determine individual ethics
- Individuals start to form ethical standards as children in response to their perceptions of the behaviour of their parents and the behaviour that parents allow them to enact.
- Individuals are influenced by peers with whom they interact every day. If these peers have high ethical standards and reject certain behaviours then the individual is more likely to adopt high standards.
- Important events may shape individuals’ lives and contribute to their ethical beliefs and behaviour. They may be both positive and negative.
- A person’s values and morals also contribute to ethical standards. An individual who places financial gain and personal advancement as high priorities will adapt a personal code of ethics that promotes the pursuit of wealth
- Situational factors may determine ethical behaviour. Individuals may find themselves in unexpected situations which cause them to act against their better judgement.
Management ethics are the standards of behaviour that guide individual managers in their work. There are three areas where managerial ethics are most significant.
- Relationship of the firm to its employees: the behaviour of individual managers defies the ethical standards according to which the company treats its employees. Examples of such areas include hiring and firing, wages and working conditions, employee privacy, support for religious beliefs etc
- Relationship of employees to the firm: issues which arse here include conflicts of interest, secrecy, honesty in keeping expense accounts, not making secret profits, accepting gifts from potential clients etc
- Relationship of the firm to others: this would include relationships with customers, suppliers, behaviour towards competitors, dealing with stockholders, unions and the local community.
Ethical objectives
An ethical business is one which applies a set of moral principles to all interactions with stakeholders, such as its treatment of employees, customers, suppliers and shareholders. Being ethical means a business goes beyond merely complying with laws and regulations, but makes choices about what it is prepared to do, and what it will not. Therefore, an ethical business strategy may exclude behaviour, which is legal, but conflicts with the businesses ethical policy.
Setting ethical objectives is the process by which organisations apply ethical values to their targets and the actions by which they will achieve them. These ethical values should cover all the actions of the organisation from tactical to strategic.
Businesses may be faced with some of the following issues, which have ethical dimensions:
● Should we produce in a low-cost developing economy?
● Should we promote products that might damage health?
● Should we seek to undermine our competitors?
● Should we pay minimum wage rates to our employees?
● Should we employ migrant labour to cut costs?
● Should we transfer our production units to countries with less strict health and safety laws
Ethical decision-making
As with any business decision, much will rest on whether it is cost-effective to adopt an ethical stance. Some firms, for example Body Shop, made an ethical stance part of their unique selling point and some investment funds are now doing the same. However, the majority of large corporations now claim to have high ethical standards and have a range of policies on their websites that support their claims and so it is now harder to use ethics as a USP. Whether these policies are actually put into practice is often debatable.
To be effective in applying ethical standards a business needs to:
- Look carefully at the attitudes, values and standards of individual employees and if these fit with corporate expectations.
- Make certain that a corporate culture exists, is known by all employees and is evenly applied by all responsible for decisions relevant to the code of ethics.
If this approach is not followed the company runs the risk of having clashes between its values and their application. Delegation will be jeopardised by inconsistency and problems will arise.
If the company does adopt an ethical approach, it may have a number of benefits including:
- Improved motivation among employees - many employees will be more committed if they can see an ethical approach adopted by the company
- Reduced labour turnover - improved motivation is also likely to result in improvements in the recruitment and retention of staff ,who will be more loyal to an ethical company
- Improved customer perception - consumers will often react positively to a more ethical approach and this may be used (as it is by many FairTrade companies) as a unique selling point for the business. It also helps provide the brand with a more positive association, which should enhance brand value.
A growing number of investors do not want to invest in companies which pollute or damage the environment, deal in the arms trade, or support oppressive regimes. Many also don't want to support tobacco companies or those that profit from gambling, pornography or the production of alcohol. More recently people have begun to express concern about general business ethics and how companies conduct their day-to-day business practices. These are no longer minority interests.
As a consequence, there are a growing number of companies that specialise in ethical investments. They promise to examine the ethical credentials before they invest their clients' funds. One such firm is F&C, which lays out its investment criteria in its guide to ethical investing.
However, an ethical approach to business operations may have a number of potential problems. These may include:
- Higher costs - using ethically sourced raw materials, or producing in a way that is more ethical, is likely to raise costs. If the company is able to use the ethical considerations to develop the brand, then this may not be a problem, but if they are in a highly price competitive market then it may be more of an issue.
- Problems with suppliers - suppliers may not hold the same ethical views as the firm and this may lead to possible conflicts. It may also make sourcing supplies more problematical.
- Lower profit - if the higher costs cannot be passed on to the consumer, then this is likely to lead to lower profitability for the firm.
- Stakeholder conflict - not all stakeholders will be keen on an ethical approach if it compromises their objectives. For example, some investors may withdraw if they feel that the ethical stance of the company is affecting its long-term viability or profitability.
Remember that ethics may be a subjective concept, varying from country to country and culture to culture and, of course, from individual to individual. Even within a single firm there will be a huge range of opinions about what is right and what is wrong. The only difference though between a business and everyday life, is that employees should know a little about the firms values before they join, and to some extent are signing up to these.
Ethics also covers different areas than that covered by the law. It is possible for a business to act legally, but in a manner that many would consider unethical. Selling cigarettes or weapons, for instance, fits into this category.
Examples of unethical behaviour under the category of relationship of the firm to others
▪ Pricing products low enough to drive a competitor out of business
▪ Making false claims in advertising about a competitor’s products
▪ Selling products that are not safe or have false ingredients in them
▪ Altering financial records to make it seem as though the firm has more cash reserves than it actually has
▪ Convincing a supplier that a price reduction is necessary because of impending losses if the firm actually expects to make a large profit.
What is Ethics?
Ray Anderson on Corporate Social Responsibility - his epiphany
Task 9: Siam Cement Group (SCG)
The SCG has a strict ethical code of conduct. Its key features are shown in the table below.
According to a report by Judith Ross, as SCG expanded beyond Thailand managers came under pressure to compromise on its corporate code of ethics. The company’s standards on bribes and other improper payments, for example, made it difficult to compete in places where such unethical payments are a way of life. This example demonstrates the classic problem: should firms conform to the standards of the country they operate in or should they try to export their own high moral principles to other lands?
Source: http://hbswk.hbs.edu (adapted)
Questions
1 Explain what you understand by the terms:
a business ethics
b code of conduct. [4]
2 Explain how SCG and its employees might benefit from the clear statement of business ethics and the code of conduct. [8]
3 Should a business such as SCG ever use unethical methods in a country where they are the ‘norm’, for example the giving and accepting of bribes? Justify your answer. [10]
Corporate Social Responsibility in organisations
Firms have a range of responsibilities to various stakeholders including the wider community in which they operate. These responsibilities are often called Corporate Social Responsibility (CSR).
A successful range of socially aware policies should engage more members of the public and boost trade. They might also reduce costs as law suits and lost orders should be less. Customer loyalty, employee morale and retention should also improve as a result of a more socially aware strategy and its concurrent objectives.
CSR is an umbrella term which covers firm's ethical objectives. However, although CSR is about behaving ethically, there is a distinction between CSR and ethics. Ethical behaviour is about individuals and an ethical policy produced by an organisation is about managing the behaviour of individual employees and possibly, other stakeholders. CSR is focused on the behaviour of the organisation itself as opposed to the actions of individuals within it. It is about the role of the organisation in its environment and managing how that interaction takes place.
However, there are a number of barriers to corporate responsibility that prevent businesses behaving in the most socially desirable manner. The first and most important of these constraints is cost. Behaving in a socially responsible way for many businesses will raise their costs and given the pressure on them to maintain their global competitive advantage, they may be unwilling to change their method of operation. Firms may often act ethically when profits are high, but change their behaviour when under economic pressure.
Business has a responsibility to the society in which it operates. Members of society are stakeholders (have an interest in how the business operates) and need to be treated accordingly.
By being socially responsible firms hope to be seen as:
• Good employers
• Responsible capitalists
• Preserving a good image, which should allow them to build sales
• Being trustworthy and a worthy of customer loyalty
Being socially responsible is likely to increase costs. It may also take time for employees to adjust to what, for some, may be radical changes. It may also be that what seems to be a good idea to one set of stakeholders is not fully appreciated by another. For example, the cutting of dividends to restore confidence in the business may not be popular with shareholders.Differing views on Social Responsibility
There is much debate about the role of business and the level and extent of its responsibilities to society. Indeed, some commentators argue that it is not the job of business organisations to be concerned about social issues and problems.
There are two main schools of thought:
It is the free market (capitalist) view that the prime objective of a business is not to act in a socially responsible manner if, the extra costs incurred reduces the distributable profit to its key stakeholder, the owners of that business. It is argued that it is the role of government and the legal system to protect the environment and individuals affected by production. The following points are made:
• Managers are employed to generate wealth for the shareholders - not give it away
• Social improvements, such as better health care and greater life expectancy are the result of free market economies driven by the free market
• Free markets contribute to the effective management of scarce resources
• Any additional costs will be passed onto the customer in the form of higher prices reducing social welfare
• Regulation should be kept to a minimum since because it stifles competition as it creates an additional barrier to market entry.
The corporate social responsibility view is that business organisation like all 'citizens' have a responsibility to society to minimise the effects of business operations.
• Those managing business need to recognise that they rely on society to provide a profitable environment, and no business has the right to operate at the expense of that society
• There is a contract between business and society involving mutual obligations and responsibilities
• A business should not act just for profit, but do what is right, just and fair, promoting human welfare.
However, the middle ground can be argued that acting socially responsibly is a form of enlightened self interest. Although acting responsibly is costly and possibly inconvenient, it is believed to be in the firm's best long term interests. This is a 'short-run versus long-run argument', that you will see arise many times in your business and management course.
Environment
A key area of corporate social responsibility is the impact that a firm has on the environment and this attracts perhaps more media and other coverage than many other areas of this important topic.
Policies to implement objectives of Social Responsibility
Many businesses now produce an 'environmental audit' or 'sustainability report' (generally produced by a specialist consultancy firm) to try to show clearly to their stakeholders the impact they are having on the environment.
Changes in a firm's view of its social responsibility over time
A firm's attitude to social responsibility will be moulded by its internal environment and by factors outside of the business.
Internal factors:
- A business is made up of individuals, who are also consumers and citizens. The attitudes and norms of a business, therefore, must reflect the views and norms of these individuals, who in turn are influenced by the society in which they live.
- Corporate cultures evolve and change over time with staff joining and leaving the business. New recruits, particularly at a senior level may bring new views and attitudes to the business.
- Profitability and cash-flow may influence how socially responsible a business can afford to be.
- The attitude of key stakeholders may be crucial. Shareholder may be able to force through changes at an AGM or elect managers that will reflect their views - whether in favour of more socially responsibility or against.
External factors:
- Government laws and regulations will constrain business behaviour.
- The state of the economy will influence how much firms are prepared to spend on measures to improve their socially responsible image. In times of recession there may be less room for this 'voluntary' expenditure.
- Pressure groups may force firms to change business practices by 'naming and shaming', creating bad media stories and lobbying government to take action. All of these may undermine a firm's image and reduce its profitability.
- The behaviour of competitors is crucial. If competitors take their responsibilities less seriously and have lower costs, they may undercut firms prepared to be good citizens. This may prove disastrous and force a change to a less responsible policy.
Changes in attitudes to social responsibility over time
The external environment is dynamic and social attitudes and norms change over time. This can be seen in all walks of life such as in attitudes to discrimination, working conditions, education and smoking, all of which have altered radically over a relatively short period of time.
Arguments for and against social responsibility
Arguments for
▪ Business creates problems and should therefore help solve them
▪ Corporations are citizens in our society
▪ Business often has the resources necessary to solve problems
▪ Business is a partner in our society, along with the government and the general population
▪ Attractive to likeminded, high quality employees
▪ May reduce packaging costs and environmental taxes
▪ Improves image of firm/brand
▪ Differentiation from competitors
▪ Creates new markets for goods and services and attracts new, likeminded customers
▪ Positive impact on profitability is sales increase and costs fall
Arguments against
▪ The purpose of business is to generate profit for owners
▪ Investment in social programmes gives business too much power
▪ There is potential for conflicts of interest
▪ Business lacks the expertise to manage social programmes
Sustainability in Fuji Xerox and Huawei
- Task 10: The class will be split into five groups and each group will be assigned a business scandal identified below. The purpose is to identify the conditions which allowed this type of behaviour to occur.
Volkswagen emissions scandal
Wells Fargo banking scandal
Martin Shkreli of Turing Pharmaceuticals
HSBC's global money laundering scandal
Kobe Steel scandal
Kobe Steel scandal
Ethical behaviour in organisations usually emanates from two main areas: culture (internal) and competitive environment (external) although these effects are interrelated. We will see why this is the case addressing Asch's Conformity Experiment and how choice of language can affect organisational behaviour
Asch's Conformity Experiment
Advertisement incorporating Asch's Conformity Experiment
Why do unethical business practices often go unpunished in the workplace?
SWOT Analysis
A SWOT analysis is an INTERNAL audit of where the business is at the present and how it is affected by its EXTERNAL environment:
STRENGTHS - what the firm does well and its advantages e.g. experience
WEAKNESSES - what the firm does not do well e.g. customer service
OPPORTUNITIES - changes in external conditions, which will allow the firm to develop markets, sell more, expand and make more profits
THREATS - External factors which may stop the firm achieving its aims - CONSTRAINTS and barriers
Why use SWOT analysis?
A SWOT analysis can support effective strategic planning based on an examination of the firm's capabilities and its external environment. A SWOT analysis is a business tool which allows the assessment of a product, division or organisation in terms of its strengths, weaknesses, opportunities and threats. Its simple four box format makes it a useful visual tool to assist the planning process. The strengths and weaknesses are summary of the present position of the product, decision or organisation, whereas the opportunities and threats represent the future potential or concerns of the business.
SWOT analysis has many uses and purposes.
● It gives a good picture of the firm's actual position in the marketplace
● It is a good training tool for staff and may help create a team environment.
● It helps develop a better understanding of the firm's service level, product range and brands
● It forces the firm to examine its business and consider the present and future competition.
● It examines external influences and future changes
● It encourages an assessment of strategic opportunities, such as expansion or relocation
There are links between:
● Strengths and Opportunities, and
● Weaknesses and Threats.
For example, a firm that has a well trained and loyal workforce (strengths) will be in a good position to adapt to changes in the markets (opportunities) and to produce products and services to meet new customer needs. So firms should seek to build on their strengths to put them in a position to take advantage of new opportunities when they arise.
However, a firm which has an unmotivated workforce and poor quality services (weaknesses) may not be in a good position to compete with new suppliers in the market place (threats). The firm should seek to reduce its weaknesses to address growing threats.
NB
● Like any business tool it is only as good as the people preparing and using it, and will need to be used in conjunction with other tools. It requires honestyby all involved, especially to admit the organisation's weaknesses.
● SWOT analysis should NOT be used to assess a strategy. You cannot have an opportunity or threat of a strategy.
SWOT Analysis – Possible Variables
Strengths
● Brand equity i.e. brand has value in the market place
● Number of centres of operation has increased
● User of sophisticated information technology.
● Significant investor in training and development of its staff
● High sales growth/high profit growth/cost decline
● Committed to social and environmental responsibility.
● Wide number of distribution channels in operation.
● Extensive product range
● Significant share of a niche market
● Management have significant strengths and experience
● Specialised production methods if a manufacturer.
● Hold minimal stock levels
● Low gearing ratio
● Production running at full capacity i.e. indicative of strong demand in the market
Weaknesses
● Reliance on a few major buyers
● Profitability is unstable in the short-run.
● Extensive product range – limited flexibility
● Regionalised location of retail outlets – unable to spread risk based on location
● Slow adopter of new innovation and technology i.e. an innovation laggard
● Focused too assiduously on one product (core competence) – limited ability to diversify.
● Slowing sales growth/slowing profit growth/loss making
● Disconnect between mission statement – objectives – strategies and tactics.
● Concern over job security amongst staff
● High level of wastage in production
● Average age of staff is rising
● Significant level of worker turnover/ significant proportion of staff will retire in the short-term.
● Resistance to change amongst the staff.
● Poor management and leadership styles evident in organisation.
● Threat of strike action
● Unreliable suppliers
● Production running at full capacity i.e. breakdowns in process will severely affect flow of goods to market
● High gearing ratio
● Significant amount of overtime needed to meet demand.
Opportunities
● Market development i.e. expand to foreign countries due to rising demand in those markets
● Amalgamate with one of your major buyers i.e. vertical integration
● Takeover a competitor or supplier i.e. horizontal integration and backwards vertical integration.
● Outsourcing/subcontracting of production.
● Regeneration of the commercial area where your factory/retail outlet is located i.e. value of your asset appreciates.
● Form a joint venture or strategic alliance to gain synergy
● Enter a market that has been vacated by an ineffective competitor.
● Government measures that will increase the demand for your product i.e. fiscal stimulus that increase consumer demand or tax credits that encourage the business to invest in new processes.
● Changing social trends that make your product ore attractive in the eyes of consumers.
● Exchange rate fluctuations that make it cheaper to import (appreciation of your currency in terms of others ) or export (depreciation of your currency in terms of others)
● Increased supply of an essential input used in production.
Threats
● Exchange rate fluctuations that make it more expensive to import (depreciation of your currency in terms of others ) or export (appreciation of your currency in terms of others)
● Downturn in the economy which lowers domestic consumer expenditure i.e. lower economic growth
● Rising interest rates make borrowing more expensive
● Rising inflation rates cause costs of production to rise.
● Rapid growth in the market will encourage other firms to enter the market.
● Price wars with competitors
● A competitor has a new, innovative product or service
● Competitors have superior access to channels of distribution.
● Taxation is increased on your product. This will raise its price and lower quantity demanded. The net effect is usually lower sales revenue.
● Size of the total market is shrinking.
● Fall in the supply of an essential input used in production.
SWOT analysis of a given organisation
SWOT analysis
SWOT Analysis
Task 11: A cruciform chart is a table listing the significant strengths and weaknesses and opportunities and threats. It can be used to summarize the major conclusions of a SWOT analysis. The following is an example of a SWOT analysis
Identify what position this firm is in and present possible future strategies.
Task 12: Hall Faull Downes Ltd has been in business for 25 years, during which time profits have risen by an average of 3% per annum, although there have been peaks and troughs in profitability due to the ups and downs of trade in the customers’ industry. The increase in profits until five years ago was the result of increasing sales in a buoyant market, but more recently, the total market has become somewhat smaller and Hall Faull Downes has only increased sales and profits as a result of improving its market share.
The company produces components for manufacturers in the engineering industry.
In recent years, the company has developed many new products and currently 40 items in its range compared to 24 only five years ago. Over the same five-year period, the number of customers has fallen from 20 to 9, two of whom account for 60% of the company’s sales.
Conduct a SWOT analysis and make recommendations for the company
Ansoff Matrix for different growth strategies of a given organisation
The Ansoff Growth matrix is another marketing planning tool that helps a business determine its product and market growth strategy.
Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. The output from the Ansoff product/market matrix is a series of suggested growth strategies which set the direction for the business strategy.
Source -
http://www.tutor2u.net/business/reference/ansoffs-matrix
Market Penetration (Concentration)
Peters & Waterman (1982) call this ‘sticking to the knitting’. It has a number of specific characteristics:
▪ Growth is an important objective
▪ There is a search for ways of doing things more effectively
▪ It puts emphasis on using a single product and trying to achieve a greater share of the existing market
▪ Advertising is used to attract new users or consumers and increases the consumption rates of existing consumers
▪ It also tries to take consumers and market share from competitors
Advantages
▪ It is based on known skills and capabilities of the organisation
▪ It is a highly focused strategy and can develop present skills effectively to create competitive advantage
▪ The company can be more sensitive to market needs and build up a reputation in this area
▪ It is generally a low-risk strategy
▪ Steady growth is easier to monitor in management terms
Disadvantages
▪ It is more of an incremental than a revolutionary strategy
▪ There are limits to which growth can take place within this single market
▪ A company pursuing this strategy is subjected to changes in consumer preferences and downturns in the economy
▪ It puts a considerable onus on the company to monitor the activities of competitors
▪ It also puts an onus to keep up with innovation in its own product area
▪ It requires considerable financial expenditure on advertising and promotion
Market Development
This strategy involves the company moving into new market areas using existing products/services. It can take a number of forms. A firm may decide to modify its product in some minor way to make it more attractive to certain markets. Alternatively, the expansion can take place across national frontiers through exporting or there may be geographical expansion on a national basis. In order to pursue market development effectively, segmentation of the market is necessary. Four principal factors which influence the opportunities for effective segmentation are:
▪ Identification: this means that specific sectors need to be identified
▪ Measurability: it must be possible to gather reasonable estimates of consumption patterns
▪ Accessibility: this concerns the ability of the organisation to direct its marketing efforts to a particular segment
▪ Appropriateness: this concerns the suitability of specific segments to the organisation’s mission
Advantages
▪ It builds on existing strengths, skills and capabilities
▪ It is a relatively low-risk strategy
▪ It can generate considerable revenue for a relatively small outlay
▪ It may provide revenue for new product development
Disadvantages
▪ It is usually only suitable where the product is in the early stage of the life cycle
▪ It requires considerable market research
▪ Specific unique segments may be difficult to identify
▪ The organisation may not have the capacity to meet the needs of the segment
▪ It requires considerable expenditure on advertising and the opening up of new channels of distribution
Product Development/innovation
This is an option for existing markets and may involve new product types derived from technical developments or improvements. There may be a number of reasons for pursuing this option:
▪ It is designed to improve the competitive position of the company by attracting customers
▪ It can be designed to prolong the product life cycle
▪ It may capitalise upon a particular competence in areas such as R&D or innovation
▪ It can help the company to serve new needs in the market place or deal with possible substitution issues
▪ It may simply be necessary for the organisation to survive
▪ It can be used to enhance product differentiation
Examples
▪ Extending the life cycle of books by prefacing a second and revised edition
▪ Re-launching a range of cosmetics with built in improvements which add value
▪ Changing a product’s image
Innovation is a component of new product development. This involves significant changes to the product/service. Innovation can add considerably to the prestige of the company and allow it to create competitive advantage. However, it is a costly strategy. Constant innovation requires other products and strategies to be successful in order to provide funding.
Advantages
▪ New product development plays an important role in determining profitability at later stages of the product life cycle
▪ It may have spin-off effects in terms of the manufacturing process (improved quality control, faster deliveries, lower product costs)
▪ In companies with short product life cycles, it is necessary if continued growth is to be achieved
Disadvantages
▪ It is a relatively high-risk strategy
▪ There is a high rate of new product failure
▪ New products can take away from existing products
▪ A considerable investment in R&D and advertising is required
Diversification
A company can diversify by internal means, either by creating products/services similar to the ones it has in terms of their technology and/or markets, or by creating products/services which are totally different from its existing profile, but which may appeal to existing customers.
Reasons for why a company may diversify by internal means
- The new products may have counter cyclical sale patterns compared to an organisation’s present products
- The organisation’s present channels of distribution can be used to market the new products to current customers
- Revenues derived from an organisation’s current products or services may significantly increase by adding new unrelated products
- Diversification may be necessary because an organisation competes in a highly competitive and/or no-growth industry, with the result that there are low profit margins
Advantages
▪ It may be necessary in order to survive in the long term
▪ The diversification may produce synergy
▪ It may be an effective use of excess funds
▪ It gives the organisation a wider product/service line
Disadvantages
▪ Diversification on a large scale is necessary for success
▪ Organisations may not have the expertise to manage the new products/services well
▪ Considerable investment may be required in new technology
▪ It is an incremental strategy- profits take time to accrue
Financial implications of internal growth strategies
1. Market penetration or concentration on a single product and a single market would be considered a low-risk strategy requiring moderate levels of financial resources and promising a reasonable return over the longer term. Financial synergy will not arise. This occurs because costs are not being spread over a number of product lines.
2. Market development requires moderate to high levels of financial resources. This depends basically on whether the markets are at home or overseas. In the case of the latter, the financial resource could be considerable. The level of financial return will also be moderate to high but may accrue in the short term. The level of risk is moderate to high depending on the market exploited; foreign markets may have higher risks attached to them. There is a high possibility of financial synergy accruing with this strategy
3. Product development/innovation would also be considered a high risk strategy. Financially it will absorb a considerable amount of financial resources, but the returns can be significant if the product is successful. In the case of product modification, the returns will be significantly less as well as the risk inherent in the choice. The return is most likely to accrue in the long term
4. Diversification is a high risk strategy. Financially it requires a considerable investment of financial resources; the financial return is more likely to accrue in the long term. However, the level of financial return can be significant if the strategy is successful and there is the strong likelihood of achieving financial synergy.
Ansoff Matrix
Ansoff Matrix
Task 13: Form a group and complete the task set (determine which strategy or strategies from the Ansoff Matrix is being pursued by the organisations):
Files to download
1.3.Organizational Objectives 2017-18.docxGrowth Strategies - Ansoff.pptx