By the end of this chapter, you should be able to: • Explain the definitions and roles of vision statement and mission

statement

• Define aims, objectives, strategies and tactics and explain their

relationships

• Explain why organizations change objectives and innovate in

response to changes in internal and external environments

• Describe ethical objectives and corporate social

responsibility (CSR)

• Outline the reasons why organizations set ethical objectives

and the impact of implementing them

• Explain the evolving role and nature of CSR

• Prepare a SWOT analysis of a given organization

• Examine the Ansoff matrix for different growth strategies of a given

organization

Vision and mission statements Successful businesses have a clear iden ti ty, shared va lues and, sense of purpose that all stakeholders identify with . To uea te or rrin rorce this iden tity, communicate these vaJues, and maintain focus o n the. purpose n any businesses p roduce mission and visio n statements. Some businesses w ill have one o f these, oth ers both. Whe n prope rl y done, both types of state me nt can help a business reach its loftiest a ims and stay focused day to day.

Mission and vision statements a re sometimes confused. They have, however, different purposes. The vision statement is more forward looking and speaks to the long-term aims and highest aspirations o f a business. A mission sta tem e nt is more grounded in th e a im of accomplishing objectives to achieve the mission, a n intermediate step on the way LO t11c vJsioPl. The two statements sho uld complement each other, w ith th e vision sta tement be ing produced first. Less specifi c than a mission statement, tb vision statement serves as a g uiding principle o r principles.

38

BUSINESS ORGANIZATION AND ENVIRONMENT

Table 1.3.1. Comparison of vision and mission statements

Vision Mission

Concept What do we want? Why are we doing what we are doing?

Purpose A vision statement points to the future. It is A mission statement, based upon where the business is what the business would like to see itself as. now, communicates what needs to be done in order to

achieve the v ision.

Audiences To internal stakeholders, the vision To internal stakeholders, the mission statement provides statement inspires and motivates a means for accountability by defining key performance employees. indicators.

For external stakeholders, the vision statement For external stakeholders, the mission statement measures binds them to the business by giving a sense how successful the business is at achieving its vision. of shared bel iefs.

Change As an expression of the business core A mission statement may change: in a world of values, the vision should never change. dynamically changing external environments, a mission

statement may need to be modified to meet new

circumstances.

Aims, objectives, strategies, and tactics Businesses may also distinguish be tween aims and obj ectives and between stra tegies a nd tactics . All of t hese concepts a re in terdepende nt and all th ese terms, including visio n a nd mission, are li nked in some way or a noth er. Figure 1.3.1 is a n attempt to show their relationship w ith each other.

vision

tactics

objectives aims

Figure 1.3.1. The v ision and mission statements - relationship between aims, objectives, strategies, and tactics

The a ims of a business are its long-term goa ls - what it wants to achieve in the future. An example of an aim might be: "We want to be profitable every year tJ1rough the production of tasty, high -quality meat products". Another aim might be more focused o n the delivery of th e service: "We aim to deliver

"Futurists" or "futurologists"

are regularly wrong. In light

of the unpredictability of

the future, to what degree

is planning for the future

good use or a misuse of a

business's resources?

1.3 OR GANIZ AT I ONAL OBJECTIVES

consistently high-quality plant and ga rden prod ucts th rough a helpful sales staff". The vision statement is a summary o f these a ims (sometimes literal ly the sum of these aim s, at other times with modified word ing) .

Two examples of vision statements of major corporations you probably know (and the products of whid1 you rrtight use) a re Crom Microsoft and Toyota USA.

Examin e th e ir visio n sta teme n ts:

• Microsoft: "A personal com puter in every ho me ru nn ing Microsoft softw are".

• Toyota USA: "To be the most success ful and respected car co m pan y in Amer ica ".

In both cases, the vision statements are brief and exp ress aspira tions that are high and long term. They a re inspirational. Both statements convey a sense o f con fidence in purpose. Further, they convey the sense that, if the companjes a re not at tlus lofty place yet (Microsoft running software in every home or Toyo ta USA being the most successfu l and respected ca r com pan y in America), Lbey will not give up un ti l they 1av reacbed their aspiration.

Ln contras to aims, objectives ar e.c tbe medi um- to shon-term goals that clarify how the bu siness wi ll achieve its aims and reach its vision . A m ission summarizes these o bjc.ctives.

Student workpoint 1.5

Be reflective You m igh t be aiming fo r a grade 7 in IB Busin ess Management. Wha t m ight your person al v isi on statem ent be?

Wh at m igh t your perso na l m ission statemen t be?

Does your school have a mission sta tem e nt? If so, what does it m ean for you as a p upil? What does in mean for your teach ers? If not, try a nd design o ne!

Objectives sho uld have specific characteristics. They also come in three types:

• Strategic objectives - som etim es referred to as glo bal objectives -a re th e m edi1.1111 - to long-term objectives set by sen io r managers to

guide t he com pan y in the right d irectio n to achieve the a ims.

• Tactica l objectives a re t he medi um- to short-te rm o bjectives set by middl e ma nagers to achieve th e stra tegic objectives.

• Ope rat ional objectives a re th e day-10-day objectives set by fl oor managers (and som e times workers the mselves) so tha t the compa n y can reach its tactica l objectives.

Table 1.3.2. Vision and the three ty pes of objective

Long-term and highest aspiration

Key term

Vision statement

a philosophy, vision or set of principles which steers the direction and behaviour of an organization

Day-to-day goals

39

40

BUSINESS ORGANIZATION AND ENVIRONMENT

Bus incssc. use the. term hierarchy of objectives to describe the relat ionship bc-Lwccn a ll or these goals. At the top or the hierarchy a re the ai m$, w hi ch ar re.w in n umbe · and.se by Lb en LLepreneu or the chid execu tive offi cer (CEO). The a ims arc (and should be) i-a1hec gen era l. How the business ach ieves these a ims is th rough the u ext leve l of ma nagers - th e senio r ma nage rs (directo rs o r e xecutives) . These s11<1 tcgi objectives viii be g rea ter in numbe r and concre te . Ideally, these objectives will also be SM/\Rll (see below for deta ils) . With SMART objectives, the en treprene ur o r CEO has some fair and meas urable way LO assess the performance o [ th e executives and th eir d ivisions. If SMART objectives are not met, th e CEO must ask: Were the objectives properly set, or did the directors o r executives not perfo rm prope rly in m eeting the objectives? If the directors o r execu tives vastly exceed th e objectives, the CEO may decide to set more ambitious objectives the fol lowing year.

Businesses achieve their stra tegic objectives thro ugh 1hc oext tier of o bjl'Clives, th ose that a re tactical. IacticaLobjec1ives rend to be greater in n umber than srratcgic objcn ivcs and a re usual ly sc.1 by the next leve l o f ma nagers - the m iddle ma nagers (heads of department o r supervisors) . At th e lowest level, operar iona l objecti ves will be set: noor managers wi ll deter mine specifi c objectives that, in sum, ensu re that the tactical objectives will be m et.

Consider the hie ra rchy of objectives shown in Table 1.3.3.

Table 1.3.3. The hierarchy of objectives

Student workpoint 1.6

Be reflective Here are the vision sta tements of two large organizations:

Oxfam: A just world without poverty

Amazon: Our vision is to

be earth 's most customer centric company; Lo build a place where people can come to find and djscover anything they might want to buy online.

What do the statements reveal about the a ims and attitudes of th e orgaruzation? Look carefully at th e words that each statement uses - what affect do they have on you?

Aim Strategic objective Tactical objective Operational objective

To be the most successful

car dealership in the city

To have the highest market

share of car dealerships in

the city

To hire and retain enough

salespeople so that the

dealership has sufficient

salespeople to serve

customers at all times

In the example in Table l .3.3 the CEO sets the a im tha t a particular car dea lership should be the most successfu l in the cit y. The h ead of sales determines th at th e best way to measure success is by having the highest market share of any ca r dea lership in the ci ty. The sales managers realize that Lo have the highes t market sha re w ithin a specified time frame means having more qualified sa les staff to serve customers. Then the sa lespeople, realizing that their chance of making a sa le increases the sooner they gree t the customer, agree as a grou p tha t no customer w ill go more than two minutes w ithout be ing greeted a nd offered service by a sa lespe rson - even if ir mea ns that sa lespeople w ill not fin ish their coffee d uring th ei r break .

An important difference between aims and objectives is that objectives are concrete and can be translated into something specific and measurable. A vision such as "To be the most successful and respected car company in America" is motivating, but it is also (purposely) vague . This vagueness a llows almost everyone 10 feel conn ected to it, but vagueness and abstractness are not quali ties that employees ca n act on in unison .

To have the average amount

of time that a customer

waits to be greeted by a

salesperson to be less than

two minutes

1.3 ORGAN IZ ATIONAL OBJECTIVES

Businesses a re effective w hen they ta ke tha t v ision a nd transform it imo speci fic objectives. The best business objectives a re SMART. SMART objectives a re as fo llows:

S pccifi , - Is the objecti ve clear an d well de fined? Objectives should relate to the nature o r the business and be una mbiguous. Rath er than set a n objective tha t the business "sho u ld g row", a sma rt objective would cla rify that it wants to "in crease its m embersh ip" or "increase th e number of u nits sold" or "increase ma rket sha re" .

M eas urable - Ca n th e objective be measured LO see whethe r it has been achi eved o r n ot? No t o n ly should the objective be specifi c bu t it sho uld also be m easu rable, as each of the above cases we re (number of m e mbers, n umber o r un its sold, size of m arket share) .

A ch ievable - Ca n the objective be a chieved (is it real istic)? Whe n objectives are ach ievable, they ca n be motivatio nal. Objecti ves that are beyond the reasonable reach of a business o r its em ployees can have the opposite effect, w ith employees giving up beca use they think or fea r that th ey can not reach th e objective. Achievable goals also redu ce dissonance a nd distractions (wh e n employees or manage rs wonde r how other aspects of the business are going to support th ese objectives) .

R elevant - Is the objective actua lly of any use? Businesses can se t objectives that are d istractions from the ma in purpose o f the company o r, mo re commonly, set objectives for specific employees tha t are not relevan t to the e mp loyees' area of responsibili ty. At a school, telling a member o f th e custodial staff that the objectives are for stude nts to achieve high IB scores is not particularly re leva nt. Telling the custodial sta ff tha t, to lower expenses, th ey n eed to reduce the am ount of cleanin g supplies by 7 pe r cent is re leva nt.

T ime-specific - Has a suffi cient time fra me been set? If objectives do no t have a time fra me or deadline, they are no t meaningful. Fo r a car dea le rship to te ll the sales staff that the number of ca rs sold per salespe rso n m ust increase by 5 pe r cent is meaningless unl ess th e sa les sta ff is told the date by w hich th e new sa les target is LO be met.

A business strategy is a plan to achieve a strategi objecti ve in order ro work towa rds the a ims of rhe business . This stra tegy will be medium to long fe rm and wil l require senio r manage rs Lo make the decisions approved by the owners and/o Lb, CEO.

Stra tegies are not un pla nned o r spur of the moment; they invo lve careful a nalys is of:

• whe re the business is

• developm ent of a plan (strategy) of how to get w here th e business wants to be (a ims)

• careful conside ratio n o f how to implem ent the strategy

• a pe riodic evaluation process (in well- run orga niza tions) to dete rmine w hether the plan is working o r, a fter a speci fi c period of time, has worked.

Specific

Measurable

Achievable

Relevant

T ime-specific

STRATEGY Whatever the business, devising

a strategy means asking 'who,

when, what, where, why?'

What are the implications of

missing one of these questions?

41

42

BUSINESS ORGANIZATION AND ENVIRONMENT

A business tactic is a plan to achieve. a tact ical objecLivc lo work towards Lh SLrategies o1 the busin ess, w hich tb cms-elvcs are the ath to reaching Lhc a ims of Lhe business. This tactic wi ll be short term and will require midd le managers to make the decisions approved by the senior managers. Tactics are easier to change. They are less closely tied to the long-term health of the firm but rather focus c n how 10 achieve m easurable target. within the stra tegy.

A business ca n have a sound strategy but a poor tactical p lan. A strategic objective, for example, might be offering food that is perceived by restaurant customers to be of the highest quality of its Lype in a marke L area. One tactic for determining customers' satisfaction might be customer count o r observing customers' reaction s as Lhey eat the food . A better tactic mighL be to obtain a more direct form of customer feedback on food quality (but it might not be a better form if Lhe d irect feedback does n ot otherwise fiL with the marketing mix of the restaurant).

The need for organizations to change objectives Businesses o fte n need to change objectives. SorneLimcs this re.qu ires changing strategic objectives. More commonly, it in voh1es cba11ging tactical objectives and, day ro day, floor managers and supei;__visors cha nge opcratiooal objectives. Regardless of the level, objectives change because of changes in either of these e nvironments:

• the internal cnvi ronmen t.t w hicJ1 refers to changes in the condit ions within t he business

• the external environment, which refers to an yth ing outside th e business that nonetheless has a bearin° on its operation or perfo rn1ance.

Changes in the internal environment might include the following:

Leadership - change of leadership often can lead to a change in aims and objectives. A famous example is when, in 1996, Steve Jobs returned to Apple . Som etimes new leaders brought into a compan y wil l have a different leadership style from their predecessor, which can require signifi cant cha nges to objectives.

HR - th e term "human resources" covers a vast a rra y o f e lements of a business. Conditions related to HR can change and ca n alter objectives all down the hie rarchy. industrial action, which refers to actions taken by unions or other forms of organized labour, can often precipitate cha nge in an organization.

Organization - business organizaLions change. A merger or acquisit ion, such as when Kraft LOok over Cadbury, can have a ripple effect through an organization ca using the new orga nizaLion to re think many of its objectives. In other instances, some internal pressures may ca use an o rganization to modify one aspecL o f its business. However, given the interconnectedness of all the business functions, d1anges in one area can requ ire changes in another, including changes to strategic or tactical objecLi ves.

Product - products are sold in a marketplace. Sometimes, the performance of Lhe product in Lh e ma rketplace may requ ire changes in

1.3 ORGANIZATIONAL OBJECTIVES

either the product or so metimes an entire product line. In the 1980s, for example, because of market pressures Lucozade reoriented itself as a spo rts drink, a nd sales tripled. With this change in the branded identity of the product, from an ill ness-curing beverage to a n en ergy-providing spo rts drink, many di ffe re nt aspects of Lu cozade's strategic and tactica l objectives had to change (wh ich led to an even grea ter number of cha nges in o pe rationa l objectives) .

Finance - All bu siness activity must be fin a nced. When the circumstances of finance change, especiall y when sources of finance become fewer and th e amount o f finan ce decreases, o rga nizations have to modify their strategies o r change the em p hasis o f th eir business. In 2009, FIFA foo tball introduced the "Fina n cial Fair Play" ru le, which m odifi ed how much m oney tea ms could spend on players, and tea ms h ad to respond.

Many othe r sets of circumstances can change finance. Afte r the world recession bega n in 2008, for exa mple, ma ny banks raised lending standards and businesses had to ma ke adjustments because they had more limited access to ca pital to fin ance activity.

Operations - ideally, m ost businesses are innova ting consta ntly, not just by o ffe ring new products but also by developing be tter methods for producing o r delivering th e ir core se rvice or product - that is, by innovating their operations. Som etimes changes in operations occur fo r m ore everyday reasons, such as relocating a factory. W hethe r becau se of innovation or the m ore everyday reason, changes in ope rations ca n necessitate other changes in o bj ectives.

If any of the above inte rnal fa cto rs are a lte red, then the business may well have to respond o r even pre-empt them by cha nging its objecti ves. Cha nges can also occur in the external environment. Usua ll y, a business has limited o r no control over the external environment, a nd often objectives have to chan ge in response to th em. Often, business people and teachers a nd stud ents use a "STEEPLE" framework to frc1111e ·ssucs related to the external environment. Steeple factors a re as fo llows:

Social - this refers to changes in society o r culture, such as dcmogra 1hit change (social) or cultural change such as an increased preference fox expensive coffees, like those su pplied by Starbucks or Coffee Aroma) . Social changes such as these may force the business to reappraise its objectives. One example is the business of education. More w om en are a ttending university an d obtaining degrees than they did a few decades ago and, as a result, universities are modifyin g many of their objectives, from course of[erings to residential practices, to suit the greater number of women.

Technological - today is an era of rapid technologica l change, w hich can change the environment fo r business in an y number of ways. A vroduct a business offers can b.c rendered obsolet · or uncompet iti ve because of technological inoovation (think how q uickly Blackberry went from being a "h ot" product to on e th at struggles to compete with new sma rtphones). Techno logical innovation ca n force chan ges in production techniques if a com pe titor develops new m e thods for produ cing products m ore cheaply than oth er businesses. Technologica l changes can also force a business to change for "softe r" reasons. All

43

44

BUSINESS ORGANIZATION AND ENVIRONMENT

businesses need to be more awa re o f their environmen t and the ir actions in it because information technologies allow communication in ways previously un known. Today, for example, Nike would have a harder time manufacturing shoes in low- income economies and using child labour com pa red to severa l decades ago, w hen companies cou ld o ften follow th ose tactics without being discovered.

Economic - changes in the ma rket conditions, such as tl:l.e _presence of ncw competitors, or simply cha nges in the economy, s uch as th e globa l Anancia l crisis that began several years ago, ca n have a profound influence on businesses and fo rce them to change strategic an d tact ica l o bjectives. For example, beca use of changing economic con ditions inte rest rates o n loa ns can increa se, ra ising th e cost o f ca pital for businesses and preventing capital investment. If a compa n y sells a product the demand fo r w hich is income elastic (see mor e on this in Unit 4.x ), sa les may fa ll in an economic downturn. For man y reason s, changing economic condi tio ns can force a business to change.

Ethical - sornetimT5 quickly, so metimes slowly, the va lues of a socie ty ca n cha nge. Changes in e thica l va lues in a society encourage or even force a business to change its practices. Fifty years ago, re latively few businesses were deeply concerned about susta inable business practices -Pa ul Hawken's concept o f "n a tura l capitalism" was un hea rd o f. Today, even if the owne rs o r executives o f a business were not genuinely concerned abou t sustainable practices, ex te rnal stakeholders w il l a lmost certainly expect th eir business not to harm the environment, o r at least to minimize that h a rm. In a h ost o f oth er ways - ethics in lendi ng, diversity in hiring, atten tiven ess to sexual harassm ent, product safety -cha nges in society's valu es have led to changes in many businesses' objectives.

Po itical - change to rhc politica l system very oiten fo rces business to change its approach . Multinationa l businesses plan for this possibility 'a nd often wi ll have a "country risk assessment" before ·nvesting in a pa rticu la r cou ntry. A country risk assessm ent a ttem pts to determ ine the likelihood that drastic politica l change in a coun try could put a t risk th e investment or operations o f a business there . Political risk, however, ca n occur at home . If the outcome of a poli tica l electio n dete rmin es that the legisla ture o f a country changes from cen tre-left to cen tre -right, the busin ess e nvironment can cha nge. Som e times, though, poli tical change can occu r unexpectedly and not from the resu lts of a n e lection. Legislatures ca n decide to take actio n because of a sca nda l, a crime, o r even an accide nt, tha t in turn a ffects th e business e nviron men t.

Legal - wh en responsibility fo r legisla ti on cha nges from on e party to the o the r, o r one coa li tion to a nother, chan ges in th legal envi ronmen t often occur. Regula tio n, taxes, a nd a 1os1. o f o the r fa ctors ca n be changed mescly by statu te, and businesses ha ve. to respond. In the 1980s in the United Sta tes, fo r example, man y ind ividu als across the country grew tired o f the nu mber of fata l or tra uma tic injuries occurring to young people du e to excessive a lcohol cons umptio n. On e by one, most state legislatures ra ised the minimum d rin king age in th e

1. 3 ORGANIZATIO NAL OBJECTI VES

United States from 18 to 2 1 yea rs. Many taverns, bars, a nd clubs that ta rgeted customers in the 18-20-year-old ra nge had to m odify their business stra tegies .

Ecological - growing environm e nta l awareness and the "green'1

revolurion ha ve h ad a significa n t effect on many businesses, fo r examp le w ith the e mergen ce of h ybrid cars. Ecological factors can affect businesses in ways other tha n the n ow -domina nt focu s on susta ina bili ty. Ecological deplet ion, such as from fi she ries off th e coast of Ca nada, o r thro ugh som e types of mining, can force a business to change stra tegies. Large o il companies, sometim es n o to rious fo r their ecologica l disasters such as huge oil spills, a re non etheless h ighl y innova tive as they search [or new sou rces of e n ergy, especially clean energy, in anticipation of rising demand and decl ining tradit iona l sources o r en e rgy, su ch as o il.

Why organizations set ethical objectives Ever more com monly today, business a re establishing fo r them selves ethical objectives . Objectives sue, as these a re goals based on established codes of behaviour that, when met, a llow the b_usiness LO provide some socia l o r environmen tal benefi t or, at the leasr, not to hurt socict or the environment in th e process of making a 11rofit. Fo r example, a business might aim to expect all its em ployees to be treated without d iscrimina tion, harassment, o r even fa vou ritism. An other e thical objective might be a lways to treat customers w ith respect a nd h onesty. Eth ica l objectives can cover a w h ole range of activities a n d today man y businesses are setting the m .

Businesses may set themselves ethica l objectives for so me very good commercial reasons, including th ese:

• Building up custom er loyalty - repea t customers a re vita l to most businesses. Custom e rs a re more li kely to re turn to a business they tru st and respect, and ethica l objectives a nd ethical action foster this.

• Creat ing a posit ive image - both existing and pote ntial custom ers a re likely to shop at businesses w ith good reputation s. The opposite is certainly true: customers will avoid businesses with reputations fo r untru stworth iness.

• Developing a positive work environment - businesses tha t have well-motivated sta ff wh o e njoy working for the busin ess have a competitive advan tage . Businesses w ith strong eth ical objectives ca n be attractive to ma ny pote ntial employees and serve to improve mora le and motivation.

• Red ucing the risk of legal red ress - being une th ical can cost a compan y money, not on ly from dissa t isfi ed custome rs o a t re turn in g or from the bad word -of-m o uth reports generated by u nethical behaviour. Sometimes unethica l behaviour can lead to lega l redress by th e governme nt, by o ther businesses o r by the customers the mselves. Even if a business "wins" in co urt, th e process can be expensive and cause signifi ca nt dam age to th e fi rm's reputation.

Values. They're woven into our fabric. ......... ,,..o.,~-.c.d ~10lrlOl';OIJCOfl...oll w,ckltMlwtWlp,tcs..

... ... _100;;;;;.;;-- ~

.. -- ~ .

MATALAN

This poster from the clothing company

Mata Ian clearly states the business's

ethical policy

45

46

BUSINESS ORGANIZATION AND ENVIRONMENT

• Satisfying customers' ever-higher expectations for ethical behaviour - with improved JCT and the wo rl dwide web, business decis ions and actio ns are mo re visible than ever before. Today, consumers are awa re of what is considered e thical and unethical behaviour and often "punish " unethical behaviours by not pa tron izing certa in businesses. Few businesses can disrega rd public opinion.

• Increasing profits - opportun ities for businesses to behave eth ically are growing. Ban ks w ill o ften not lend to dubio us businesses, clothes ma nufacturers w ill not use "sweatshop" wo rke rs, and cofree houses use " fai r trade" coffee. Many people today seek out and purchase from businesses that behave eth ica lly, which can lead to higher profits.

The impact of implementing ethical objectives Whe n a business implements ethica l objectives, many areas of the business envJron men t w ill be affected . The effects ma y be o n th e following:

• The business itself - a ltho ugh in the long ru n the business may experience benefi ts from imple menting ethica l objectives, in the sho rt te rm costs are likely LO rise, a nd em ployees, accustomed LO

certa in norms a nd practices, may resist change.

• Competitors - competitors may have to respond to m ainta in their market position.

• Suppliers - if the business implementing ethical objectives includes the po licy of buying only from o ther e thical businesses, suppliers may have to respond in order to protect their orders.

• Customers - customers are likely to trust the business more and develop a strong brand loyalty.

• The local community - businesses tha t have a nd follow e thical objectives genera lly see an improve ment in the ir re la tio nshi p w ith the loca l community, which can bene fit them in te rms of em ploymenL and goodwill.

• Government - fee ling pressure from vote rs and other sta keholders, increasing ly loca l, regional, and na tiona l levels of government are recognizing businesses w ith e thica l objectives, overall crea ting a gove rnment- business environment fos te ri ng e thical o bjectives.

The difference between ethical objectives and corporate social responsibility Ethica l objectives arc specific goa ls that a business may set fo r itsd based on established codes of behaviour. Ethical objectives di ffer, but are closely related to cw·poratc ~ocia l responsibility ('CSR). CSR is the co ncept that a business has a n obligation to operate in c way th a1 w ill have a positive impac 01 society. As pan of its CSR policy, a business wou ld wa nt to assess its actio ns. As a result of such an assessment,

1.3 ORGAN IZATIONAL OBJECTIVES

the business may wish to implement a particular e thical objective . For exa mple, a busin ess might open a creche facility (an ea rly chi ldhood day-care cen tre) for its employees .

The importance of corporate social responsibility CSR is broader and le.ss spe.cifi tha n e thical obje.c.tivcs. A company committed to CSR is imending to ac as a good "corporate citize n ": in a ll matrers acting responsibly an d in a man ne r that benefi ts socLe1y as a wliole . A business comrnined to CSR not on ly obeys laws bur also interacts responsibly and hon estly w ith customers a nd reduces its irnpzict on the euvironmt:.n t. By recogn izing its CSR, a busin ess is---morc rhan likely to have a susta inable business mode l. By bu ilding strong links with society and the environment, the business is more likely to be a va lued part of the society.

Many businesses, a nd increasingly big busin esses, see themselves and want to positio n themselves as role models - as lead in g citizens - setti ng the standard fo r everyon e for responsible bd1Jviour. In an inte rnatio nal context this m ight be more di fficult beca use of differe nt opinions of ethica l values, but with globa liza tion and the greater integration of t he world's econ omies through the actions of multi national companies this can still be possible. Although many businesses do not reach their highest aspirations for CSR, sin ce around 1980 the movement towards CSR has been significant and led to dramatic changes in the attitudes an d practices of businesses.

SWOT analysis SMART objectives are part of a coherent strategic Ian. In the 1960s, a business tool - the SWOT zinalysis - was developed to help business set these objectives. Although use of this tool has not been without criticism, in general many businesses re ly on SWOT an alyses fo r p lan ning purposes.

SWOT ana lysis is meant to be the first stage in the plann ing rrocess. It helps mana ge rs to bra instorm the perceived strengths, weaknesses, opportunities, and threats facing the business. These e lements are combined in a matri x as sh own in Table 1.3.4.

Table 1.3.4. The SWOT matrix

Positive factors Negative factors

Internal to the business Strengths Weaknesses

External to the business Opportunities Threats

The SWOT matrix is based o n perceptions. The w ider the sources and the more re liable the data, t he stronger w ill be the ana lysis o f the SWOT facto rs. Th e opposi te is a lso true. If a SWOT a na lysis is done in a poor, sloppy, or un informed fashion, it can act uall y mislead a business. Like a ny business tool, it is useful only w h en thoughtfu lly and properly appl ied.

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BUSINESS ORGANIZATION AND ENVIRONMENT

A SWOT analysis for a given organization Table 1. 3.5 shows an example of a SWOT matrix for Appl e Inc. (as of January 2013).

Table 1.3.5. SWOT matrix for Apple Inc.

Strengths Weaknesses

• Well recognized among • Patent infringement lawsuit may affect

most consumers financial condition and operating results

• Fourth largest player in the • January 2010

global mobile phone market • Nokia 2012 Samsung dispute

• 18.5% market share of • Product recalls may harm Apple's

global smartphone market reputation

• Strong brand image • 2010, antennae problems in iPhone 4

provides an edge over • Product defects harm Apple's reputation

competitors and add signifi cant warranty and other

• Very profitable - $100 billion expenses

cash reserves • 2012 embarrassing discard of Google

• Focused research and maps and the failure of Apple's own

development creating maps for the iPhone 5.

stylish products • Poor design and limited innovation in the

Provides integrated latest products

• operating systems, • Death of the inspirational leader Steve

hardware, application Jobs in 2012

software and service t o its • Loss of share value [25% in three months

customers Sep- Dec 2012)

• Proprietary systems that do not allow

individuality

• Price - other products are more

affordable and of similar quality

• Foxcom - has been a PR disaster for Apple

Opportunities Threats

• Strong growth in • Rising popularity of Google Android may

smartphone affect its market share

• Strong growth in tablet • 350,000 Android smartphones are

markets activated daily; 150,000 iPhones are

• Mobile advertising market activated daily

is forecast t o reach • More fi rms like HTC and Motorola are

approximately $25 billion using Android

by 2015 • Intense competition may affect revenues

• Increased scope in the and profitability

educational market • Increasing popularity of Kindle Fire

• Streaming and television • The business sector is not dominated by

markets have great potential Apple - the field is more open

Source: Adapted from Data monitor's Apple Inc. Company Profile SWOT Analysis

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a na I ysi s-of-a pp I e-i n c-2/

Student workpoint 1.7

Be a thinker Ch oose a well-known business in another sector - such as tourism or food .

Complete a SWOT analysis for that business. Think ca refull y about all the differe nt factors which could affect each of the four sections.

1.3 ORGANIZATIONAL OBJECTIVES

Note that the purpose of a SWOT ana lysis is not to brainstorm the strengths and weaknesses of a business strategy itself; it is the first part of developing the strategy by ·de ntifying the d ifferen t st rengths an d weaknesses of the business. Once these at:J> ·nmvn , th ·· SWOT ma trix ca n be analysed and so a st rategy can bc.Jormulated.

SWOT analysis and market position Use of the SWOT matrix can be strengthened by "pairing" key factors from each quadrant and then adopting a re levant stra tegy, as shown in Table 1.3.6.

Table 1.3.6. Pairing key factors to determine the relevant strategy

Strengths Weaknesses

Opportunities S- 0 W-0

Growth strategies Re-orientation strategies

Threats S-T W- T

Defusing strategies Defensive strategies

Source: Adapted from: http://www.quickmba.com/strategy/swot/

Growth strategies are best achieved by combining the strength s of a business with the market opportunities, w hich produces the most positive short-term stra tegy available from the matrix. The business shou ld pursue growth strategies when it is confident that it has no big issues in any other area.

Defensive strategies a re adopted w hen a business is at its most vulne rable. When threa ts and weakness exist in combination, the business needs to act defe nsively a nd quickly. Defensive stra tegies are the most "n ega ti ve" short-term strategies, bu t they ma y be necessary to help the business survive.

Re-orientation strategies are adopted whe n a business focuses on addressing its wea knesses in orde r to use them for the opportunities available in the market. Re-oriemation strategies are positive a nd long term. Their adoption assumes that the business wil l first address its weaknesses, then can re-orie ntate itself in a new direction.

Defusing strategies are designed LO elimina te threats in th e market by focusing on the strengths of a business. Defusing strategies ass ume that the business does not n eed to look for new ma rket opportunities but can simply defuse the threats through a focus on core strengths. This is a neutral and medium- to short-te rm strategy. For instance, if Apple had considered its SWOT matri x (Table l .3.5) then it may have focused on re-orientating strategies - see Table l .3.7 .

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50

BUSINESS ORGANIZATION AND ENVIRONMENT

Table 1.3.7. Apple SWOT analysis - re-orientating strategies

Strengths Weaknesses

• Product defects harm Apple's reputation and add

significant warranty and other expenses

• 2012 embarrassing discard of Google maps and

the fai lure of Apple's own maps for the iPhone 5.

• Poor design and limited innovation in the latest

products

• Death of the inspirational leader Steve Jobs in 2012

Opportunities Threats

• Mobile advertising market is forecast to reach

approximately $25 bi ll ion by 2015

• Increased scope in the educational market

• Streaming and television markets have great potential

Apple may conclude that it needs to signal to the market that the business lives o n after Steve Jobs. To do so, it must create new products (in the growing strea ming and television markets) to rescue its reputation as an innovative producer. Such a move wo uld also signal a move away from the intensely competitive tablet and smartphone markets - just as the company did in the past when it moved away from the home computer market and into digital music.

The Ansoff matrix An other business tool to help businesses plan a nd set objectives is the Ansofl matrix, wh ich was designed by Igor Ansoff in 1957. Man businesses as · th Ansoff matrix to help pla n their growth strategies.

The matrix looks at the growth-potential in te rms of the 111arket and product, and considers bo tn the ex isting m arke ts and products, and new markets a nd products (see Figure 1.3.2).

M a

k e

Product

Existing

00 C Market -~

·;;; penetration w

;:: Market ., z development

Figure 1.3.2. The Ansoff matrix

New

Product

development

Diversification

1.3 ORGAN IZ AT I ONAL OBJECTIVES

There are four possible growth strategies, explored below.

Market pen etration occurs w hen a business grows by increasin° its market sh are, selling more of its existing products in the sam e market. Market penetration is conside red the safest option bUL opporLUnitics for increasin g market sbare ma y be limiLed b_y t.bc competito rs iJ1 the m arket. Market penetration re lies heavily on promoting brand loya lty in o rder to encourage repeat customers and on promotion in general to lure customers away from the competition. Television soap operas, telenovelas, o r even Hollywood b lockbusters with sequels that tell more or less t he sa me story, such as "Toy Story", "Shrek" or "I ron Man", wou ld fall into this category.

Key facto rs to increase the cha nee of success a re:

• the growth potemial of the market

• the strength of customer loyalty

• the power and ability of competitors.

Market de ve lopme nt expands the market by loo -ing for new ma rkets o r for new market segm ents in the ex isting market. Market development is a riskier strategy than market penetration, as tbc b u~iness may not u nderstand the new markets. For example, Starbucks was unsuccessfu l when it opened coffee stores in Austra lia. Wal-Man also was unsuccessful when it expanded into Germany. Wal-Mart had underestimated the loyalty of the German public to existing (German) superstores. Successfu l m a rket development requi res d ifferen t approaches from market penetration.

Key factors to reduce the risk of market developmen t are:

• effective ma rket research

• having loca l knowledge on the ground

• having an effective distribu tion cha n nel.

Product developmen t is the development of new product s for the existing market. Sometimes it may be a genuinely and wholly n ew product. Ofte n, bowever, so-ca ll ed "new" products are upgrades of existing producrs such as the iPad, iPad 2, iPad 3, iPad m ini and a ll the d iffe ren variations. At other times, a "new product" is a variation on an existing product. For exam ple, this was the case when Singapore Airlines introduced their budget airl in e "Scoot" to fight off competition from Australian budget a irlines.

Product development is riskie r than mi:lrkct pe netration, w ith much depending o n how loya l the customers are to the origi nal product s. Key factors to red uce the risk of product development are :

• effective market research

• having a strong resea rch a nd development system

• having firs t mover advantage.

Diversification is the riskiest growth strategy a business can pursue. When dive rsify ing - introduci ng a new product into a new marke t - a business combines two elemems oi ri sk:

• lack of familiarity and experience in the n ew market

• the untestedness of any new product.

Long before business tools

such as SWOT analysis and

the Ansoff matrix existed,

businesses operated

successfully. Do these tools

add value? To what degree, if

any, do they obscure rather

than clarify?

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BUSINESS ORGANIZATION AND ENVIRONMENT

When .t>;:pplc moved away from hom e computing'cl nd entesc.d the d igital.m usic market and th en the ha nd phone m a rket, it successfully <li versifLc.d . Man y a ttempts at d iversifi cat ion, howeve r, have fa iled. Fo r example, a British cement p roducer 'Blue Circle ' decided to produce lawnmowers. Its ra tio nale was that people using the ir cement to build ga rden patios would wan t a lawnmower to cut the grass. Blue Circle's failed attempt a t dive rsificat io n was a factor contributing to the takeove r of the business in 200 l.

Key fa ctors to reduce the risk of diversifi ca tion are :

• effe ctive marke t research

• d ue diligence testing to dete rmine :

• the attractiveness of the market

• th e cost of ente ring the market

• recognition o f th e existing business

• possib le tie-ups w ith o ther businesses w ith th e necessary experience.

Revision checklist ✓ A visio n statem ent shou ld e ncapsulate what the business ho pes to be

in the future. It should re main constant.

✓ A m issio n statement describes what th e busin ess is doing now. lt migh t need to be modifies as time passes.

✓ Aims are lo ng-te rm goals.

✓ Objectives are sho rt-medium-term goals w h ich a llow a business to m ee t its a ims. Objectives sho uld be SMART (speci fi c, measurable, ach ieva ble, re levant and time-specific) .

✓ A business strategy is an o ve r-archi ng plan o f o bjectives which wi ll enable a ims to be met.

✓ Business tactics a re the actions and o bjectives w hich a llow a business to implement strategy.

✓ Ethica l o bjectives are goa ls that a business sets fo r itself based on established codes of beh avio ur.

✓ Corpo ra te socia l responsibi li ty (CSR) is th e concept th a t a ll businesses have a n obligatio n to opera te in a way that w ill have a positive impact on socie ty.

✓ A SW OT ana lysis is a too l used in business pla nn ing. It involves analysing stre ngths, wea knesses, o ppo rtuni ties and th rea ts, both inside a business a nd exte rna lly.

✓ Th e Ansoff matrix is used to plan busin ess grow th. It considers new and existing p rodu cts and new and existing markets to idemify oppo rtunities. It a llows a business to identify a reas o f ma rke t penetration, ma rket deve lopment, product development a nd d iversifica tion .

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Apple's iPod is an example of

successful diversification