Week no. 1 INTRODUCTION IN MARKETING AND

FINANCIAL PERFORMANCE OF BUSINESS

1. Subject: Marketing and Financial Performance of Business

2. Master program: Service Engineering and Management

3. Lecturer / Professor: Doina Corina Şerban, PhD

4. Objectives

To understand what Marketing and Financial Performance of Business is, how it

works, and who does the Marketing and Financial Performance of Business;

To understand certain fundamental concepts and tasks, along with current trends;

To recognize what philosophy should guide a company’s marketing, management

and financial efforts;

To understand the role of Marketing and Financial Performance of Business in

Engineering and Management.

5. Fundamentals of Engineering and Management

Engineering, the application of science to the optimum conversion of the resources

of nature to the uses of humankind. The field has been defined by the Engineers Council

for Professional Development, in the United States, as the creative application of “scientific

principles to design or develop structures, machines, apparatus, or manufacturing

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processes, or works utilizing them singly or in combination; or to construct or operate the

same with full cognizance of their design; or to forecast their behaviour under specific

operating conditions; all as respects an intended function, economics of operation and

safety to life and property.” The term engineering is sometimes more loosely defined,

especially in Great Britain, as the manufacture or assembly of engines, machine tools, and

machine parts.

The words engine and ingenious are derived from the same Latin root, ingenerare,

which means “to create.” The early English verb engine meant “to contrive.” Thus the

engines of war were devices such as catapults, floating bridges, and assault towers; their

designer was the “engine-er,” or military engineer. The counterpart of the military engineer

was the civil engineer, who applied essentially the same knowledge and skills to designing

buildings, streets, water supplies, sewage systems, and other projects.

Problem solving is common to all engineering work. The problem may involve

quantitative or qualitative factors; it may be physical or economic; it may require abstract

mathematics or common sense. Of great importance is the process of creative synthesis

or design, putting ideas together to create a new and optimum solution.

Although engineering problems vary in scope and complexity, the same general

approach is applicable. First comes an analysis of the situation and a preliminary decision

on a plan of attack. In line with this plan, the problem is reduced to a more categorical

question that can be clearly stated. The stated question is then answered by deductive

reasoning from known principles or by creative synthesis, as in a new design. The answer

or design is always checked for accuracy and adequacy. Finally, the results for the

simplified problem are interpreted in terms of the original problem and reported in an

appropriate form.

In order of decreasing emphasis on science, the major functions of all engineering

branches are the following:

Research. Using mathematical and scientific concepts, experimental

techniques, and inductive reasoning, the research engineer seeks new

principles and processes.

Development. Development engineers apply the results of research to useful

purposes. Creative application of new knowledge may result in a working

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model of a new electrical circuit, a chemical process, or an industrial

machine.

Design. In designing a structure or a product, the engineer selects methods,

specifies materials, and determines shapes to satisfy technical requirements

and to meet performance specifications.

Construction. The construction engineer is responsible for preparing the site,

determining procedures that will economically and safely yield the desired

quality, directing the placement of materials, and organizing the personnel

and equipment.

Production. Plant layout and equipment selection are the responsibility of the

production engineer, who chooses processes and tools, integrates the flow

of materials and components, and provides for testing and inspection.

Operation. The operating engineer controls machines, plants, and

organizations providing power, transportation, and communication;

determines procedures; and supervises personnel to obtain reliable and

economic operation of complex equipment.

Management and other functions. In some countries and industries,

engineers analyze customers’ requirements, recommend units to satisfy

needs economically, and resolve related problems.

Management science, any application of science to the study of management.

Originally a synonym for operations research, the term management science (often used

in the plural) now designates a distinct field. Whereas operations research affords

analytical data, statistics, and methods to increase the efficiency of management systems,

management science applies these tools in such fields as data mining, engineering,

economic forecasting, and logistics.

Management science initially included any application of science to management

problems or to the process of management itself; it thus encompassed operations

research, systems analysis, and the study of management-information systems. This

broad understanding of the scope of the field was reflected in the constitution of the

Institute of Management Sciences (TIMS), founded in 1953 as an outgrowth of the

Operations Research Society of America (ORSA). It stated that “the objects of the Institute

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shall be to identify, extend, and unify scientific knowledge that contributes to the

understanding and practice of management.” In 1995 ORSA and TIMS merged to form the

Institute for Operations Research and the Management Sciences (INFORMS).

Although management science could include the study of all activities of groups that

entail a managerial function, it generally entails the following:

(1) discovering, developing, defining, and evaluating the goals of the organization

and the alternative policies that will lead toward the goals,

(2) getting the organization to adopt the policies,

(3) scrutinizing the effectiveness of the policies that are adopted, and

(4) initiating steps to change policies that are ineffective or inadequately effective.

Management science often has drawn its concepts and methods from the older

disciplines of economics, business administration, psychology, sociology, and

mathematics.

5.1 The role of Marketing in Engineering and Management

Marketing has taken a variety of forms as it’s developed over the years. A common and

extremely incorrect view is that selling and advertising is marketing. Although these

activities are part of the marketing mix and were generally perceived as the only outputs

from a lot of marketing efforts that were measured, they are indeed only a fraction of this

whole process. In addition to promotional activities, or the extended marketing mix as

they’re more commonly known, marketing includes a much broader strategic and tactical

set of functions including; auditing & analysis, planning, product development, packaging,

pricing, distribution, customer service and evaluation.

Marketing is a business discipline which is focused on the practical application

of marketing techniques and the management of a firm's marketing resources and

activities. Rapidly emerging forces of globalization have led firms to market beyond the

borders of their home countries, making international marketing highly significant and an

integral part of a firm's marketing strategy. Marketing is often responsible for influencing

the timing and composition of customer demand. In part, this is because the role of

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marketing can vary significantly based on a business's size, corporate culture

and industry context.

Marketing analysis is structured into five areas:

• Customer analysis - to develop a schematic diagram for market segmentation,

breaking down the market into various constituent groups of customers, which are called

customer segments or market segmentation's. Marketing managers work to develop

detailed profiles of each segment, focusing on any number of variables that may differ

among the segments: demographic, psycho graphic, geographic, behavioral, needs-

benefit, and other factors may all be examined.

• Company analysis - focus on understanding the company's cost structure and cost

position relative to competitors, as well as working to identify a firm's core competencies( a

specific factor that a business sees as being central to the way it works) and other

competitively distinct company resources.

• Collaborator analysis - collaborators are profiled (suppliers, distributors and other

channel partners).

• Competitor analysis - detailed profiles of each competitor in the market, focusing

especially on their relative competitive strengths and weaknesses

• Analysis of the industry context.

If the company has obtained an adequate understanding of the customer base and its

own competitive position in the industry, marketing managers are able to make their own

key strategic decisions and develop a marketing strategy designed to maximize

the revenues and profits of the firm. The selected strategy may aim for any of a variety of

specific objectives, including optimizing short-term unit margins, revenue growth, market

share, long-term profitability, or other goals.

To achieve the desired objectives, marketers typically identify one or more target

customer segments which they intend to pursue. Customer segments are often selected

as targets because they score highly on two dimensions:

1) The segment is attractive to serve because it is large, growing, makes frequent

purchases, is not price sensitive, or other factors;

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2) The company has the resources and capabilities to compete for the segment's

business, can meet their needs better than the competition, and can do so profitably

("meeting needs profitably").

In conjunction with targeting decisions, marketing managers will identify the

desired positioning they want the company, product, or brand to occupy in the target

customer's mind. This positioning is often an encapsulation of a key benefit the company's

product or service offers that is differentiated and superior to the benefits offered by

competitive products. The positioning should also be sufficiently relevant to the target

segment such that it will drive the purchasing behavior of target customers.

After the firm's strategic objectives have been identified, the target market selected,

and the desired positioning for the company, product or brand has been determined,

marketing managers focus on how to best implement the chosen strategy. This is done by

dealing with the following issues:

Product management - dealing with the planning, forecasting, or marketing of a

product or products at all stages of the product lifecycle. Product management consists

of Product development and Product marketing, which are different efforts, with the

objective of maximizing sales revenues, market share, and profit margins.

Product development is the complete process of bringing a new product to market. A

product is a set of benefits offered for exchange and can be tangible or intangible. There

are two parallel paths involved in the Product development process: one involves the idea

generation, product design and detail engineering; the other involves market research

and marketing analysis.

Stages of product development:

o Identifying new product candidates;

o Gathering the voice of customers;

o Defining product requirements;

o Determining business-case and feasibility;

o Scoping and defining new products at high level;

o Evangelizing new products within the company;

o Building product roadmaps, particularly technology roadmaps;

o Developing all products on schedule, working to a critical path;

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o Ensuring products are within optimal price margins and up to specifications;

Product marketing deals with the first of the "7P"'s of marketing, which are Product,

Pricing, Place, Promotion, Packaging, Positioning and People.

Stages of product marketing:

o Product life cycle considerations;

o Product differentiations;

o Product naming and branding;

o Product positioning and outbound messaging;

o Promoting the product externally with press, customers and partners;

o Conducting customer feedback and enabling (pre-production, beta software);

o Launching new products to market;

o Monitoring the competition;

Pricing - at what price slot does a producer position a product, e.g. low, medium or

high price;

Place - the place or area where the products are going to be sold, which could be

local, regional, countrywide or international;

Promotion - there are different ways to promote a product in different areas of

media. Promoters use internet advertisement, special events, endorsements, and

newspapers to advertise their product. Many times with the purchase of a product there is

an incentive like discounts, free items, or a contest. This is to increase the sales of a given

product.

Combining these key factors will lead to the marketing mix. The marketing mix is

crucial when determining a product or brand's unique selling point and is often

synonymous with the four Ps: price, product, promotion, and place; in recent times,

however, the four Ps have been expanded to the seven Ps or replaced by the four Cs. And

there are two four Cs theories today. One is Lauterborn's four C’s (Consumer, Cost,

Communication and Convenience), another is Shimizu's four Cs (Commodity, Cost,

Communication, Channel).

Four Cs: the customer oriented model:

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Robert F. Lauterborn proposed a four Cs classification in 1993 which is more

consumer-oriented version of the four Ps that attempts to better fit the movement from

mass marketing to niche marketing:

Product part of the four Ps model is replaced by "consumer", shifting the focus to

satisfying the consumer needs. Another C replacement for "product" is "capable". By

defining offerings as individual capabilities that when combined and focused to a specific

industry, creates a custom solution rather than pigeon-holing a customer into a product.

Price is replaced by "cost", reflecting the total cost of ownership. Many factors affect

cost, including but not limited to the customer's cost to change or implement the new

product or service and the customer's cost for not selecting a competitor's product or

service.

Promotion is replaced by "communication", which represents a broader focus than

simply promotions. Communications can include advertising, public relations, personal

selling, and any form of communication between the firm and the consumer.

Place is replaced by ”convenience". With the rise of internet and hybrid models of

purchasing, Place is becoming less relevant. Convenience takes into account the ease of

buying the product, finding the product, finding information about the product, and several

other factors.

After Koichi Shimizu proposed a four Cs classification in 1973, this was expanded

to the seven Cs compass model to provide a more complete picture of the nature of

marketing in 1981. It attempts to explain the success or failure of a firm within a market

and is somewhat analogous to Michael Porter's diamond model, which tries to explain the

success and failure of different countries economically.

The seven Cs compass model are:

(C1)Corporation– The core of four Cs is corporation ( company and non-profit

organization). C-O-S (Organization, Competitor, Stakeholder) within the Corporation. The

company has to think of compliance and accountability as important. The competition the

areas in which the company competes with other firms in its industry.

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(C2)Commodity – (Original meaning of Latin: Commodus=convenient) : the goods

and services for the consumers or citizens. Steve Jobs has been making the goods with

which people are pleased. It is not "product out".

(C3)Cost – (Original meaning of Latin: Constare = It makes sacrifices) : There is not

only producing cost and selling cost but purchasing cost and social cost.

(C4)Channel – (Original meaning is a Canal): marketing channels. Flow of goods.

(C5)Communication – (Original meaning of Latin: Communio = sharing of

meaning): marketing communication: Not only promotion but communication is important.

The compass of consumers and Circumstances (environment) are:

(C6)Consumer – (Needle of compass to Consumer)

The factors related to consumers can be explained by the first character of four

directions marked on the compass model.

(C7)Circumstances – (Needle of compass to Circumstances )

In addition to the consumer, there are various uncontrollable external environmental

factors encircling the companies. Here it can also be explained by the first character of the

four directions marked on the compass model.

5.2. Financial Performance of Business in Engineering

Financial Performance is a subjective measure of how well a firm can use assets from

its primary mode of business and generate revenues. This term is also used as a general

measure of a firm's overall financial health over a given period of time, and can be used to

compare similar firms across the same industry or to compare industries or sectors in

aggregation.

Adding this to a IT service management led to the creation of Performance engineering

within systems engineering, encompasses the set of roles, skills, activities, practices,

tools, and deliverables applied at every phase of the Systems Development Life

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Cycle which ensures that a solution will be designed, implemented, and operationally

supported to meet the non-functional performance requirements defined for the solution.

Performance engineering Objectives:

Increase business revenue by ensuring the system can process transactions within

the requisite timeframe

Eliminate system failure requiring scrapping and writing off the system development

effort due to performance objective failure

Eliminate late system deployment due to performance issues

Eliminate avoidable system rework due to performance issues

Eliminate avoidable system tuning efforts

Avoid additional and unnecessary hardware acquisition costs

Reduce increased software maintenance costs due to performance problems in

production

Reduce increased software maintenance costs due to software impacted by ad hoc

performance fixes

Reduce additional operational overhead for handling system issues due to

performance problems

Inception

During this first conceptual phase of a program or project, critical business

processes are identified. Typically they are classified as critical based upon revenue value,

cost savings, or other assigned business value. This classification is done by the business

unit, not the IT organization.

High level risks that may impact system performance are identified and described at

this time. An example might be known performance risks for a particular vendor system.

Finally performance activities, roles, and deliverables are identified for the

Elaboration phase. Activities and resource loading are incorporated into the Elaboration

phase project plans.

Elaboration

During this defining phase, the critical business processes are decomposed to

critical use cases. Such use cases will be decomposed further, as needed, to single page

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(screen) transitions. These are the use cases that will be subjected to script

driven performance testing.

The types of requirements that relate to Performance Engineering are the non-

functional requirements, or NFR. While a functional requirement relates to what business

operations are to be performed, a performance related non-functional requirement will

relate to how fast that business operation performs under defined circumstances.

Each critical use case must have an associated NFR. If, for a given use case, no

existing NFR is applicable, a new NFR specific to that use case must be created.

Non-functional requirements are not limited to use cases. The overall system

volumetric must be specified. These will describe the overall system load over a specified

time period, defining how many of each type of business transaction will be executed per

unit of time. Commonly volumetric describes a typical business day, and then are broken

down for each hour. This will describe how system load will vary over the course of the

day. The information is often formatted in a tabular form for clarity. If different user classes

are executing the transactions, this information will also be incorporated in the NFR

documentation. Finally, the transactions may be classified as to general type, normally

being user interaction, report generation, and batch processing.

The system volumetric documented in the NFR documentation will be used as

inputs for both load testing and stress testing of the system during the performance test.

Computer scientist have been using all kinds of approaches to develop performance

evaluation models.

At this point it is suggested that performance modeling be performed using the use

case information as input. This may be done using a performance lab, and using

prototypes and mockups of the "to be" system; or a vendor provided modeling tool may be

used; or even merely a spreadsheet workbook, where each use case is modeled in a

single sheet, and a summary sheet is used to provide high level information for all of the

use cases.

It is recommended that Unified Modeling Language sequence diagrams be

generated at the physical tier level for each use case. The physical tiers are represented

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by the vertical object columns, and the message communication between the tiers by the

horizontal arrows. Timing information should be associated with each horizontal arrow; this

should correlate with the performance model.

Some performance engineering activities related to performance testing should be

executed in this phase. They include validating a performance test strategy, developing a

performance test plan, determining the sizing of test data sets, developing a performance

test data plan, and identifying performance test scenarios.

For any system of significant impact, a monitoring plan and a monitoring design are

developed in this phase. Performance engineering applies a subset of activities related to

performance monitoring, both for the performance test environment as well as for the

production environment.

The risk document generated in the previous phase is revisited here. A risk

mitigation plan is determined for each identified performance risk; and time, cost, and

responsibility is determined and documented.

Finally performance activities, roles, and deliverables are identified for the

Construction phase. Activities and resource loading are incorporated into the Construction

phase project plans. These will be elaborated for each iteration.

Construction

Early in this phase a number of performance tool related activities are required.

These include:

Identify key development team members as subject matter experts for the

selected tools

Specify a profiling tool for the development/component unit test environment

Specify an automated unit (component) performance test tool for the

development/component unit test environment; this is used when no GUI yet

exists to drive the components under development

Specify an automated tool for driving server-side unit (components) for the

development/component unit test environment

Specify an automated multi-user capable script-driven end-to-end tool for the

development/component unit test environment; this is used to execute

screen-driven use cases

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Identify a database test data load tool for the development/component unit

test environment; this is required to ensure that the database optimizer

chooses correct execution paths and to enable reinitializing and reloading

the database as needed

Deploy the performance tools for the development team

Presentations and training must be given to development team members on

the selected tools

A member of the performance engineering practice and the development technical

team leads should work together to identify performance-oriented best practices for the

development team. Ideally the development organization should already have a body of

best practices, but often these do not include or emphasize those best practices that

impact system performance.

The concept of application instrumentation should be introduced here with the

participation of the IT Monitoring organization. Several vendor monitoring systems have

performance capabilities, these normally operate at the operating system, network, and

server levels; e.g. CPU utilization, memory utilization, disk I/O, and for J2EE servers the

JVM performance including garbage collection.

Transition

During this final phase the system is deployed to the production environment. A

number of preparatory steps are required. These include:

Configuring the operating systems, network, servers (application, web,

database, load balancer, etc.), and any message queuing software according

to the base checklists and the optimizations identified in the performance test

environment

Ensuring all performance monitoring software is deployed and configure,

Running Statistics on the database after the production data load is

completed

Once the new system is deployed, ongoing operations pick up performance

activities, including:

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Validating that weekly and monthly performance reports indicate that critical

use cases perform within the specified non-functional requirement criteria

Where use cases are falling outside of NFR criteria, submit defects.

Identify projected trends from monthly and quarterly reports, and on a

quarterly basis, execute capacity planning management activities

In the operational domain (post production deployment) performance engineering

focuses primarily within three areas: service level management, capacity management,

and problem management.

Service-level management provides for continual identification, monitoring and

review of the levels of IT services specified in the Service level managements (SLAs).

Service-level management ensures that arrangements are in place with internal IT

support-providers and external suppliers in the form of Operational Level Agreements

(OLAs) and Underpinning Contracts (UCs), respectively. The process involves assessing

the impact of change upon service quality and SLAs. The service level management

process is in close relation with the operational processes to control their activities. The

central role of Service-level management makes it the natural place for metrics to be

established and monitored against a benchmark.

Service level management is the primary interface with the customer. Service-level

management is responsible for:

ensuring that the agreed IT services are delivered when and where they are

supposed to be

liaising with availability management, capacity management incident

management and problem management to ensure that the required levels and

quality of service are achieved within the resources agreed with financial

management.

producing and maintaining a service catalog (a list of standard IT service options

and agreements made available to customers)

ensuring that appropriate IT service continuity plans exist to support the business

and its continuity requirements.

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The service-level manager relies on the other areas of the service delivery process

to provide the necessary support which ensures the agreed services are provided in a

cost-effective, secure and efficient manner.

Capacity management - performance engineering focuses on ensuring that the

systems will remain within performance compliance. This means executing trend

analysis on historical monitoring generated data, such that the future time of non-

compliance is predictable. For example, if a system is showing a trend of slowing

transaction processing (which might be due to growing data set sizes, or increasing

numbers of concurrent users, or other factors) then at some point the system will no longer

meet the criteria specified within the service level agreements. Capacity management is

charged with ensuring that additional capacity is added in advance of that point (additional

CPUs, more memory, new database indexing, et cetera) so that the trend lines are reset

and the system will remain within the specified performance range.

Capacity management supports the optimum and cost-effective provision of IT

services by helping organizations match their IT resources to business demands. The

high-level activities include:

application sizing

workload management

demand management

modeling

capacity planning

resource management

performance management

Capacity management is focused on strategic capacity, including capacity of

personnel (e.g., human resources, staffing and training), system capacity, and component

(or tactical) capacity.

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Problem Management

Within the problem management domain, the performance engineering practices

are focused on resolving the root cause of performance related problems. These typically

involve system tuning, changing operating system or device parameters, or even

refactoring the application software to resolve poor performance due to poor design or bad

coding practices. Problem management aims to resolve the root causes of incidents and

thus to minimize the adverse impact of incidents and problems on business that are

caused by errors within the IT infrastructure, and to prevent recurrence of incidents related

to these errors.

To ensure that there is proper feedback validating that the system meets the NFR

specified performance metrics, any major system needs a monitoring subsystem. The

planning, design, installation, configuration, and control of the monitoring subsystem is

specified by an appropriately defined Monitoring Process. The benefits are as follows:

1. It is possible to establish service level agreements at the use case level.

2. It is possible to turn on and turn off monitoring at periodic points or to support

problem resolution.

3. It enables the generation of regular reports.

4. It enables the ability to track trends over time – such as the impact of increasing

user loads and growing data sets on use case level performance.

The trend analysis component of this cannot be undervalued. This functionality,

properly implemented, will enable predicting when a given application undergoing

gradually increasing user loads and growing data sets will exceed the specified non-

functional performance requirements for a given use case. This permits proper

management budgeting, acquisition of, and deployment of the required resources to keep

the system running within the parameters of the non-functional performance requirements.

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References

• Ivancevich, John M., James H. Donnelly, Jr, and James L. Gibson, Management

Principles and Functions, Fourth Edition, BPI IRWIN, Homewod, IL, Boston, MA

1989.

• Serban, Doina Corina. Marketing and Financial Performance of Business – lecture

notes, Politehnica University of Bucharest, 2011.

• Turban, Efraim and Jack R. Meredith, Fundamentals of Management Science,

Fourth Edition, BPI IRWIN, Homewod, Illinois, 1988.

• *** Encyclopaedia Britanica.