Cima e2 Tuition Notes 2011

7/21/2019 Cima e2 Tuition Notes 2011

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E2 - Enterprise Management

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CIMA E2

Enterprise Management

Tuition Notes


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Contents

Contents

Contents ........................................................................................ 3

LEARNING OUTCOMES GRID ..................................................... 5

Paper Information .......................................................................... 8

How to Pass .................................................................................. 9

The Verb Hierarchy...................................................................... 10

Strategic Management & Assessing the Competitive Environment. (A)12

A2 (c) Explain the relationship between different levels of strategy. 12

A2 (b) Compare and Contrast Approaches to Strategy Formulation 15

A1 (a) Discuss the nature of competitive environments ............ 15

A1 (b) Distinguish between different types of competitiveenvironments ............................................................................ 15

A2(b) Compare and contrast approaches to strategy formulation39

A2(a) discuss concepts in established and emergent thinking instrategic management .............................................................. 55

C1 (b) demonstrate the importance of organisational culture .... 88

C2 (g) Analyse issues of business ethics and corporate governance............................................................................................... 113

Management of Relationships (C)................................................ 66

C2 (a) Analyse the relationship between managers and theirsubordinates, including legal aspects affecting work and employment............................................................................................... 104

C1 (a) discuss the concepts of power, bureaucracy, authority,responsibility, leadership and delegation .................................. 66

C2 (b) Discuss the roles of negotiation and communication in themanagement process, both within an organisation and with externalbodies ....................................................................................... 82

C2 (d) Identify tools for managing and controlling individuals, teamsand networks, and for managing group conflict ......................... 97

C1 (c) identify the nature and causes of conflict ....................... 97

C1 (d) discuss alternative approaches to the management of conflict................................................................................................. 97


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C2 (e) Compare and contrast ways to deal effectively with disciplineproblems ................................................................................. 106

C2 (f) Explain the process and importance of mentoring juniorcolleagues ................................................................................ 87

C2 (c) discuss the effectiveness of relationships between the financefunction and other parts of the organisation and with externalstakeholders ........................................................................... 111

Project Management (B) ............................................................ 116

B1 (a) Identify a project, a programme and their attributes ..... 116

B1 (d) Identify the characteristics of each phase in the project process

............................................................................................... 117B1 (b) Apply suitable structures and frameworks to projects to identifycommon project management issues ..................................... 119

B2 (a) Produce a strategy for a project ................................... 128

B1 (g) Identify structural and leadership issues that will be faced inmanaging a project team ........................................................ 119

B2 (c) Explain the roles of key players in a project organisation124

B2 (b) Recommend strategies for the management of stakeholder

perceptions and expectations ................................................. 126B1 (c) Construct an outline of the process of project management............................................................................................... 127

B1 (f) Produce a basic project plan, incorporating strategies fordealing with this uncertainty, in the context of a simple project128

B1 (e) Apply tools and techniques that would need to be applied in theproject process, including the evaluation of proposals ............ 138

B1 (h) Compare and contrast project control systems ............ 147

B1 (i) discuss the value of a post-completion audit ................. 149

B1 (j) Apply a process of continuous improvement to projects151


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LEARNING OUTCOMES GRID

A Strategic Management and Assessing the CompetitiveEnvironment 30%Lead Component

1. Discuss differentcompetitiveenvironmentsand key externalcharacteristics of

theseenvironments

(a) discuss the nature of competitiveenvironments;

(b) distinguish between different types ofcompetitive environments.

2. Discussdevelopments instrategic

management

(a) discuss concepts in established andemergent thinking in strategicmanagement;

(b) compare and contrast approaches tostrategy formulation;

(c) explain the relationship between differentlevels of strategy in organisations.


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C Management of Relationships 30%Lead Component

1. discussconceptsassociated withthe effectiveoperation of anorganisation

(a) discuss the concepts of power,bureaucracy, authority, responsibility,leadership and delegation;

(b) demonstrate the importance oforganisational culture;

(c) identify the nature and causes of conflict;(d) discuss alternative approaches to the

management of conflict.

2. Discuss theactivitiesassociated withmanaging peopleand theirassociatedtechniques

(a) Analyse the relationship betweenmanagers and their subordinates,including legal aspects affecting work andemployment;

(b) Discuss the roles of negotiation andcommunication in the managementprocess, both within an organisation andexternal bodies;

(c) Discuss the effectiveness of relationshipsbetween the finance function and otherparts of the organisation and externalstakeholders;

(d) Identify tools for managing and controllingindividuals, teams and networks, and formanaging group conflict;

(e) Compare and contrast ways to dealeffectively with discipline problems;

(f) Explain the process and importance ofmentoring junior colleagues;

(g) Analyse issues of business ethics andcorporate governance.


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Paper Information

THE EXAM

Syllabus topics and weightings

A. Strategic Management & Assessing the Competitive Environment

30%

B. Project Management 40%

C. Management of Relationships 30%

Format of the Paper

Section A 50 Marks

Five compulsory questions, each worth 10 marks. Short scenarios maybe given, to which some or all questions relate

Section B 50 Marks

One or two compulsory questions. Short scenarios may be given, to

which questions relate.


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How to Pass

Have sound theoretical knowledge

(Attend Tuition Classes)

Practice application skills

(Question Practice)

Be prepared!

(Attend Revision & QBR)

Read the question requirements

Add value to the scenario material


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E2 - Enterprise Manage

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The Verb Hierarchy


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Overview of Paper


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Strategic Management & Assessing theCompetitive Environment. (A)

A2 (c) Explain the relationship between different levels ofstrategy.

The concept of strategy

A strategy is something that an organisation implements totake it from where it is now to where it wants to be at somepoint in the future.

A course of action, including the specification of resources,to achieve a specific objective.

Characteristics of strategic planning

Strategic planning is characterised by the following factors:

Long-term planning strategic planning looks at the longer-term strategy of the organisation.

Emphasis on external factors strategic planning requiresthe external environment to be taken into account whenformulating strategies.

Resource analysis strategic planning involves analysing anorganisations resources to determine resourcerequirements.

Objectives strategic planning requires the establishment of

organisation objectives which are achievable given theexternal factors and realistic given the internal resourceavailability.


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Levels of strategyThere are basically three levels of strategy: corporate strategy,business strategy and functional level strategies:

Corporate strategy

Overall purpose and scope

Decisions on acquisitions, mergers and sell offs

Decisions to enter new markets

Embracing new technologies

Development of corporate policies (i.e. policy on corporatesocial responsibility)

The extent to which the SBUs are free to make strategicdecision (centralised or decentralised approach)

Business strategy set within the broad framework of thecorporate strategy

How the SBU approaches a particular market

Winning customers and beating rivals competitive strategycan be formulated depending on the degree of autonomyallowed

Marketing issues (segmentation & marketing mix)

Functional level strategies

Dealt with at the departmental level within the SBU such asmarketing, finance and production.

These strategies are to ensure that there is a balanced

portfolio of resources for business and corporate strategyimplementation.

Without the appropriate resource, product and/or businessunit strategies could not be successfully undertaken.


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CorporateStrategy -

Head Office

Business

StrategySBU SBU

Functional

Strategy

Financial

Operations

Human

Resources

SBU SBU

Question

V plc operates in the leisure and entertainment industry. It has a range ofdifferent ventures worldwide including fitness centres. Casinos, cinemas

and sports bars, each of which operates as a separate business

Required

Distinguish between the different levels at which strategy should exist in Vplc.

(10 Marks)


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A2 (b) Compare and Contrast Approaches to StrategyFormulation

A1 (a) Discuss the nature of competitive environments

A1 (b) Distinguish between different types of competitiveenvironments

The strategy formulation process

According to Johnson and Scholes, there are three stages in theprocess of strategy formulation: strategic analysis, strategic choiceand strategic implementation.

Strategic analysis requires the analysis of the internal andexternal environments. A corporate appraisal (or SWOT analysis)is undertaken to ascertain the internal strengths and weaknesses

and the external opportunities and threats.

Strategic evaluation & choice requires management to identifystrategies to take advantage of strengths and opportunities andstrategies to minimise weaknesses and threats.

Strategic implementation (Review & Control) requiresorganisational change, which will need to be managed.


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Strategic Analysis and Competitive Analysis

The strategy of an organisation must allow it to achieve agood fit with its environment and internal resources.

The information from the external environment helps toanalyse potential opportunities and threats and thecompetition it faces.

The information from the internal audit helps to analyse theorganisations strengths and weaknesses.

External/Environmental Analysis

All of the factors outside of management control which canaffect the performance of the business and the success of itsstrategies. (There are various levels within the environment)

o Nature of the environment Degree of turbulence and uncertainty

Organisations need to be flexible (E1)o Macro-environment

PEST

Create opportunities or threatso Micro-environment

5 Forces

Competitive pressures


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Environmental uncertainty

Uncertainty is:

The inability to predict the outcome from an activity, due to alack of information about the required input/outputrelationships, or about the environment within which theactivity takes place.

Uncertainty can also be defined as the difficulty in makingreliable assumptions about the future

Causes of Environmental Uncertainty

Complexity the increasing number of variables that impactupon the firm (and how difficult they are to understand)(theuse of the rational planning model to generate a singlescenario strategic plan ignores this scenario planningwould allow if a what if approach)

Interaction of the variable the idea of complex adaptivesystems (carrying out the strategic planning process annuallymeans that any changes in the business environment during

the year cannot be incorporated into the strategic plan planning should be carried out on a continuous basis)

Dynamism the rate of change in the variable that impactupon the firm. Our assumptions are soon out of date. Thishas occurred because of, amongst other things, shorteningproduct life cycles and swifter communications (the diffusionof knowledge)


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Impact of uncertainty

Reduces planning horizon

Encourages emergent strategies

Increases information needs and perceived informationneeds

Can lead to conservative strategies


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PEST/PESTEL framework(Key drivers of change)

Political/legal influences

Economic factors and influences

Social values and demographic factors

Technological change and factors

Again, if you are asked to apply the PEST model to anorganisation, simply look for the things that might affect theorganisation and put each of them under the most appropriateheading with an explanation as to why you feel each activity is anopportunity or a threat. (i.e. what impact do they have on theorganisation)PEST(LE) Analysis

Benefits Identify and capitalise on opportunities Obtain objective qualitative information giving a deeper

understanding of its markets More sensitive to changing needs of customer Improve the quality of strategy formulation and reduce risk Education and awareness of the industry which should

reduce surprises

Political Analysis

Stability of political system

Availability of tax incentives

Government intervention in the market etc

Economic Analysis

Interest rates

Exchange rate

Inflation rate

Fund movement control

etc


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Social Analysis

Gender

Age of population Birth growth rate

Changing tastes and fashions

etc

Technology Analysis

R&D national expenditure

Types of technology available

Usage of technology

etc

Legal Analysis

Intellectual property legislation

Minimum wage regulation

Pricing regulation

Competition regulation

etc

Ecological Analysis Pollution regulation

Environmental protection legislation

etc

Sources of information

industry analysis

regulatory and professional bodies

press

government suppliers

watchdog groups

trade associations

consultants


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The Competitive environment five forces model

Porter identified five competitive forces that provide a usefulframework for assessing the competitive forces at work in anindustry /market

It can be used to determine whether that industry/market isan attractive one to enter.

It is the collective strength of these forces that will determinethe profit potential.

Threat of new entrants

Competitive

Rivalry

Threat of New

Entrants

Threat of

Substitutes

Bargaining Power

of suppliers

Bargaining

Power of Buyers


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Threat of substitute products or services

Bargaining power of buyers

Bargaining power of suppliers

Rivalry amongst existing firms


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Evaluation of Environmental ModelsBenefits Limitations

Consider a wide rangeof potential impacts They can distort reality(the real business world

does not fall into neatsegments)

They allow for divisionof work

They present theenvironment as external(the boundary betweeninternal and external isblurred)

They provide a commonlanguage

Networks andinterdependencies areoverlooked

They provide an insightinto key strategic issues

They overloadmanagement(should only a smallnumber of factors bemonitored?)


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Question

T is the CEO of S Company, a manufacturer of hair and body care

products. Over the years the company has been market leader inits field. It has achieved this through being at the forefront ofproduct innovation. S Company has invested heavily in researchand development, which has enabled it to be the first in the marketto introduce new variants of the product range. However, this hasmeant that the cost of operations has spiralled, leading to anincrease in the price of the companys products.

Up until last year, the company has been very successful inincreasing its market share. However, the most recent

performance indicators show that sales are down. It would seemthat supermarket own brand products are stealing market shareand T is worried about the future ability of the company to meet itsobjectives for continual growth. T has decided to undertake astrategic review, the first stage of which will involve conducting anappraisal of its external environment.

Required

Explain what would be involved in undertaking an appraisal of SCompanys external environment, and how the information couldbe used to help T in his review.

(10 Marks)


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Competitor Analysis

The systematic review of all available information (marketing,

promotion, financial, etc.) on the activities of competitors in order to

gain a competitive advantage

The Purpose of competitor analysis is:

o To help understand our competitiveadvantage/disadvantage relative to competition

o To forecast competitors future strategies and how tocounteract them

o To give an informed basis for the construction of the firmsstrategies, to gain or sustain competitive advantage

o To assist with the forecasting of the returns on strategicinvestments when deciding between alternative options

o To forecast competitors likely reactions to the firmsstrategic decisions


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The following process can be used for gathering competitiveintelligence:

Identify competitors current strategy

Identify competitors objectives

Identify competitors assumptions about the industry/market

Identify competitors resources and capabilities

Information that should be gathered:

o Products and serviceso Marketingo Human resourceso Operationso Management profileso Socio-political informationo Technologyo Organisational structureo Competitive intelligence capacityo Strategyo Customer value analysiso Financial information and Cost structures

Sources of data

From partnership

Physical analysis of competitors products

Banks and financial markets

Ex-employees of competitors

Generalisation from own cost base Industrial experts and consultants

Physical observations of their operations

Published financial statements

Competitor press releases

Trade and financial media coverage

Inspection of wage rates in job adverts

Availability of the market segments they serve

The work methods they employ

Competitor threat


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We can link thito which comp

Number of rivmarket a mafiercely compe

Entry and mo

Cost structureprofit will mak

Degree of vertpower but re

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s back to Five Forces Analysis anetitors are a threat depends upon:

ls and the extent of differentiation irket for commodity products is alwtitive

ility barriers

anything that makes it harder toit more fiercely competitive

ical integration vertical integratiomoves flexibility

prise Management

____________

the extent

n theys more

ake a

gives


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Strategies that can be used against competitors and potentialnew entrants

Attack competition

Market segmentation

Occupy new territory

Block first mover advantage

Rewrite the rules of the game

Technical innovation

Higher levels of service

Co-operation

Competitor Accounting

Evaluation of barriers to entry

Estimate the present value of the costs that an entrant willincur to overcome barriers

Compare with present value of returns

Estimate competitors costs

Regarding competitor analysis

you should make sure that you are able to discuss the role of

competitor analysis do not forget that it is strongly linked toFive Forces Analysis.

in scenario questions, you should be looking for clues to theindustry structure and, therefore, the nature of thecompetition that a firm in likely to experience in that industry.

you should also be able to describe a process for gatheringcompetitive intelligence, including the sources you would usetailored to the scenario of the question


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National Competitive Advantage

Porters Diamond

This model can be used to answer questions such as:

1. Where should an organisation locate to gain a competitiveadvantage?

2. Why certain organisations are successful international firmsand how they sustain superior performance?

3. Where should an organisation locate part of its operations(e.g. production) to take advantage of what a country offers?

4. What are the implications for competitive strategy (home andoverseas)?

The four elements on the diamond that need to be analysed

are;

1 Demand conditions

o The demand conditions in the home market are importantbecause: If the demand in terms of volume is substantial, it

enables the firm to obtain the economies of scaleand experience effects it will need to compete

internationally.

Firm strategy,structure and rivalry

Related andsupporting industries

Demand conditionsFactor conditions

Firm strategy,structure and rivalry

Related andsupporting industries

Demand conditionsFactor conditions


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The experience the firm gets from supplyingdomestic consumers will give it an informationadvantage in international markets, provided that:

(i) its customers are critical and demandingenough to force the firm to produce at world-class levels of quality in its chosen productsand

(ii) its customers encourage the firm to developnew and sophisticated products.

2 Related and supporting industries

o The internationally competitive firm must have enjoyed thesupport of world-class producers of components andrelated products. Moreover, success in a related industrymay be due to expertise accumulated elsewhere.

3 Factor conditions

These are the basic factor of production referred to ineconomic theory. Factors may be of two sorts:(i) Basic factors such as raw materials, semi-

skilled or unskilled labour and initial capitalavailability. These are largely natural and notcreated as a matter of policy or strategy.

(ii) Advanced factors such as infrastructure,training and skill, R & D experience, etc. are amatter of strategy.

4 Firm structure, strategy and rivalry

Intense rivalry can lead to emergence of firms with strongcompetitive characteristics.

Search for competitive advantage within a nation usescompetitive skills, which promote domination in worldwidemarkets.


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The model also includes Governmentand Chance Events.

1. The role of government - subsidies, encouraging enterprise,infrastructure building, legislation and education all impact onfirms.

2. The role of chance events can change the other elementson the diamond such as war, terrorism and nationaldiscoveries.

Gaining a national advantage

Successful firms from a particular country tend to havelinkages between the four factors, a phenomenon that Portercalls clustering.

Clustering may take place in two ways:1 Common geographical location (eg Silicon Valley, City

of London)

2 Expertise in key industry (eg Sweden in timber, woodpulp, wood-handling machinery).

Clustering allows for the development of competitiveadvantage for the following reasons:

(i) transfer of expertise, eg through staff movement andcontracts

(ii) concentration of advanced factors (egtelecommunications, training, workforce)


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Sources of Information for Environmental Analysis.


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Internal Analysis

Appraising internal resources and capabilities

Identification of those things the organisation is good at incomparison to the competition

Position Audit Value Chain

Value Chain

Possibly one the most powerful techniques for analysing thestrengths and weaknesses of an organisation and its

component functions. The model looks at the functions within the organisation to

determine where value is added, either by cost leadership ordifferentiation the only two routes to competitive advantage(according to Porter).

According to Porter there are five primary activities and foursupport activities.

The primary activities:

1 Inbound logistics of raw materials and input components eg.storage, inventory control, materials handling etc.

2 Operations that transform inputs into products eg.manufacturing, packaging and assembly etc.

3 Outbound logistics of the finished goods eg. transport and

distribution etc.

4 Marketing and sales, eg sales administration receivingorders etc.

5 Customer service, which includes after sales activities,installation, repairs and customer training etc.


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The support activities:

1 Procurement how the resources are purchased for theorganisation.

2 Technology development how systems and technologyassist the firm.

3 Human resource management how people are organisedand managed within the organisation.

4 Firm infrastructure how the firm is organised, eg

centralised, decentralised, product based etc.

Linkages among primary and support activities need to beexamined in order to identify areas of competitive strengths andany possible synergies from the sharing of value chain activities.

The value added by the entire system is the difference betweenthe revenue received by the last time buyer and the costs

generated in the system. This is shared between the firms at thevarious stages of the value system.

Firm infrastructure

Technology development

Human resource managementProcurement

Inboundlogistics

Operations Outboundlogistics

Marketingand sales

Service

MARGIN

MARG

IN

Firm infrastructure

Technology development

Human resource managementProcurement

Inboundlogistics

Operations Outboundlogistics

Marketingand sales

Service

MARGIN

MARG

IN

Suppliersvalue chain

Firmsvalue chain

Channelsvalue chain

Customersvalue chain

Competitorsvalue chain

Suppliersvalue chain

Firmsvalue chain

Channelsvalue chain

Customersvalue chain

Competitorsvalue chain


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The SWOT analysis - Corporate appraisal

SWOTA critical assessment of the strengths and weaknesses,opportunities and threats (SWOT analysis) in relation to theinternal and environmental factors affecting and entity, in order toestablish its condition prior to the preparation of the long term plan

SWOT forces management to focus on the big issues.


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The Use of Stakeholder Mapping

Stakeholder analysis

Stakeholders are those individuals or groups who have an interestin, can be affected by or can affect the outcome of the strategy.

Stakeholders exert powerful influences on a business and

management must balance the returns to various stakeholdergroups

Internal stakeholders employees and management

Connected stakeholders shareholders, customers andsuppliers

External stakeholders governments, community, localpressure groups

The Mendelow Matrix assessing power andinterest of stakeholders

A useful checklist for the management of stakeholders is asfollows:

Identify the key stakeholders

Determine vested interests

Identify the specific stake

Evaluate stakeholder influence status, claim on resources,formal representation in decision making process

Modify project strategy


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InterestLow

High

Resolving Competing Objectives (Cyert & March)

Satisfying Sequential attention

Side payments

Exercise of power

Handling Conflict (Thomas)

Avoidance avoid, suppress, ignore. This is not

recommended as it does not resolve the conflict which maybreak out again when the parties meet in the future

Accommodation one party putting the others interest first.

Compromise each party gives something up if both partiessee this as losing something it may not be ideal

Competition parties seek to maximise their own interestsand goals, it creates winners and losers and can provedamaging to the organisation

Collaboration differences are confronted and jointly

resolved so that a win: win outcome is achieved

Minimal Effort - DirectionKeep Informed - Education

& Communication

Keep Satisfied -Intervention

Key Players - Participation

Mendelow's

power-interestmatrix

High

Power


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A2(b) Compare and contrast approaches to strategyformulation

A2(a) Discuss concepts in established and emergent thinkingin strategic management

The strategy formulation process

According to Johnson and Scholes, there are three stages in theprocess of strategy formulation: strategic analysis, strategic choiceand strategic implementation.

Strategic analysis requires the analysis of the internal andexternal environments. A corporate appraisal (or SWOT analysis)is undertaken to ascertain the internal strengths and weaknessesand the external opportunities and threats.

Strategic evaluation & choice requires management to identifystrategies to take advantage of strengths and opportunities andstrategies to minimise weaknesses and threats.

Strategic implementation (Review & Control) requiresorganisational change, which will need to be managed.


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Rational Strategy Process

Mission &Objectives

CorporateAppraisal

(SWOT)

Strategic OptionGeneration

StrategyEvaluation &

Choice

StrategyImplementation

Position Audit

Internal Analysis

Environmental Analysis

External Analysis

Competitor Analysis

Review &

Control


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This approach generally involves a deliberate step by stepapproach.

The company will start with the existing strategy of theorganisation

The current strategy is then evaluated using information fromthe internal and external environment

The information from the external environment helps toanalyse potential opportunities and threats

The information from the internal audit helps to analyse theorganisations strengths and weaknesses.

Strategic alternatives are evaluated to determine whichstrategy will best position the organisations strengthswhile minimising threats and weaknesses.

The organisation can then determine if the organisationshould continue with its existing strategy or formulate a newstrategy in order to compete more effectively.

Then a plan is prepared to assist in the implementation of thechosen strategy and then evaluating performance to

determine whether or not goals have been achieved.


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MissionA mission is an open-ended statement of the firms purposes andstrategies.

A statement of the purpose of the business

A statement of its products and markets

A statement of its competitive strategy or positioning

A statement of its principles, ways of doing business and

social responsibilities. A definition of the industry the organization competes in

S

C

O

P

E

Organisational goals and objectives

General statement of aim or purpose may be qualitative innature

A goal is a target such as we want to increase our market

share. An objective is a quantification of a goal.

Organisational objectives when set by managers should beSMART


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The goal structure is the hierarchy of objectives in theorganisation.

Mission Statement is translated into

Objectives perform five functions1. Planning2. Responsibility3. Integration4. Motivation5. Evaluation

Strategic

Tactical

Opertaional

Individual


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Approaches to formulating business strategy

Typical features of the process

~ A designated team for strategy development

~ Formal collection of information for strategy purposes

~ Collective decision making by the senior management team

~ A process of communicating and implementing the strategy

~ Regular review and control of the strategy

Benefits Drawbacks

Avoids short termbehavior by consideringthe nature of theenvironment. Anticipatingcompetitor actions isabout being proactive inplanning in order to keepahead.

Goal congruence

providing direction for thedifferent areas of thebusiness. Targets set atdifferent levels with enablethe strategy to beimplemented andreviewed.

If the company has a clearidea of where it is going

then the stakeholdersperceptions of thebusiness should beimproved. Investors maybe more confident ofhigher returns which couldlead to a higher shareprice.

Can be too infrequent toallow the business to bedynamic. If the businessenvironment changesunexpectedly then thecompanys performancemay deteriorate further.

A formal approach doesnot encourage the

development of moreradical and innovativestrategies and oftenresults in the loss ofentrepreneurial spirit sinceit encourages rewards tobe given to managers whocarry out their part of thestrategy sticking to the

conventional way of doingbusiness.

Does not encouragecontributions from staffwho are lower down thehierarchy. Yet it is oftenthese staff who are mostin touch with the customerand can see the impact of

competitor activity.


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It assumes that the

strategist can makereliable businessassumptions about thefuture and particularlyabout the opportunitiesand threats that face thecompany.

Too expensive &complicated for small

businesses


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Strategy and Small

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Business

Business goal aligned with

owner manager

Limited number of options

Limited resources

Expensive and time consuming

Could get in the way of creativity

& innovation

prise Management

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Alternatives to the rational approach to Strategy

There is a need to question some of the assumptions of therational approach

People not organizations have objectives peoples beliefsare partially irrational therefore any strategy based on themwould not be completely rational

Senior management should not be the only people involvedin setting the strategy

The process is not a simple step-by step process

Actual strategies often need to be adapted

Strategies are often adaptive the organization adapts to thecircumstances around it


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Emergent strategies

Strategy is best constructed as an emergent process. In a rapidly

changing and dynamic environment Mintzberg contends thatformal planning is inadequate and rather, it is better that theorganization retains flexibility and be ready to adapt strategy as itscompetitive environment changes.

Mintzberg suggested that few strategies are consciously plannedbut are the results of patterns of behaviour and emerge throughthe ways in which people do things.The totality of an organisations strategies can be seen as a

combination of planned and emergent strategies.

Planned

or

Intended

Strategy

Deliberate

Strategies

Realised

Strategies

Unrealised

Strategies

Emergent

Strategies


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Evaluation of approaches to strategy

A rational approach is usually used as the basic framework

(evolutionary) Strategies can be influenced by irrational factors (adaptive,

systems)

Most real world strategies are balanced between the two(incremental taking small steps and testing strategies asthey go)


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Resource Based versus Positioning Views onstrategy formulation:

Positioning view competitive advantage stems from the firmsposition in relation to its competitors, customers or stakeholders. Itis sometimes called an outside-in view because it is concernedwith adapting the organisation to fit its environment.

Positioning based view strategy should start with the setting of amission and strategic objectives. These should be expressed interms of the customers the firm seeks to serve and the needs itseeks to satisfy, ie what market it is in. Assessing resources andcompetencies should be undertaken in terms of how they affect theability of the business to serve this market and to identify whereimprovements in these will be needed. It places the customer andmarket at the centre of strategy

Resource based view the principle of the resource based view isthat management should identify which of the activities carried outby the firm are not easily copied or improved on by competitors.Management should make these activities the core competenciesof the business and then develop products and services basedupon them.

This is an inside-out view of strategy because the firm must go insearch of environments that enable it to harness its internal

competencies.

Modern strategy formulation is tending towards the resource basedview for the following reasons:

Strategic management should focus on developing corecompetencies. The sensible path open to management is todevelop key competitive strengths that will sustain the business inthe uncertain times ahead. Therefore identify the competencies

first and develop objectives aimed at exploiting and maintainingthem.


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It will avoid the firm losing sight of what it is good at. Some earlyobjectives-led views insisted that missions be formulated in termsof the needs that the firm satisfied. Consequently railways foundthemselves in the transportation business which led tounsuccessful diversification into road services where the firmscould not compete. Attention to core competencies means firmswill stick to the knitting.

Underlying Principles of the Resource Based Approach

Sustainable competitive advantage depends on theorganisations possession of unique resources or distinctivecapabilities that cannot be easily replicated by its competitors

Resources include all assets, capabilities, organisationalprocesses, information and knowledge controlled by a firmthat enable it to create and pursue effective strategies

Writers views on the resource based approach

Barneyo Valuableo Rareo Difficult to imitateo No freely available substitutes

Kayo Competitive architectureo Reputationo Innovationo Ownership of strategic assets


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Critical Success Factors

The identification of critical success factors is a key part of thestrategy development process since they will help to determine theresources and competences needed to achieve competitiveadvantage. They are important in establishing where a businessmust excel to outperform thecompetition and as such CSFs are

crucial elements of the firms business strategy.

Customers will value product/service features to a greater or lesserextent and so it will be critical to the development of a businessidea to understand which features are of particular importance.CSFs relate to those product or service features that areparticularly valued by a group of customers, and can be used todistinguish between the offerings of potential providers.

In summary, CSFs are those factors where performance

requirements will be fundamental to the competitive success andidentifying the skills processes and technologies that support them.

Core competences are closely related to CSFs since they are thedistinctive group of skills and technologies that enable anorganisation to provide a particular set of benefits to customers. Inother words, the things that the business must do well and bedifficult for competitors to imitate in order to deliver on the criticalsuccess factors that will give it competitive advantage.

The things the company has to do well in order to outperform thecompetition (usually customer focused)

1. Identify the CSFs2. Identify the underpinning competences3. Identify performance measures4. Ensure advantages are sustainable5. Monitor competitors


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Question

The PAX company is a successful supermarket chain. It has astrong reputation for innovation with its successful launch ofinternet shopping and clothes ranges. PAX Companys ability toprovide value for money through the efficient use of operations, itsuse of the latest technology and its strong customer focus hasenabled it to gain the largest share of the market in Country S.

Following detailed analysis, the senior management of PAXCompany has concluded that the market in Country S has reachedsaturation point and that the only opportunity for significant growthis to develop activities in new markets abroad.

Acting partly on the advice of the central governments OverseasAdvisory Board, and using its own research team, PAXs Boardhas made the strategic decision to enter into a new market inCountry Y. The location selected for the first supermarket is in thesuburbs of a growing city where groceries, clothing and the othernon-food products that PAX intends to supply are currentlyprovided by a large number of small shops.

This is a major new project for the PAX Company, and as suchrequires strong project management skills. D has been appointedas project manager and is already facing significant challenges interms of the reactions to the project from different stakeholders.

The land on which the supermarket will be built has beenpurchased and following a series of negotiations with state andlocal government officials, planning permission has been granted.

However, there have been strong protests from a number ofgroups including the Citys Civic Society, local residents andshopkeepers who are located near to the proposed development.

The Civic Society is concerned about the detrimental impact on thelocal environment. Residents are concerned about the potentialincrease in traffic and the danger it poses to the children at thelocal school. The shopkeepers are fearful about the impact of thenew supermarket on their future business prospects.


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The media including television, radio and newspaper have

publicised the fears of the local residents and shopkeepers andthese two groups, together with the Citys Civic Society haveformed a coalition to attempt to prevent the development.

Required(a) Explain how the project team should manage the different

stakeholders who threaten the future of PAX Companysproject to open a supermarket in Country Y. (13 Marks)

(b) Discuss the Resource Based approach to strategicmanagement, making reference to the resources andcompetences that appear to give PAX Companycompetitive advantage.

(12 Marks)(Total for Question 25 Marks)


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____________________

A2(a) discuss conin strategic manag

Changes in the buthe following:

Saturated home

Trade barriers co

Improved commu

Access to cheap

Increasing comp

Fast changing

In todays businessso that they can be

The Flexible Firm

Structure

Handy The Sham

CORE

OUTSOURCING

E2 - Ente

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epts in established and emergement

iness environment have occur

arkets

ming down

nications technology

r resources

tition

nvironment organisations need toore responsive to change.

rock Organisation

PERIPHERAL

prise Management

____________

t thinking

ed due to

be flexible


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Employment

Numerical

Functional

Temporal

Financial


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Complex organisational forms

Remember, an organisations strategy should focus managementon being both efficient and effective. Efficiency (doing things right)and effectiveness (doing the right things) must be pursuedsimultaneously in todays competitive environment.

This drive has widened some organisational structures to includeexternal groupings such as franchised firms, resellers who areallowed to sell other products, joint ventures, partnerships andalliances. In this way it is possible to have a market penetration atlowest cost and internally reduce overheads by outsourcing

activities considered non-core into the market.

Network Organisations

Network organisations rely on relationships with otherorganisations in order to carry out their work. Eg Amazon, UKhospitals, Airlines

Network organisations can choose to buy in a range of value-

creating activities:

Contract staffing

Use of specific capital assets

Outsourcing elements of production or service provision

Reliance on outside organisations for referral of business


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Transaction cost theory

Purpose of transaction cost analysis

To identify the most economically viable solution

Identification of unique competences

To support organisational restructuring

Information technology has helped companies to lower

transaction costs making it worthwhile to contract withexternal suppliers.

Transaction Costs are concerned with the costs of controlspecifically related to the delivery of a product or provision of aservice

Transaction Cost = Unit Cost + Cost of Control

. Williamson suggests two methods of controlling resources anddeciding how to manage transaction costs

to buy in (market solutions) and which to own and operate directly (hierarchy solutions)

Transaction cost theory states that companies exist because theycan conduct transactions internally more cheaply than they canwith external companies.


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When the organisation relies on outside suppliers for an input orservice (market solution) in addition to the price for the bought-inservice it will incur the following transaction costs:

negotiation and drafting of the contract

Monitoring the suppliers compliance

Penalty payments if the contract needs to change

Pursuing legal actions for redress due to non performanceThese costs arise because both the firm and the supplier wish tobe protected and use the contract to define the risks that each aretaking on.

Bounded rationality neither party can completely anticipatethe future

Opportunistic behaviour- each party seeks to pursue theirown economic self interest.

Managers will often suggest an internal solution in order tomake their lifes easier in terms of control and certainty, andit increases their empire.

Consideration of the decision (in-house or external)

If these transaction costs become too high the

organisation may reduce its costs by taking the supply in-house (hierarchy solution).

Another and the most important reason for bringing thetransaction in-house is due to asset specificity.


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Asset specificity cost of an external solution is low whenspecificity of the assets are low i.e. the assets required tofulfil the contract are readily transferable to othertransactions.

Asset specificity can force the buyer into long term contractswith the sole supplier, or encourage an in-house supply asthe high asset specificity may result in no suppliers comingforward on the market

o Siteo Physicalo Human

The asset specific concept of Williamson suggests thatcorporations reduce transactions costs by verticallyintegrating which creates a more complex internalenvironment. (a company ends up operating in morethan one market with more than one product)

To-day this concept is challenged and organisations willconsider the external market place

Due to realisation that internal costs can beundervalued

Due to the fact that technology lowers the cost ofsearching & maintaining the supplier relationship

The conclusion that should be drawn is that the decisionshould be based on the most economically viable solution forthe company (i.e. the shareholders).


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A Wider Stakeholder /Ecological perspective

Shareholder Perspective (Friedman) the primary purpose of an

organisation is to make as much money as it can, maximisingwealth for its owners and that it is the role of the state to regulateorganisational activities from a social perspective.

Stakeholder Perspective accepts that organisations should havea duty towards the wider community and society.

Social responsibility can be defined as accepting responsibilitiesover and above legal responsibilities. Issues commonly associated

with social responsibility include:


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How does social responsibility conflict with benefitingshareholders?

Extra cost involved in implementing sociallyresponsible strategies

o Cost of treating emissions and waste Reduced revenues

o Refusing to do business in certain countries Management time should be about running the

business Funds that may otherwise have been paid out in

dividends are instead being used to make charitable

donations

Can social responsibility improve shareholders returns? Any strategy that conflicts with the needs and values of

society is unlikely to survive in the long termo Negative publicity McDonalds received

Reducing waste and pollution and saving energy andrecycling resources may lead to lower overheads, which

in turn can help to improve profits. Could attract socially conscious consumers Increase corporate image and have a positive effect on

share price


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Ecological Perspective

Closely aligned with social responsibility

Concerned with relationship of the organisation & its naturalenvironment

Companys need to monitor their impact on the environment

Areas that might be considered will include

Carbon emissions

Energy reduction

Treatment of waste Compliance with environmental legislation

Continuous improvement

Triple bottom line accounting (financial/social/environmental)


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Ethics is the code of moral principles and values that governbehaviours with respect to what is right or wrong.

good ethics is good business this imposes on the business theduties of being a good corporate citizen

The importance of ethics

Ethical issues are important for a number of reasons:

Some organisations have incomes larger than those of manynation states. How these companies use their wealth has

numerous implications for the well-being of the countries inwhich they operate.

Typically, senior managers in big firms occupy positions wherethey can hurt or promote the interests of large numbers ofemployees, and might take decisions affecting entirecommunities.

Consumers increasingly judge the worth of a company in termsof how it deals with ethical and environmental problems.

Certain business practices are considered unethical throughout theworld. Examples are:

The dumping of products, ie selling them at less than cost pricein order to drive competing firms out of business;

Covert involvement in the political affairs of a country;

Knowingly breaking the law on consumer protection, healthand safety of employees, equal opportunities, pollution of thephysical environment, etc.


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Professional ethics are principles that guide the decisions andbehaviours of managers with regard to whether they are right orwrong in a moral sense.CIMAs ethical guidelines: remember COPPI

Confidentiality

Objectivity

Professional competence and due care

Professional behaviour

Integrity

Encouraging ethical behaviour

Codes of practice

A code of practice is a document published by a governmentagency, professional body, trade association or other relevantauthority outlining model procedures for good practice in a

particular field. Some large organisations issue their own in-housecodes of practice on particular matters.

Codes give examples of excellent and bad behaviour, andrecommendations regarding how things should be done.Government codes of practice (eg those issued by the EqualOpportunities Commission) are not legally binding, but will belooked at by the courts when adjudicating cases.

Role of the professional bodies/organisations inregulating members behavior

o Education and communication

o Training

o Punishment


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Management of Relationships (C)

C1 (a) discuss the concepts of power, bureaucracy, authority,responsibility, leadership and delegation

Power is the possession of a controlling influence.

Power is the ability to exert influence. To have power is to be ableto change the behaviour or attitudes of other individuals.

The sources of power

Power does not simply derive from an individuals level in theorganisational hierarchy. John French and Bertram Raven haveidentified five sources or bases of power. Each may occur at alllevels.

Reward poweris based on one person having the ability to rewardanother person for carrying out orders or meeting otherrequirements.

Coercive power, based on one persons ability to punish anotherfor not meeting requirements, is the negative side of rewardpower.

Legitimate powerexists when a subordinate acknowledges that amanager has a right or is lawfully entitled to exert influence

within certain bounds.Expert power is based on the perception or belief that a person

has some relevant expertise or special knowledge thatothers do not.

Referent power, which may be held by a person or a group, isbased on one persons desire to identify with or imitateanother. For example, popular, conscientious managers willhave referent power if subordinates are motivated to emulatetheir work habits.


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Bureaucracy is based on authority derived from the lawand written rules. Weber suggests eight characteristics

Specialisation

Hierarchy

Rules and regulations

Impersonality

Appointed officials

Career officials

Fulltime officials

Public/private division


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Authority is the right to do or act (to take actions andmake decisions)

Weber defined three bases for authority

Charismatic derived from the personality of the leader

Traditional derived from custom and practice

Rational-legal


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Responsibility involves obligation (accountability).Responsibility cannot be delegated, the buck should stop with theresponsible manager.

Delegation is the process whereby a manger or

supervisor transfers part of his or her authority to asubordinate.

Delegation is an important aspect of organisation and effectivemanagement. Without delegation, formal organisations could notexist. If there were no delegation the chief executive would beresponsible for everything and would be the only person with theauthority to do anything. Consequently nothing much would everget done. Because management is the act of getting things done

(accomplishing objectives) through the work of other people, to putit simply, it is obvious that management could not succeed withoutdelegation.

Reasons for Delegation

Effective time management routine task are reduced sothat time can be spent on strategic decisions

Effective stress management staff have physical andmental limitations this reduces personal job overload

Speeds up decision making and implementation(decentralisation allows managers to react quicker to localchanges)

Assists with progression succession planning and careerdevelopment

Increases the job satisfaction of employee - increasemotivation (unless delegation only of mundane tasks withoutsatisfaction to the subordinate)

Effective deployment of resources employee has the

expertise


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Process of Delegation (TARA)Targets / Standards

Set the targets/performance levels required (individualchosen should be capable of reaching the standards)

Set the levels of authority

Set the level of resources to be made available in order tocomplete the task (ensure these are made available)

Actual Performance

Ensure that there is a mechanism for measuring actualperformance this should be achievable if SMARTobjectives were set

Regular Review

Maintain frequent contact to review progress made, giveconstructive feedback and be available for help andadvice if requested

Action (appropriate)

Frequent review allows action to be taken if the task is notbeing completed as required (accountability remains withthe superior it is important to keep the task on track)

Why is there a reluctance to delegate?

Lack of confidence in the abilities of subordinates

Fear of releasing so many duties that the managereventually becomes redundant

Organisational culture may not encourage delegation(delegation is seen as avoiding ones own duties)

Desire of managers to keep control

Manager not trained in delegation Seen as ineffective time management (quicker to

complete the job yourself than spend the time explaining itto someone else)

Ineffective stress management the manager should notdelegate so much as to overload a subordinate totally.


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Question

G, the senior partner of L, a medium sized accounting firm, hasworked for L for over twenty years and has a sound knowledgeand understanding of the different activities of the firms business.over the years G has become known for his fairness in how hemanages staff. he is also well liked and respected for hisenthusiastic approach. He always has time to encourage andmentor younger members of staff.

The firm has recently invested in new technology which willimprove the effectiveness of its office systems, but will mean thatthe roles and responsibilities of the support staff will change. Ghas taken on the difficult role of leading the project to introduce thetechnology and new working practices. He knows that the projectwill be meet with some resistance from some members of staff andhe will need to draw on various sources of power to ensure thechanges are successfully implemented.

RequiredDescribe the different sources of power that G has and which will

help him in introducing the changes (10 Marks)


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Management Leadership

Classicalo Scientific (Taylor)o Functions (Fayol)o Bureaucracy

Human Relationso Mayoo Herzberg

Systemso Trist & Bamforth

Contingencyo No one best

approach

Direction

Vision

Influencing others

Achieving goals

Foresight

empowerment


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Leadership getting people to do things willingly

Leadership involves possessing vision, and the ability tocommunicate that vision.

Can leaders be trained or is someone born a leader?

Robert Blake and Jane Mouton

Blake and Mouton argued that managerial competence can betaught and learned. Their managerial gridprovides a framework forunderstanding and applying effective management.

High country club team

9 management management

Middle-of-the-road management

impoverished authority-compliance1 management managementLow

Low 1 9 highCONCERN FOR PRODUCTION

CONCERNFOR

PEOPLE


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John Adair

Effective leadership requires a bringing together of task, team and

individual needs.

McGregor (assumed knowledge from P4)

Theory X

Theory Y

Kurt Lewin

Democratic

Laissez-Faire Authoritarian

Concern for task

Concern for team Concern for individuals


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Likert identified four basic leadership styles(Tannenbaum & Schmidt)

ExploitativeAuthoritative(Tells)

BenevolentAuthoritative(Sells)

Consultative

(Consults)

Participative(Joins/Abdicates)

DecisionsImposed

Increasing trust in subordinatesability

More participative motivationalstyle

Increasing delegation

Increasing communication

Increasing teamwork

Complete trustand discussion

Motivated bythreats

Motivated byrewards goals agreed

Centraliseddecision making

High degree ofdelegation

Rare supervisor/subordinatecommunication

Frequentcommunication

Superior andsubordinate actas individuals

Superior andsubordinatesact as a team


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Leadership style will depend on

Tasko Simple/complexo Structured/unstructuredo Significanceo Innovation required

Individualo Motivation

Theory X and Y

Maslows hierarchy of needs

Herzbergo Maturity (Hersey & Blanchard)

Willingness

Ability

Knowledge of task have they carried out thetask before?

Leader/subordinate relationship (Fiedler)o Militant low relationshipo Co-operative high relationship

Leader position/power high/low (Fiedler)

Group needs/organisational needs

Types of groups

A group is defined as two or more people who interact with andinfluence each other toward a common purpose.

Formal groups

Formal groups are created deliberately by managers and chargedwith carrying out specific tasks to help the organisation achieve itsgoals.The most common type of formal group in organisations is thecommand group, which includes a manager and his subordinates.Permanent formal groups include command groups andpermanent committees. Temporary formal groups include task

forces and project groups that are created to deal with a particularproblem and are disbanded once the problem is solved.


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Informal groups

Informal groups emerge whenever people come together and

interact regularly. Members of informal groups tend to subordinatesome of their individual needs to those of the group as a whole. Inreturn, the group supports and protects them.Informal groups may further the interests of the organisation Saturday morning football games, for example, may strengthen theplayers ties to the organisation. They may also opposeorganisational objectives, such as high performance standards,when these are considered harmful to the group.

Tuckman on groups

Tuckman suggested that groups go through four stages ofdevelopment. It is only when these stages have been successfullycompleted that the group can concentrate on the attainment of itspurpose.

Forming (ie getting to know each other) This is the initial periodwhen the individual members of the project team cometogether, finding out about each others attitudes, abilitiesand characters. The initial objectives and parameters of theteam work are established which, in this case, will bedetermined by the project scope. It is at this stage thatindividuals will work out initial roles. Relationships,acceptable behaviours and codes of conduct.

Storming (initial conflict as individuals compete for leadership

positions and to influence the direction taken by the group).This stage can be characterized as a period ofdisagreements, arguments and high emotion. As membersof the team begin to work together and get to know eachother, so they present their different views on the best way ofachieving the project objectives and different approaches toworking on the project.


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Norming (the establishment of shared values) It is important thatconflicts at the storming stage are resolved. It is importantthat team members reach agreement over any issuesthrough negotiation, compromise and finding areas ofcommonality. Team cohesion develops during this stageand norms of what is acceptable behavior, which in turn willgovern individual members behavior whilst on the project,are established. This stage is important in agreeingprocedures and standards of performance.

Performing (where the group utilises its strengths to perform

desired activities). When the group has successfullyprogressed through the three earlier stages it will havecreated cohesiveness to operate effectively as a team whileworking on the project. At this stage the team will finally beable to concentrate on the achievement of project objectivesand it will be at its most efficient because all energies arefocused on the project task, rather than conflicts within thegroup.

There is a further stage, adjourning, which will happen when theproject comes to an end, and project team members returnto their normal duties. This is something referred to asmourning, when the project team disbands.


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Belbin on groups

Many groups find difficulty in moving beyond the second and third

stages. Team-building exercises, to encourage group cohesion,are an attempt to solve such problems.

Research has shown that individual contributions to groups differ,and that in some cases they are effective whilst in others they arenot. Belbin has argued that each individual has a preferred teamrole and a secondary role which he adopts if unable to occupy hispreferred role. These roles are:

Chairman (setting the agenda),

Shaper (defining the task),

Plant (generating ideas),

Monitor/Evaluator (evaluating ideas),

Company Worker (organising the group),

Resource Investigator (seeking out resources),

Team Worker (maintaining group cohesion),

Finisher (ensuring deadlines are kept),

Expert (technical person).

On the basis of research of this type managers have attempted toinfluence group performance by selecting appropriate teammembers.

Whilst team working is generally thought to be a useful approachto achieving organisational goals, it can have negative effects.The most damaging of these is groupthink, where pressurestowards group conformity stifle creativity.


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Group norms and conformity

Over time, group members form expectations about how they and

the other members of the group will behave. They exert pressureon one another to ensure that these expectations are met. Theanticipation of rejection or acceptance by the group is usuallyenough to ensure that members conform to their groupsexpectations in advance.

When an individual does not conform to group norms, the othermembers of the group will initially try to persuade the deviant toconform. They will try to reason with him or make pointed jokes athis expense. If this approach fails, they are likely to increase thepressure. If the norm being violated is considered important, theywill use criticism, sarcasm, ridicule and finally ostracism totalrejection of the individual through the silent treatment.

Group cohesiveness

The cohesiveness, of a group is an important indicator of howmuch influence the group has over its individual members. Themore cohesive the group is, the more strongly members feel about

belonging to it, the greater its influence. If the members of a groupfeel strongly attached to it, they are not likely to violate its norms.

Cohesiveness and performance

Studies have found that the output of members of cohesive groupstends to be more uniform than that of members of less cohesivegroups. These findings are important for managers becausecohesive groups commonly set their own production standards.Groups that are hostile to management may restrict their output tolevels well below management standards. This sort of restrictionoften occurs among factory work groups paid by piece ratesbecause they may believe that if they reach or surpassmanagement standards, management will establish higherstandards or lower rates.


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Project objectives need to be clear and accepted bymembers of the team

Objectives need to be reinforced throughout the project,using team briefings

Team building exercise are helpful when there is a diversityof views and attitudes.

Individual members need to participate, divergent viewsneed to be encouraged, the emphasis being on a carefullyconsidered decision making process. (the opposite would bethe concept of groupthink when members agree with a

decision which they know is wrong or where the group fail toexamine all of the options available or the Abileneparadox when no-one wants to disturb the consensus.)

The group need to consider the implications of any decisionand assess the acceptability of any associated risk. (Riskyshift phenomenon is where groups are prepared to takeriskier decisions than would be taken by any one individualmember of the group).

Making formal groups effective

Because formal groups are vital to successful organisations,managers must learn to use them effectively.

Several formal procedures are useful in helping groups operateeffectively:

The group goals should be clearly defined, preferably in writing.

This will focus the groups activities and reduce discussion ofwhat the group is supposed to do.

The groups authority should be specified. Can the groupmerely investigate, advise and recommend, or is it authorised toimplement decisions?

The optimum size of the group should be determined. Withfewer than five members, the advantages of group work may bediminished. Potential resources increase as group size

increases.


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C2 (b) Discuss the roles of negotiation and communication inthe management process, both within an organisation and

with external bodiesNegotiation

Preparation

Opening both sides present their position

Bargaining persuade the other side that your case is strong

Closing reach agreement (win: win)

Negotiation involves argument and persuasion in order to

strengthen ones own case by undermining the opposition.

It occurs when there is no established set of rules forresolving the conflict and parties are committed to search foran agreement rather than fighting openly.

Negotiation is often necessary within organisations to resolveconflicts of interest between two or more parties which havearisen because the parties have different objectives.

It has, overtime, become a useful and civilised way ofsettling disputes. In earlier times industrial disputes oftenresulted in industrial sabotage by workers and sometimesphysical violence between workers and their employers.

It is likely that conflicts will arise as a result of therestructuring proposals which will involve the need for therelocation of staff and possible redundancies.

These conflicts may be resolved through negotiationbetween management and the unions who are representingemployees.

The process of negotiation between employers and tradeunions is often referred to as collective bargaining andinvolves at least two parties with a defined interest.


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Without any negotiation the result could be that the unioncalls for industrial or strike action which could have adetrimental impact on the companys future survival.

Approaches to the negotiation process can be throughfocussing initially on each sides primaryobjectives, ratherthan becoming distracted by minor negotiating points at anearly stage.

It is necessary to maintain some flexibility within thenegotiation process and for both parties to be prepared tosettle for what is fair.

It is important to listen to what the other side wants and tomake an effort to compromise so that both sides can attaintheir goals.

However, this is often where negotiation can fail because ofthe tensions between the different objectives that can nevercoincide.

This could occur since the unions main objective will be tokeep jobs, whilst the organisation may see no alternative to

job cuts if it is to survive in the long term.

It is likely that in the first stages of negotiation that the unionwill reject the proposals as unacceptable and will prepare itsnegotiation strategy. While the union will not want to agree to

job losses it might recognise that they are inevitable andconcentrate instead on persuading management to provide

generous severance pay above the legal minimum.

The ideal will be to achieve a win-win outcome where bothsides achieve enough of their objectives to be satisfied withthe end result, trading-off wins and losses so that each sideget something in return for everything it concedes on. Win-lose or lose-lose outcomes are in no ones best long terminterest.


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It is suggested that effective negotiation between should gothrough the following four stages:

Preparation which involves both parties gathering information andinsight to the problems in order to understand the constraintsacting on the negotiating parties. Who is involved in thenegotiation, what the concerns of each party are and what the goalof the negotiation is will need to be determined. Another keyfeature at this stage is to determine the time for negotiation

Documents

Cima e2 Tuition Notes 2011