FBM assessment 4

8/7/2019 FBM assessment 4

1/13

Relationship between Business Models, Theories and Techniques

Introduction

Theories and model has been a part of organisations for centuries, whether its a profit

oriented organisation or not; theories, models and techniques are used for day to day

decision making and problem solving. The objective of this essay is to critically assess the

relationship between Business models (representation, an explanation or a simplified

description), theories (system of ideas based on general principles) and techniques (means

to facilitate an activity) and the practical benefit and application of such models. The study

is based on three Business elements; marketing, motivation and business environment.

Marketing

Product life cycle theory

Every firm and organization has a range or portfolio of products, and each of these

products may be at different stage in its life cycle (Baker, 1996).

A business will stand to earn crucial advantage over it competitors, if it can determine when to

launch a new product or update an existing one. For instance, it will be a very cynical error for a firm

to allow its existing models (cars or computer) in the market when its competitor are introducing

attractive or revamped one. This theory likened the life of a product to that of Humans. Like human

beings, products also have their own life-cycle. From birth to death human beings pass

through various stages e.g. birth, growth, maturity, decline and death. A similar life -cycle is

seen in the case of products. The product life cycle goes through multiple phases, involves

many professional disciplines, and requires many skills, tools and processes. Product life

cycle (PLC) has to do with the life of a product in the market wit h respect to business costs,

market share and sales measures. An awareness of the product life cycle will inform managers to

use the best business model and strategies in managing those products.It is recognition of this

cycles that the Boston consulting group develop a procedure for analyzing individual and

collective performance of products in a portfolio. It is known as the Boston Matrix.

The Boston Matrix

The Boston Matrix methodology is based on the product life cycle theory. This matrix can be

used to determine a firms product position in the market in terms of market share and


2/13

market growth. It can also be used to determine what priorities should be given in the

product portfolio of a business unit. To ensure a long term value creation, an organisation

needs to have a portfolio of products that contains both high -growth product that needs

cash input, and low-growth product that will generate a lot of cash. Below is the

representation of the Boston Matrix.

(www.valuebasemanagement.net)

Cash cow: if a product has a high share in a low -growth (possibly a declining) market, the

product is a cash cow. As Peter, (2002) noted; this type of product create a high positive

cash flow and is profitable. He also noted that; sales are high relative to the market and

promotional cost are likely to be lo w, as a result of high consumer awareness. The firm

needs to get the profit they can get from that product in order to inves t on other products

in the portfolio.


3/13

Star: products that are having a considerable high share in a high-growth market. These

Products should be regarded as star products. Investing on these products will generate

more income for the firm. There is the need for the firm to maintain the market position of

this product. Because this is a high -growth (fast changing) market, promotion should be

high, differentiating the product as well as to reinforce its brand image.

Problem child: product that has a low share in a high-growth market is term as problem

child. It is mostly a new product launched into the market, this is going to ne ed a heavy

promotion cost to help become established. It is worth doing something to get a better

share. This becomes a problem that needs to be solved. The finance for this product could

come from the cash cow.

Dog: These are products a firm should not keep because they have a low share in a low -

growth market; rather than increasing profit they absorb money. Because market presence

is weak, it is going to take large investment and hard work to get noticed. It is going to be

difficult to make any profit. Peter, (2002 pg.173) rightly noted; they may need to replaced

shortly, or firm could decide to withdraw from this market sector altogether and position

itself into faster growing sector.

Criticism

The Boston matrix provide useful ways of looking at the opportunities open to a firm, and

helps them analyze which segments of the business are in a good position, and which ones

arent. That way, they can decide on the best investment strategy for the business in the

future, and where best to allocate resources. In contrast to this, it seems plausible to argue

that the Boston matrix has its own limitation. Even though high market share is a sign of

growth, it not all the success factor. Market growth is not the only indicator for

attractiveness of a market, sometimes Dog can attract even more cash as cash cow.

Techniques

Peter, (2002) noted that No techniques can guarantee business success this depends on

the accuracy of the analysis by marketing managers and the skills they possess in employing

the appropriate marketing strategies. One of such techniques is the Marketing mix.


4/13

Marketing mix: In the early 1950s, Neil Borden redefined the position of the marketing

manager by introducing "marketing mix" as an integrated set of marketing "tactics" to realise

organisational objectives and create a closer, higher value relationship with customers,

(Jerome, 1960). The marketing mix is also known as the four (4) Ps (product, price,

promotion and place).

y Product: comprises of the tangible and intangible benefit of a product.

y Price: determining the appropriate pricing structure and strategy for a product.

y Promotion: this is the process of creating awareness of a product to its targeted

market or audience.

y Place: this is the distribution methods and the location of t he organization. Basically

it is making the product available to the customers

(http://www.provenmodels.com).

It is important that the marketing mix or the four Ps be reviewed regularly to take into

account changes in customer needs.

Criticism

It is often argued that the marketing mix simplicity allows for fast adaption, and at the same

time its scope is wide enough to help coordinate intelligent decision for product

introduction, positioning and targeted market. However on closer inspection, i t can be

argued that the model is biased toward consumer markets and physical goods and works

less well with industrial products and services where interaction and relationships are more

important.

Motivation


5/13

System theory of management

The system approach attempt to bring to reconciliation the two earlier approaches to

management; these are the classical and human relations. The classical approach

emphasised the technical requirements of the organisation and its needs organisation

without people; the human approaches emphasised the psychological and social aspects

and the consideration of human needs people without organisation (Laurie, 2002

pg.68). Worthington et al, (2009) also noted that system approaches to organisation and

management have help to integrate previous work on structures, people and technology, by

portraying organisation as socio-technical system interacting with their environment.

At the turn of the 20th century, the American engineer, Frederick Winslow Taylor, proposed

scientific methodologies to improve the productivity of shop floors at large plants. Heargued that labour problems such as low produ ctivity, high turnover and a conflict-driven

relationship between management and staff were caused by improper production and

organisation methods. The aim of Scientific Management was to increase efficiency from

specialised, physical work through pre-described activities and close supervision. The "one

best way" to execute such basic managerial functions as selection, promotion,

compensation, training, and production had to be discovered, applied an d checked on a

continuous basis (Taylor, 1911).

Criticism

When properly applied to large production systems, Scientific Management could greatly

increase productivity. Basically one profound example is the Bethlehem Iron company,

where Fredrick Taylor increased production to over 350 percent at the same time reducing

workers by about 75 percent.

Taylor's methodology was the first to use statistical control to analyse work and provided a

basis for time motion studies, an essential tool in job design efforts. He paved the way for

the development of Ford's T-Ford assembly line in the 1920s. (Taylor, 1911)

In contrast to the above view points, Herbert Simon in 1950 criticised Taylor believ es that

there was a best way to do anything; Scientific Management was internally oriented

where optimising current resources was more important than effectively allocating


6/13

res

rces

ver time He ne

ecte the iss e of organisational restructuring re uire by

changes in customer nee s Taylor argue that firms must always increase their size to

maximize advantages from division of labour and s ecialization of tas s

The win-win situation between workers and managersas Taylor envisioned did not

materialise Most trade unionssaw the method as dehumanising workers and undermining

thevalue ofcraftsmanship.

Maslo

Hi

arch

of n

ds

Psychologist Abraham Maslow studied human motivation from the1940s until his death in

1970. His Hierarchy of Needsexplainsmotivation and behaviour as the result of different

fundamental needs that drive individuals. Motivation is re uired to undertake action. He

assumed that all humans have an inner core based on thesum of an individual's feelings

emotions desires needs and wants. Heclassified thissum into five groupscalling it the

Hierarchy of Needs

(www.adam-mcfarland.net)


7/13

Criticism

It has been argued that not everyone has the same needs as it is assumed by the hierarchy.

Self actualisation is never permanently achieving. Peter, (2002) noted that, jobs must

continually offer challenges and opportunities for fulfilment otherwise regression will

occur. Maslow regarded culture as one of the influencing factors that can cause a change in

the Hierarchy's order, but the model does not take into account cultural differences.

Techniques

Job rotation: Job rotation involves the movement of employees through a range of jobs in

order to increase interest and motivation. In order to keep employees away from

complacency and boredom, organisation uses the Job rotation techniques to stimulate the

minds of their staffs through diversity of challenge. It can be argued that doing the sa me

type of job or task over time may result to losing interest in doing that task.

Business environments

Every Business operates within an environment, these environments directly and indirectly

affects the way those businesses function. The two environme nts to business are the

internal and external environments.

Internal environments and Micro external environment: The internal environment

constitutes variables and forces within the control of the organisation . These variables are;

conditions, entities, events, and factors within an organization

which influence its activities and choices, its philosophy, particularly the behaviour of

the employees. Other variables include; the organisation mission statement, leadership

style, and its culture. The Micro external environments on the other hand comprises of

activities of marketing intermediaries, companies, customers, suppliers, and competitors.

Value chain analysis:Value chain analysis helps identify an organisations core competence

and distinguishing those activities that drives competitive advantage (Porter, 1958 ).Michael

Porter published the Value Chain Analysis in 1985 as a response to criticism that his Five

Forces framework lacked an implementation methodology that bridged the gap between


8/13

internal capabilities of an organisation and opportunities available in a competitive

environment.

This framework (value chain analysis) focused on industry attractiveness as a determinant of

the profit potential of all companies within that particular industry. At each stage of the

value chain there exists an opportunity to contribute positively to the firms competitive

strategy by performing some activity or process in a way th at is better than the competitors,

and so providing some uniqueness or advantage (Porter, 1985). However, significant

differences in performance exist between companies operating within the same industry .

That can be explained either by the company's participation in a successful strategic group

or by its specific competitive advantages.Porter's strength was shown in his ability to

condense this activity based cost analysis into a generic template consisting of five primary

activities and four support act ivities. The nine activity groups are:

1. Inbound logistics: these includes; transportation, inventory control, material

handling and warehousing.

2. Operations: An operational activity includes; testing and maintenance, machine

operating, packaging and assembly.

3. Outbound logistics: outbound logistics are issues involving product distribution

chain, activities from, warehousing; order processing, transportation and

distribution.

4. Marketing and sales: activities like; promotions, advertisement, selling, pricing and

channel management.

5. Service: these include; installations spare parts management and servicing.

The other four supporting activities are;

1. Human resources management: recruitment, training and promotion of staffs from

different levels.

2. Firm infrastructure: this includes activities like; planning, investors relations, legal,

and finance and general management.

3. Procurement: supplier contract negotiations and purchasing raw materials.

4. Technology development: research and development, product an d process

development.

The core concept for this model is Value.


9/13

Michael E. Porter,(1985)

Criticism

y Porter emphasised the importance of grouping and regrouping functions into

activities to produce, market, deliver and support products, to think about

relationships between activities and to link the value chain to the understanding of

an organisation's competitive position in the industry.

y The Value Chain model was intended as a quantitative analysis. It can also be used

as a quick scan to describe the strengths and weaknesses of an organisation in

qualitative terms.

y With the Value Chain Analysis, Porter tried to overcome the limitations of portfolio

planning in multidivisional organisations.

y The value chain made clear that an organisation is multifaceted and that its

underlying activities need to be analysed to understand its overall competitive

position. An organisation's strengths and weaknesses can only be identified in

relation to the profiles of its direct competitors.

However on closer inspection it is worth considering that the Value chain analysis has its

own short falls. To argue is insufficient but it is necessary to consider the following;

y The Value Chain is used to analyse a firm's position in relation to its direct

competitors with the assumption that rivalry drives profitability. This excludes other

assumptions such as customer bonding in Alexander Hax's delta model (Hax believes


10/13

a firm owes itself to its customers and they are the ultimate repository of all the firm

activities).

y The Value Chain Analysis should be accompanied with a customer segmentation

analysis to mix the internal and external view. A feature or product provides the firm

with a differentiating competitive advantage only if customers are willing to pay for

it. Customer value chains need to be analysed to determine where value is created.

y The quantitative analysis is time consuming since it often requires recalibrating the

accounting system to allocate costs to individual activities.

External environment (Macro)

PESTLE analysis is a useful tool for understanding the industry situation as a whole, and is

often used in conjunction with a SWOT analysis to assess the situation of an individual

business. An organisation on its own cannot affect environmental factors, but

environmental factors can affect the profitability of an industry or an organisation.

Conducting a strategic analysis entails scanning through the macro-economic environment

to detect and understand long term trends. Macro environment which encompasses the

broad environmental system within which organisations conduct its business, it defines or

creates the structure of the market place within which organisations operate. The elements

that make up the Macro environment consist of political and legal issues, demographic

trends, socio cultural influences, economic issues, technological trends and natural factors.

As much as organizations can have a little control on the Micro-external environments, they

have no control in any way on the elements that make up th e Macro-external

environments.

1.Political

Relates to the pressures and opportunities brought by changes of the government and

public attitudes toward the industry, changes in political institutions and the direction of

political processes, legal issues, and the overall regulatory climate. How changes in

government policy might affect the business.

2.Economic


11/13

This Refers to economic factors and structures and such variables like the stock exchange,

interest and inflation rates, the nation's economic policies and performance, exchange

rates, etc. These variables impact differently on different industries.

3.Social

This Refers to cultural attitudes, ethical beliefs, shared values, level of differentiation in

lifestyle, demographics, education levels, etc. Observing social factors helps organisations

maintain their reputation among stakeholders.

4. Technological

This Refers to changes in technology that can affect the firm's competitive position.

Industries merge; new strategic groups emerge; currents products improve and the cost of

production gets reduced by process innovation.

5. Ethical

This are issues regarding what are morally right or wrong for a business to do? For instance

should an organisation trade with countries which have a poor record on human rights? Or

should it do business with countries or organisations that uses child labour?

6. Legal

This refers to the way in which legislation in society affects the business. For instance

changes in employment laws on working hours.

Techniques

Swot analysis: This is a planning method use to evaluate the strength, weaknesses,

opportunities and treat to a business. It involves specifying objectives of a business at the

same time identifying the internal and external elements that will affect the business both

positive and negative in the race to attain its stated objectives. In order for a swot analysis

to be useful, desire goal or objectives must be first stated. In Swot analysis, the best

strategies accomplish an organisation mission by exploiting an organisation o pportunity and

strength, while neutralizing its treat and avoiding itsweakness. The swot analysis is a


12/13

technique that can be use to summarise an organisations internal and external

environments.

References

Craig S. Fleisher and Babette E. Bensoussan, (2002): strategic and competitive analysis.

Prentice Hall

Frederick Winslow Taylor, (1911): The principles of scientific management. Harper & Row

Jerome E. McCarthy, (1960): Basic Marketing; a Managerial Approach. McGraw Hill

Laurie J. Mullins, (2002): Management and organisational behaviour; 6th

ed. Prentice Hall

Michael E. Porter, (1985): competitive advantage; creating and sustaining superior

performance. Free press

Michael J. Baker, (1996), marketing, an introductory text: sixth ed. Macmillan business.

Masterson, R. and Pickton, D. (2004) marketing: an introduction. McGraw Hill, Maidenhead

Pankaj Ghemawat, (2001): strategy and business landscape; core concept. Prentice Hall

Peter Stimpson, (2002): Business studies. University Press, Cambridge

Roger I. Cartwright, (2001): Mastering the business environment. Palgrave Macmillan

Worthington I. and Britton C. (2009) The Business Environment.6th

ed.Prentice Hall


13/13

Documents

FBM assessment 4