How to frame a business case

Introduction

When you frame a business case you read it using key concepts from business studies. By using these business studies concepts you can move from reading to analysing.

This unit is an adapted extract from the Open University course Professional communication skills for business studies (LB160).

Learning outcomes

After studying this unit, you should have:

developed the skills needed to read a case with an analytical framework in mind

worked with concepts from the STEP and stakeholder frameworks

looked at output texts which are framed by these frameworks

learned about sentences and word groups

written some business concepts in order to write a case analysis.

1 Framing the case

This unit makes use of two reading strategies:

Think of a question that the text is going to answer for you before you read.

Keep asking more questions as you read.

There is a great range of business concepts and questions you can use to frame a case. In this unit, the concepts and questions which are used come from two analytical frameworks: STEP and stakeholder analysis. These frameworks have been chosen because they are a good example of how business concepts organise the way you read a case.

Figure 1 Framing the case

Long description

1.1 Framing a case with a STEP framework

A good example of an output text organised by business studies concepts is a STEP analysis (Figure 2).

Figure 2 The STEP analysis process

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Processing an assignment title

The assignment title gives you the questions to ask when you read a case study. Here is an example of an assignment question about STEP analysis.

“Carry out a STEP analysis outlining the main factors in the external environment influencing the US airlines industry.”

The assignment title tells you what output text to produce and frames the way you read the input text. It usually does this by giving you an instruction and some of the key concepts you should use.

Activity 1

Purpose: to introduce a method for processing an assignment question and to develop your understanding of the STEP analysis framework.

Task: copy the instruction and the key concepts in the assignment question above and paste them into the box below.

Answer

The instruction is: Carry out a STEP analysis outlining ...

The key concepts are: (i) the STEP framework; (ii) the external environment; (iii) factors ... influencing; (iv) the US airline industry.

Comment

This method of copying the instructions and the key concepts is useful for any assignment question. It means that you won’t arrive at the end of a long case study analysis to discover that you followed the wrong instruction or framed the case using the wrong concepts.

Activity 2

Purpose: to practise identifying instructions and key concepts in case study assignment questions.

Task: copy the instructions and key concepts in the five assignment questions below. Please note: you don’t have to understand the concepts to do this activity and then paste them into the box.

1. Use the stakeholder model of business environments to examine critically the external environment of Asda–Wal-Mart as outlined in the Case Study.

2. The changes in Potts Garden Centre business appear to be based on a move from one type of business structure to another. Describe the two types of structure using appropriate concepts. Then write about the problems and benefits of moving from one structure to another.

3. Wal-Mart is a US-based multinational corporation. Critically discuss the likely costs and benefits of its takeover of Asda, a UK-based company.

4. Gap takes great care in its vendor selection process, but still receives criticism for the working conditions in some of its suppliers. Outline the key aspects of a vendor selection and monitoring process that will serve Gap’s long-term best interests.

5. Compare and contrast Gap’s staff management policy with its outsourcing policy.

Answer

The key concepts are in bold and the instructions are italicised. Text that falls into both categories is shown in bold italics.

1. Use the stakeholder model of business environments to examine critically the external environment of Asda–Wal-Mart as outlined in the Case Study.

2. The changes in Potts Garden Centre business appear to be based on a move from one type of business structure to another. Describe the two types of structure using appropriate concepts. Then write about the problems and benefits of moving from one structure to another.

3. Wal-Mart is a US-based multinational corporation. Critically discuss the likely costs and benefits of its takeover of Asda, a UK-based company.

4. Gap takes great care in its vendor selection process, but still receives criticism for the working conditions in some of its suppliers. Outline the key aspects of a vendor selection and monitoring process that will serve Gap’s long-term best interests.

5. Compare and contrast Gap’s staff management policy with its outsourcing policy.

Comment

Each of the concepts in these titles is a conceptual framework to frame your reading of the case study. For example, the second assignment asks you to use the concept business structure.

1.2 Processing a textbook text

Throughout this unit, you will find references to a ‘US Airlines’ STEP assignment. This assignment can be found in Section 3/?printable=1.

Teaching business concepts is the purpose of another input text – a textbook. A good example of a business concept in the ‘US Airlines’ STEP assignment is external environment. Environment is a word in everyday use but in business studies it has a specialised meaning, as the next activity shows.

Activity 3

Purpose: reading to understand a business concept.

Task: read extract A below which is from a business studies textbook and answer this question: ‘What does external environment mean?’

Extract A

The term ‘environment’ in this case refers to much more than the ecological, ‘green’ issues that the word commonly evokes. ‘Environment’ here is more appropriately interpreted as the external context in which organisations find themselves undertaking their activities. Each organisation has a unique external environment that has unique impacts on the organisation, due to the fact that organisations are located in different places and are involved in different business activities, with different products, services, customers, and so on.

(Capon, 2004:278)

Answer

External environment means the external context.

Comment

Your knowledge of English and of this business topic probably affected how you read this text. If the topic is already known to you, you might have ignored most of the words and searched only for the words which mean external environment. This kind of reading is called search-reading. On the other hand, if you don’t know this topic well, you might have read every word carefully.

Defining concepts

Paragraphs such as this which define key concepts are common in business studies writing. How is this one organised? It starts with a high-level generalisation.

Activity 4

Purpose: to look at how the paragraph on external environment is organised.

Task: use Figure 3 to summarise each sentence in the paragraph. If possible, reduce each sentence to a noun group.

Figure 3 For use with Activity 4

Long descriptionAnswer

Figure 4 Answer to Activity 3

Long descriptionComment

This paragraph shows that everyday meanings are not business meanings. The paragraph starts with a word from everyday life. It then moves down a level to show what the same word means in business studies. Then it gives more details about the business meaning of the word.

Definition paragraphs use definition words:

term, refers to, commonly evokes, more appropriately interpreted as.

Text books define business concepts carefully. Students are expected to do the same in their assignments. The next activity involves some more examples of how business studies text books defineenvironment.

Activity 5

Purpose: to look at how text extracts introduce a key concept.

Task: read Extracts 1, 2, 3, 4 and 5. They all introduce the concept environment. You will need to make notes for this activity.

1a) Which two extracts directly define what the word environment means?

Answer

Extracts 1 and 2.

1b) Highlight some definition words. (Some examples are highlighted in Extract 1.)

Answer

Extract 1

  The term

  refers to much more than

  the word commonly evokes.

  is more appropriately interpreted as

Extract 2

  the term

  has taken on a rather specialised meaning

  it involves ‘green’

  we use the term ‘the environment’ in a much broader sense to describe

  This includes

2a) Which three extracts do not discuss the meaning but describe the environment and how it interacts with business?

Answer

Extracts 3, 4 and 5.

2b) Highlight some language needed to describe the way business and environment interact. (Some examples are underlined in Extract 4.)

Answer

Extract 3

  Figure 3–1 suggests the interrelationship between the firm and its remote, its industry, and its operating environments.

  In combination, these factors form the basis of the opportunities and threats that a firm faces in its competitive environment.

Extract 4

  the interdependence between a business organisation and the environment within which it operates

  society depends on business organisations for most of the products and services it needs,

  Conversely, business organisations depend on society for the resources they need.

  Business organisations are not self sufficient, nor are they self-contained.

  are dependent upon the environment in which they operate. Business organisations and society, depend on each other.

  This mutual dependence entails a complex relationship between the two.

  This relationship increases in complexity when certain variables in the environment, such as technological innovation, economic events or political developments, bring about change in the environment which impacts in different ways on the business organisation.

Extract 5

  First, there is the operating environment, composed of elements that the organisation can influence and that also influence the business.

  Second there is the remote environment, composed of elements on which the individual business has no significant influence but which may have a major effect on the operating environment and on the business.

3a) Which two extracts classify environments into types or categories of environment?

Answer

Extracts 3 and 5.

3b) Highlight some classification language.

Answer

Extract 3

  can be divided into three interrelated subcategories: factors in the remote environment, factors in the industry environment, and factors in the operating environment.

Extract 5

  The elements in the external environment can be classified by the level of influence that they have on the business and the business has on them. As a result a business can be considered to have two environments, depending the direction of the influences between the business and the elements within them. First, there is the operating environment, composed of elements that the organisation can influence and that also influence the business. Second there is the remote environment, composed of elements on which the individual business has no significant influence but which may have a major effect on the operating environment and on the business.

4a) Which two extracts describe the composition of the environment?

Answer

Extracts 2 and 5 (and possibly 3).

4b) Highlight some language of composition.

Answer

Extract 2

  the term ‘the environment’... includes customers, competitors, suppliers, distributors, government and social institutions.

Extract 3

  These factors which constitute the external environment

Extract 5

composed of elements

5) Which extract highlights the word environment with

italics – environment

inverted commas – ‘environment’

bold type – environment?

Answer

Using italics – environment

  Extracts 3 and 5

Using inverted commas –‘environment’

  Extracts 1 and 2

Using bold type – environment

  None

6) Choose one or two of the word groups below to summarise each extract.

interdependency categories of factors

external context environmental impacts on the organisation

Answer

Extract 1: external context and environmental impacts on organisation

Extract 2: everything outside the business

Extract 3: categories of factors and interdependency

Extract 4: Interdependency

Extract 5: environmental impacts on the organisation and types of influence

Comment

When textbooks introduce a concept they discuss what it means, how it works or what it does, and what it is composed of. These are also the ways you can introduce the concepts you use to frame an assignment.

Introducing concepts

Activity 6

Purpose: to practise introducing a concept which frames a case.

Task 1: write a paragraph introducing the concept environment, based on the noun groups you chose in question 6 in Activity 5.

DiscussionTask 1 (my example paragraph)

The environment of a business is composed of all the factors that influence the business. There is an interdependency between the environment and the business, with the business influencing the environment and the environment influencing the business. Factors can be classified according to whether they are in the near environment or the far environment. Factors in the near environment are more under the control of the business than factors in the far environment.

Task 2: read Extracts 6, 7 and 8, which are from students’ assignments. Compare how they introduce the concept environment with the way you have. Did they write about what it means, how it works, what it does, or what it is composed of?

Answer

My paragraph does not use any meaning sentences; Extract 6 does but the other extracts do not. My paragraph looks at the interaction between the environment and the business. Extract 7 does the same. Extract 8 also talks about the level of control that a business has over the near and far

environment like my paragraph. My paragraph classifies environments in the same way as Extract 6. Extract 8 classifies environments using the STEP model (or framework).

Comment

When you are analysing a business case it is important to decide which concepts will frame the case and to make those clear to your reader. The next section will look briefly at the grammar for doing this.

The grammar of definition sentences

To write definitions, you can use six kinds of sentence. Look at this sentence:

The government deregulated

noun verb

The verb is an action word, so this is an action sentence. Some definition sentences are action sentences. For example:

1) action sentences

Businesses operate in different environments.

However, not all verbs are actions. There are five other kinds of sentence for defining concepts, as follows.

2) being sentences

‘Environment’ is the external context in which organisations operate.

3) having sentences

Each organisation has a unique external environment.

4) meaning sentences

The term ‘environment’ refers to more than ecological, ‘green’ issues.

5) reporting sentences

Lucas suggests that environment is ‘a set of external conditions under which a business operates’.

6) existence sentences

There are three kinds of environment.

Look back at your paragraph in Activity 6. Which kinds of sentence did you use?

1.3 The STEP framework

Here is the assignment question again.

“Carry out a STEP analysis outlining the main factors in the external environment influencing the US airlines industry.”

The main concept – or set of concepts – is the STEP framework. If you have studied this framework before, this assignment instruction will make sense. In case you haven’t, the next activity introduces the STEP framework. It shows that it is based on four key concepts which you use to frame the case. When you analyse a case using the STEP framework, the concepts you use come from outside the case. You use the STEP concepts to turn the case from a story into an analysis.

Activity 7

Purpose: to relate the four high-level concepts of a STEP framework to the details they frame.

Task: Text 9 explains the four concepts which make up a STEP analysis. They are: social, technological, economic and political influences. Each paragraph gives details about one of these concepts. Choose the correct heading for each paragraph to go in the gap at the beginning of the paragraph.

Answer

The correct headings are political, economic, social, technological.

Comment

You might not have needed to read all the words in this text to do this task. The four key concept words can be placed in the correct gap as soon as you recognise one or two details in the paragraph. Each general concept is the central word of a mind map with many other concepts. Figure 5 is the mind map from the text for political influences.

Figure 5 For use with Activity 8

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This is a limited mind map and there are many other concepts which could be included under political influences but, like all mind maps, this is a starting point.

Influences and impacts

There is a third concept in the assignment title which must frame the case study analysis. All the social, technological, economic or political influences must be factors which influence the US airline industry. There is a difference between a political event or situation and a political factor.

Activity 8

Purpose: to contrast factor with event or situation.

Task: extract B below gives some information about an economic situation. Which part of the situation is a factor which influences Nike?

Extract B

Nike’s presence in emerging countries can have an enormous economic impact on them. China is now the biggest shoe-producing country in the world; Nike is Vietnam’s biggest employer. Jobs are scarce and people want to work for companies such as Nike and Reebok.

Answer

The economic factor influencing Nike is that jobs are scarce in these countries. The information that Nike is having an economic impact on the country is a factor influencing the country not Nike.

Comment

There is a difference between the information framed by the concept economic events or situation, and the information framed by the concept economic factors.

In summary, for an event to fit the economic category in a STEP analysis, the criteria are that it is (i) economic, (ii) in the external environment and (iii) a factor influencing the industry.

If you read a case with business concepts such as this in mind, you are framing the case.

1.4 A student’s STEP analysis of ‘US Airlines’ – the texts

Text A is an example of a STEP analysis.

Text A

Carry out a STEP analysis outlining the main factors in the external environment influencing the US airline industry.

Introduction

All successful businesses must react and adapt to the environments in which they operate. Businesses have to be able to recognize the environments within which they operate and be able to identify those elements that may have the greatest effects upon them. There are a number of models available to assist a business in identifying these. One of these is the STEP analysis. This divides the operating environment of a business into four areas, Social, Technological, Economic and Political. This analysis will use the STEP framework to outline the various influences shown to affect the business operation in the case study ‘US airlines: big carriers unlikely to find much relief’.

STEP Analysis

As stated by Armson et al. (1995, p. 12) the advantage of the STEP framework is its simplicity and applicability in analyzing current and continuing influences on organizations. It is evident from the case study that there are a number of different influences that impact on both US airline carriers and their passengers.

The specific focus of this analysis will be the ‘traditional’ carriers, those airlines that charge full fares and offer in-flight services. This is in contrast with the ‘cut-price’ operators who charge much lower fares and in turn offer reduced services for customers. It is the traditional carriers that are suffering the worst effects from the environmental factors discussed below.

Social

One social factor demonstrated in the case study that has had an impact on the airline business is the underlying downward trend in passenger air travel. A second social factor that has had an impact on existing carriers has been the willingness of the travelling public to use the services of new low-cost carriers. This has required a social change in terms of people becoming willing to accept a lower level of service than they had been used to. Moreover the willingness of travellers to use new technology (particularly the internet) in order to find the lowest cost travel products has meant that airlines have been forced to compete on price.

Technological

Major developments in technology, particularly in the use of the internet by both business and leisure passengers, have enabled travelers to compare prices between airlines and book their own tickets selecting the most cost-effective route and itinerary. This has forced airlines to be more competitive in their pricing. Technology has also enabled airlines to reduce their overheads in issuing tickets through the use of internet booking systems which enable passengers to be supplied with electronic tickets instead of paper ones. This has allowed airlines to charge an additional fee if passengers request a paper ticket and so technology has enabled the airlines to keep down their costs.

Economic

As stated in the case study, a number of economic factors have affected the airline industry. Some of these include the significant increase and success of cut-price and no-frills airline operators giving the traveller greater options when considering which carrier to use. This in turn has forced the traditional carriers to review their pricing structure and their routes, and to consider other ways of increasing revenue such as cutting back on frequent flyer points. The fact that large airlines have filed for bankruptcy has had an unsettling effect on the industry in general and has caused widespread financial uncertainty.

Whilst the threat of a war with Iraq could be seen as a political factor, it does have a major economic impact upon both the airline industry and its passengers. The threat of war could cause a significant rise in oil prices which would further add to the economic pressure on the industry whilst the potential rise in ticket costs could add to the downturn in airline passenger traffic.

Political

The main political factors affecting the health of the airline industry are the terrorist attacks of September 11th 2001 and the threat of similar attacks in the future which have made passengers more reluctant to travel. As mentioned above, the possibility of war with Iraq has caused concerns because this would lead to an increase in oil prices. In the past, political factors that had a negative impact on the industry included deregulation in 1978, and the recessions of the 1980s and 1990s. This time, however, the situation is more complex and there is a wider set of issues at work.

Conclusion

It is evident from the case study that by carrying out a STEP analysis an organisation is able to give consideration to the many possible factors that may have an impact on its current and future health.

Activity 9

Purpose: to see how business concepts organise the information in a STEP analysis.

Task 1: Text A above is a student’s STEP analysis of the /?printable=1‘US Airlines’ case. Read Text A and copy and paste each factor in the analysis into the box below, using the same text box for Tasks 1 and 2.

Task 2: print out the /?printable=1‘US Airlines’ case text and use a coloured pen or highlighter to mark the events which have been included as factors in the student’s text. Write S, T, E or P in the margin, to show whether the event is categorised as a social, technological, economic or political factor.

AnswerTask 1 (highlighted) and Task 2Social

the underlying trend of the downturn in passenger air travel.

Many are now complaining that airlines, fighting for survival in the midst of one of the industry’s worst-ever downturns

Faced with the success of the low price carriers and the underlying downturn in passenger traffic,

the willingness of the travelling public to use the services of new low-cost carriers.

The success of low cost ‘no-frills’ carriers in lucrative markets such as California and the east coast has destroyed the traditional carriers’ profits on many routes that they once dominated.

Moreover the willingness of travellers to use new technology (the Internet)

At the same time, the internet has made it much easier for both business and leisure travellers to compare prices and tinker with itineraries in order to save money.

Technological

in the use of the internet

At the same time, the internet has made it much easier for both business and leisure travellers to compare prices and tinker with itineraries in order to save money.

issuing tickets by the use internet booking systems

Other airlines have begun to charge an additional fee of up to $25 if passengers insist on using paper tickets instead of electronic ones.

Economic

the significant increase and success of cut price and no frills airline operators

The success of low cost ‘no-frills’ carriers in lucrative markets such as California and the east coast has destroyed the traditional carriers’ profits on many routes that they once dominated.

the threat of a war with Iraq

rise in oil prices

A more immediate concern is that the increasingly likely prospect of a war with Iraq could cause oil prices to spike,

Political

the terrorist attacks of September 11th 2001 and the threat of similar attacks in the future

upheaval in airport security systems in the wake of the September 11th (2001) terrorist attacks

But the combination of the fear created by September 2001 terrorist attacks,

the possibility of war with Iraq

A more immediate concern is that the increasingly likely prospect of a war with Iraq

deregulation in 1978, and the recessions of the 1980s and 1990s.

Since the government deregulated the industry in 1978, it has faced two serious recessions in the early 1980s and 1990s.

A wider set of issues at work.

But the combination of the fear created by September 2001 terrorist attacks, competition from cut price airlines and the growing sophistication of travellers who now have access to comparative fare information via the Internet makes this downturn different, say analysts. With the continuing uncertainty over the US economic recovery and geopolitics, the big carriers are unlikely to find much relief this year.

Task 3: the following questions focus on differences in the organisation of the case study text/?printable=1 and the analysis (above).

a) Compare the first paragraphs of the two texts. Which of the noun groups below is the best summary for each paragraph?

social factors STEP framework

difficult year for business travellers environments

Answer

Case analysis (output text): STEP framework

Case study (input text): difficult year for business travellers

b) In the input text, there is a lot of information about low-cost companies. Why doesn’t the student analyse the environmental factors influencing these organisations?

Answer

She says she will focus on the big carriers because they are the ones who are suffering most.

c) In the analysis, all the social factors are in one paragraph, the technological factors in a different paragraph, and so on. Is this true for the case study? Why?

Answer

No: the case study is organised differently. It tells a story rather than giving a formal analysis. Organising the factors into STEP categories would not suit the structure of the story.

d) Does the case study use the words social or technological?

Answer

No: for the same reason as (c).

e) How does the student know which events are social or technological?

Answer

From her general understanding of what these concepts mean (the mind map in her mind). She read using these concepts to interpret the case study.

f) Does the case study use the words economic or political every time it refers to an economic or a political event?

Answer

No, but it does use the following words in some sentences: economic boom, economic recovery and geopolitic. It also uses the words economy fares but this is a different meaning of the word economy.

g) How does the student know an event is economic or political?

Answer

From her general understanding of what these concepts mean (again, the mind map in her mind).

h) According to the student, which events in the case study are:

political and economic

technological and economic

technological and social?

Answer

a.political and economic

  war with Iraq

b.technological and economic

  use of the internet

c.technological and social?

  use of the internet

i) In the case study, there is a lot of information about the problems of passengers. Is this information included in the STEP analysis? Can you explain this?

Answer

No: the focus is on the organisation, not the customers.

Comment

The case study and the analysis are organised differently because they have different purposes. The order of the events in the case study is changed; the events in the story are treated as factors influencing the organisation; and the events are categorized

as social, technological, economic or political. In this way, the STEP analysis brings a new understanding to the case study.

The next section looks at how the student produced this analysis.

1.5 A student’s STEP analysis of ‘US Airlines’ – the process

Active reading strategies can be used to get an overview of the case study but when you read to analyse it, you are searching for information. This kind of reading can be called search-reading.

There are two strategies from the active reading method which are particularly important in search reading:

think of a question that the text is going to answer for you before you read

keep asking more questions during reading.

When you search-read for a STEP analysis you are reading with the following questions in mind.

Is this event economic (or social, or political, or technological)?

Is it in the external environment?

Does it influence the big airline companies?

It is also important to make notes actively when you search-read. It is best when making notes for a STEP analysis to use a STEP analysis table, as the next activity shows.

Figure 6

Long description

Activity 10

Purpose: to practise making notes for a STEP analysis.

Task 1: the noun groups below are factors from the ‘US Airlines’ case. Write each factor in the appropriate category in the blank STEP analysis boxes.

uncertain geopolitics

use of e-tickets

downturn in passenger traffic

willingness to use low-cost flights

threat of terrorism

cabin baggage regulations to enforce excess baggage fees

AnswerTask 1

Social: newspaper articles; downturn in passenger traffic; willingness to use low cost flights; willingness to use the internet.

Political: war with Iraq; government deregulation; threat of terrorism; cabin baggage regulations to enforce excess baggage fees; uncertain geopolitics.

Technical: use of e-tickets to reduce costs; use of internet to obtain best fares.

Purpose: to practise active search reading and note making.

Task 2: no economic factors are included in the list above. Search read the /?printable=1‘US Airlines’ case study looking for economic factors. Use the following questions.

Is this event economic?

Is it in the external environment?

Does it influence the big carriers?

Note down the economic factors, reducing the sentences to word groups.

AnswerTask 2

Economic: potential rise in oil prices; cut price or ‘no frills’ operators; impact of airlines filing for bankruptcy; uncertainty over health of economy; companies reconsidering business travel policies.

Task 3: are there any factors included in the STEP table which shouldn’t be there because they are not in the external environment?

AnswerTask 3

Cabin baggage regulations is possibly not an external factor influencing the airlines but a response by the airlines to the external factors. Airlines filing for bankruptcy may also not be an external factor.

Comment

Like all reading, it is easier to do the search-reading process in Activity 2 if you already know something about the concepts and language of the text. However, for a STEP analysis you use a mind map of concepts which are not in the text but are in your mind. The economic concepts from the text which you looked at in Activity 7 include: the impact of banks, stock markets, the world money markets, andtrading blocs such as the European Union.

If these were all the economic concepts you had in mind when you read ‘US Airlines’, you would not find any economic factors. None of these are mentioned. However, if your mind map for economic influencesincludes concepts such as rise in oil prices, airlines filing for bankruptcy and recession, you will be able to frame these events using a STEP framework. This is why business studies courses stress the importance of key concepts. Business studies involve a process of learning which concepts to use and how these concepts are understood by other people.

1.6 The language of STEP analysis

Sentences become word groups

Most of the factors the student wrote in the STEP analysis table were abstract noun groups such as government deregulation, potential rise in oil prices and use of e-tickets.

As suggested before, abstract nouns are useful in note making because they reduce generalisations to fewer words.

Activity 11

Purpose: to see how STEP factors are sentences turned into word groups.

Task: below there are six word groups used in the STEP table and six extracts from the ‘US Airlines’ case study text. For each extract write down the word group that summarises it.

Word groups

(a) use of internet to obtain best fares (b) use of e-tickets

(c) threat of terrorism (d) willingness to use low-cost flights

(e) government deregulation (f) potential rise in oil prices

Extracts from ‘US Airlines’

i.Since the government deregulated the industry in 1978, it has faced two serious recessions in the early 1980s and 1990s.

ii.… the increasingly likely prospect of a war with Iraq could cause oil prices to spike, further undermining the shaky health of many US airlines and leading to the possibility that other carriers could go bust.

iii.Other airlines have begun to charge an additional fee of up to $25 if passengers insist on using paper tickets instead of electronic ones.

iv.At the same time, the internet has made it much easier for both business and leisure travellers to compare prices and tinker with itineraries in order to save money.

v.the combination of the fear created by September 2001 terrorist attacks ... makes this downturn different, say analysts

vi.the traditional carriers in the US were already facing fierce competition from cut-price operators such as Southwest Airlines and three-year-old upstart, Jet Blue. Most have acknowledged that they will have to slash costs if they are to survive. The success of low cost ‘no-frills’ carriers in lucrative markets such as California and the east coast has destroyed the

traditional carriers’ profits on many routes that they once dominated. For example, Southwest Airlines’ share of the California market has jumped to more than 60 per cent in the 18 months while United’s share has fallen to less than 20 per cent.

Answer

(i) Government deregulation; (ii) potential rise in oil prices; (iii) use of e-tickets; (iv) use of internet to obtain best fares; (v) threat of terrorism; (vi) willingness to use low cost flights.

Comment

As discussed before, abstract nouns such as deregulation, rise and threat are concepts packed with meaning. They can also be combined with other words such as government, potential, oil prices andterrorism to include even more meaning.

1.6.1 Abstract nouns turn actions into things

When the student did the STEP analysis, she focused on the events and actions that affected US airlines. But when she wrote these into a STEP category in the table she usually wrote them as noun groups rather than verb groups. As you know, nouns are words for things. By using a noun for an event or an action instead of a verb, you make it more like a thing. In analysis writing this is useful; the following activities show how this can be done.

Activity 12

Purpose: to see how actions are turned into things.

Task: the sentences below are from the ‘US Airlines’ case. The verbs in each sentence are highlighted. After each sentence there is the noun group which the student wrote as a factor in the STEP table. For each factor, decide whether the student (i) found the noun group in the sentence, (ii) adapted it from words in the sentence, or (iii) created it herself.

Since the government deregulated the industry in 1978, it has faced two serious recessions in the early 1980s and 1990s.

Answer

government deregulation – adapted

 

the increasingly likely prospect of a war with Iraq could cause oil prices to spike, further undermining the shaky health of many US airlines and leading to the possibility that other carriers could go bust.

Answer

potential rise in oil prices – adapted

 

Other airlines have begun to charge an additional fee of up to $25 if passengers insist on using paper tickets instead of electronic ones.

Answer

use of e-tickets – adapted

 

At the same time, the internet has made it much easier for both business and leisure travellers to compare prices and tinker with itineraries in order to save money.

Answer

use of internet to obtain best fares – created

 

... the combination of the fear created by September 2001 terrorist attacks ... makes this downturn different, say analysts.

Answer

threat of terrorism – created

Comment

When actions are turned into things they are easier to categorise in the STEP analysis table.

Activity 13

Purpose: to practise turning actions into things.

Task: Extract 10 contains extracts from four different case studies. Reduce each extract to a noun group which could be an environmental factor in a STEP analysis. Identify whether it is a social (S), technological (T), economic (E) or political (P) factor.

Nike trainers case studyAnswer

Different spending power of consumers in different countries (E)

Fashion trends (S)

Popular culture (S)

Beneficial trade and tariff agreements (P)

Range of market sectors (S/E)

Unauthorised supermarket imports (E)

Age (S)

e-commerce (T)

Home Insulation case studyAnswer

Reduction of grant aid (E)

Vodafone case studyAnswer

American lead in internet exploitation (E/T)

Threat from US potential to move to third generation technology (T)

Convergence of communication devices (T)

High costs of government licences (P)

High cost of network spending and handset subsidies (E)

Mannesmann case studyAnswer

Risk of takeover (E)

Tony Blair pressure on German company (P)

Suspicion of stock markets (S)

1.6.2 Factors which are nouns can influence businesses

The first stage in a STEP analysis is to identify STEP factors and organise them into groups. The second stage is to write an analysis which shows how these factors influence businesses.

When processes are turned into nouns, it is much easier to show how they influence businesses. If you look at the grammar again, you can see why.

Sentences must have at least one noun and one verb, for example:

Vodafone paid £6 billion

noun verb noun

However, one noun and one verb do not necessarily make a sentence, for example:

paid £6 billion

verb noun

The reason this is not a sentence is because the noun – £6 billion – is not the subject of the verb.

Vodafone paid £6 billion is a sentence because the verb has a subject, the noun Vodafone. In other words, there is something (Vodafone) which does the action (paid).

When factors are turned into nouns in STEP analysis they can also be the subjects of verbs. When factors are subjects of verbs they can do actions; and the main action they can do is influence organisations.

Activity 14

Purpose: to note how factors which are nouns can be subjects and do actions.

Task: the sentences below are from the student’s STEP analysis. They have been slightly shortened for this activity. Copy the factor in each sentence and then paste it in the box below. Then put brackets around the main verb which says how the factor influences the industry.

a) A significant rise in oil prices would further add to the economic pressure on the industry.

Answer

A significant rise in oil prices (would further add) to the economic pressure on the industry.

b) The use of the internet by both business and leisure passengers has enabled travellers to compare prices between airlines and select the most cost-effective route and itinerary.

Answer

The use of the internet by both business and leisure passengers (has enabled) travellers to compare prices between airlines and select the most cost-effective route and itinerary.

c) The terrorist attacks of September 11th 2001 and the threat of similar attacks in the future have made passengers more reluctant to travel.

Answer

The terrorist attacks of September 11th 2001 and the threat of similar attacks in the future (have made) passengers more reluctant to travel.

d) The use of internet booking systems has also enabled airlines to reduce their overheads.

Answer

The use of internet booking systems has also (enabled airlines to reduce) their overheads.

Comment

When events and actions in the case study are turned into things, they can be used in sentences which describe how these events influence an organisation. And that is the purpose of a STEP analysis.

Activity 15

Purpose: to write a short STEP analysis.

Task 1: read Extract 11, ‘Nike and the vexed issue of corporate responsibility’ and use a STEP analysis table to frame your notes. Use the search-reading and note-making methods you have practised in this unit. Extract 11 does not include information for all the STEP categories. Then write the analysis. In your introduction you should make it clear which categories your analysis deals with.

Task 2: at the end of this unit there is a Reflection page/?printable=1 which lists the skills and knowledge covered so far. When you have finished this activity, use the Reflection page to help you write a reflection on what you have learned.

Activity 16

Purpose: to practise framing a difficult case study using a STEP analysis framework.

Task 1: Text 12, ‘The growth of CCTV systems’, is not an easy text. So, it is a good text for practising the active reading method. First, map the case well using active reading strategies. Then use a STEP table to frame your reading of the case and make notes, using the strategies you have practised in this unit. Use the Reflection page/?printable=1 at the end of this unit to guide you in this task. You do not need to write up the notes as a full analysis.

Task 2: compare your notes with the example STEP analysis notes at the end of Text 12.

Task 3: use the Reflection page to review the process of writing this analysis. Write down your reflections.

1.7 Stakeholder analysis – a different set of concepts

STEP analysis is a categorising framework so it is easy to see how STEP concepts are used to frame a case. However, framing the case can be done using any business studies concept. Throughout this unit you will practise framing cases with various other concepts.

For the rest of this unit you will look at a conceptual framework called stakeholder analysis. This also categorises information about the environment of a business. However, the concept questions that are used to organise stakeholder information are:

Does this organisation or person have an interest in the business?

Does this organisation or person have power in relation to the business?

The two concepts framing this analysis are power and interest.

Activity 17

Purpose: to introduce the concepts power and interest.

Task: read extracts C and D below. Which one can be summarised by the word power and which can be summarised by the word interest?

Extract C

Many individuals, groups and organisations are likely to be affected by the strategic decisions that a business makes. As a result of these decisions, employees may have to work harder, undertake new tasks, or face the prospect of leaving the company. Shareholders in the company, banks which have loaned the organisation money, governments concerned about employment will be watching company performance closely. Customers and suppliers will also be involved in different ways.

Extract D

In different types of organisation, different stakeholder groups have a dominant position. Commercial organisations are either shareholder-led or dominated by directors and senior managers. The views of both of these groups are important for the direction of the organisation. Service industries are usually customer-led. Co-operatives tend to be member-led.

Answer

Extract C, interest; extract D, power.

Comment

The abstract nouns power and interest are both important concepts in business studies. One way of defining them is to use them in a sentence. Here is an example using the noun groups, high power andhigh interest.

Stakeholders with high power are those who can do most to affect the organisation.

Stakeholders with high interest are those who will be most affected by the actions that the organisation does.

Analysing a business case using the stakeholder frame work follows the same general process as STEP analysis (Figure 7).

Figure 7 The process of writing a stakeholder analysis

Long description

There are several different stakeholder frameworks in business studies but they are all generally based on the concepts of power and interest. The one introduced in the next activity creates a set of four categories using these concepts.

Activity 18

Purpose: to learn the categories in a stakeholder analysis framework and to practise some active reading strategies on a textbook text.

Task 1: look quickly at Text 13, ‘Analysing stakeholders’, to get an impression of what it is about and how it is organised.

Task 2: Figure 8 is called a ‘matrix diagram’. It is referred to in the first paragraph of Text 13. Read this paragraph and note down the four missing words on the diagram.

Figure 8 Stakeholder matrix diagram

Long descriptionAnswer

Figure 9 Answer to Activity 18, Task 2

Long description

Task 3: search-read Text 13 to find some examples of stakeholders. Note down the words that should appear in the empty bubbles in Figure 9. Two are filled in for you already.

Figure 10 The stakeholders in an organization

Long descriptionAnswer

Figure 11 Answer to Activity 18, Task 3

Long descriptionComment

Figures 8 and 9 show how the concepts of power and interest can be used to organise individuals and groups into stakeholder categories.

Next you will look at a stakeholder analysis assignment with the following title:

“Use the stakeholder model of the business environment to analyse the main influences on the Automobile Association during its demutualisation process.”

The case study for this assignment is Text 14.

Activity 19

Purpose: to practise framing an analysis using the concepts stakeholder, power and interest.

Task: Extract 15 is from an analysis text with the title above. The original text was organised using the categories you have just read about. However, in Extract 15, the sections of the text are mixed up. The section headings, the categories and the words high and low have been removed from the text. Read the text and decide where the following headings should go.

Stakeholders with high power and high interest (category D)

Stakeholders with high power and low interest (category C)

Stakeholders with low power and high interest (category B)

Stakeholders with low power and low interest (category A)

Answer

The order of categories in the extract is A, C, B and D.

Comment

To produce an analysis, the writer reorganised the structure of the case study text. The original text has a story structure with time sequence words organising the events (By 1990, During the 1990s, and so on). The new structure is organised into categories using the key concept words power and interest and categorising words such as category.

In Activity 19, you had to find evidence in the text to decide where to put the headings. This is what a case analysis writer does when analysing a case study. To put a particular stakeholder in a category, the writer has to judge the stakeholder’s level of power and interest.

Activity 20

Purpose: to focus on how the ‘AA stakeholder analysis’ uses evidence from the case to categorise stakeholders.

Task 1: print out and read Text 16. For each stakeholder, highlight the sentences or words which tell you which category the stakeholder belongs to and write C in the notes column. Then highlight the sentences or words which give the reason why the particular stakeholder belongs in this category and write R in the notes column.

Here is an example from the first paragraph.

John Maxwell and his management team were key players with high power and high interest

as their planning and decision making would determine their future with the AA, the future of the AA, the future of those who worked for the AA, and the future of AA members.

Task 2: in the notes column, write down:

a.whether the evidence for the category comes from the case study (Text 14) or from the writer’s general business knowledge

b.whether the reason is an example of the power or the interest of the stakeholder, or both.

AnswerParagraph 1

The AA and stakeholders with high power and high interest (category D)

The key players were the Director-General of the AA and his immediate management team carrying out the strategic review, as well as the full members of the AA. John Maxwell and his management team were key players with high power and high interest …

as their planning and decision making would determine their future with the AA, the future of the AA, the future of those who worked for the AA, and the future of AA members.

The full members would collectively decide whether the AA was to demutualise. They might have chosen to support any demutualisation recommendations made by John Maxwell and his team, or to reject them in favour of a bidder, such as Ford, buying the AA.

Paragraph 2

The AA and stakeholders with high power and low interest (category C)

The merchant bank Schroders was a category C stakeholder ...

as it had relatively little interest in whether the AA finally decided to demutualise. However, as corporate adviser to the AA, it was relatively powerful as it was able to advise and potentially influence John Maxwell and his management team.

Paragraph 3

The AA and stakeholders with low power and high interest (category B)

The category B stakeholders, those with high interest and low power in the demutualisation issue, included associate members and employees.

The associate members clearly had a high interest in whether or not the AA decided to demutualise. The primary concerns for associate members were the effect of demutualisation on the services they received and the cost of associate membership. However, as non-voting members, associates had no direct power to influence the outcome of any ballot on demutualisation.

Equally, employees had a high interest in the future of the AA and would be concerned as to the effects of demutualisation. Potential effects of demutualisation could have included the AA becoming more competitive and this being achieved via cost cutting and job losses. However, employees had no direct role in the ballot and would ultimately have to accept its outcome.

Paragraph 5

The AA and stakeholders with low power and low interest (category A)

The category A stakeholders are those with low power and low interest. For the AA, non-members fell into this category.

They were unable to receive breakdown services from the organisation and had no influence over its demutualisation decision.

Comment

Each time a group of stakeholders is categorised, the analyst gives particular examples of their power or interest to show why they belong in this category. This means the analysis moves up and down between high-level generalisations (power and interest) and low level details (examples of power and interest). The paragraphs begin with a general statement about the stakeholder and their power and interest and then moves down to particular details which show their power and interest in action.

The writer can use three kinds of evidence to decide which category a stakeholder belongs in.

1. The case study text may say directly how much power or interest a stakeholder has.

2. The stakeholder’s actions or the organisation’s actions may show who has power or interest.

3. The person analysing the case study may have general business knowledge that helps them decide.

1.7.1 Categorising

Stakeholder and STEP analysis reorganise information from the case study. This basic process of reorganising is called categorising. These two frameworks were chosen because they are particularly strong examples of categorising in business case analysis. They show how business analysis groups people, organisations, situations or events according to particular criteria. As long as you know the criteria and can judge whether a particular person, organisation, situation or event fits the criteria, you are able to categorise. This applies to any business concept. Some concepts are bigger categories than others. Marketing, for example, is a bigger category than competition or segmentation. Some are more precise and formal than others. Relative cost position, for example, is more precise and formal than profitability orentrepreneurship. However, all

these concepts are used in business studies to generalise about large amounts of business detail – particular people, organisations, situations or events.

Formal categories, such as types of environment, can be set up using formal categorising language. Extract 5 in Activity 5 uses this kind of language as follows.

The environment consists of many elements.

These elements can be classified into two categories

depending on the level of influence they have on the business.

One is the operating environment which is composed of …

… elements that the business can influence and which influence the business.

The other is the remote environment which is composed of …

... elements that the business cannot influence but which influence the business

Categories can be set up with less formal definitions. For example, this is a definition of the social environment:

The social environment is concerned with people’s needs, wants and aspirations – with lifestyle and with the shapers of markets

(Finlay, 2000, p. 211)

However, to use any business concept to frame an analysis of a case study, you need to understand the general area it covers so you can fit the details from the case study into it.

1.8 A different stakeholder framework

The text in the next activity was produced by a student who read a slightly different input text about the stakeholder framework. As a result she framed the case slightly differently. The case study she read is too long to present here but Extract 11 is one page from it.

Activity 21

Purpose: to compare the framing of two stakeholder analyses.

Task: Extract 17 is a student’s stakeholder analysis of a case study about Nike (see Extract 11 for part of this case study). The stakeholder model the student uses is slightly different from the one you have been studying but they are both based on the concepts of power and interest. Compare the organisation and structure of Texts 17 and 16 and make notes on the differences and similarities. Also, identify any language which you think is used to frame the case and justify the categorising.

1.9 Critical reflection

By the end of this unit you should have developed the skills and knowledge which are listed in section 2/?printable=1. Review how far your skills and knowledge have developed during this unit and write a reflection.

2 Reflection

Analysing business cases

Figure 12 The process of writing a case study analysis

Long description

Communication skills

1. Be clear why you are reading the text.

Producing input texts - mapping

(a) Read the case study text to map the case.

1. Before you read closely, look quickly through the text to see what it is about.

2. Ask yourself questions about the text.

3. Read the text carefully.

4. Underline or highlight high levels in the text.

(b) Process the case study text by making notes.

1. Select information, using levels in the text to decide.

2. Make or find key concepts for the levels.

3. Organise the key concepts into notes.

(c) Produce a summary

1. Produce a summary (in your head, in writing or in a diagram).

Producing input texts - framing

1. Read the assignment title and identify instructions and concepts.

2. Read textbook texts and develop concept knowledge.

3. Search-read and make notes on the case study to frame the case with business concepts.

Producing an analysis text

1. Define the concepts you are using.

2. Organise the analysis.

3. Provide criteria for categories.

4. Give examples and details for categories.

5. Use evidence from the case study or elsewhere as rationale for analysis.

Language knowledge

How texts are organised

Case study: story, description

Case analysis: concepts

Levels in text:

high-level generalisations and key concepts

low-level: examples and details

How texts are structured

First paragraphs

First sentences of paragraphs

How sentences are structured

Nouns and verbs

Subject and verb

How word groups are structured

Noun groups

Business studies knowledge

STEP concepts:

external environment

social, technological, economic, political factors

Stakeholder concepts: power, interest

US airline industry

Automobile Association demutualisation

CCTV industry

Nike

3 Text – US airlines: big carriers unlikely to find much reliefParagraph 1

It has been a difficult year for business travellers in the US. Over the past 12 months US business travellers have been forced to put up with upheaval in airport security systems in the wake of the September 11th (2001) terrorist attacks, the bankruptcy filings of two big airlines, and drastic changes in fares and frequent flyer programmes. The recent bankruptcy filing by UAL, the Chicago based parent of United Airlines, the world’s second largest carrier, is likely to add to the uncertainty.

Paragraph 2

Many are now complaining that airlines, fighting for survival in the midst of one of the industry’s worst-ever downturns, are harassing them with measures designed to squeeze additional revenues out of passengers or cut back on perks and benefits. For example, many airlines have tightened up existing cabin baggage regulations and have begun to strictly enforce excess baggage charges – moves designed to acquire additional revenues but which run the risk of alienating many business and other passengers. Several recent newspaper articles have featured passengers who have been charged hundreds of dollars for an extra bag. Business travellers in particular complain that the premium prices they pay for their tickets are not reflected in standards of service.

Paragraph 3

Other airlines have begun to charge an additional fee of up to US$25 if passengers insist on using paper tickets instead of electronic ones. Until they reversed themselves a few weeks ago, many of the big airlines had also begun to charge passengers US$100 if they wanted to fly standby on flights on the same day as their originally scheduled flights. Meanwhile, the bankruptcy filings have left millions wondering whether their frequent-flyer miles are safe. Some airlines including US Air, have already tried to add new restrictions to their frequent-flyer programmes but have been forced to back down in the face of a barrage of criticism from customers.

Paragraph 4

US passengers also face the prospect of fewer scheduled flights and a contraction in routes served by the main ‘hub-and-spoke’ carriers, including United. In the immediate wake of United’s bankruptcy filing, executives said there would be no immediate changes to the company’s schedule of 1800 daily flights, providing service to 117 airports around the world. Nevertheless, industry executives and analysts believe United will have to cut back its route system substantially and negotiate further substantial concessions from its employees if it is to survive. They warn that if United manages to restructure and emerge from bankruptcy by June 2004 as planned, it will be a very different airline to the globe-straddling carrier that profited handsomely, selling high-price last-minute tickets to business travellers during the economic boom of the late 1990s.

Paragraph 5

A more immediate concern is that the increasingly likely prospect of a war with Iraq could cause oil prices to spike, further undermining the shaky health of many US airlines and leading to the possibility that other carriers could go bust.

Paragraph 6

But even without an oil price spike, the traditional carriers in the US were already facing fierce competition from cut-price operators such as Southwest Airlines and three-year-old upstart, Jet Blue. Most have acknowledged that they will have to slash costs if they are to survive. The success of low cost ‘no-frills’ carriers in lucrative markets such as California and the east coast has destroyed the traditional carriers’ profits on many routes that they once dominated. For example, Southwest Airlines’ share of the California market has jumped to more than 60 per cent in the 18 months while United’s share has fallen to less than 20 per cent, in part because losses have forced the big carrier to cut back on its flights. Other low-cost airlines, such as Spirit Airlines and Jet Blue, have begun cutting into the big carriers’ business on longer routes.

Paragraph 7

Overall, the US airline industry is in a terrible financial state. Last year alone, operators lost about US$8bn on top of the more than US $7bn they lost in 2001. The six biggest carriers and US Airways – have been forced to cut back operations last year and its profitability, amid a sea of losses, has earned it a stock market value bigger than all its rivals combined.

Paragraph 8

Faced with the success of the low-price carriers and the underlying downturn in passenger traffic, most carriers have been forced to cut their already heavily discounted economy fares further. According to estimates, the average price to fly a mile, adjusted for inflation, fell by 25 per cent in the 10 years to 2001. Since they were unable to raise the prices they charged leisure travellers for fares booked well in advance, most big carriers have raised prices for last minute bookings and business fares. In some cases a business ticket is now almost six times as expensive as a discount ticket.

Paragraph 9

The widening gap between business and discounted economy fares has prompted many companies to re-examine their business travel policies, cancel trips and in some cases abandon the deals they had previously negotiated with big carriers. At the same time, the internet has made it much easier for both business and leisure travellers to compare prices and tinker with itineraries in order to save money.

Paragraph 10

This is not the first time the US airline industry has been plunged into financial turmoil. Since the government deregulated the industry in 1978, it has faced two serious recessions in the early 1980s and 1990s. But the combination of the fear created by September 2001 terrorist attacks, competition from cut-price airlines and the growing sophistication of travellers who now have access to comparative fare information via the internet makes this downturn different, say analysts. With the continuing uncertainty over the US economic recovery and geopolitics, the big carriers are unlikely to find much relief this year. For business travellers, that may translate into further uncertainty and turmoil.

(Source: adapted from Taylor, P., 2003, ‘US airlines: big carriers unlikely to find much relief’, Financial Times, 30 January)

3.1 Extracts and texts

Extract 1

The term ‘environment’ in this case refers to much more than the ecological, ‘green’ issues that the word commonly evokes. ‘Environment’ here is more appropriately interpreted as the external context in which organisations find themselves undertaking their activities. Each organisation has a unique external environment that has unique impacts on the organisation, due to the fact that organisations are located in different places and are involved in different business activities, with different products, services, customers, and so on.

(Source: Capon, C., 2004, Understanding Organisational Context, Prentice Hall, p. 278)

Extract 2

In recent years, the term ‘the environment’ has taken on a rather specialised meaning: it involves ‘green’ issues and the poisoning of our planet by human activity. These concerns are certainly part

of our considerations in this book, but we use the term ‘the environment’ in a much broader sense to describe everything and everyone outside the organisation. This includes customers, competitors, suppliers, distributors, government and social institutions.

(Source: Lynch, R., 2003, Corporate Strategy, Pearson Education, Harlow, p. 84)

Extract 3

A host of external factors influence a firm’s choice of direction and action and, ultimately, its organizational structure and internal processes. These factors which constitute the external environment, can be divided into three interrelated subcategories: factors in the remote environment, factors in the industry environment, and factors in the operating environment. (Many authors refer to the operating environment as the task or competitive environment.) This chapter describes the complex necessities involved in formulating strategies that optimize a firm’s market opportunities. Figure 3-1 [not included] suggests the interrelationship between the firm and its remote, its industry, and its operating environments. In combination, these factors form the basis of the opportunities and threats that a firm faces in its competitive environment.

(Source: Pearce, J.A. and Robinson, R. B., 2000, Strategic Management: formulation, implementation and control, Irwin

McGraw-Hill, p. 71)

Extract 4

In Chapter 1, the interdependence between a business organisation and the environment within which it operates was briefly discussed. It was pointed out that society depends on business organisations for most of the products and services it needs, including the employment opportunities which businesses create. Conversely, business organisations depend on society for the resources they need. Business organisations are not self-sufficient, nor are they self-contained. They obtain resources from and are dependent upon the environment in which they operate. Business organisations and society, or, more specifically, the environment in which they function, therefore, depend on each other. This mutual dependence entails a complex relationship between the two. This relationship increases in complexity when certain variables in the environment, such as technological innovation, economic events or political developments, bring about change in the environment which impacts in different ways on the business organisation.

(Source: de J. Cronje, G.J., du Toit, G.S. and Motlatla, M.D.C., eds, 2004, Introduction to Business Management, 6th edn,

OUP, Oxford pp. 81–2)

Extract 5

Every business is engaged in at least one conversion process, converting inputs to outputs. While doing this it is operating in an environment consisting of a great many elements. The elements in the external environment can be classified by the level of influence that they have on the business and the business has on them. As a result a business can be considered to have two environments, depending on the direction of the influences between the business and the elements within them. First there is the operating environment, composed of elements that the organisation can influence and that also influence the business. Second there is the remote environment, composed of elements on which the individual business has no significant influence but which may have a major effect on the operating environment and on the business.

(Source: Finlay, P., 2000, Strategic Management, Pearson Education, Harlow,p.163)

Extract 6

Before introducing the models, I will define the [term] ‘Business environment’ ... A ‘business environment’ is a set of external conditions in which an organisation exists and operates. There are two levels of business environment; the market / ‘near environment’ linked to behaviour of organisations within markets and their competitiveness and the ‘wider environment’ which are broader trends and controls outside the immediate control of individual organisations which can also shape the way they behave.

(Source: OU Business School student assignment)

Extract 7

Business does not operate in a vacuum. There is always an environment, ‘a set of external conditions under which a business organisation exists and operates’ (Lucas, 2000, p. 5). When considering a business, its environment, and the way in which they influence each other, it is useful to have a ‘model’, which is a simplified picture of the context in which events are taking place. A model helps to identify external influences on a business and analyse their effects on the behaviour of the business.

(Source: OU Business School student assignment)

Extract 8

Organisations operate in a market environment, which is their near or immediate environment. However, there are a wider set of environments, which they operate in. These can be explained using the STEP model. There are four environments: Social, Technological, Economic and Political that influence organisations. Whilst organisations usually have control over the near environment it is the wider environment that controls the organisations, although some businesses can influence their wider environment.

(Source: OU Business School student assignment)

Text 9STEP framework

External environments can be defined and analysed using STEP analysis, which examines the categories into which external influences on the organisation can be placed.

______________ influences on organisations include ... the rules and regulations imposed by government, as well as the influences on organisations of various trade associations, trade unions and chambers of commerce.

______________ influences on organisations include the impact of banks, stock markets, the world money markets, and trading blocs such as the European Union.

______________ influences on organisations include changes in the age and structure of populations, the manner in which populations behave, and the way in which the culture of a population or country changes and develops.

______________ influences include the development of increasingly sophisticated computer hardware and software. The development of media and communications technology covers electronics and telecommunications, including use of the internet. The ongoing development of the internet as a way of doing business and accessing information has meant a whole new ‘media’ which needs to be understood in terms of its potential use and reliability.

Basic analysis of an organisation’s external environment can be done by breaking down the external influences on the organisation into the STEP categories and assessing the impact of the individual elements identified in each category.

(Source: adapted from Capon, C., 2004, Understanding Organisational Context, Prentice Hall, p. 279)

Extract 10

1. Trainer companies have had to acknowledge that, despite the global status of their products, consumers in different countries have different spending power; therefore, they must tailor their product range and pricing strategy accordingly.

2. Despite their insistence that their products are primarily sports footwear, they have to respond to fashion trends as well, if they want to ensure that a shoe is a commercial success.

3. While Nike, Adidas and Reebok all aim for athletic credibility, the design of their shoes must incorporate the influences and styles of popular culture.

4. They are also able to profit from beneficial trade and tariff agreements, wherever they exist.

5. The ‘messages’ they use to communicate with various groups of consumers need to be tailored to suit the different market ‘sectors’ for which they manufacture shoes, while maintaining the integrity of their brand identity.

6. Sales of full-price trainers have also been threatened by supermarket chains importing goods from unauthorised suppliers and selling them at a big discount.

7. Young people are most likely to spend the highest amount, with 28 per cent of 15 to 19 year olds and 27 per cent of 20 to 24 year olds spending over £100 a year on these products.

8. Trainer manufacturers have also responded to the growth in e-commerce – sales of training shoes via the internet. Nike sells shoes via its own website, Nike.com, and also owns internet shoe retailer FogDog.

9. Grant aid was drastically reduced with the result that local authorities either dropped or greatly reduced their insulation programmes.

10. Although the USA was considered by many to be at least 18 months ahead of the rest of the world in exploiting the internet, Europe had a substantial lead in mobile telephony.

11. The US could also move directly to third-generation technology, enabling it to catch up with Europe within the next three to four years, emphasising the need for Europe to prove as effective in third-generation mobile telephony as in the current generation.

12. By the year 2003, communications devices, from computers and televisions to mobile phones, were expected to converge, enabling all to offer the same host of services.

13. For example in 2000, in the UK alone, Vodafone would have to pay £6 billion to the government for their new 20-year licence, on top of an estimated £4 billion of network spending and handset subsidies.

14. It was clear to many observers that by hiving off its attractive telecoms activities into a separate company Mannesmann risked becoming vulnerable to an unwelcome take-over.

15. Tony Blair, the British Prime Minister, however, demanded that Germany treat a British attempt to take over one of its firms with the same fairness extended to Germans buying up businesses in Britain. He rebuked Gerhard Schroeder for fighting the take-over, making it clear that in the new global economy he should not try to block it.

16. There seems to be widespread suspicion in Germany of everything connected with stock markets. Germany does not have a stock exchange culture, as its economy is dominated by medium-sized companies and companies which are not quoted on the stock market.

(Sources: extracts 1–8 from Sturges, J., 2000, ‘Keep on running: the training shoe business’, B200 case study, OU Business

School, Milton Keynes; extract 9 from Wilson, D. and Rosenfeld, H., 1990, Managing Organisations, Text, Readings and

Cases, McGraw-Hill, p. 357; extracts 10–16 from a case study on Vodafone’s takeover of Mannesmann, author unknown,

2000, B200 TMA 07, OU Business School, Milton Keynes)

Extract 11Nike and the vexed issue of corporate responsibility

In the early 1990s, as the first factories in Indonesia were opened, the leading training shoe companies’ strategy of using low-cost Asian labour to manufacture their products came under increasing scrutiny from human rights groups, Christian organisations and even academic institutions. By the end of the decade, campaign groups aimed at stamping out this so-called ‘sweatshop’ production were active in the USA, the UK and Australia. Media interest in the topic was widespread, to the extent that UK magazine The Big Issue was urging its readers not to buy Nike trainers and US satirist Garry Trudeau featured the subject in an 11-part Doonesbury cartoon series.

Most criticism was aimed at the major trainer manufacturers, especially Nike, for reasons of their size and market dominance. The emphasis Nike and its competitors placed on social betterment through physical fitness in their advertising also made them more vulnerable to accusations of mistreatment of their Asian workers.

Initially, the trainer companies tried to divert criticism by claiming that the issue was the responsibility of their subcontractors, but were soon forced to respond when the subject was drawn to the attention of the US State Department. Eventually they were obliged to draw up codes of conduct in an attempt to eradicate human rights abuses in their factories, raise wages, ban harmful chemicals and eradicate the use of under-age labour. This was not sufficient for their critics; instead, it proved to be the first stage in a cycle of criticism and reaction which is still continuing, with the focus shifting from Indonesia to China and Vietnam, and manufacturers still struggling to establish a socially ‘responsible’ image.

While criticism of human rights abuses in training shoe factories is clearly justified, it is interesting to examine the trainer manufacturers’ operations in the context of the prevailing economic situation in countries such as Vietnam and China. Their presence in these countries can be economically critical. China is now the biggest shoe-producing country in the world; Nike is Vietnam’s biggest

employer. Jobs are scarce and people want to work for companies like Nike and Reebok. Factory jobs, while badly paid by Western standards, pay twice as much as teachers earn in Vietnam.

Nevertheless, as a result of the continued criticism, corporate responsibility is now a major concern for all trainer companies whose shoes are manufactured in Southeast Asia and China. For example, in 1998 Nike appointed its first new vice-president for corporate and social responsibility and introduced six new corporate responsibility initiatives.

(Source: adapted from Sturges, J., 2000, ‘Keep on running: the training shoe business’, B200 OU Business School case

study, The Open University, pp. 24, 26)

Text 12The growth of closed-circuit television systems

Since 2001, there has been a significant increase in the use of closed-circuit television (CCTV) cameras in public places in the USA and other developed countries. Such cameras have been used in commercial premises in the USA since the early 1970s but, after the terrorist attacks of 11 September 2001, the use of such cameras increased in public areas such as parks and streets. Citizens can now be observed going about their daily business. The number of CCTV cameras in British town centres has rapidly increased in recent years. There are similar increases in Europe and North America. During the early 1990s the total value of the equipment market for CCTV products in the UK was around £100m annually. This rose to £361m between 1996 and 2000.

According to one industry source, ‘Double-digit growth in the video surveillance market has created a huge opportunity for software and chip companies to manage these enormous video streams’. International terrorism and homeland security investments are creating an unprecedented ‘intelligent video’ (IV) growth opportunity with technology playing a major role in future development. New IV networks, automatic edge detection, event characterisation, detailed analytics, and first responder controls represent the future of IV systems just starting to come on line. IV technology represents a major growth opportunity for hardware and software companies wanting to position themselves for growth in the rapidly expanding international security industry. Middle East violence, threats to oil supplies, Chinese and Indian economic growth, Islamic and western cultural tensions, and normal concern for domestic crime will fuel massive potential demand for IV products for a long time to come.

Despite this increasing intrusion into people’s personal lives, there seems to be little chance of privacy protections limiting the use of such technologies. In the USA, public area surveillance does not count as a ‘search’. The outcome of court cases suggests that even covert CCTV surveillance in public areas is lawful.

Civil libertarians and law reform groups have raised concerns about the current lack of statutory controls over the use of public space CCTV. In China, advanced traffic control systems were used to identify thousands of people involved in the Tiananmen Square protests of 1989. In the UK, although the technology behind CCTV has been available since the 1970s, its adoption has been slowed down by political concerns. For example, although the police are keen to have systems adopted, socialist-leaning local authorities have been less welcoming. This was particularly because research showed that the technology could be used against trade unionists, peace campaigners and animal-rights activists. Financial constraints on the spending powers of local authorities also played a role in slowing down the adoption of CCTV technology.

Nevertheless, in the UK, the impetus for the adoption of the technology came with increasing levels of crime in the 1980s and the adoption of privatisation of various public services. This effectively reduced the immediate cost to the public purse of adopting the technology. Also aiding the adoption of the technology was a specific event, the murder of a child in Merseyside. His abduction, which was widely covered in the popular press, was caught on CCTV and this led to the capture of his assailants. As a result, CCTV became more acceptable.

In the UK, CCTV is also being widely used in the field of transport. According to a commentator, ‘many cities, such as Bangkok or Buenos Aires, will accept relatively high levels of congestion, but paralysing gridlock just isn’t economically, socially or politically acceptable in London’. So each part of London’s transport network, buses, underground system and roads – have separate central operations rooms, operating 24 hours a day, seven days a week.

In the medical arena, as well, the CCTV revolution is becoming more prevalent. According to a small-scale evaluation project, residents in a medium secure unit generally supported the use of CCTV at night because it made them feel safer. For example, some respondents said CCTV recordings helped to cut the risk of their property being stolen, while the fire risk was lessened because patients were less likely to smoke in their rooms. It was also popular with patients who disliked being woken up during traditional night-time checks.

Larger evaluation studies have shown more mixed results. In the UK, where reviews have been more common and comprehensive, findings about the effects on crime have been mixed. One recent study compared 13 evaluations of CCTV in city centres and public housing. Of these, five found positive effects (a reduction in offences), three reported undesirable outcomes (actual increases in crime), while in the remaining five studies there appeared to be no effect or the results were unclear.

Mixed findings such as these seem difficult to reconcile with the enthusiasm for public CCTV among local and state governments in Australia. Crime reduction is only one of the rationales for installing a camera system. Another is a desire to improve public perceptions of safety, where Australian evidence is more positive. Research in New South Wales among members of the public reported that the presence of the cameras made them feel safer in the central business district. However, a study for the City of Melbourne found that its cameras had not affected public perceptions.

Concerns about public perceptions help explain the economic and political forces pushing many jurisdictions into installing CCTV systems. They link the uptake of public space CCTV to social trends such as the rise of the ‘stranger society’. In contemporary post-industrial contexts, people tend to become more remote from familial and other traditional constraints, and to become dislocated from community networks. Hence a perceived desire for techniques and procedures, which provide reassurance that public behaviour is being monitored.

Global economic trends also increase pressures on town and city centres to attract their share of tourists, other consumers and investors. CCTV can play an important role in marketing an urban centre as relatively safe. However, it can also exacerbate tendencies to exclude homeless, unemployed and other marginalised people whose presence detracts from the ‘positive vision’ that image makers try to convey.

Example STEP analysis – notes on the growth of CCTV systemsSocial

increased social acceptance of CCTV

increases in crime and terrorism

people’s perception that CCTV can make their lives safer

high profile cases where CCTV used to catch criminals

public opinion that the benefits of such systems outweigh the costs

growth of the ‘stranger society’

people have fewer links to their social environment

feelings of security.

Technological

increasingly more versatile or greater functionality

intelligent video and internet protocol

cheaper products due to technological developments.

Economic

CCTV cameras more affordable due to economic growth

private sector financing in public sector expenditure so sales not always involving large government expense

equipment leased from private sector firms making it more affordable

wider political acceptance of private sector funding for public projects

local governments need to encourage investment and promote tourism and people’s feeling of security

CCTV keeps existing residents or businesses happy, and encourages new ones

CCTV for traffic management to reduce congestion.

Political

more (political) acceptance of CCTV

increasing crime and terrorism

despite concerns about personal liberty and human rights

US law allows use of CCTV; not a ‘search’; covert use in public places

fairly liberal political or legal environment towards CCTV

no statutory controls over the use of public space CCTV.

(Source: Haider Ali, 2007, Open University Business School, Milton Keynes)

References

McCahill, M. and Norris, C. (2002) ‘CCTV in Britain’, Working Paper No. 3, March, Centre for Criminology and Criminal Justice, University of Hull.

Mental Health Practice (2006) ‘Patients positive about CCTV’, September, Vol. 10, No. 1.

Murray, L. (2006) ‘Keeping London moving’, Geographical, May [online], www.geographical.co.uk

www.jpfreeman.com/mktreport.htm#report7

www.indigovision.com/site/sections/investor/pdf/Full%20Annual%20Report %202006.pdf

uninews.unimelb.edu.au/articleid_760.html

Text 13Analysing stakeholders

The analysis of stakeholders involves identifying who they are and considering their power and interest with regard to the organisation. Stakeholders can be identified by brainstorming and shown on a stakeholder diagram. Once identified, the relative power and interest of the stakeholders can be mapped onto a power and interest matrix [diagram]. Additionally this analysis can be extended to consider the reaction, behaviour and position of stakeholders if a particular strategy or plan were to be implemented by the organisation.

Stakeholders with high power and high interest (category D)

Stakeholders with high power and high interest are key players in the organisation and are often involved in managing the organisation and its future. If key players are not directly involved in managing the organisation, it is vital that they are given serious consideration in the development of long-term plans and the future direction of the organisation, as they have the power to block proposed plans and implement their own alternative agenda.

Stakeholders with high power and low interest (category C)

Stakeholders with high power and low interest are those who must be kept satisfied, for example institutional shareholders. Institutional shareholders will often remain compliant while they receive acceptable returns on their investment and are pleased with the organisation’s management and activities. However, the ability of category C stakeholders to reposition themselves on the power and interest matrix into category D and become stakeholders with a continuing high degree of power and an increase in their level of interest should not be under-estimated. [...]

Stakeholders with low power and high interest (category B)

The stakeholders in category B are those with low power and high interest, who are able to exert relatively little power in influencing the organisation and its actions. However, these stakeholders have a high level of interest in the organisation and will voice their concerns if that interest is not being considered in a suitable manner. [...]

Stakeholders with low power and low interest (category A)

Stakeholders with low power and low interest are those in whom the organisation need invest only minimal effort. However, category A stakeholders should not be ignored as they may acquire a stake in the organisation by becoming, for example, a customer, supplier or competitor, which will mean an increased level of interest and/or power.

(Source: Capon, C., 2004, Understanding Organisational Context, Prentice Hall, pp. 387–8, 389)

Text 14The Automobile Association and the question of demutualisation

The Automobile Association was founded in 1905 by a group of motoring enthusiasts. It was set up as a mutual association. This means that it was owned by its members who had the right to elect the board of directors but did not receive any profits from the organisation. Its founders believed that by joining together as a group of motorists they could obtain better motoring services than they would as individuals. At the time there were many mutual associations owned by their members. The best examples were building societies.

By 1999 the AA had grown into a major organisation. It held around half the motor breakdown market, a market that was experiencing significant change. These changes included the acquisition of Green Flag by Cendant, the entry of the insurance company Direct Line into the market, and the RAC’s expected trade sale or flotation.

During the 1990s, many mutual associations had ‘demutualised’. That is they changed from being mutual associations with members to being public limited companies with shareholders. These shareholders could now receive a share of the profits of the organisation. When an organisation demutualised, the members of the organisation also received a windfall payment which was often very large. For this reason demutualization was usually very popular with members of mutual associations.

In April 1999 the AA began to consider its options with regard to retaining its mutual status or demutualising. It was rumoured that Ford had informally approached the AA with a takeover offer that would end the latter’s mutual status. Other interested bidders were thought to include Centrica and a number of venture capitalists. The then Director-General of the AA, John Maxwell, initiated a strategic review to allow the AA to assess its options. The options available included demutualisation, a joint venture with a suitable partner or takeover by another company. The merchant bank Schroders was advising the AA.

In 1999 the AA had annual sales of around £600 million from its businesses, which included roadside service, publications and driving schools, and its value was estimated to between £1 billion and £1.5 billion. Pursuit of the demutualization option and stock-market flotation would give each full member of the AA a moderate windfall of £200–250. In 1999 the AA had 9.5 million members, of which 4.3 million were full-paying members who would receive the windfall payouts. However, excluded from the demutualisation windfall were the 1.7 million associate members, including the families of full-paying members who benefit from the association’s services, and the 3.5 million members who are drivers of fleet cars with AA cover and drivers who received their AA membership as part of a package when purchasing a car.

The members of the AA were balloted in August 1999 on the proposed sale of the AA to Centrica. The result of the ballot was announced in mid-September 1999 and showed 67 per cent of eligible members voted and 96 per cent of them voted in favour of the sale. The sale to Centrica was completed in July 2000 for £1.1 billion.

(Source: adapted from Capon, C., 2004, Understanding Organisational Context, Prentice Hall, pp. 389–90)

Extract 15

Use the stakeholder model of the business environment to analyse the main influences on the Automobile Association during its demutualisation process.

Heading ________________________________________________

The category ______stakeholders are those with ______power and ______ interest. For the AA, non-members fell into this category. They were unable to receive breakdown services from the organisation and had ______ influence over its demutualisation decision. However, it should be recognised that stakeholders’ power and influence can alter over time. The opportunity of a £200-250 windfall might have encouraged some non-members to become members and move to category ______, ______ interest and ______ power.

If the number of new full members joining had been very large and there was no differentiation between new and longer-term members, the value of the windfall paid to full members could have decreased. This could have pushed longer-term full members to seek to lobby or influence John Maxwell and his management team to distinguish between long- and short-term members.

Heading ________________________________________________

The merchant bank Schroders was a category ______stakeholder, as it had relatively little interest in whether the AA finally decided to demutualise. However, as corporate adviser to the AA, it was relatively powerful as it was able to advise and potentially influence John Maxwell and his management team.

Heading ________________________________________________

The category ______ stakeholders, those with ______ interest and ______power in the demutualisation issue, included associate members and employees. The associate members clearly had a______ interest in whether or not the AA decided to demutualise. The primary concerns for associate members were the effect of demutualisation on the services they received and the cost of associate membership. However, as non-voting members, associates had ______power to influence the outcome of any ballot on demutualisation. Equally, employees had a______ interest in the future of the AA and would be concerned as to the effects of demutualisation. Potential effects of demutualisation could have included the AA becoming more competitive and this being achieved via cost cutting and job losses. However, employees had no direct role in the ballot and would ultimately have to accept its outcome.

However, also with ______ interest and ______ power were other stakeholders like potential bidders such as Ford and competitors like Direct Line and Green Flag. These were external stakeholders with a ______interest in what the AA would eventually decide to do, as their business and the marketplace in which they operated would be directly influenced by that decision.

Heading ________________________________________________

The key players were the Director-General of the AA and his immediate management team carrying out the strategic review, as well as the full members of the AA. John Maxwell and his management team were key players with ______ power and ______ interest, as their planning and decision making would determine their future with the AA, the future of the AA, the future of those who worked for the AA, and the future of AA members. The full members would collectively decide whether the AA would demutualise. They might have chosen to support any demutualization

recommendations made by John Maxwell and his team, or to reject them in favour of a bidder, such as Ford, buying the AA.

(Source: based on Capon, 2004, Understanding Organisational Context, Prentice Hall, pp. 390–2)

Text 16

Text

Paragraph 1

The AA and stakeholders with high power and high interest (category D)

The key players were the Director-General of the AA and his immediate management team carrying out the strategic review, as well as the full members of the AA. John Maxwell and his management team were key players with high power and high interest, as their planning and decision making would determine their future with the AA, the future of the AA, the future of those who worked for the AA, and the future of AA members. The full members would collectively decide whether the AA would demutualise. They might have chosen to support any demutualisation recommendations made by John Maxwell and his team, or to reject them in favour of a bidder, such as Ford, buying the AA.

Paragraph 2

The AA and stakeholders with high power and low interest (category C)

The merchant bank Schroders was a category C stakeholder, as it had relatively little interest in whether the AA finally decided to demutualise. However, as corporate adviser to the AA, it was relatively powerful as it was able to advise and potentially influence John Maxwell and his management team.

Paragraph 3

The AA and stakeholders with low power and high interest (category B)

The category B stakeholders, those with high interest and low power in the demutualisation issue, included associate members and employees. The associate members clearly had a high interest in whether or not the AA decided to demutualise. The primary concerns for associate members were the effect of demutualisation on the services they received and the cost of associate membership. However, as non-voting members, associates had no direct power to influence the outcome of any ballot on demutualisation. Equally, employees had a high interest in the future of the AA and would be concerned as to the effects of demutualisation.Potential effects of demutualisation could have included the AA becoming more competitive and this being achieved via cost cutting and job losses. However, employees had no direct role in the ballot and would ultimately have to accept its outcome.

Paragraph 4

However, also with high interest and low power were other stakeholders like potential bidders such as Ford and competitors like Direct Line and Green Flag. These were external stakeholders with a great deal of interest in what the AA would eventually decide to do, as their business and the marketplace in which they operated would be directly influenced by that decision.

Paragraph 5

The AA and stakeholders with low power and low interest (category A)

The category A stakeholders are those with low power and low interest. For the AA, non-members fell into this category. They were unable to receive breakdown services from the organisation and had no influence over its demutualisation decision. However, it should be recognised that stakeholders’ power and influence can alter over time. The opportunity of a £200–250 windfall might have encouraged some non-members to become members and move to category D, high interest and high power.

Paragraph 6

If the number of new full members joining had been very large and there was no differentiation between new and longer-term members, the value of the windfall paid to full

members could have decreased. This could have pushed longer-term full members to seek to lobby or influence John Maxwell and his management team to distinguish between long-and short-term members.

(Source: Capon, 2004, Understanding Organisational Context, Prentice Hall, pp. 389–92)

Text 17Use the stakeholder model of the business environment to analyse the main influences on Nike evident in the case study

Business does not operate in a vacuum. There is always an environment, ‘a set of external conditions under which a business organisation exists and operates’ (Lucas, 2000, p.5). When considering a business, its environment, and the way in which they influence each other, it is useful to have a ‘model’, which is a simplified picture of the context in which events are taking place. A model helps to identify external influences on a business and analyse their effects on the behaviour of the business.

The model which will be used in this essay is the stakeholder model. This model ‘allows us to view the various individuals and power groups with interests in the organisation – stakeholders – attempting to exert influence’ (Lucas, 2000, p.60). The concepts of influence and power are central to this model. It analyses who has an interest – a ‘stake’ – in how a business behaves, and who actually has the power to exert an effective influence. This model will be used to analyse the influences on the large multi-national corporation, Nike, as shown in the case study ‘Keep on running; the training shoe business’ (Sturges, 2000).

The case study gives several instances of the importance to Nike of consumers, a significant stakeholder group. This group exert a powerful influence over the business behaviour of the company because of their spending power – over £1 billion was spent on training shoes in the UK in 1998 (Sturges, 2000, p.11). An example of consumer influence is the ‘pyramid segmentation’ system (Gordon, OU, video), which ensures that a design is made available only to a very exclusive group of consumers at first, and then withdrawn for several months before being marketed more broadly. ... This influential group must be won over in order to make the shoe desirable to the larger consumer group with the financial power.

The power of the consumer to influence the business behaviour of Nike is also seen in the issue of corporate responsibility. The case study describes how Nike and other trainer companies initially responded to criticism of working conditions in Indonesia ‘by claiming that the issue was the responsibility of their subcontractors’ (Sturges, 2000, p.30). As consumers took an increasing interest in Nike’s business practices in the third world, they exerted influence on the company. By the end of the 1990’s corporate responsibility was ‘perceived as an important means of establishing their credibility with their customers, current and future, as they attempt to expand sales of their product throughout the world’ (Sturges, 2000, p.31).

[...]

The group of employees is another stakeholder exerting influence on Nike, with a stark contrast between the direct employees in the West and the subcontracted workers in the third world. The factory workers have virtually no power over policy decisions. ‘It is no coincidence, it is argued, that the manufacture of training shoes takes place in countries such as Indonesia and China which have repressive governments and weak labour unions’ (Sturges, 2000, p.28). Unfortunately, these

unskilled workers are seen as easily replaceable, unlike the cosseted team in the United States. It was part of Nike’s original successful strategy to recognise that value is added to shoes not in the manufacturing, but in the design and marketing (Sturges, 2000, p.21). The small number of employees with those skills give Nike an edge with the consumer. These people have influence within the company.

When the stakeholder model is used to analyse the influences on Nike evident in the case study, the most influential group appears to be the consumers. Other models would perhaps highlight different elements in the business environment. One such model is the STEP checklist, which places external influences into four categories – social, technological, economic and political (Armson et al., 2000, p.12). The situation of sub-contracted workers might have more prominence in Nike’s environment if one looked from apolitical viewpoint. The trainer companies ‘were forced to respond when the subject was drawn to the attention of the US State Department’ (Sturges, 2000, p.30). Here is an influence which the stakeholder model does not emphasise.

When looking from an economic viewpoint, shareholders would become more prominent. Nike needs capital investment to sustain its success, and shareholders must be given a profit. Much of the Nike image involves masking the profit motive and portraying a company dealing in life-styles, but the underlying aim is still ‘to boost the worth of their products by attaching social, cultural and emotional values to them’ (Sturges, 2000, p.33, my italics). As Phil Knight says, ‘When you go to buy a shoe, you’re not buying one from each company, you’re going to buy one pair. We’re going to try as hard as we can to make that shoe Nike’ (OU video). The power of the shareholders, and the continual imperative to make large profits which influences every business decision made by Nike, is clearer when the STEP model focuses attention on economics.

To conclude, the case study presents a variety of influences on Nike. Skilled employees, competitors and governments cannot be ignored and have a degree of influence. The most influential stakeholder groups are shareholders and consumers, who keep Nike constantly battling for the markets – ‘innovate or die’ (Riley, OU video).

References

Armson, R., Martin, J., Carr, S., Spear, R. and Walsh, T. (2000) ‘Identifying Environmental Issues’, in Lucas, M. (ed.) Understanding Business: Environments, London, Routledge / The Open University.

Farris, Nelson, Nike Director of Corporate Education, on B200, Understanding Business Behaviour Video (2000) ‘Keep on running: the training shoe business’, VC1188, The Open University Business School, Milton Keynes.

Gordon, Deedee, Trend Forecasting Consultant, on B200 Understanding Business Behaviour Video, (2000) ‘Keep on running: the training shoe business’, VC1188, The Open University Business School, Milton Keynes.

Lucas, M. (2000) Environments. Module 1 Study Guide, The Open University Business School, Milton Keynes.

Riley, Ray, Design Director for New Business, Nike, on B200, Understanding Business Behaviour Video (2000) ‘Keep on running: the training shoe business’, VC1188, The Open University Business School, Milton Keynes.

Sturges, Jane. (2000) ‘Keep on running: the training shoe business’, The Open University Business School, Milton Keynes.

(Source: adapted from OU Business School student assignment)

ReferencesArmson, R., Martin, J., Carr, S., Spear, R. and Walsh, T. (2000) ‘Identifying Environmental Issues’, in Lucas, M. (ed.) Understanding Business: Environments, London, Routledge / The Open UniversityCapon, C., 2004, Understanding Organisational Context, Prentice Hallde J. Cronje, G.J., du Toit, G.S. and Motlatla, M.D.C., eds, 2004, Introduction to Business Management,6th edn, OUP, Oxfordextract 9 from Wilson, D. and Rosenfeld, H., 1990, Managing Organisations, Text, Readings and Cases, McGraw-Hill, p. 357; extracts 10–16 from a case study on Vodafone’s takeover of Mannesmann, author unknown, 2000, B200 TMA 07, OU Business School, Milton Keynes)Farris, Nelson, Nike Director of Corporate Education, on B200, Understanding Business Behaviour Video (2000) ‘Keep on running: the training shoe business’, VC1188, The Open University Business School, Milton KeynesFinlay, P., 2000, Strategic Management, Pearson Education, HarlowGordon, Deedee, Trend Forecasting Consultant, on B200 Understanding Business Behaviour Video, (2000) ‘Keep on running: the training shoe business ’, VC1188, The Open University Business School, Milton KeynesHaider Ali, 2007, Open University Business School, Milton KeynesLucas, M.(2000) Environments. Module 1 Study Guide, The Open University Business School, Milton KeynesLynch, R., 2003, Corporate Strategy, Pearson Education, HarlowMarch, Centre for Criminology and Criminal Justice, University of Hull, Mental Health Practice (2006) ‘Patients positive about CCTV’, September, Vol. 10, No. 1McCahill, M. and Norris, C. (2002) ‘CCTV in Britain’, Working Paper No. 3Murray, L. (2006) ‘Keeping London moving’, Geographical, May [online], www.geographical.co.ukPearce, J.A. and Robinson, R. B., 2000, Strategic Management: formulation, implementation and control, Irwin McGraw-HillRiley, Ray, Design Director for New Business, Nike, on B200, Understanding Business Behaviour Video (2000) ‘Keep on running: the training shoe business ’, VC1188, The Open University Business School, Milton KeynesSturges, J., 2000, ‘Keep on running: the training shoe business’, B200 OU Business School case study, The Open UniversityTaylor, P., 2003, ‘US airlines: big carriers unlikely to find much relief’, Financial Times, 30 Januaryuninews.unimelb.edu.au/articleid_760.htmlwww.indigovision.com/site/sections/investor/pdf/Full%20Annual%20Report %202006.pdfwww.jpfreeman.com/mktreport.htm#report7