4a.1_Corporate Objectives and Strategy

1 | Q u a z i N a f i u l I s l a m – w w w . s t u d e n t t e c h . c o . c c

CORPORATE OBJECTIVES AND STRATEGY OVERVIEW

1. CORPORATE OBJECTIVES

a. Development of corporate objectives from mission statement/corporate aims b. Understanding the value of mission statements

2. STAKEHOLDER INFLUENCE ON CORPORATE OBJECTIVES

a. Different influences on different objectives i. Use examples of conflicts between stakeholder objectives

b. Conflicting and common aims between stakeholders i. Examine the business principles and objectives of a multinational company and

consider how these conflicts with stories about their unethical behaviour. c. Potential conflicts of socially responsible and ethical behaviour with profit-based

and other objectives d. Corporate Social Responsibility (CSR)

i. Define corporate social responsibility and consider the CSR policies of major companies such as Cadbury and Coca Cola.

3. CORPORATE CULTURE

a. Strong and weak cultures b. Classification of company cultures c. How corporate culture is formed d. Difficulties in changing an established culture

4. CORPORATE STRATEGY

a. Development of corporate strategy b. Aim of portfolio analysis c. Aim to achieving competitive advantage through distinctive

capabilities d. Effect of strategic and tactical decisions on:

i. Human resources ii. Physical resources

iii. Financial Resources e. Porter’s Strategic Matrix f. Competition vs. Co-operation

i. Resource implications and the difficulty of changing corporate strategy in response to the influence of

1. A competitive environment 2. Political, legal or other influences that encourage co-operation between companies on

strategy.

Figure 1 - New employees at Google have to wear a 'Noogler' hat →


MARKET STANDING

GROWTH | PROFIT

SURVUIVAL

Figure 2 - The hierarchy of corporate objectives; objectives any business could adopt.

Adopted by new

businesses

Profitable businesses will want to go on and become leaders in the market. They will also want a good image to prove to the public that they are a force for good

CORPORATE OBJECTIVES

CORPORATE OBJECTIVES

Corporate objectives are company-wide goals that need to be achieved in order to keep the business on track to achieve its aims. These objectives have to be SMART: Specific, Measurable, Ambitious, Realistic and Time-bound.

BUSINESS STUDIES FOR A LEVEL, THIRD EDITION BY IAN MARCOUSÉ

• Corporate objectives are developed from the mission statement as well as the aims of the business.

• Corporate objectives will vary depending on the aim of the business which is determined by the type of business

• Public Limited Companies (PLCs) will tend to be more profit-centric as their key owners are the shareholders; shareholders have no direct influence on the day-to-day running of the business hence they only care about:

o Price of Shares

o Dividends • Sole-Traders, Partnerships, Private Limited Companies (PVT) may have more

varying objectives as their mission could be different. For example, The Grameen Bank in Bangladesh is a bank whose main aim is to empower the poor through Micro-Credit loans, and therefore their main aim objective will not be profit maximisation; if Grameen chose to maximise profits then the poor would not receive lucrative loans.

• Corporate Objectives that are the main focus of PLCs may include:

o Maximising shareholder value o Growth o Diversification

Essentially becoming a conglomerate business

Very hard to achieve in practice If achieved, will give the

business as a downfall in one sector or economy will not damage the business as greater stability much.

Shareholder’s Value


CORPORATE AIMS

Corporate Aims are a generalised statement of where the business is headed, from which objectives can be set.


• An example of an aim would be: o “To become a football league club” – AFC Wimbledon, who are currently in the Isthmian league o “To provide a friendly service in a relaxed, safe and consistent restaurant environment” – McDonalds

• Essentially as seen from the above example, aims are vague and do not have any specific or measurable progress plan through which it can be achieved, it is simply what the business wants to do, and objectives aid to realise that aim.

HOW VALUABE ARE MISSION STATEMENTS

Mission statements are brief statements, written by the business, of its purposes and its objectives, designed to encapsulate its present operations.

BUSINESS STUDIES 4TH EDITION, DAVE HALL

Missions Statements are short sentences or paragraphs used by a company to explain, in simple and concise terms, their purposes for being. These statements serve a dual purpose by helping employees to remain focused on the tasks at hand, as well as encouraging them to find innovative ways of moving towards an increasingly productive achievement of company goals.

INVESTOPEDIA

• A mission statement is likely to convey the o Purpose – the reason why the company exists o Values – what the company believes in, such as environmental friendliness o Standards and behaviour – the standards set by managers and essentially how staff are treated o Strategy – medium to long term pans adopted by the business to make aims and mission achievable o The mission statement should be capable of inspiring those who read it or hear it; it should be highly

memorable.

We create happiness by providing the finest in entertainment to people of all ages, everywhere.

MISSION STATEMENT OF WALT DISNEY

• Some businesses however do not have mission statements such as M&S (Marks and Spencer) as they feel that their mission cannot be summarised in a sentence or paragraph.

• Often the mission statement is seen as and in truth they are often changed little more than a public relations exercise when perspectives change, such as Coca-Cola changing its mission statement.

o If a business lacks a purpose or inspiration, it is far more useful to go to the root of the problem rather than writing a mission statement.

• Critical appraisal of Mission Statements means that students need to look at Mission Statements with a critical eye. In other words, , or are they more part of the marketing of the business do they genuinely outline the aims of the businessand aimed at giving a good impression? Students could compare business mission statements with their recent actions to determine this.


STAKEHOLDER INFLUENCE ON CORPORATE OBJECTIVES

Stakeholders are individuals or groups that have an effect on and are affected by the activities of the organisations


THE INFLUENCES BY STAKEHOLDERS ON AIMS, THEIR COMMON AIMS AND CONFLICTS

• Shareholders will always have , as they have interests in different aspects of the business. conflicting aims• When dealing with shareholders, there are two types of approaches:

o Shareholder approach This gives priority to the shareholders meaning that managers focus on . maximising shareholder value

This is very common in PLCs as the shareholders do not directly influence the day-to-day activities of the business.

o Stakeholder approach This treats all stakeholders equally and in theory should lead to long term benefits; this is increasingly

being adopted by most businesses. Managers have to take into account that they have a . responsibility to all stakeholders

• The shareholders of the business will want high returns on their investment i.e. short-term returns; however this may of the business endanger the stability . by sacrificing long term growth

• Managers will want growth for the business however this may lead to a fall in short term returns as more money is being kept for expansion. Some managers however are loyal to shareholders and are intent on maximising shareholder value.

Stakeholders

Managers

Owners

Customers

Future generations

Environment

Communities

Government

Employees

Customers

Suppliers

Figure 3 - Different stakeholders of an organisation


• Employees of the business will want the maximum possible wage with the best possible benefits however, they have to be careful when bargaining for higher wages; if wages are too high this may lead to losses for the company and therefore employees may be laid off later on.

• Customers will want value for their money and this may be achieved by . This will reduce the short-term investing more into R&D

returns, angering shareholders. • Suppliers will want to charge high prices; charging too high

may motivate the business to seek other suppliers

• The government will be keen on the business providing more jobs so will be keen on growth. However, there will be environmental consequences to expansion that the government will try to minimise through environmental and safety standards; hence costs will rise for expansion.

• Pressure groups will push the business to make more ethical decisions such as reducing their carbon foot-print or paying cocoa workers more for their produce (Fair Trade).

THE STAKEHOLDER APPROACH ADVANTAGES DISADVANTAGES

• Attractive employment policies will attract higher quality of applicants. This may lead to the business becoming more efficient.

• Effective consumer care policies should lead to in the higher sales and greater customer loyalty

long run • Good co-operation with supplier should lead to

the purchaser getting value for money; Will be easier to sort out late deliveries or

defective goods with whom the business has good co-operations

• Aiding the community such as through charities or public funding will cause the business to acquire a better reputation and thus achieve greater market standing; excellent for PR.

• Reducing environmental waste could reduce costs for the business itself as well as having a positive effect on PR.

• Less importance to profit will likely cause less return on capital employed: this may detract investors.

• Adopting the stakeholder approach may be a PR exercise as in practice successfully being able to execute the shareholder approach is very difficult as there will be mounting pressure from shareholders to focus on maximising shareholder value.

• Owners have the most influence of the business but in a PLC, the managers have the most control.

• GAP and Nike have often been criticised for having a stakeholder approach but still running ‘sweat-shops’ in China.

Figure 4 - Cadbury Schweppes' stakeholders


CORPORATE SOCIAL RESPONSIBILITY (CSR)

Corporate Social Responsibility is the responsibility that a business has towards its shareholders


• Corporate Social Responsibility policies are now available from most major businesses, as it makes the business seem good to the public, and as a result it means that it will have a positive impact on sales and increase market standing as well as profits in the long run.

• Businesses have started to make auditing teams and indexes to take better care of its stakeholders

o Employment Indicators How well businesses treat their staff

and this is comprised of many parts including pension, healthcare plans, accidents in work places payments etc.

o Human rights Indicators Whether the businesses uses child

labour Performance of businesses in

establishing gender equality o Community Indicators

Donations to charity and public workso Business Integrity Indicators

How corrupt is the business? o Product Responsibility

How are the products? safeo The environment

The carbon foot-print of the firm Rating on waste management systems Fines due to environmental regulations

• Pressure groups claim that often businesses publish social and environmental audits simply as a PR exercise; so that businesses are laws and regulations need to be in place answerable to the law and that they are fined.

o The history and policies of a business need to be examined with scrutiny in order to understand whether the business is really trying to do something good or whether it is simply trying to woo the public.

COCA-COLA CSR

• If you go to the Coca-Cola website, you will see how they claim to be trying to change the world through their product, trying to make new and innovative products in order to become more socially responsible.

• Coca-Cola has been criticized for alleged adverse health effects, its , aggressive marketing to children exploitative labour , high levels of pesticides in its products, building plants in Nazi Germany which employed slave labour, practices

environmental destruction, monopolistic business practices, and hiring paramilitary units to murder trade union leaders. In October 2009, in an effort to improve their image, Coca-Cola partnered with the American Academy of Family Physicians, providing a $500,000 grant to help promote healthy-lifestyle education; the partnership spawned sharp criticism of both Coca-Cola and the AAFP by physicians and nutritionists; its spends millions on advertising.

Figure 5 - CSR - fad or tradition? ↑


CORPORATE CULTURE

Corporate Culture is the values, attitudes, beliefs, meanings and norms that are shared by people and groups within an organisation


STRONG AND WEAK CULTURES

• Strong cultures are said to exist if the staff agree and believe in that particular culture o This usually leads to the firm performing most efficiently o People do this because they believe that it is the right thing to do

• Weak cultures are said to exist if the staff do not agree or have little affinity to the culture.

o To make this culture practiced, it has to be enforced by bureaucracy.

CLASSIFICATION OF COMPANY CULTURES

•Central source of power that makes all decisions (usually present in new business start-ups and sole-traders)

•People compete to gain more influence making it a very political atmosphere

•Decisions based on rules and procedures •Power lays in the system and hierarchy •Marketing supervisors etc.

•Power is given to those who can accomplish tasks thus with those who have expertise

•Present in firms that have team work central to its activity for example the R&D department of a firm

•The business is centred around a few individuals with expertise such as doctors or lawyers

•The purpose of the business is to support the individual •Often, the individual is not directly related to the business personnel

Figure 6 - Click to view Google's corporate culture ↑

http://bit.ly/gZmcE5


FORMATION OF CORPORATE CULTURES

• Corporate cultures are formed from the aims and behaviour of company executives • Treatment of staff as well as the risk associated with making business decisions also aid to form the culture • Recruitment and training procedures determine what type of people the business wants and what skills they are trying

to promote

ADVANTAGES OF HAVING A STRONG CORPORATE CULTURE

• Provides a sense of identity to workers and makes them feel like a part of the business. The business can rely on them at times of need.

• Facilitates team-work • Employees become more committed and this leads to increased productivity • Helps to reinforce values of business and senior management.

DIFFICULTIES IN CHANGING AN ESTABLISHED CULTURE

Corporate culture has been argued to provide businesses will a competitive advantage. Japan in the early 70s and 80s promoted lean product and the idea of making quality the most important aspect of the product. This lead to Japanese cars dominating the market, however this change had many barriers to it in the western automotive industry.

• Change in culture forms a cultural gap, as there will be managers and workers that had an affinity to the previous culture and thus they will resist change.

• Change often means that there is a change in beliefs and values, which may conflict with the beliefs and values of the worker that were coherent with the previous beliefs and values. Often this has to be made in order to make the business more competitive.

• Change may threaten job and/or pay. • Successful implementation of a culture change often means that change is slow and

so that workers become used to it. gradual • However when quick change in culture is needed, businesses may often resort to sacking

workers and managers and hiring new ones.

CORPORATE STRATEGY

Corporate strategies are the policies developed to meet a company’s objectives. It is concerned with what range of activities the business needs to undertake in order to achieve its goals. It also is concerned with whether the business organisation makes it capable of achieving the objectives set.


Essentially, objectives are what the business is trying to achieve and strategies are the plans via which the objective will be

achieved.

DEVELOPMENT OF CORPORATE STRATEGIES

• Corporate strategies are made to achieve corporate objectives and hence take into account the implication on business resources.

• Corporate strategies are formed from a series of strategies at each level of business; however the key decisions will always be made at the top.


Figure 7 - The Boston Matrix was made by the Boston Consulting Group.

AIM OF PORTFOLIO ANALYSIS

• The aim is to allow the firm to consider its existing position of a product and plan what to do next, so that firms can make better corporate strategies. The main way that this is done is through the Boston Matrix.

These strategies may follow after analysis:

POLICY DESCRIPTION PRODUCTS APPLIED TO

Building

This involves investing in promotion and distribution to boost sales

Problem Children (Often referred to as

Question Marks)

Holding

This means marketing and spending on the product to maintain sales

Rising Stars

Milking Maximising profits with as little new investment as possible

Cash Cows

Divesting Selling off the product i.e. liquidising it

Dogs Problem Children

COMPETITIVE ADVANTAGE THROUGH DISTINCTIVE CAPABILITIES

Competitive Advantage is an advantage which a business has that enables it to perform better than its rivals


Competitive advantages is an area of strength that matters to the consumer but cannot easily be copied by competitors


• Distinctive capability shown by a firm is the basis of competitive advantage; essentially making the business’ product seem superior to the consumer.

• Different businesses have different capabilities such as: o M&S has customer’s trust in its food. o Walls Ice cream is delivered to the retailer within 24 hours

anywhere in England, so it has a powerful distribution system.

o Toyota’s quality in combination with its cost and fuel efficiency makes it the first choice for first-time car buyers. It also has great expertise in the ‘green car’.

o Companies such as apple differentiate their products on the basis of design and ease of use.

o Businesses such as Gucci, Dolce & Gabana and Giorgio Armani, BMW, Mercedes Benz etc. rely on their brand image.


PORTER’S STRATEGIC MATRIX

• Porter argued that 5 forces determined the profitability in an industry.

• The aim of competitive strategy was to turn these factors in favour of the business.

• Where the factors were not in favour of the business, the business would make little profit and even the amount made would fluctuate.

SUPPLIERS

• Will want to maximise profits • The more powerful the supplier the less profits the business will make• Ways to combat

o Backward vertical integration o Seek new suppliers that offer better deals o Find cheaper substitutes for the materials required to make the

product o Minimise information provided to suppliers so that suppliers cannot

understand their influence over the business

BUYERS

• The greater the bargaining power of customers, the lower the price will be; often results when there are few buyers • Ways to combat

o Forward Vertical Integration o Encourage similar businesses in the industry to make the same moveo Make it difficult to choose another business:

Game manufacturers make cartridges so that they are incompatible with other devices and so that its devices are incompatible with others; you have no choice but to buy from them.

Printer makers have different types of cartridges that do not work with other printers. Lexmark cartridges will not work with HP printers and vice versa. Even if you refill the ink from a third party.

NEW ENTRANTS

• If entry and exit from a market is very easy, businesses specialising in the market can find it difficult to sell their products, when the market enters a recession or downfall (sales will be low).

• High rates of return could attract more businesses into the market, which lead to a reduction in price of the products due to increase in competition; profits will fall.

• Ways to combat (By erecting Barriers to Trade) o Patents and Copyrights o Develop that encourage customer loyalty strong brand image o Large amounts of (so that new firms get the impression that market is advertising

expensive due to high marketing costs) o Give the impression that there are large sunk costs (A cost that has been incurred and cannot be reversed)

http://bit.ly/gmhAN1


SUBSTITUES

• The more the substitutes, the fiercer the competition. • Little Competition means that businesses can charge high prices (niche markets). • Ways to Combat

o Invest into R&D and patent new and innovative products o Buy patents in order to prevent other companies from introducing a new product into the market

RIVALS

• High competition will lead to low prices • Ways to Combat

o Price fixing (this is illegal) o Horizontal Integration ( ) buying off rivalso Innovation through R&D and the creation of a strong brand image though

advertising.

THE EFFECTS OF STRATEGIC AND TACTICAL DECISIONS

A strategic decision is one that is made in a situation of uncertainty and has medium to long term significance for the business


Tactical decisions are decisions that affect the business on a day-to-day scale, whereas strategic decisions affect the direction in which the business is headed. Often this is in response to an event. Mistakes in tactical decisions are unlikely to have a major impact on the business

THE PERSON WHO WROTE WHAT YOU ARE NOW READING

STRATEGIC DECISIONS TACTICAL DECISIONS • Should we expand our business into China? • Should we focus on strengthening our delivery

services in order to gain a competitive advantage?

• Should we reduce our expenditure on employee benefits?

• Should we replace our old computing systems with new ones?

• Questionnaires have indicated that employees feel that there is too much pressure on them to work, should we have more recreational facilities in the lounge?

• Should we consider changing our opening times so that they are earlier in the morning?

In simple terms, strategic decisions have far higher implications on physical, financial as well as human resources because they in which the business is headed. However, tactical decisions in general can affect all three types of resources affect the direction

but on a far smaller scale. , so it is expected that the human, physical, financial resources Strategic decisions can be planned forwould be in place. With tactical decisions this may not be the case, thus limiting the business' ability to react tactically.


COMPETITION VS CO-OPERATION

This part of the specification is not important to the examination

The implications are simple in that they force businesses to become more competitive and this leads to the adoption of different corporate strategies:

• Price Cutting o Reducing the price of the product to make the product more competitive by making it more affordable to the

consumer • Increase in product differentiation

o DESIGN Outstanding design such as apple iPads and iPhones

differentiate its products from the competition. o BRAND IMAGE

Car companies such as Mercedes Benz and BMW rely on their image of unmatched quality and design to differentiate its products

o UNIQUE PRODUCT FEATURES Introducing truly innovative products in response to modern

technology or popular demand o SUPERIOR QUALITY

• Find New Markets o Can be in response to market saturation e.g. when Vodafone began expanding in developing nations.

• Takeover o Large businesses will want to prevent new business with innovative ideas to take over their market share.

• Predatory Pricing o When a firm cuts its costs deliberately in order to put its rival out of business

More competition means that often there has to be changes in corporate strategies. Changing corporate strategies can be difficult as the business has made these strategies based on corporate objectives and aims. New strategies that will have to adapt to the current situation have to meet those aims, or the current situation may not allow those aims to be met. Often under new legal, political or economic circumstances may force the business to change its corporate strategy.

External influences such as the recession in 2008 might force the business to become far more competitive through the abovementioned strategies because now businesses are fighting to gain market share in markets that have shrunk and as a result their revenue has shrunk.

However, businesses might choose to co-operate instead becoming a stronger force due to the combination of two or more companies that will be able to dominate the market.

Mergers can take place to keep the companies from failing. British Airways and Iberia merged in order to prevent further damage to their markets due to the recession; AIR FRANCE KLM and Lufthansa were already aiming to target the market share of the weakened BA after months of strikes from their workers.

However sometimes especially when it comes to R&D, businesses might work together in order to gain access to new technologies that are very expensive to develop.

In a few rare instances, businesses will break the law by through collusion e.g. price fixing etc.

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4a.1_Corporate Objectives and Strategy