1.

1: Introduction to Business Management

What is a business?
● An organization using resources to meet the needs of customers by providing a
product/service demanded.
● Stages of business involves adding value to resources such as raw materials and semi-finished
goods, making them more desirable and thus valued by the final purchaser.

The Role of Businesses

● Businesses identify needs of consumers.
● Purchased resources are inputs (factors of production) and produce output.
● Outputs are the goods/services satisfying consumer needs, usually aiming to make profit.
● Business activity goods/services are consumer goods, consumer services and capital goods.
● Definitions:
- Consumer goods: physical, tangible goods sold to the general public, including cars
and washing machines, referred to as durable consumer goods. Non-durable can only
be used once, like food/drink.
- Consumer services: Non-tangible products sold to the general public including hotel
accommodation, insurance services and train journeys.
- Capital goods: physical goods used by an industry to aid in the production of other
goods and services such as machines and commercial vehicles.

What are Business Inputs?

● The human, physical and financial resources needed by business to produce goods or services.
● The factors of production:
- Land: not only land, but all renewable and non-renewable resources of nature such as
coal, crude oil and timber.
- Labour: manual labour make up the workforce of the business. Some firms are
labour-intensive, they have a high proportion of labour inputs to other factors of
production (e.g house-cleaning services).
- Capital: finance needed to set up a business and pay for continuing operations. Man-
made resources used in production including capital goods. Some firms are capital-
intensive, in that they have a high proportion of capital to other factors of production
(e.g power stations)
- Enterprise: driving force of business, provided by risk-taking individuals. It
combines the other factors of production into a unit capable of producing goods and
services. It provides a managing, decision-making and coordinating role.

Business Functions
● Human resources management: identifies the workforce needs of the business, recruits,
selects and trains appropriate employees, providing motivational systems to retain workers,
encouraging them to work productively. Draws up contracts of employment, covering
redundancy or redeployment of employees if necessary.
● Finance and accounts: monitors flow of finance in and out of the business, keeps and
analyses accounts, providing financial information to both senior management and other
departments.
● Marketing: responsible for market research and for analysing the results so that consumer
wants can be correctly identified. Info is discussed so correct product decisions are made.
 Once product is available, marketing would concern price, promotion, how to sell it and
distribution.
● Operations management: Ensures adequate resources available for production, maintaining
production and quality levels and achieving high levels of productive efficiency. In service,
they have the objective of ensuring that processes for the delivery of the service are well
tested, consistent and understood by all employees.
● Effective strategic decision-making develops from the functions working closely together.
● For example, the decision by BMW to develop and launch its first electric-powered sports
car, the i8, required interaction between:
- Marketing: will consumers be prepared to buy this car and at what price?
- Finance: do we have the capital needed to develop and produce it?
- HR management: do we need to recruit additional engineers before this project can
be turned into a market-ready car?
- Operations management: can we produce this product at a cost which allows the
marketing department to set a profitable price level? Will quality of the vehicle be up
to normal BMW standards?

Economic Sectors
● Production can be classified into four economic sectors :
- Primary: firms engaged in farming, fishing, oil extraction and all other industries
that extract natural resources so that they can be used and processed by other firms.
- Secondary: firms that manufacture and process products from natural resources,
including computers, brewing, baking, clothing and construction.
- Tertiary: firms that provide services to consumers and other businesses, such as
retailing, transport, insurance, banking, hotels, tourism, and telecommunications.
- Quaternary: is focused on information technology (IT) businesses and information
service providers such as research and development, business consulting and
information gathering.
● The importance of each sector in a country’s economic structure changes over time.
● Industrialization: describes the growing importance of the secondary sector manufacturing
industries in developing countries.
● The relative importance of each sector is measured in terms either of employment levels or
output levels as a proportion of the whole economy.
● Benefits and limitations of industrialization:

Benefits Problems

Total national output (GDP) increases and Chance of work in manufacturing can
this raises average standards of living. encourage migration from the countryside to
towns, leading to housing/social problems.
May result in depopulation of rural areas
and problems for farmers in recruiting
enough workers.

Increasing output of goods can results in The expansion of manufacturing industries

lower imports and higher exports of such may make it difficult for a business to
products. recruit and retain sufficient staff.

Expanding manufacturing businesses will Imports of raw materials are often needed,
 result in more jobs being created. which can increase the country’s import
costs. These costs vary with exchange rate.

Expanding and profitable firms will pay Pollution from factories will add to the
more tax to the government. country’s environmental problems

Value is added to the country’s output of Much of the growth of manufacturing

raw materials rather than simply exporting industry is due to the expansion of
these as basic, unprocessed products. multinational companies.

● Deindustrialization: a general decline in the importance of secondary sector activity and

increase in tertiary sector in more economically developed countries.
● The reasons for these include:
- Rising incomes associated with higher living standards have led to extra expenditure
of income on services rather than goods.
- As the rest of the world industrializes, developed country manufacturing businesses
face more competition and rivals tend to be more efficient and use cheaper labour.
Therefore, rising imports of goods are taking market away from the domestic
secondary sector firms and many have been forced to close.
● Relative importance of each sector varies significantly between different economies.

Why Start a Business?

● Losing jobs encourages many people to set up a business by themselves. Can provide their
former employer’s product or another, could be based on interest/skill.
● Desire for independence. Creating their own business, there is work flexibility and control
over working lives.
● By talking to friends or family, it might become clear that a business opportunity exists that
an entrepreneur could take advantage of.
● A wish to make more money than in the current job.

Role of the Entrepreneur

● New business ventures started by entrepreneurs can be a new product or service or new way
to offer these.
● People who set up their own business show ‘entrepreneurship’ skills.
● People who are given responsibility to develop and market a product within a large
corporation show skills of ‘intrapreneurship’
● Entrepreneurs have:
- An idea for a new business
- Invested own savings and capital
- Accepted responsibility to manage the business
- Accepted possible risks of failure
● Intrapreneurs don’t risk own capital and the consequences of failure are accepted by the
organization that they work for. They drive forward new ideas and help the organization
become more innovative and adaptable to change.
● Definitions:
 - Entrepreneur: someone who takes the financial risk of starting and managing a new
venture.
- Intrapreneur: someone within a large corporation who takes direct responsibility for
turning an idea into a profitable finished product through using ‘entrepreneurial
talents’ such as risk-taking and innovation.
● Personal qualities needed for entrepreneurs to be successful in venturing:
- Innovative: must be able to carve a new niche in the market, attract consumers in
innovative ways and be ‘different’.
- Commitment and self-motivation: to set up a business is hard work and may take
up many hours of each day. A willingness to work hard, a keen ambition to succeed,
energy and focus are all essential qualities of a successful entrepreneur.
- Multi-skilled: an entrepreneur will have to make and provide a product or service,
promote it, sell it, and manage finances. These require many different qualities such
as technical skills, the ability to get on with people and to handle money well and
keep accounting records.
- Leadership skills: an entrepreneur has to lead by example and be encouraging of
people in the business.
- Belief in oneself: many start-ups fail, but this should not discourage a true
entrepreneur who would have enough belief to bounce back from failure.
- Risk-taker: They must be willing to take risks to see results. Often the risk involves
investing their own savings into a new business.
● Start-up businesses are more commonly established in:
- Primary sector: fishing, market gardening (producing cash crops to sell at local
markets)
- Secondary sector: jewellery making, dressmaking, craft manufacture (building
trades, etc.)
- Tertiary/service sector: hairdressing, car repairs, cafes and restaurants, childminding
- Quaternary sector: IT support, website design, consultancy

Impact of Enterprise on Business Activity

● Employment creation: entrepreneurs often employ people, often family or friends. In
creating employment, national level of unemployment will fall. If the business survives and
expands, then there may be additional jobs created in the businesses that supply them.
● Economic growth: increase in output will increase the GDP of the country, known as
economic growth. If enough small businesses are created, there is increase in living standards
for the population. Increased output and consumption will also lead to increased tax revenues
for the government.
● Firms’ survival and growth: high proportion of new firms fail, but some survive and expand
to become important. These will employ many workers, add to economic growth and take the
place of declining businesses forced to close due to changing consumer tastes or technology.
In Trinidad and Tobago, the relative decline of the sugar industry has been balanced out by
the growth of the tourist industry, which has itself been boosted by small guesthouse
businesses operating as sole traders.
● Innovation and technological change: new businesses tend to be innovative, adding
creativity and dynamism to an economy. This creativity can ‘rub off’ on other businesses,
helps to make the nation’s business sector more competitive.
Common Steps in Starting a Business or Enterprise
● Identifying market opportunities: Many people claim wanting to work for themselves, but
do not make the entrepreneurship leap successfully because they haven’t identified a market
opportunity generating sufficient demand for their product or service to enable the business to
be profitable.
● Original business ideas come from one of several sources:
- Own skills or hobbies
- Previous employment experience
- Franchising conferences and exhibitions offering a wide range of new business start-
up ideas
- Small-budget market research
● Sourcing capital (finance): After an entrepreneur has decided to take on a business idea or
opportunity, the next task is to raise the necessary capital. This comes from various sources
but the business owner/entrepreneur will almost certainly have to use some of their own
savings in setting up the business.
● Friends and family may also provide financial support.
● Banks may provide loan finance or an overdraft facility, but officials will want to check the
business plan contents rigorously.
● Venture capitalists may invest if the business idea is novel, can be patented or protected and
offers significant profit potential.
● Government grants might be available, perhaps as a part of a policy to reduce unemployment
by encouraging start-ups.
● Determining a location: A suitable location is vital if the start-up business intends to sell
directly to consumers. This raises the problem of cost. It is perhaps the most important
consideration when choosing a location for a new business is the need to minimize fixed
costs.
● When finance is limited, it is very important to try to keep the break-even level of output - the
output level that earns enough revenue to cover all costs.
● Operating from home is the most common way for entrepreneurs to establish their business.
This has its cons:
- It may not be close to the area with the biggest market potential.
- It lacks status. A business with its own prestigious tends to generate confidence.
- It may cause family tensions.
- It may be difficult to separate private life from working life.
● New businesses offering consumer service need to consider location very carefully.
Communication over electronic means would be effective, however a hairdresser may need to
consider obtaining premises in an area with the biggest number of potential customers. An
alternative is to do home visits to avoid the cost of obtaining their own premises.
● Building a customer base: A new firm must establish itself in the market and build up
customer numbers as quickly as possible.
● Long-term business strength will depend on encouraging customers to return to purchase
products again. Many small businesses try to encourage this by offering a better service that
their larger and better-funded competitors.
● This service might include personal customer service, knowledgeable pre-sales and after-sales
service and providing for one-off customer requests that larger firms may be reluctant to
provide for.

Problems Faced by Startups

 ● Competition: nearly always a problem unless business idea is completely unique. More
generally, a newly created business will experience competition from older, established
businesses with more resources and market knowledge. The entrepreneur may have to offer
better customer service to overcome the cost and pricing advantages of bigger businesses.
● Lack of record-keeping: accurate records are vital to pay taxes, bills and chase up debtors.
Many entrepreneurs fail to pay sufficient attention to this as they believe it is less important
than actually meeting the customers needs, or they believe they can remember everything.
● Lack of finance and working capital:
- Lack of sufficient own finance: limited personal savings, especially if they were
previously redundant.
- Lack of awareness of the financial support and grants available.
- Lack of any trading record to present to banks as evidence of past business success,
which would give a bank more confidence when deciding whether to lend money for
a new venture.
- Poorly produced business plan failing to convince potential investors of the chances
of a business’s success.
★ Serious working capital shortages can usually be avoided if businesses take several
important steps:
- Construct and update a cash flow forecast so that the liquidity and working capital
needs of the business can be assessed.
- Inject sufficient capital into the business at start-up for the first few months of
operations when cash flow from customers may be slow to build up.
- Establish good relations with the bank so that short-term problems may be, at least
temporarily overcome with an overdraft.
- Use effective credit control over customer’s accounts - do not allow a period of credit
which is too long and quickly chase up late payers.
● Poor management skills: entrepreneurs may not have experience in leadership skills, cash
handling and cash management skills, planning and coordinating, decision making skills,
communication skills, and marketing, promotion and selling skills. Sometimes these skills are
learnt on the job, but this is a risky strategy. Some buy in the experience by employing staff
with management experience, but this is an expensive option.
● Changes in the business environment: there is a risk of change, which can make any
business idea less successful. These changes include:
- New competitors
- Legal changes
- Economic changes leaving customers with less disposable income
- Technological changes making business old-fashioned and expensive

Business Plans
● Contents of a business plan include:
- The executive summary: overview of the business and its strategies
- Business opportunity: entrepreneur details, what is sold, why and to whom.
- Marketing and sales strategy: why the entrepreneur thinks customers will buy what is
sold and how the business aims to sell them.
- Management team and personnel: skills and experience of the entrepreneur and the
staff recruited.
- Operations: premises and production facilities, IT systems
 - Financial forecasts: future projections of sales, profit and cash flow, for at least one
year ahead.
● Business plans are important when setting up a new business, but they should be referred to
and updated when important strategic choices are being made. The main purpose of a
business plan is to obtain finance for the start-up. Potential investors or creditors will not
provide finance unless clear details about the business proposal have been written down.
● The planning process if very important too. A clear sense of purpose, direction, marketing
strategies and what employees to recruit are needs for the chances of success to heighten.
● Business plans may benefits the stakeholders of new businesses :
- The plan allows for potential investors and banks to make a judgement about the
viability of the idea and the chances of the owners making a success of it. Potential
stakeholders will not invest without seeing a plan first.
- Financial forecasts in a business plan can act as budgets and control benchmarks for
internal stakeholders such as business managers.
- Updated versions of the plan can be used to apply for additional funding, to attract
additional partners or to supply data for the experts if a stock market flotation
becomes an option.
- Employees will find that planning helps identify specific objectives and targets and
gives focus to their work, which aids motivation.
- Suppliers may be able to tell from the parts of the business plan that are
communicated externally whether it is worthwhile establishing a long-term trading
relationship with the business.
● Definitions:
- Business plan: a written document describing a business, its objectives and its
strategies, the market it is in and its financial forecasts.

1.2: Types of Organizations

Private and Public Sector Organizations

● Industries classified by sector, either public or private, and by the type of legal organization.
● These classifications are interlinked as some types of legal structure are only found in the
private sector.
● The relative importance of the private sector compared to the public sector is not the same in
all mixed economies.
● Those economies closest to free-market systems have very small public sectors.
● Those countries with central planning command economies will have very few businesses in
the private sector.
● Definitions:
- Public sector: comprises organizations accountable to and controlled by the central or
local government (the state)
- Private sector: Comprises businesses owned and controlled by individuals or groups
of individuals.
- Mixed economy: economic resources are owned and controlled by both private and
public sectors
- Free-market economy: economic resources are owned largely by the private sector
with very little start intervention.
 - Command economy: economic resources are owned, planned and controlled by the
state.

Distinctions Between the Sectors

● In most mixed economies, certain goods and services are provided by state-run organizations
(public sector).
● It is argued that they are too significant to be left to private sector businesses. These include
health and education services, defense and law and order.
● In some countries, important ‘strategic’ industries are also state-owned and controlled, such
as energy, telecommunications and public transport.
● These public sector organizations therefore provide essential goods and services for
individual citizens and organizations in the private sector, and they often have objectives
other than profit. For example:
- Ensuring supplies of essential goods and services, perhaps free of charge to the user.
- Preventing private monopolies, single firms that dominate an industry, from
controlling supply.
- Maintaining employment
- Maintaining environmental standards.
● In recent years there has been privatisation, meaning they put profit-making as one of their
main objectives.
● Private sector organizations are owned and operated by individuals or groups of people. There
organizations are usually operated for a profit but not all are. For example, charities are non-
profit-making organizations in the private sector. They are not owned and controlled by the
government or state.
● Definitions:
- Privatisation: the sale of public sector organizations to the private sector.

Public sector enterprises

● There is confusion with the use ‘public’.
● Public limited companies are owned by shareholders in the private sector of the economy and
are therefore in the private sector.
● However, there are some enterprises that are owned by the state, usually central or local
government. They are therefore in the public sector and are referred to as public corporations.
● Public sector organizations do not often have profit as a major objective. E.g in many
countries publicly owned TV channels have as their main priority the quality of public service
programmes. State-owned airlines have safety as a priority.
● Privatisation often results in changing objectives from socially oriented ones to profit-driven
goals.
● Public sector organizations advantages and disadvantages:

Advantages Disadvantages

Managed with social objectives rather than Tendency towards inefficiency due to lack
solely with profit objectives of strict profit targets

Loss-making services might still be kept Subsidies from government can encourage
operating if the social benefit is great inefficiencies
enough
 Finance raised mainly from the government Government may interfere in business
so not subject to limitations from banks or decisions for political reasons
shareholders.
● Definitions:
- Public corporation: a business enterprise owned and controlled by the state. It is also
known as nationalised industry or public sector enterprise.

For profit organizations

● The main types of private sector businesses that are operated for profit :
- Sole traders
- Partnerships
- Limited companies: private (Ltd) and public (plc)
- Cooperatives

Sole trader
● Although there is just a single owner, the firm is likely to remain very small.
● Although they are great in number, sole traders account for only a small proportion of total
business turnover.
● All sole traders have limited liability. This means that the owner’s personal possessions and
property can be taken to pay off the debts of the business should it fail. This is often
discouraging.
● Another problem faced by sole traders involves finance for expansion. Many remain small
because they would like to keep control of the business but another reason is capital
limitation.
● As soon as partners or shareholders are sought in order to raise finance, then the sole trader
becomes another form of organization altogether. To remain a sole trader, the owner is
dependent on their own savings, profits made and loans for injections of capital.
● They are most commonly established in tertiary sector, construction, retail, hairdressing, car
servicing and catering.
● Sole trader advantages and disadvantages:

Advantages Disadvantages

Easy to set up, no legal formalities Unlimited liability, all owner’s assets are
potentially at risk

Owner has complete control, not answerable Often faces intense competition from bigger
to anyone else firms

Owner keeps all profits Owner is unable to specialise in areas of the

business that are most interesting, is
responsible for all aspects of management

Able to choose times and patterns of Difficult to raise additional capital

working

Able to establish close personal Long hours often necessary to make

relationships with staff (if employed) and business pay
customers
 The business can be based on the interests or Lack of continuity, as the business does not
skills on the owner, rather than working as have separate legal status, when the owner
an employee for a larger firm dies the business ends too.
● Definitions:
- Sole trader: a business in which one person provides the permanent finance and, in
return, has full control of the business and is able to keep all of the profits

Partnership
● A partnership agreement does not create a separate legal unit, a partnership is just a grouping
of individuals.
● They are formed to overcome some drawbacks of being a sole trader.
● When going into a partnership it is important to choose partners carefully. The errors and
poor decisions of any one partner are considered to be the responsibility of them all.
● This also applies to business debts incurred by one partner; in most countries there is
unlimited liability for all partners should the business venture fail.
● It is usual, although not a legal requirement, to draw up a formal ‘Deed of Partnership’
between all partners. This would provide agreement on issues such as voting rights,
distribution of profits, the management role of each partner and who has authority to sign
contracts.
● They are the most common form of business organization is some professions such as law and
accountancy.
● Partnership Advantages and Disadvantages:

Advantages Disadvantages

Partners may specialize in different areas of Unlimited liability for all partners (with
business management some exceptions)

Shared decision-making Profits are shared

Additional capital injected by each partner No continuity and the partnership will have
to be reformed in the event of the death of
one of the partners

Business losses shared between partners All partners bound by the decisions of any
one of them

Greater privacy and fewer legal formalities Not possible to raise capital from selling
than corporate organizations shares

- A sole trader taking on a partner will lose

the independence of decision making
● Definitions:
- Partnership: a business formed by two or more people to carry on a business together,
with shared capital investment and, usually, shared responsibilities

Limited company
 ● Limited liability: the ownership of companies in divided into small units called shares, and
by buying these people can become shareholders.
● It is possible to buy just one share but they are usually owned in blocks. It is possible for one
person or organization to have complete control by owning more than 50% of the shares.
Individuals with large blocks of shares often become directors of the business.
● All shareholders benefit from the advantage of limited liability. No further claim against
shareholders should the company fail. This means people are prepared to provide finance to
enable companies to expand and the greater risk of the company failing to pay its debts is now
transferred from investors to creditors (suppliers who have not been paid). Creditors are then
very interested in both ensuring that the word ‘limited’ appears in the company name and
scrutinising the company’s account for signs of potential future weakness.
● Legal personality: a company is legally recognized as having an identity separate from its
owners. This means the company itself can be prosecuted for faulty products, not the owners.
● Continuity: In a company, the death of an owner or director does not lead to its break-up or
dissolution. The ownership just continues through the inheritance of shares, and there is no
break in ownership.
● Private limited companies: protection coming from forming a company is substantial. Small
firms gain this protection when they become a private limited company.
● The word ‘limited’ or ‘Ltd’ indicates the business is a private company.
● Usually, the shares will be owned by the original sole trader (who holds the majority of the
shares to keep control), relatives, friends and comployees.
● New issues of shares cannot be sold on the open market and existing shareholders may only
sell their shares with the agreement of the other shareholders.
● Legal formalities must be followed in setting up a private limited company, which can be
expensive and time-consuming in some countries.
● Private limited companies advantages and disadvantages:

Advantages Disadvantages

Shareholders have limited liability Legal formalities involved in establishing the

business

Separate legal personality Capital cannot be raised by sale of shares to the

general public

Continuity in the event of the death of a Quite difficult for shareholders to sell shares
shareholder

Original owner is often still able to retain End-of-year accounts must be available to public
control inspection meaning less secrecy over financial
affairs than sole trader or partnership

Able to raise capital from the sale of shares to

family, friends and employees

Greater status than an unincorporated business

● Public limited companies can be recognized by the use of ‘plc’ or ‘inc’ after the company
name.
● It is the most common form of legal organization for large businesses, for the very good
reason that they have access to very substantial funds for expansion.
● Converting an Ltd to plc status is referred to as stock market flotation.
● A plc has all the advantages of private company status plus the right to advertise its shares for
sale and have them quoted on the stock exchange. They have the potential to raise large sums
from public issues of shares.
● Existing shareholders many quickly sell their shares if they wish to. The sales flexibility
encourages the public to purchase the shares in the first instance and thus invest in the
business.
● Public limited companies advantages and disadvantages:

Advantages Disadvantages

Limited liability Legal formalities in formation

Separate legal identity Cost of business consultants and financial

advisors when creating plc

Continuity Share prices subject to fluctuation,

sometimes for reasons beyond the business’
control

Ease of buying and selling shares. This Legal requirements concerning disclosure of
encourages investment information to shareholders and the public

Access to substantial capital courses due to Risk of takeover due to availability of the
the ability to issue a prospectus to the public shares on the stock exchange
and to offer shares for sale

Directors influences by short-term

objectives of major investors

● Divorce between ownership and control: original owners of an Ltd can retain
majority of shares and continue to exercise management control.
● However, due to the volume of shares issued and the number of investors, this is
unlikely in plc. These shareholders own the company but instead appoint a board of
directors who control the management and decision-making of the business.
● Clear distinction between ownership and control can lead to conflicts over objectives
and direction of the business. Shareholders might prefer short-term, max profit
strategies, but directors may aim for long term growth, perhaps in order to increase
power and status.
● It is also possible for directors or original owners of a business to convert it back
from plc to private limited company status. The reasons for doing this is to largely
overcome this divorce.
● Definitions:
- Limited liability: the only liability, or potential loss, a shareholder has if the
company fails is the amount invested in the company, not the total wealth of
the shareholder.
- Share: a certificate confirming part ownership of a company and entitling the
shareholder to dividends and certain shareholder rights.
 - Shareholders: individuals or institutions that buy/own shares in a limited
company.
- Private limited company: a small to medium-sized business that is owned by
shareholders who are often members of the same family; this company
cannot sell shares to the general public.
- Public limited company: a limited company, often a large business, with the
legal right to sell shares to the general public. Its share price is quoted on the
national stock exchange.

Legal Forms of Business Organization

● Businesses often change their legal form as they expand and as the objectives of the owners
change.
● Many newly formed businesses are sole traders and then accept partners if the aim of the
original owner is to expand and share management responsibilities.
● Conversion to company status is often caused by owners wishing to protect their personal
wealth and encourage new shareholder investors.
● When further expansion is very expensive, conversion to public limited company status is
common.
● However, much depends on the desire for control of the original owners/shareholders.

For-Profit Social Enterprises

● Social enterprises are not charities, but they do have objectives different from those of an
entrepreneur who is only profit-motivated. Making profit might be an objective, but it is much
less important.
● It is a proper business that makes its money is socially responsible ways and uses most of any
surplus made to benefit society. Social entrepreneurs are not running a charity, and they often
keep some of the profit for themselves.
● They compete with other businesses in the same market or industry and they use business
principles to achieve social objectives. Most social enterprises have these common features:
- They directly produce goods or services
- They have social aims and use ethical ways of achieving them
- They need to make a surplus or profit to survive as they cannot rely on donations as
charities do
● Definitions:
- Social enterprise: a business with mainly social objectives that reinvests most of its
profits into benefitting society rather than maximising returns to owners

Objectives of Social Enterprises

● Social enterprises have 3 main aims, referred to as the triple bottom line :
- Economic: to make a profit or surplus to reinvest back into the business and provide
some return to the owners.
- Social: to provide jobs or support for local, often disadvantages, communities.
- Environmental: to protect the environment and to manage the business in an
environmentally sustainable way.
● Definitions:
 - Triple bottom line: the three objectives of social enterprises: economic, social and
environmental

Cooperatives
● Cooperatives are not about making big profits for shareholders, but creating value for
customers and secure employment for workers.
● Cooperatives tend to fall into one of these three groups :
- Retail cooperative: also known as consumer cooperatives. This is owned by
customers for their mutual benefit. It is a private sector enterprise that is oriented
towards service rather than financial profit. It often takes the form of retail outlets
operated and owned by their consumers. The consumers are the people who have
provided the capital required to launch or purchase the enterprise and profits are
shared either by discounts on products or by a payout to customer owners each year.
- Agricultural cooperative: exists when farmers pool resources for mutual benefit, for
example, in the buying of fertilizer or the marketing of key food products.
- Worker cooperative: often engaged in manufacturing. Workers collectively own the
business and make important decisions.
● Definitions:
- Cooperative: a group of people acting together to meet the common needs and
aspirations of its members, sharing ownership and making decisions democratically.

Microfinance Institutions
● Many business entrepreneurs in Asian countries have received microfinance to help
start their business. In some of these countries over 75% of successful applicants for
microfinance are women.
● There is evidence that entrepreneurship is greater in regions with microfinance
schemes in operation, and that average incomes are rising because of more successful
businesses.
● Empirical evidence shows that poor people participating in microfinance programmes
who had access to financial services were able to improve their well-being.
● However, interest rates can be quite high as the administration costs of many very
small loans in considerable.
● Some economists also suggest that if a small business start-up financed by
microfinance fails, then the scheme has encouraged very poor people to take on debts
that they cannot repay.
● Microfinance may be inappropriate where conditions pose severe challenges to loan
repayment.
● Definitions:
- Microfinance: the provision of very small loans by specialist finance
businesses, usually not traditional commercial banks.

Public Private Partnership

● Definitions:
- Public-private partnership (PPP): involvement of the private sector, in the form of
management expertise and/or financial investment in public sector projects aimed at
benefiting the public.
- Private finance initiative (PFI): investment by private sector organizations in public
sector projects.
Non-profit Social Enterprises
● There are many non-profit organizations that have objectives other than profit, such as
charities and pressure groups.
● Definitions:
- Non-profit organization: any organization that has aims other than making and
distributing profit and which is usually governed by a voluntary board.

Non-Governmental Organizations
● A non-governmental organization is a non-profit group, independent from the government,
which is organized on a local, national or international level to tackle issues that support the
public good.
● They perform a variety of services and humanitarian functions, bring public concerns to
governments and encourage participation of society’s stakeholders at the community level.
● The objectives are focused on social, environmental or humanitarian objectives.
● Examples of NGOs: Article 19, Amnesty International
● Definitions:
- Non-governmental organization (NGO): a legally constituted body with no
participation or representation of any government which has a specific aim and
purpose, e.g supporting disadvantaged groups in developing countries or advocating
the protection of human rights.

Charities
● Most countries have laws about what constitutes charitable work as charities are usually
allowed tax benefits.
● Charitable purposes:
- prevention or relief of poverty
- advancement of education
- advancement of religion
- advancement of health or the saving of lives
- advancement of citizenship or community development
- advancement of the arts, culture, heritage or science
- advancement of human rights conflict resolution or reconciliation or the promotion of
religious or racial harmony or equality and diversity
- advancement of environmental protection or improvement
- relief of those in need, by reason of youth, age, ill health, disability, financial
hardship or other disadvantage
- advancement of animal welfare.
● They often perform useful social and environmental functions that would not be undertaken
by private businesses or government-funded organizations.
● They are dependent on private contributions and these can vary in amount, making it difficult
for charity managers to plan. Some charity work is duplicated, such as social care or medical
research, and it is argued that such situations can lead to wasteful duplication.
● Definitions:
- Charities: an organization set up to raise money to help people in need to to support
causes that require funding.

1.3: Organizational Objectives

Missions and Vision Statements
● Mission statements outline the overall purpose of the organization.
● Vision statements describe a picture of the ‘preferred future’ and outlines how the future
would look if the mission is achieved.
● Without the direction and focus brought to an organization by vision and mission statements,
planning new strategies will be difficult as direction is unknown.
● Mission and vision statements give the organization a sense of purpose and prevent it from
drifting off path from powerful events.
● Definitions:
- Mission statement: a statement of the business’s core aims, phrased in a way to
motivate employees and to stimulate interest by outside groups.
- Vision statement: a statement of what the organization would like to achieve or
accomplish in the long term.

Effectiveness of These Statements

● Benefits of these statements:
- Inform groups outside the business of the central aim.
- Help motivate employees, especially when the organization is looked upon as being
good. Employees will then be associated with these positive qualities.
- By including ethical statements, employee behaviour at work can be guided and
directed.
- Establish in the eyes of other groups ‘what the business is about.’
● Critique of these statements:
- Too vague or general and end up saying little about the specifics of the business or its
future plans.
- May be based on public relations exercise to make stakeholder groups feel good
about the organization.
- Virtually impossible to analyze or disagree with.
- Lacking in specific detail, so two different companies can have very similar
statements.

Aims, Objectives, Strategies and Tactics

● Core of business activity is expressed in its corporate aims. They are designed to provide
guidance to the whole organization not just part.
 ● Benefits of corporate aims:
- Become the starting point for operational objectives on which effective management
is based; this is ‘aim’ at the top of the hierarchy of objectives.
- Can help develop a sense of purpose and direction for the whole organization if they
are clearly communicated to the workforce.
- Allow an assessment of the success of the business at achieving their goals.
- Provide a framework within which the strategies of the business can be drawn up.
● Definitions:
- Corporate aims: the long-term goals which a business hopes to achieve.
- Divisional/operational objectives: short or medium-term goals or targets, usually
specific in nature, which must be achieved for an organization to attain its corporate
aims.

Operational objectives should be ‘SMART’

● Most effective business objectives usually follow the SMART criteria:
- S, Specific: focus on what the business does and apply that directly to the business.
- M, Measureable: objectives with quantitative value are likely to prove to be more
effective targets for staff to work towards.
- A, Achievable: objectives must be achievable. If they are not achievable, staff with
the job of achieving the target could be demotivated.
- R, Realistic and Relevant: objectives should be realistic when compared with the
resources of the company, and should be expressed in terms relevant to the people
who have to carry them out.
- T, Time-specific: a time limit should be set when an objective is established.

Interlinking arms, objectives and strategies

● Divisional.operational objectives are set by senior managers to ensure:
- Coordination between divisions: if there is no teamwork, the focus of the organization
will appear confused and there will be disagreements.
- Consistency with strategis corporate objectives.
- Adequate resources are provided for successful achievement.
 ● When divisional objectives have been established, these can be further divided into
departmental objectives and finally budgets and targets for individual workers. This is known
as management by objectives (MBO).

Relationship between aims, objective strategy and tactics

● Aims and objectives provide the basis for business strategies - the long-term plans of action of
a business that focus on achieving its aims.
● Without clear objectives, important decisions cannot be made. For an aim to be successfully
achieved, there has to be an appropriate strategy.
● This strategy should be constantly reviewed to check whether a business is on target to
achieve its objectives.
● Link between objectives and strategies:

● Key differences between strategy and tactics:

Strategic decisions, e.g to develop new Tactical decisions, e.g to sell product in
markets abroad different-sized packaging

Long term Short to medium term

Difficult to reverse once made, departments Reversible, but there may still be cost
will have committed resources to it involved

Taken by directors and/or senior managers Taken by less senior managers and
subordinates with delegated authority
 Cross-functional, will involve all major Impact of tactical decisions is often only on
departments of the business one department

● Definitions:
- Strategy: a long-term plan of action for the whole organization, designed to achieve a
particular goal.
- Tactic: short-term policy or decision aimed at resolving a particular problem or
meeting a specific part of the overall strategy.

Common corporate aims

Profit maximisation
● Profit maximization: producing at the level of output where the greatest positive difference
between total revenue and total cost achieved. Profits are used as a reward and financing
further growth of the business, and is also necessary to persuade business owners and
entrepreneurs to take risks.
● Limitations associated with this corporate objective:
- High short-term profit may lead to competitors entering the market
- Rather than maximizing profits, many businesses seek to maximise sales to secure
greater market share. The business would expect to make a target rate of profit from
these sales.
- Smaller business owners may be more concerned with keeping control rather than
profit.
- Profit maximisation may not be all stakeholders priorities. Managers cannot ignore
these. Hence, growing concern over job security and environmental concerns of local
residents may force profitable business decisions to be modified, giving lower profit.

Profit satisficing
● Aiming to achieve enough profit to keep owners happy but not aiming to work flat out to
make as much profit as possible.
● This is often the objective of owners of small businesses who wish to live comfortably but do
not want to work very long hours in order to earn more profit.

Growth
● In terms of sales or value of output
● Larger firms will be less likely to be taken over
● Larger firms should be able to benefit from economies of scale
● Managers may gain higher salaries and fringe benefits
● Businesses who do not grow may cease to be competitive and will eventually lose their appeal
to new investors.
● Limitations of business objectives based on growth:
- Over-rapid expansion may cause cash flow problems
- Sales growth might be achieved at the expense of lower profit margins
- Larger businesses can experience diseconomies of scale
- Using profits to finance growth (retained profits) can lead to lower short-term returns
to shareholders
 - Growth into new business areas and activities can result in a loss of focus and
direction for the whole organization

Increasing market share

● Share on the market an organization enjoys within its main market.
● It is possible for expanding businesses to suffer a loss of market share if the market is
growing at a faster rate than the business itself.
● Increasing market share indicates improved marketing mix in comparison to competitors.
● Benefits of increased market share:
- Retailers will be keen to stock and promote the best-selling brand
- Profit margins offered to retailers may be lower than for competing brands as the
ships are so keep to stock it, leaving more profit for the producer
- Effective promotional campaigns are often based on ‘buy our product with
confidence - it is the brand leader.’

Survival
● Likely key objective of most new business startups
● There is a high failure rate of new businesses, meaning to survive the first 2 years is an
important aim for entrepreneurs.
● Once the business is established, other objectives can be made.

Maximising short-term sales revenue

● Could benefit managers and staff when salaries and bonuses are dependent on sales revenue
levels.
● However, if increased sales are achieved by reducing prices, the actual profits of the business
might fall.

Maximising shareholder value

● Management, especially in public limited companies, take decisions that aim to increase the
company's share price and dividends paid to shareholders.
● These target might be achieved by pursuing profit maximisation.

Ethical objectives
● Ethical objectives are targets based on a moral code for the business.
● ‘Doing the right thing’
● Ethical dilemmas are questions a business discusses to determine what extent businesses
should take ethics into consideration when making decisions.
● The way in which employees behave and take decisions in these cases should be covered and
explained by a company’s ethical code of conduct.
● Definitions:
- Ethics: moral guidelines that determine decision-making.
- Ethical code (code of conduct): a document detailing a company’s rules and
guidelines on staff behaviour that must be followed by all employees.

Evaluating ethical objectives

● Adopting and keeping to a strict ethical code in decision-making can be expensive in the short
term. For example:
- Using ethical suppliers can add to costs
 - Not taking bribes to secure business contracts mean losing out on significant sales
- Limiting the advertising of toys and other child-related products to an adult audience
to reduce ‘pester power’ may result in lost sales
- Accepting that it is wrong to fix prices with competitors might lead to lower prices
and profits.
- Paying fair wages, even in low wage economies, raises costs and may reduce a firm’s
competitiveness against businesses that exploit workers.
● In the long term there could be substantial benefits from acting ethically. For example,
- Avoiding potentially expensive court cases can reduce the cost of fines.
- Ethical policies can lead to good publicity, increased sales and increased customer
loyalty.
- Ethical businesses attract ethical customers and, as global pressure grows for
corporate social responsibility, this group of consumers is increasing.
- Ethical businesses are more likely to be awarded government contracts
- Well-qualified staff may be more attracted to work for companies that have ethical
and socially responsible policies

Corporate social responsibility

● When a firm fully accepts its legal and moral obligations to stakeholders other than investors,
it is said to be accepting corporate social responsibility
● One important measure of a firm’s attitude to social responsibility is the way in which it deals
with environmental issues.
● The environment can be greatly affected by business activity
● Other issues connected with CSR cross over into ethical decisions. Recent CSR developments
include:
- The growth in the number of firms that promote organic and vegetarian foods
- Increasing numbers of retailers emphasising the proportion of their products made
from recycled materials
- Businesses that refuse to stock goods that have been tested on animals or foods based
on genetically modified ingredients.
● Firms are being ethical or environmentally conscious calls ‘public responsibility’ because
they want to behave in these ways. However, many consumer groups and pressure groups are
still dubious as to whether these objectives are based on genuinely held beliefs.
● Benefits and drawbacks of adopting CSR:

Benefits Drawbacks

The image of the business and its products Short-run costs could increase, e.g fitting
can be improved with a green or socially anti-pollution equipment, paying workers
responsible approach. This could become a above-poverty wage levels, paying suppliers
competitive advantage, attracting new promptly, not exploiting vulnerable groups
customers and loyalty from existing in advertising.
customers.

Attracting the best-motivated and most Shareholders may be reluctant to accept

efficient employees may become easier as lower short-run profits (even though long-
many workers will prefer to work for and be run profitability might increase).
associated with socially aware businesses.
 Bad publicity and pressure group activity Loss of cost and price competitiveness if
resulting from socially irresponsible rival businesses do not accept social
behaviour should not arise. responsibilities and have lower costs as a
result.

The goodwill of other stakeholder groups, Consumers may be prepared to pay higher
resulting from socially responsible prices for products made in a socially
behaviour, could lead to better relations with responsible manner, but during an economic
workers, suppliers, customers and the local recession, they might just prefer low prices
community. and worry less about how products were
made.

Higher long-term profitability should result There could be a considerable social

from all the factors above. backlash against a business that claims to be
socially responsible but is discovered to
operate in socially irresponsible ways, e.g a
furniture maker claims to use sustainable
timber but buys from rainforest suppliers -
this is sometimes referred to as ‘greenwash’

● Definitions:
- Stakeholders: people or groups of people who can be affected by, and therefore have
an interest in, any action by an organization.
- Corporate social responsibility: this concept applies to those businesses that consider
the interests of society by taking responsibility for the impact of their decisions and
activities on customers, employees, communities and the environment.

Changes in corporate social responsibility

● The standards that companies are expected to reach are determined by societal norms, and in
most countries these now focus on stakeholders rather than shareholders.
● The main reasons for changing CSR include:
- Increasing publicity form international pressure groups that use the internet to
communicate, blog, raise funds and organise boycotts.
- The UN Millennium Development Goals, agreed by more than 120 countries in 2000,
which includes ‘environmentally sustainable growth’, has forced many developing
nations to insist that new company investment in their economy takes environmental
concerns into consideration
- Global concern over climate change and the impact this could have on social and
economic development - this is forcing companies to confront the climatic
consequences of their actions and investments
- Legal changes at local, national and European Union level has forced businesses to
refrain from certain practices. In most countries, businesses can no longer pay staff
very low wages or avoid legal responsibility for their products.

CSR and corporate strategy changes

● Changing corporate strategies of the world’s mining companies are an excellent example of
how firms may adopt different strategies towards their social responsibilities in response to
pressure.
Measuring CSR social audits
● Social audits report on a firm’s social performance and are becoming an important way for
businesses to report on their CSR record.
● They assess the impact a business has on society and how effectively its ethical behaviour
matches up to its ethical objectives.
● They can include environmental audit, but can give other impacts on society:
- Health and safety record, e.g number of accidents and fatalities
- Contributions to local community events and charities
- Proportion of supplies that come from ethical sources, e.g Fairtrade Foundation
suppliers
- Employee benefit schemes
- Feedback from customers and suppliers on how they perceive the ethical nature of the
business’s activities
- Annual targets to be reached to improve a firm’s level of social responsibility and
details of the policies to be followed to achieve these aims.
● Using this research, firms are often able to identify anti-social behaviour and take steps to
remove it from the company’s practices.
● It can improve a firm’s public image, increase customer loyalty and give the business a clear
direction for future improvements in its social responsibility achievements.
● Benefits and limitations of social audits:

Benefits Limitations

Identifies what social responsibilities the If the social audit is not independently
business is meeting, and what still needs to checked, as published accounts must be, will
be achieved. it be taken seriously by stakeholders?

Sets targets for improvement in social Time and money must be devoted to
performance by comparing audits with the producing a detailed social audit, is this
best-performing firms in the industry. really necessary if it is not legally required?

Gives direction to the action plans a Many consumers may just be interested in
business still needs to put into effect to cheap goods, not whether the businesses
achieve its social/ethical objectives. they buy from are socially responsible.

Improves a company’s public image and this A social audit does not prove that a business
can be used as a marketing tool to increase is being socially responsible.
sales.

● Definitions:
- Social audit: an independent report on the impact a business has on society. This can
cover pollution levels, health and safety record, sources of supplies, customer
satisfaction and contribution to the community.

Evaluation of social audits

● Social audits are not compulsory, but there is a general agreement about what they should
include and how the contents will be verified.
● Companies have been accused of using them as a publicity stunt or a cover to hide their true
intentions and potentially damaging practices.
 ● They can be very time-consuming and expensive to produce and publish and this may make
them of limited value to small businesses or those with very limited finance.

Issues relating to corporate objectives

● Issues relating to corporate objectives:
- They must be based on the corporate aim and should link in with it.
- They should be achievable and measurable if they are to motivate employees.
- They need to be communicated to employees and investors in the business. Unless
staff are informed of the objectives and their own targets that result from these, then
the business is unlikely to be successful.
- They form the framework for more specific departmental or strategic objectives.
- They should indicate a time scale for their achievement.

Conflicts between corporate objectives

● Conflicts between objectives can often occur.
● These conflicts will need to be resolved by senior managers and decisions taken on the most
significant objective for the next time period.
● The most common conflicts:
- Growth versus profit: achieving higher sales by raising promotional expenditure and
by reducing prices will be likely to reduce short-term profits.
- Short term versus long term: lower profits and cash flow may need to be accepted in
the short term if managers decide to invest heavily in new technology or the
development of new products that might lead to higher profits in the longer term.
- Stakeholder conflicts

Factors determining corporate objectives

Corporate culture
● Code of behaviour and attitudes that influences the decision-making style of the managers and
other employees of the business.

Size and legal form of the business

● Owners of small businesses may be concerned only with a satisficing level of profit.
● Larger businesses, perhaps controlled by directors rather than owners, such as most public
limited companies, might be more concerned with rapid business growth in order to increase
the status and power of the managers.
● This is often a result of the divorce between ownership and control.

Public sector or private sector businesses

● State-owned organizations tend not to have profit as a major objective.
● Quality of service targets are often set, however, such as the maximum days for patient to
wait for an operation.
● Even when businesses earning revenue in the public sector may have among their objectives
the target of maintaining services in non-profitable locations.

Well established businesses

● Newly formed businesses are likely to be driven by the desire to survive at all costs.
● The failure rate of new firms in the first year of operation is very high.
 ● Later, the business may pursue other objectives such as growth and profit.

Changing business objectives

● Changes in corporate objectives will be in response to internal factors, such as resource
constraints, or external factors, such as changes in the social and economic environment.
● Reasons behind changing include
- Business may have satisfied the survival objective by operating for several years and
now owners want to pursue objectives of growth or increased profit. Internal
resources might have increased allowing growth objective to be realistically
established.
- Important senior manager responsible for international expansion might leave the
business, leading to focus on growth of the business in domestic markets until
effective replacement can be found.
- External competitive and economic environment may change. Entry into the market
of a powerful rival or economic recession may lead a firm to switch from growth to
survival as its main aim.
- Short-term objective of growth in sales or market share might be replaced by longer-
term objective of maximising profits from the higher level of sales.
● Business objectives need to be flexible enough to reflect internal and external changes,
however should not be changed too dramatically or frequently as this may result in the loss of
many of the benefits of setting SMART targets, including loss of focus, sense of direction and
specific measures to judge present performance.
● Before making significant changes to objectives, senior managers should consider:
- Is the internal or external change significant and long-lasting enough to make a
change in objectives necessary?
- What would be the risks of not adapting objectives to meet the new situation?
- What would be the cost and other consequences of new business objectives for the
business and its staff?
- How can changed objectives – and the strategies needed to achieve them – be
effectively managed within the business?

SWOT analysis
● Provides information that can be helpful in matching the firm’s resources and strengths to the
competitive environment in which it operates. It is useful in strategy formulation and
selectron.
● It comprises:
- S = strengths: internal factors about a business that can be looked upon as real
advantages. They could be used as a basis for developing a competitive advantage.
May include experienced management, product patents, loyal workforce and good
product range. These factors are identified by undertaking an internal audit of the
firm. This is often undertaken by specialist management consultants who analyse the
effectiveness of the business and the effectiveness of each of its departments and
major product ranges.

- W = weaknesses: These are the internal factors about a business that can be seen as
negative factors. In some cases, these can be the flip side of a strength. For example,
whereas a large amount of spare manufacturing capacity might be a strength in times
of a rapid economic upturn, if it continues to be unused it could add substantially to a
 firm’s average costs of production. Weaknesses might include: poorly trained
workforce, limited production capacity and ageing equipment. This information
would also have been obtained from an internal audit.

- O = opportunities: These are the potential areas for expansion of the business and
future profits. These factors are identified by an external audit of the market the firm
operates in and its major competitors. Examples include: new technologies, export
markets expanding faster than domestic markets, and lower rates of interest
increasing consumer demand.

- T = threats: These are also external factors, gained from an external audit. This audit
analyses the business and economic environment, market conditions and the strength
of competitors. Examples of threats are: new competitors entering the market,
globalisation driving down prices, changes in the law regarding the sale of the firm’s
products and changes in government economic policy.

● Definitions:
- SWOT analysis: a form of strategic analysis that identifies and analyses the main
internal strengths and weaknesses and external opportunities and threats that will
influence the future direction and success of a business.

SWOT and strategic objectives

● The grid approach helps managers assess the most likely successful future strategies and the
constraints on them.
● A business should not necessarily pursue the most profitable opportunities.
● It may stand a better chance of developing a competitive advantage by identifying a good ‘fit’
between the firm’s strengths and potential opportunities.
● In many cases, a business may need to overcome a perceived weakness in order to take
advantage of potential opportunity.
● Subjectivity is often a limitation of a SWOT analysis as no 2 managers would necessarily
arrive at the same assessment of the company.
● It is not quantitative so the cost of correcting a weakness cannot be compared with the
potential profit from pursuing an opportunity.

Ansoff’s matrix
● Market penetration: least risky of four strategies in that there are fewer unknowns - the market
and product parameters remain the same. However, it is not risk-free, if low prices are the
 method used to penetrate the market, they could lead to a potentially damaging price war that
reduces the profit margins of all firms in the industry.
● Product development: often involved innovation and these brand new products can offer a
distinctive identity to the business.
● Market development: could include exporting goods to overseas markets or selling to a new
market segment.
● Diversification: related diversification, e.g backward and forward vertical integration in the
existing industry, can be less risky that unrelated diversification, which takes the business into
a completely different industry. As the diversity strategy involved new challenges in both
markets and products, it is the most risky of the four strategies. It may also be a strategy
outside the core competences of the firm. However, diversification may be a possible option
if the high risk is balanced out by the chance of a high profit. Other advantages of
diversification include the potential to gain a foothold in an expanding industry and the
reduction of overall business-portfolio risk.
● definitions:
- Ansoff’s matrix: a model used to show the degree of risk associated with the four
growth strategies of: market penetration, market development, product development
and diversification.
- Market penetration: achieving higher market shares in existing markets with existing
products
- Product development: the development and sale of new products or new
developments of existing products in existing markets
- Market development: the strategy of selling existing products in new markets
- Diversification: the process of selling different, unrelated goods or services in new
markets

Evaluation of ansoff’s matrix

● Risks involved in these four strategies differ substantially. However, by identifying the
different strategic areas in which a business could expand, the matrix allows managers to
analyse the degree of risk associated with each one.
● While Ansoff’s analysis helps to map the strategic business options, it has limitations too. It
only considers two main factors in the strategic analysis of a business’s options

1.4: Stakeholders

Who are the stakeholders? (internal and external)

● Internal stakeholders are entities within a business. They include:
- Employees
- Managers
- Shareholders
● External stakeholders are entities not within a business itself. They include:
- Customers
- Suppliers
- Government
- Banks and other creditors
- Special interest groups: pressure groups; community action groups
- Competitors: fairness of practices, strategic plans of the business
● Definitions:
 - Shareholder concept: traditional view of business. As the shareholders are the owners
of the company, the firm has a legally binding duty to take decisions that will
increase shareholders’ value.
- Stakeholder concept: the view that businesses and their managers have
responsibilities to a wide range of groups, not just shareholders.

Stakeholders interests

Stakeholder interest Business responsibility to

stakeholders

Employees - Employment security - Adhere to laws

- Wage and benefits comparing outlining
well with other businesses responsibilities to
- Good employment conditions workers
- Some participation in decision- - Some businesses also
making provide training.
- Adhere to stakeholder
interests

Managers - Employment security - Job security

- Salaries and benefits comparing - Competitive salaries
well with other businesses - Responsibilities and
- Responsibilities and status career advancement
- Opportunities for profit sharing
or share purchase scheme

Shareholders - Annual dividends comparable to - Inc. businesses should

similar businesses be operated according
- Rising share price over time to company’s law
- Investment security - Annual accounts
- Ability to sell shares should be presented
- Strategies taken to
increase shareholder
value

Customers - Value for money - No law-breaking on

- Product quality and safety consumer protection
- Guarantees and accurate
- Service levels advertising
- Long-term loyalty rewards - No taking advantage of
vulnerable customers
and no pressure selling
tactics
- Customer assurances
about quality, delivery,
service and continued
supplies of vital
components and
materials

Suppliers - Speed of payment - Beneficial two-way

- Regularity of orders relationships
 - Fairly treated (e.g no - Avoid excessive
exploitation) pressure on smaller
suppliers to cut prices
- Pay fair prices and
invoices promptly

Government - Creation of jobs boosting - Pay profit tax

economy - Accurate accounting
- Taxes paid (e.g profit tax) records kept for true
- Output value adding to GDP profit shown
- Impact of wider society - Provide info to
government as
requested
- Keep within legal
limits

Banks and other - Loan security and business - Pay interest

creditors ability to repay - Pay back owed capital
- Prompt interest and capital owed
by business

Special interest - Pressure groups: campaigns to - Pressure groups:

groups get business decision change recognize concern and
- Local community: may respond
encouragement of avoidance of - Local community:
harmful production methods avoid damaging
operations and support
these local groups

Competitors - Fairness of competitive practices - Compete legally and

- Strategic plans of business fairly
- Not responsibility to
provide details of plans
to competitors

Conflicting stakeholders’ interests

● Business decisions and activities can have both positive and negative effects.
● It is rare for all stakeholders to be either positively or negatively affected by any one business
activity.
● It is also possible for any stakeholder groups to experience both positive and negative effects
from the same business decision.
● Potential conflict of interest:

Busine Impact on employees Impact on local community

ss
decisio
n/activi
ty

Busine - More job opportunities - More jobs and

ss - More complex lines of communication increased disposable
 expansi after expansion income in other
on businesses
- External costs
caused by increased
traffic and loss of
green fields for
amenity use

Takeov - The larger business may be more secure - If business expands

er of a and offer career promotion opportunities on existing site,
compet - Rationalization amy occur to avoid waste local job vacancies
ing and jobs might be lost and incomes might
firm increase
(horizo - Rationalization of
ntal duplicated offices or
integrat factories might lead
ion) to closures and job
losses

New IT - Training and promotion opportunities - Local businesses

introdu might be offered providing IT
ced - Fewer untrained staff will be required and services could
into those unable to learn may be made benefit
product redundant - Specialist workers
ion may not be available
method locally, so more
s staff may need to
commute

Evaluating stakeholder conflict

● One way of reducing conflict is to compromise.
● Senior management must establish priorities in these situations. They need to decide who the
most important stakeholder in each case, what extra cost will be of meeting the needs of each
stakeholder group and whether bad publicity resulting from failure to meet the interests of one
group will lead to lost revenue.
● Methods to reduce stakeholder conflict:
Method of conflict Advantages Disadvantages
resolution

Arbitration: to resolve Independent arbitrator will Neither stakeholder group is

industrial disputes between hear both arguments and likely to receive exactly
workers and managers decide on fair solution. Both what they wanted. Cost of
sides can agree whether this business might rise is
settlement is binding, that is arbitrator proposes better
they have to accept it. working conditions or higher
wages.

Worker participation: to Workers have real Some managers believe

improve communication, contributions to make participation wastes time
decision-making and reduce business decisions. and resources. Some
potential conflicts between Participation can motivate information cannot be
 workers and managers staff for more effective disclosed to staff other than
working. senior managers.

Profit-sharing schemes: to Workforce is allocated share Paying workers a share of

reduce conflict between of annual profits before the profits can reduce
workers and shareholders dividends are paid. Sharing retained profits (which can
over the allocation of profits profits can encourage work be used for expansion), or
and to share the benefits of that will increase long-term profits paid to shareholders
company success profitability. unless scheme results in high
profit.

Share-ownership schemes: These schemes, including Administrative costs,

to reduce conflict between share options, aim to allow negative impact on
workers, managers and employees to benefit from employee motivation if the
shareholders the success of the business share price falls, dilution of
as well as shareholders. ownership (the issue of
additional shares means that
each owns a smaller share of
the company).
Employees may have to stay
with the company for a
certain number of years
before they qualify so the
motivation effect on new
staff may be limited.

1.5: External Environment

STEEPLE analysis
● Outline of STEEPLE factors:
- Social: social factors include population size and structure, lifestyle, age groups and
education levels.
- Technological: factors include the state of the technological advancement and
introduction of new technologies.
- Economic: factors such as the GDP growth rate, inflation rates, interest rates,
exchange rates.
- Environmental: includes weather and climate of the region, the flora and fauna of the
region, environmental pressure group activity.
- Political: factors such as the type of government that exists and its ideology as shown
by its attitude to free markets, imposition of tariffs, business incentives offered and
the stability of the government.
- Legal: the legal factors include any law influencing business activity, e.g competition
law, health and safety at work, consumer protection, employee protection.
- Ethics: the general code of ethics followed by the most people in the country, and the
tendency of people to be ethical.
● Managers undertake STEEPLE analysis to assess the importance of the major external
influences and future changes in them on their organization’s future activities.
● It is useful when entering a new market or developing a new product.
 ● STEEPLE may be conducted regularly to allow a business to review its objectives and
strategies in the light of external changed.
● Some businesses may only do this once-off when major decisions need to be taken. This is
likely to be less effective than regular reviews that monitor changes to external environment.
● Definitions:
- STEEPLE analysis: an acronym standing for social, technological, economic,
environmental, political, legal and ethical external factors that impact on business; it
refers to a framework for analysing the external environmental factors affecting
business objectives and strategies.

Preparing steeple analysis

● Definitions:
- Internet: the worldwide web of communication links between computers.
- Economic growth: increases in the level of a country’s gross domestic product of
GDP (total value of output).
- Recession: six months (two quarters) of falling GDP (negative growth).
- Unemployment: the number of people in an economy willing and able to work who
cannot find employment.
- Exchange rate: the value of one currency in terms of another currency.
● The following table shows the structure of a simplified STEEPLE analysis for McDonald’s
restaurants which the company would carry out when planning to enter a national market for
the first time. The company would seek answers to the following questions before judging the
suitability of this country for expansion. Other businesses might consider different factors as
being important.
Social and cultural influences
● The structure of society is constantly evolving. Changes occurring in many countries include:
- Ageing population: reduced birth rates and longer life expectancy, although in some
nations the average age is falling due to high rates.
- Changing role of women: increasingly seeking employment and posts of
responsibility in industry.
- Improved education facilities: resulting in increasing literacy and more skilled and
adaptable workforces.
- Early retirement in many high-income countries: leading to more leisure time for a
growing number of relatively wealthy pensioners.
 - Rising divorce rates (in some countries): creating increasing numbers of single-
person households.
- Job insecurity, often created by the forces of globalization: forcing more employees
to accept temporary and part-time employment (some workers prefer this option)
- Increased levels of immigration: resulting in changing and widening consumer tastes
as different ethnic groups tend to have different preferences, e.g for clothing and
food.

An ageing population
● Main effects associated with ageing population:
- Larger proportion of population over the age of retirement
- Smaller proportion of population in lower age ranges
- Smaller number of workers in the economy but larger number of dependents, that is
below working age or retired. This puts a higher tax burden on the working
population.
● Business objectives will need to adapt to:
- Patterns of demand: there will be more ‘grey’ consumers than teens and they buy
different products. Market research will be important for a business that believes the
demand for its portfolio of products could change as the population ages.
- Change in the age structure of the workforce: may be reduced numbers of youthful
employees available, and businesses may need to adapt their workforce planning to
enable employment of older workers, or keep existing workers beyond retirement
age. Younger employees are said to be more adaptable and easier to train in new tech,
older workers may show more business loyalty and will have more experience that
could improve customer service.

Changing patterns of employment

● Main features of changing patterns of employment:
- An increase in the number of women in employment and in range of occupations in
which they are employed.
- Increase in student employment on a part-time basis - some industries are
substantially staffed by students and part-timers.
- Increase in temporary, part-time and flexible employment contracts. These are
introduced by employers to reduce the fixed costs of full-time and salaried posts and
to allow for flexibility when faced with seasonal demand or uncertainties caused by
increasing globalization.
- More women taking maternity leave and then returning to work.
● Firms can make these changes work to their benefit, while accepting some cost implications.
Part-time workers can offer a firm greater flexibility by being available at peak times and this
will help to keep down overheads. Yet part-time and temporary staff can be difficult to mould
into a team and may not contribute as much as a result.
● By employing more females and removing barriers to their progress and promotion, firms can
benefit from a wider choice of staff and improved motivation among women workers.
However, there will be increased costs of maternity leave and of providing staff cover for this.
The most successful firms will be those adapting to changes the fastest and attempting to turn
them to their own competitive advantage.
Impact of technology
● In simplest form, technology means the use of tools, machines and science in industry.
● These uses of technology, advances in technical knowledge are opening up new product
markets, such as hydrogen-powered cars and flexible mobile phones. This is part of the
research and development part of the business.
● Impact of applications of technology on business:

Information Common business applications Impact on business

technology
application

Spreadsheet - Financial and management - Flexibility and speed

programs accounting records can be changes to accounting
updated and amended. record can be made
- Cash flow forecasts and budgets quickly and the impact
can be updated in the light of of these on total figures
new information. can be demonstrated
- Changes in expected instantly.
performance can be inputted to - ‘What-if’ scenarios in
the spreadsheet and changes in budgeting and sales
total figures made automatically. forecasting can be
- Income statements and balance demonstrated.
sheets can be drawn up
frequently.

Computer- - Nearly all design and - Saves on expensive

aided architectural firms now use these designer salaries as work
design programs for making and can be done quicker.
(CAD) displaying designs. - More flexibility of
- Designs can be shown in 3D and design as each
rotated to show effect from all customer’s special
angles. requirements can be
easily added.
- Can be linked to other
programs to obtain
product costings and to
prepare for ordering of
required supplies.

Computer- - Programs are used to operate - Labour costs are reduced

aided robotic equipment that replaces as machines replace
manufacturi many labour-intensive many workers.
ng (CAM) production systems. - Productivity is increased
- Used in operations management and variable costs per
in manufacturing businesses. unit are lower than in
non-computerised
processes.
- Accuracy is improved -
less scope for human
error.
- Flexibility of production
is increased - machinery
can usually be adapted to
 make multiple different
variations of a standard
product and meet
individual consumer
needs.
- All these can add to a
firm’s competitive
advantage.

● Definitions:
- Information technology (IT): the use of electronic technology to gather, store, process
and communicate information.
- Computer-aided design (CAD): using computers and IT when designing products.
- Computer-aided manufacturing (CAM): the use of computers and computer-
controlled machinery to speed up the production process and make it more flexible.

Impact of objectives and strategies

● Technological development has led businesses to adopting IT capabilities and using new
strategies to exploit new opportunities.

Focus on new product development

● IT has reduced the time it takes for a new product to reach the market.
● New product requirements are quickly established with the use of market information from
databases, customers and sales representatives.
● Computer design and software speed up manufacturing, while communication allows global
teams to work on different components of the same product at the same time.
● IT helps businesses respond quickly to changing customer requirements and this is now to
focused objective of most businesses.

Improve stakeholder communication

● Using global interconnectivity:
- Customer service call originating in Paris, France;
- Ends up in a call centre in Manila, Philippines;
- Where a service agent could look up relevant information on servers based in
corporate headquarters in Auckland, New Zealand or Frankfurt, Germany.
● Public limited companies use investor relations’ websites to communicate with shareholders
and financial analysts.

Developing new and better processes

● Enterprise resource planning (ERP) systems allow managers to review sales, costs and other
operating data on one integrated software platform and communicate with suppliers and
customers about each order or contract.
● An ERP system may replace old tech systems for finance, HR and procurement making
internal processes more efficient and cost-effective.

Cost benefits
 ● Initial IT purchase and implementation costs can be substantial and there will be employee
training costs, and possibly redundancy expenses too.
● However, the resulting long-term cost savings usually justify the investment.
● IT allows companies to reduce many operational costs, in terms of duplication, postage and
promotion, while maintaining and improving product quality and customer service.

Competitive advantage
● All preceding benefits could allow a business to improve its competitive advantage in the
marketplace.
● If a new major feature is added to a product by one company, competitors must quickly
follow suit with similar product or risk losing market share.
● Companies can use rapid software simulations and other IT-based systems to bring a product
to market cost-effectively and rapidly.

Outsourcing and offshoring - the impact of globalization

● IT developments have been at the core of operating systems essential for globalization, such
as telecommuting and outsourcing.
● Companies can outsource most of its non-core functions, such as HR and call centres, to
offshore companies and use network tech to stay in contact with its overseas employees,
customers and suppliers.
● Definitions:
- Outsourcing: refers to an organization contracting work out to a third party.
- Offshoring: refers to getting work done in a different country, usually to leverage cost
advantages.

Impact on management and labour relations

● Labour relations can be damaged if technological change is not explained and presented to
workers in a positive way with the reasons for it fully justified.
● If many jobs are being lost during the changing process, remaining workers may suffer from
reduced job security and this could damage their motivation levels.
● Trade unions can oppose technological change is it puts members’ jobs at risk.
● However, if the issue is handled sensitively, with effective communication and participation
of employees, introducing new technology in the right way can improve industrial relations.
● Some managers fear change, especially is they are not computer literate themselves.
● Recognizing the need for change and managing the technological change process requires a
great deal of management skill.
● However, IT can improve productivity greatly and lead to improve company efficiency, such
as in the use of database programs to control stock ordering to achieve just-in-time
advantages.
● Technology has other benefits:
- Managers can obtain data frequently from all departments and regional divisions of
the business.
- Computers can be used to analyse and process the data quick so that managers can
interpret data and make decisions faster on the basis of the analysis.
- Accelerates the process of communicating decisions to other managers and staff.
● Although there may be improved performance, there are potential drawbacks:
 - Information overload: ease of transferring data electronically can lead to so many
messages and communications. When the sheer volume of information and prevents
decision-makers from identifying the most important information and decisions.
- Abuse of power: the power which information brings could be abused and lead to a
reduction in the authority and empowerment extended to work teams and middle
managers. Info used for central control in an oppressive way could reduce job
enrichment and hence motivation levels.

Economic influences
● Changes in economic environment can have a significant impact on business objectives and
strategies.
● In global downturn, for instance, international businesses would have to revise their growth
and profit targets and adapt their product and marketing strategies to a world in which credit
was in short supply and consumers because much less willing to spend, especially on luxury.
● Other economic factors present businesses with opportunities rather than constraints such as
the opening of China’s consumer market following its membership of the World Trade
Organization in 2001.
● Other changes in the economic environment result from changes in government economic
policies.
● These policies, mainly monetary and fiscal, and aim to help governments achieve four main
macroeconomic objectives:
- Economic growth and rising living standards
- Low levels of inflation
- Low levels of unemployment
- Balance of payments equilibrium, over time, between the value of imports and
exports.
● Important economic factors that businesses should monitor and respond to:
 ● Definitions:
- Fiscal policy: changes in government spending levels and tax rates.
- Inflation: the rate of change in the average level of prices.
- Cost-push inflation: caused by rising costs forcing businesses to increase prices.
- Demand-pull inflation: caused by excess demand in an economy, e.g an economic
boom, allowing businesses to raise prices.

Environmental influences:
● Includes all those that influence or are determined by the surrounding physical environment.
● This aspect of STEEPLE is crucial for certain industries, particularly for example tourism,
farming, agriculture and mineral extraction.
● Impact of environmental influences:
 Environmental influences Impact on business objectives and strategies

Environmental controls on business Strict environmental controls could increase

activities, such as waste disposal, business costs and make a country less attractive
sustainable energy, reducing for new investment. However, observing such
packaging. controls could be used as a basis for good publicity.

Natural disaster threats: drought, Threats could make it unwise to consider operating
earthquakes, floods in the areas most likely to be affected, especially if
the business activity is itself potentially dangerous
as with chemicals products.

Natural resources Abundant natural resources are likely to attract

inward investment from mining and oil businesses
for example. Political factors might be important
too, if these resources are in politically unstable
regions.

Infrastructure: road and air transport Poor infrastructure makes business activity more
facilities difficult and often more costly. Multinational
businesses often request governments to improve
transport links before they will consider an
investment in the country.

Political influences
● Include nature and stability of the government, whether the country is a democracy, and if
not, who control the government and what are the ruler’s main objectives, and the policies of
the government towards business, trade and private ownership of assets.
● Impact of political influences:

Political influences Impact on business objectives and strategies

Government stability In government is constantly changing, this

could lead to frequent changes in laws
relating to business activity. The changes
could make it difficult to plan future
business strategies. Generally, business
managers prefer stable government that has
public support.

Form of political structure, e.g democracy Businesses might find it difficult to

convince their stakeholders that it is wide to
operate in or trade with an autocratic
dictatorship, especially if there are concerns
over human rights.

Government’s attitude to private ownership If a government is committed to

nationalisation of private businesses and
high taxes on private wealth then this will
discourage privately owned businesses from
setting up or expanding in this country.
 Trade policies and membership of free-trade If a government wants to restrict free trade
areas or Customs Unions with tariffs and quotas this will discourage
business investment, apart from in industries
that are protected by such measures. Global
business operations tend to expand and
locate in those countries which encourage
free trade and are members or important
free-trade groupings

Legal constraints
● In most countries, political and legal constraints on a business fall into the following main
categories:
- Employment laws
- Consumer protection laws
- Business competition laws
- Political changes resulting from a new government, e.g policies towards foreign
direct investment by multinationals
- Major policy changes
● Legal factors and their impact on business objectives and strategies:

Ethical influences
● There are national differences in the values and attitudes held by the majority of the
population. These differences can be seem in the contrasting ways in which countries
appraoch issues such as:
- Child labour
- Corruption in business practices
- Advertising and promotional material and the advertising of products directly to
children.
 ● Failure to follow a strict and consistent ethical code in all markets being traded in could lead
to major damage to the reputation of a business - bad news regarding ethical infringements
can be transferred almost instantaneously by social media.

1.6: Growth and Evolution

Increasing the scale of operations

● There are risks and costs involved in increasing the scale of production ane the capital will
always have alternative uses.
● Firms expand capacity by increasing the scale of production to avoid turning business away
and to increase market share, but they also benefit from the advantages of large-scale
production known as economies of scale. There are 5 as follows
● Definitions:
- Economies of scale: reductions in a firm’s unit (average) costs of production that
result from an increase in the scale of operations.

Economies of scale
● Cost benefits can be so substantial in some industries that smaller firms will be unlikely to
survive due to lack of competitiveness, such as in oil refining or soft drink production.

Purchasing economies
● Economies are often known as bulk-buying economies.
● Suppliers often offer substantial discounts for large orders.
● This is because it is cheaper for them to process and deliver one large order that several
smaller ones.

Technical economies
● There are 2 main sources of technical economies.
● Large firms are more likely to be able to justify the cost of flow production lines.
● If these are worked at a high capacity level, then they offer lower unit costs than other
production methods.
● The latest and most advanced technical equipment is often expensive and can usually only be
afforded by big firms.
● Such expense can only be justified by larger firms with high output levels, so that average
fixed costs can be reduced.

Financial economies
● Large organizations have 2 cost advantages when it comes to raising finance.
● First, banks often show preference for lending to a big business with a proven track record
and a diversified range of products.
● Interest rates charged to these firms are often lower than the rate charges to small, especially
newly forms, businesses.
● Secondly, raising finance by ‘going public’ or by further public issues of shares for existing
public limited companies is very expensive.
● Therefore, the average cost of raising the finance will be lower for larger firms selling many
millions of dollars’ worth of shares.

Marketing economies
 ● Marketing costs obviously rise with the size of the business, but not at the same rate.
● Even a small firm will need a sales force to cover the whole of the sales area.
● It may employ an advertising agency to design adverts and arrange a promotional campaign.
● These costs can be spread over a higher level of sales for a big firm and this offers a
substantial economy of scale.

Managerial economies
● Small firms often employ general managers who have a range of management functions to
perform.
● As a firm expands, it should be able to afford to attract specialist functional managers who
should operate more efficiently than general managers, helping to reduce average costs.

Diseconomies of scale
● With some industries, the benefits of large-scale production are so substantial that smaller
firms find it increasingly difficult to operate profitably.
● In other industries, the impact of diseconomies of scale prevents one or just a few firms from
being able to completely dominate.
● Diseconomies of scale are those factors that increase unit costs as a firm’s scale of operation
increases beyond a certain size.
● This diseconomies are related to management problems of trying to control and direct an
organization with many thousands to workers, in many separate divisions, often operating in
several different countries. There are three main causes as follows.
● Definitions:
- Diseconomies of scale: factors that cause average costs of production to rise when the
scale of operation is increased.

Communication problems
● Large-scale operations will often lead to poor feedback to workers, excessive use of non-
personal communication media, communication overload and distortion of messages caused
by the long chain of command.
● Poor feedback reduces worker incentives.
● These problems may lead to poor decisions being made, due to inadequate or delayed
information, and management inefficiency.

Alienation of the workforce

● The bigger the organization, the more difficult it is to directly involve every worker and to
give them a sense of purpose and achievement.
● They may feel insignificant and become demotivated, failing to do their best.
● Large manufacturing firms are the ones most likely to adopt a flow-line production and
workforce alienation is a real problem due to repetitive and boring tasks.

Poor coordination and slow decision making

● Business expansion often leads to many departments, divisions and products. The number of
countries a firm operates in increases too.
● The problems for senior management are to coordinate these operations and take rapid
decisions in such a complex organization.
● Smaller businesses with much tighter control over operations and much quicker and more
flexible decision-making may benefit from lower average production costs as a result.
Large scale production - unit costs
● The combined effect of economies and diseconomies of scale on unit costs of production:

● Certain economies of scale may continue to be received as scale increases, but the growing
significance of diseconomies gradually begins to take over and average costs may rise.

Merits of small and large organizations

Significance of small and micro-businesses

● Small firms usually employ few people and have lower turnover compared to other firms.
● Small firms (including all micro-enterprises) are very important to all economies:
- Many jobs are created by small firms and the small business sector employs a very
significant proportion of the working population in most countries.
- Small businesses are often run by dynamic entrepreneurs with new ideas for
consumer goods and services leading to wider consumer choice.
- Small firms create competition for larger firms. Without competition, larger firms
could exploit consumers with very high prices and poor service.
- Small firms often supply specialist goods and services to important industries,
allowing them to specialise in large-scale assembly.
- All great businesses were small at one time. The more small firms are encouraged to
become established and expand, the greater the chances that an economy will benefit
from large-scale organizations in the future.
- Small firms may have lower average costs than larger ones and this benefit could be
passed on to the consumer too. Costs could be lower because of lower wage rates
paid, or the cost of the administration and management of bigger enterprises may
increase their average costs dramatically.

Small versus large organizations

● Advantages of large and small businesses:
 ● Disadvantages of large and small businesses:

What is an appropriate scale of operation

● It is easy to focus on the benefits of small businesses in certain industries.
● However, large businesses supply most of the world’s consumer goods and they do so with
increasing efficiency and, in most cases, improving levels of quality.
● Business owners must weigh up and assess:
- Owners’ objectives: they may wish to keep the business small and easy to manage.
- Capital available: if limited, growth is less likely.
- Size of the market the firm operates in: very small markets do not need large-scale
production.
- Number of competitors: the market share of each firm may be small if there are many
rivals.
- Scope for economies of scale: if these are substantial, as in water supply, each
business is likely to operate on a large scale.

Business growth
● Owners of many businesses do not want the firm to remain small, although some do for
reasons of remaining in control, avoiding taking too many risks and preventing workloads
from becoming too heavy.
● Seeking growth for their business:
- Increased profits
- Increased market share
- Increased economies of scale
- Increased power and status of the owners and directors
- Reduced risk of being a takeover target

Internal and external growth

● Different forms of growth can lead to differing effects on stakeholder groups.
● Different forms of growth can be grouped into internal and external growth.
● Business expansions:
● External growth: often referred to as integration as it involved bringing together two or more
firms.

● Definitions:
- Internal growth: expansion of a business by means of opening new branches, shops or
factories (also known as organic growth).
- External growth: business expansion achieved by means of merging with or taking
over another business, from either the same or a different industry.
- Horizontal integration: integration with a firm in the same industry and at the same
stage of production.
- Forward vertical integration: integration with a business in the same industry but a
customer of the existing business.
- Backward vertical integration: integration with a business in the same industry but a
supplier of the existing business.
- Conglomerate integration: merger with or takeover of a business in a different
industry.
Joint ventures, strategic alliances and franchising

Joint ventures
● It is not the same thing as a merger, but it may lead to a merger if their joint interests coincide
and if the joint venture is successful
● Reasons for joint ventures:
- Costs and risks of a new business venture are shared: this is a major consideration
when the cost of developing new products is rising rapidly.
- Different companies might have different strengths and experiences and they,
therefore, fit well together.
 - They might have their major markets in different countries and they could exploit
these with the new product more effectively that if they both decided to do it alone.
● Risks of joint ventures:
- Styles of management and culture might be so different that the two teams do not
blend well together.
- Errors and mistakes might lead to one blaming the other.
- The business failure of one of the partners would put the whole project at risk.
● Definitions:
- Joint venture: two or more businesses agree to work closely together on a particular
project and create a separate business division to do so.

Strategic alliances
● Can be made with a wide variety of stakeholders:
- With a university: finance provided by the business to allow new specialist training
courses that will increase the supply for suitable staff for the firm.
- With a supplier: to join forces in order to design and product components and
materials that will be used in a new range of products. This may help to reduce the
total development time for getting new products to market, gaining competitive
advantage.
- With a competitor: to reduce risks of entering a market that neither firm currently
operates in. Care must be taken that, in these cases, the actions are not seen as being
‘anti-competitive’ and, as a result, against the laws of the country whose market is
being entered.
● Definitions:
- Strategic alliances: agreements between firms in which each agrees to commit
resources to achieve an agreed set of objectives.

Franchising
● A franchise contract allows the franchisee to use the name, logo and marketing method of the
franchiser.
● The franchisee can separately decide which form of legal structure to adopt.
● Franchises are a rapidly expanding form of business operation. They have allowed certain
multinational businesses to expand much more rapidly than they could otherwise have done.
● Benefits and disadvantages of franchises:

● Definitions:
- Franchise: a business that uses the name, logo and trading systems of an existing
business.

Globalization
● Globalization has led to substantial improvements in global communications and substantial
reduction in barriers to trade and movement of capital and goods.
 ● It is often stated that globalization has shrunk the world’. This shrinking of the world is
having a major impact on business activity, especially from multinationals.
● The free trade movement campaigning against protectionism and the increasing use of the
internet are reducing the differences that once existed between national markets, reducing the
importance of national borders and making it easier for businesses to trade with and mocate in
many countries.
● This is forcing firms, which were once protected by national governments, to become
internationally competitive.
● Some of the critics of globalization have stated that the process of globalization have
exploited hundreds of thousands of people in developing countries all around the world.
● It has, it is claimed, caused great disruption to lived and produced very few noticeable
benefits in return.
● Definitions:
- Globalization: the growing integration of countries through increased freedom of
global movement of goods, capital and people.
- Free trade: no restrictions or trade barriers exist that might prevent or limit trade
between countries.
- Protectionism: using barriers to free trade, such as tariffs and quotas, to protect a
country’s own domestic industries.

What are the benefits of globalization and free trade between nations
● Benefits of globalization and free trade between nations:
- Buying products from other nations means consumers are offered a much wider
choice of goods and services,
- Imports of raw materials can allow a developing economy to increase it rate of
industrialization.
- Importing products created additional competition for domestic industries and this
should encourage them to keep costs and prices down and make their goods as well
designed and of as high quality as possible.
- Countries can begin to specialize in those products they are best at making if they
import those that hey are less efficient as compared to other countries. This is called
comparative advantage.
- Specialization can lead to economies of scale and further cost and price benefits.
- By trading this way, the living standards of all consumers of all countries trading
together should increase as they are able to buy product more cheaply that those that
were produced just within their own countries.
- movements of international capital have increased foreign investment in both
developed and developing countries.
- businesses can more easily recruit workers/managers from other countries,
increasing the pool of skilled labour to draw from.

Multinational businesses
● They have benefited greatly from the freedoms offered by globalization.
● The biggest multinationals have annual sales turnovers exceeding the size of many countries’
entire economies. This sheer size, and the power and influence it can bring, can lead to many
problems for nations dealing with such companies.
● Many multinationals had head offices in fully developed countries, yet have many of their
operating bases in less-developed countries with smaller economies.
 ● If the companies need to save costs by reducing the size of their workforces, often the last
countries to lose jobs will be the ones where the head offices are based.
● Definitions:
- Multinational company or business: business organization that has its headquarters in
one country, but with operating branches, factories and assembly plants in other
countries.

Why become a multinational?

● Reasons why businesses start to operate in countries other than their main base:
- Closer to the main markets: lower transport costs for the finished goods; better market
information about consumer tastes as a result of operating closer to them; may be
viewed as a local company and gain customer loyalty as a consequence.
- Lower costs of production: lower transport costs of the completed items; lower labour
rates, e.g much lower demand for local labour in developing countries compared to
developed economies; cheaper rent and site costs, again resulting from lower demand
for commercial property (these cost savings can make the ‘local’ production very
efficient in terms of the market in the rest of the world and can lead to substantial
exports); government grants and tax incentives designed to encourage the
industrialization of such countries.
- Avoid import restrictions: by producing in the local country there will be no import
duties to pay and no other import restrictions.
- Access to local natural resources: these might not be available in the company’s main
operating country.

Potential problems for multinationals

● Setting up operating plants in foreign countries is not without risks.#
- Communication links with headquarters may be poor.
- Language, legal and cultural differences with local workers and government officials
could lead to misunderstandings.
- Coordination with other plants in the multinational group will need to be carefully
monitored to ensure that the products that might compete with each other on the
world markets are not produced or that conflicting policies are not adopted.
- It is less likely that the skill levels of the local employees will be low and this could
require substantial investment in training programmes.
-
The impact on ‘host’ countries of multinational operations
● Potential benefits:
- The investment will bring in foreign currency and , if output from the plant is
exported, further foreign exchange can be earned.
- Employment opportunities will be created and training programmes will improve the
quality and efficiency of the local workforce.
- Local firms are likely to benefit from supplying services and components to the new
factory and this will generate additional jobs and incomes.
- Local firms will be forced to bring their quality and productivity up to international
standards either to compete with the multinationals or to supply to it.
- Tax revenues to the government will be boosted form any profits made by the
multinational.
 - Management expertise in the community will slowly improve when and if the
‘foreign’ supervisors and managers are replaced by the local staff, once they are
suitably qualified.
- The total output of the economy will be increased and this will raise gross domestic
product.
● Potential drawbacks:
- Exploitation of the local workforce might take place. Due to absence of strict labour
and health and safety rules in some countries, multinationals can employ cheap labour
for long hours with few of the benefits that the staff in their ‘home’ country would
demand.
- Pollution from plants might be at higher levels than allowed in other countries. This
could be because of slack rules or that the host government is afraid of driving the
multinational away if it insists on environmentally acceptable practices.
- Local competing firms may be squeezed out of business due to inferior equipment
and smaller resources.
- Some multinational businesses may be accused of imposing their foreign culture on
other societies by the power of advertising and promotion. This could lead to a
reduction in cultural identity.
- Profits may be sent back to the head office in a different country, rather than kept for
reinvestment in the host nation.
- Extensive depletion of the limited natural resources of some countries has been
blamed on some large multinational corporations. Supposedly, they have little
incentive to conserve these resources, as they are able to relocate quickly to other
countries once these resources have run out.

1.7: Organizational Planning Tools

Organizational planning
● Organizational planning includes preparing for new projects and managing them as
effectively as possible.
● Project managers must simultaneously manage the four basic elements of every project:
- Resources: the people, equipment and materials needed.
- Time: each activity will need to be timed so that an overall project duration can be
worked out.
- Money: the project must be kept to budget so the expected profit from it should be
aimed for.
- Scope: the overall size and scale for the project must be established and the specific
objectives for it set.
● Definitions:
- Organizational planning: process of identifying an organization’s immediate and
long-term objectives, and formulating and monitoring specific strategies to achieve
them. It also involves employee and resource allocation to allow for the effective
completion of projects.
- Project: a specific and temporary activity with a start and end date, clear goals,
defined responsibilities and a budget.
- Product management: using modern management techniques to plan, carry out and
complete a project from start to finish in order to achieve present targets of quality,
time and cost.
The fishbone diagram
● Also known as a cause-and-effect diagram, amy be used to analyse a problem or situation.
● The most common main ‘bones’ that feature on the fishbone diagram, sometimes known as
the 6Ms:
- Methods: are the bottles clean?
- Machines: are there rusty pipes in the production machines?
- Manpower: is the workforce skilled enough?
- Materials: are the raw materials to blame?
- Measurement: is the calibration incorrect?
- Mother nature (environment): is the working environment contaminated?
● Example: attempting to establish all the possible causes of iron contaminating a food product:

● Definitions:
- Fishbone diagram: a visual identification of many potential causes of a problem.

Evaluation of fishbone
● Simple and easy to understand aiding in the discussion and resolution of business problems. If
used effectively, there can be encouraged employee participation. It also builds a system of
performance improvements in order to resolve or potential problems such as training and
motivation techniques.
● Its relative simplicity can be a weakness as well as a strength. The nature of the diagram may
make it difficult to represent the interrelated nature of many business problems, which often
may not stem from just one cause, and it cannot effectively be used to illustrate really
complex problems.

Decision tree
● Considered the value of the options available and the chances of them occurring.
● Based on a diagram that is drawn to represent four main features of a business decision:
- All the options open to a manager
 - The different possible outcomes resulting from these options
- The chances of these outcomes occurring
- The economic returns from these outcomes
● By comparing the likely financial results from each option, the manager can minimise the
risks involved and maximise the potential returns.
● Definitions:
- Decision tree: diagram that sets out the options connected with a decision and the
outcomes and economic returns that may result.

Constructing decision trees

● It has the following features:
- Constructed from left to right
- Each branch represents an option together with a range of consequences or outcomes
and the chances of these occurring
- Decision points are denoted by a square (decision nodes)
- A circle shows that a range of outcomes may result from a decision (chance nodes)
- Probabilities are shown alongside each of these possible outcomes.
- Economic returns are the expected financial gains or losses of a particular outcome.

Working out expected values

● Expected values are average returns, assuming that the outcomes occur more than once. With
any single decision, the average will not be the final result.
● The expected value of tossing a coin and winning $5 if it comes down heads is 0.5 x $5 =
$2.50. This means the average return would be $2.50.
● The purpose of a decision tree is to show that option which gives the most beneficial expected
value.
● Example: from past weather records for August, there is a 60% chance of fine weather and
40% chance of it being poor. The indoor event will cost $2000 to arrange and the outdoor
event will cost $3000. The following are the economic returns:

The following is the decision tree including expected values:

 ● Which option would give the highest expected value – holding the event indoors or outdoors?
The answer is gained by calculating the expected value at each of the chance nodes. This is
done by multiplying the probability by the economic return of both outcomes and adding the
results. The cost of each option is then subtracted from this expected value to find the net
return.
● Therefore, the events manager would be advised to hold the event outdoors, as this will give
the highest expected value.
● Definitions:
- Expected value: the likely financial result of an outcome obtained by multiplying the
probability of an event occurring by the forecast economic return if it does occur.

Evaluation of decisions trees

● Benefits:
- Allows for visual representation of decisions and possible outcomes.
- Forces managers to consider not only the possible financial outcomes but also likely
chances of success or failure.
- Calculation of expected monetary values is a good starting point for the quantitative
assessment of different options.
● limitations:
● - the accuracy of the data used. Estimated economic returns may be quite accurate when they
concern projects where experience has been gained from similar decisions. They also may be
based on forecasts of market demand of the most likely financial outcome. In these cases, the
scope for inaccuracy makes the results of the decision tree a useful guide, but no more.
● Probabilities of events occurring may be based on past data, but circumstances may change.
● Decision trees aid decision making but they cannot replace either the consideration of risk or
the impact of qualitative factors on a decision. The latter could include the impact on
environment, workforce attitude and approach to risk taken by managers and owners.
● There may be preference for fairly certain but low returns, rather than taking risks to earn
more.

Lewin’s force-field analysis

● Provides framework for looking at the factors that influence change. They can either be
driving forces or restraining forces for change.
● Definitions:
- Force-field analysis: an analytical process used to map the opposing forces within an
environment (such as a business) where change is taking place.

Steps in force fiels analysis

● Outline the proposal for change and insert it into the middle of the diagram.
● List forces for change in one column and against in the other.
● Assign estimated scores for each force, with 1 being weak and 5 being strong.
● Force-field for installing IT-controlled manufacturing equipment in a factory:
Usefulness of lewins model
● Helps managers weigh up the importance of two types of forces.
● Help identify people most likely affected by the change.
● Encourages examination of how to strengthen the forces supporting the decision and reduce
the forces opposed.
● Use of a leadership style that reduces opposition and resistance to change is highlighted as
being more effective than forcing through unpopular changes in an autocratic manner.

Possible limitations of lewins

● Requires full participation of everyone involved to provide accurate information required for
an effective analysis. This is bad when full participation isn’t possible, resulting in an
unrealistic diagram of forces.
● There is a possibility that the analysis won’t result in a consensus among the group. In fact, it
may cause a division in the group between those in support and opposition.
● The analysis is entirely dependent upon the skill level and knowledge of the group working
on the analysis.
● Is most cases it is based on assumptions, not facts. Even if the assumptions are based on
experience, interpretation of the evidence should not necessarily be seen as being objective
within the overall process of evaluating the driving and restraining forces.

Gantt charts
● Frequently used in project management, and is one of the most effective ways of showing
activities (tasks or events) displayed over time.
● On the left side is activities and one the right is a time scale.
● Each activity is represented by a bar; the position and length of the bar shows the dates and
duration of each activity. This allows managers to quickly see:
- What the main activities are
- When each activity begins and ends
- How long each activity is scheduled to last
- When activities overlap
- The start and end data of the whole project
 ● Definitions:
- Gantt chart: a visual representation of a project schedule in which a series of
horizontal lines shows the amount of work planned in certain periods of time.

How to create a gantt chart

● Identify the most important activities or tasks: should include earliest start date and its
duration. This can be done with some accuracy if similar projects have been undertaken
before, but if the project is a ‘one-off’ then these estimates may prove to be inaccurate.
● Identify relationships between activities or tasks: some tasks will need to be completed before
the next one can start and others can’t until preceding ones have ended. Dependent activities
are called ‘sequential’ or ‘linear’ tasks. Others are ‘parallel’ or ‘simultaneous’.
● Input activities into software or template: rarely drawn by hand and specialist software is
used. Some are cloud-based meaning that the project team can access the document
simultaneously from any location.

Advantages of gantt charts

● It is necessary to think through all tasks required in the project. Managers will:
- Assign responsibility
- Work out duration
- Assess potential problems
● They enable managers to schedule projects to achieve the best possible completion date.
● They allow managers to review all necessary tasks and the most efficient order for successful
completion.
● Managers can also use the charts to recognise the route of the critical path. The critical path is
the sequence of tasks that must be completed on time if the entire project is to be finished on
schedule.
● They can be used to keep employees and customers informed of developments.
● This can be updated at any point to show changes in schedule and their implications.

Gantt charts evaluation

● Gantt charts may have limitations:
- For projects that require many tasks, the gantt chart may become complex and too
difficult to interpret.
- It requires frequent updates during the project if some activities are completed late.
- List of activities and their interrelationships has to be complete and accurate
otherwise the chart will have limited value.
- They do not offer a good solution when dealing with triple constraints of time, cost
and scope. They are not depicted on the chart. No matter how detailed, the full
complexity is not depicted. This is because the main focus is time.
 4.1: The Role of Marketing

Marketing
● Marketing involves related management functions :
- Market research
- Product design
- Pricing
- Advertising
- Distribution
- Customer service
- Packaging
● Identifying particular wants and needs to target-market customers and then trying to satisfy
those customer needs better than your competitors.
● Definitions:
- Marketing: the management task linking the business to the customer by identifying
and meeting the needs of customers profitably. It does this by getting the right
product at the right price to the right place at the right time.

Marketing and Its Relationship With Other Business Functions

● Important strategic marketing decisions are unlikely to succeed unless they are integrated and
coordinated with the other main business functions.

Under Armour Increases Marketing Budget

● Why marketing decisions need to be coordinated with other business functions :
- Finance: needs to fund the increased promotion budget. Without assurance from the
company’s accountants that adequate finance is available, marketing departments
could not make this decision to substantially increase spending on marketing.
- Human resources: additional employees are likely to be required if the additional
marketing and promotion activity for the products are successful. Employees have to
be recruited in good time and must have appropriate skills, so constant liaison
between marketing and HR is essential.
- Operations: market research data will be used by operations to determine the
preferences of the consumers for the future product mix.

Market Characteristics
● Markets can be differentiated by assessing the following characteristics :
- Market size
- Market growth
- Competitors and ease of entry
- Differentiated or homogeneous products
- Segmentation

Market Size
● Can be measured in 2 ways: volume of sales (units sold) or value of goods sold (revenue).
● Size is important for 3 reasons:
 - Marketing manager can assess whether a market is worth entering
- Businesses can calculate their own market share
- Growth or decline of the market can be identified
● Measuring market growth cannot be easily measured in an unambiguous way.
● Different results may be obtained depending on whether the growth or share rates are
measured in volume or value.
● Manufacturers should use the measure that reflects better on its own position.
● It may also therefore be difficult to compare firms’ changing market shares.
● Definitions:
- Market size: the total level of sales of all producers within a market.

Market Growth
● The pace of growth depends on several factors, including economic growth, changes in
consumer incomes, development of new markets, changes in consumer tastes and
technological change, which can boost market sales through innovative products.
● Rate of growth also depends whether or not the market is ‘saturated’.
● Definitions:
- Market growth: the percentage change in the total size of a market (volume or value)
over a period of time.

Competitors and Ease of Entry

● All businesses need to be aware of the number and size of their direct competitors and the
ease at which new rivals could join the market.
● Generally, the greater the number of competitors and the easier it is for new ones to join a
market, the more price competition there will be.
● If products can truly be made different from rivals products, it might still be possible to
charge relatively high prices even though the number of competitors is substantial.
● Definitions:
- Ease of entry: the lack of barriers for the establishment of new competitors in a
market.

Differentiated or Homogeneous Products

● Milk, maize, bottled water and petrol are four products which are difficult to differentiate.
Businesses selling any of these would struggle to stand out in terms of product quality than
those operating in car or TV markets.
● Homogeneous products are those that cannot be distinguished between even though they may
come from different suppliers. It will be difficult for a business to charge prices different from
the ‘going rate’ for these products.
● Definitions:
- Homogeneous products: goods that are physically identical or viewed as identical by
consumers.

Segmentation
● Dividing prospective consumers into segments that have common needs and will respond
similarly to marketing activities.
● Market segmentation enable companies to target different groups of consumers who perceive
the value of certain products and services differently from each other.
 ● Target marketing, as opposed to mass marketing, recognizes the diversity of customers and
does not try to satisfy them all with the same good or service.
● Definitions:
- Segmentation: dividing a market into distinct groups of consumers who share
common tastes and requirements.
- Target marketing: focusing marketing activity on particular segments of the market.
- Mass marketing: selling to the whole market using a standardised product and the
same marketing activities.

Differences Between Marketing Goods and Marketing Services

● Services are immediate, they cannot be stored.
● Services cannot be repaired or replaced, so service quality must be right first time or
consumer will not return.
● Consumers find it more difficult to compare service quality than for manufactured goods, so
promotion of services must be informative and detailed about the precise nature of the range
and quality of services offered.
● Marketing of goods and services benefits from building trust and brand recognition into
marketing activities, but goods can be impulse purchases whereas services need time to be
delivered.
● Definitions:
- Consumer goods: tangible physical product marketed to end users (consumers)
- Consumer service: intangible provision of an activity to end users (consumers)

Building Trust
● In newly formed businesses, the entrepreneur has to sell confidence and trust in themselves,
and their ability to perform the services as described.
● Promises made must be delivered, there is rarely opportunity to correct a poor service
delivery as there might be with a faulty good.

Time for Delivering the Service

● Services are time-intensive as there is no way to continue providing a service without
continuing to spend time with the customer.
● Time is an important part of marketing a service because a business should be able to deliver
with promises made while providing service to others as well.
● Accurate time estimates and effective time management when delivering services to clients
will allow more customers to be seen and provided with services to an appropriate standard.

Deliverability
● Major challenge with marketing service is being able to convince customers that quality
results can be delivered within a given period of time.
● Usually service marketing materials such as websites have testimonials and case studies from
other satisfied clients that are designed to prove the business is able to deliver.

Relationships
● Marketing a service-based business relies more on building long-term relationships with
consumers that marketing goods does.
 ● When service businesses build up trust and a long record of reliably supplying high-level
service consistently, they establish relationships that can help to provide long-term sources of
revenue as well as providing a greater chance of positive feedback via social media.

Perceived Value
● Service companies mainly focus on marketing their efforts on the goal of installing a high
perceived value of the service in the minds of the customer.
● If the customer is made to feel better in some way from using the service, then marketing has
been successful.
● Since there is no tangible product, emotional connection is a key element in service
marketing.
● One aspect of this emotional attachment is setting the right price level. Most high-end
providers do not compete on price, largely because they know that it is a losing proposition.
● Price cutting can lead to devaluation of the service being provided and also lead to a decline
in the quality of services being offered as a result of lesser-qualified firms entering the market
to compete on the basis of price alone.

Marketing Approaches

Market Orientation and Product Orientation

● ‘Market orientated’ approach requires market research and market analysis to indicate present
and future consumer demand.
● The business attempts to produce what the consumers want rather than trying to sell them a
product they may not really want to buy.
● Increasing consumer awareness of competitors products, prices and image can result in
significant fluctuations in popularity of goods and services.
● Benefits of market orientation:
- Chances of new products failing in the market are reduced, but not eliminated, if
effective market research has been undertaken. With huge cost of developing new
products this is a convincing argument for most businesses to use the market
orientated approach.
- If consumer needs are being met with appropriate products, then they are likely to
survive longer and make higher profits than those being sold following a product-led
approach.
- Constant feedback from consumers, market research never actually ends, will allow
the product and how it is marketed to be adapted to changing tastes before it is too
late and before competitors get there first.
● Product-led marketing (product-orientated) still exists to an extent and the following instances
help to explain why:
- Product orientated businesses invent and develop products in the belief that they will
find consumers to purchase them. Consumers were not aware that such versatile
products were likely to be made available until the basic concept had been invented
and developed into an innovative new product. Pure research in this form is rare but
still exists, such as in pharmaceutical and electronic industries. Here there is still the
belief that if they produce an innovative product of a good enough quality, then it will
be purchased.
- Product orientated businesses concentrate their efforts on efficiently producing high-
quality goods. They believe quality will be valued above market fashion. Such
 quality-driven firms do still exist, especially in product areas where quality or safety
is of great importance.
● Definitions:
- Market orientation: an outward-looking approach basing product decisions on
consumer demand, as established by market research.
- Product orientation: an inward-looking approach that focuses on making products that
can be made or have been made for a long time, and then trying to sell them.

Evaluation of These Two Approaches

● The trend is then towards market orientation, but there are limitations.
● If a business attempts to respond to every passing consumer trend or market fashion then it
may well overstretch its resources and end up not doing anything particularly well.
● Trying to offer choice and range so that every consumer need is met can be expensive.
● In contrast, researching and developing an innovative product can be successful, even if there
is no formal market research.

Social Marketing
● This approach adopts a wider perspective than previous forms of orientation. If focuses on
other stakeholders as well as the business and its consumers.
● Social responsibility is becoming increasingly popular among organizations.
● Example: of societal marketing include The Body Shop, which promises not to support
animal testing of its products in non-environementally damaging ways.
● These products are not the cheapest but they do meet society’s long-term interests.
● Social marketing concept has the following implications :
- Attempts to balance three concerns: company profits, consumer wants, society’s
interests.
- There may be a difference between short-term consumer wants (low prices) and long-
term consumer and society welfare (protecting the environment and paying
reasonable wages). Social marketing considers long-term welfare.
- Businesses should still aim to identify consumer needs and wants and to satisfy these
more efficiently than competitors do, but in a way that enhances consumers’ and
society’s welfare.
- Using the concept could give business significant competitive advantage. Many
consumers prefer to purchase from businesses that are seen as socially responsible.
- Social marketing strategies, if successful, could lead to the firm being able to charge
higher prices to its products as benefiting society becomes a unique selling point.
● Definitions:
- Social (societal) marketing: this approach considers not only the demands of
consumers but also the effects on all members of the public (‘society’) involved in
some way when firms meet these demands.

The Difference Between Commercial Marketing and Social Marketing

● Commercial marketing focuses on satisfying customers’ needs for profit. (financial return)
● Social marketing also aims for this, but by achieving specific behavioural goals for the good
of society at the same time. (social good)

Market Share and Market Leadership

● Market share is calculated using:
 ● Firms sales or total market sales can be measured in either units (volume) or sales value in
this market.
● Market share and its increases, are often the most effective way to measure the relative
success of one business’s marketing strategy against that of its competitors.
● If a firm’s market share increases then the marketing of its products has been relatively more
successful than most competitors.
● The product with highest market share is called the brand leader.
● Benefits of being market leader:
- Sales are higher than competitors and this could lead to higher profits
- Retailers keen to stock and promote best-selling brands. They may be given more
prominent positions in shops.
- As shops are keen to stock the product, it might be sold to them with a lower discount
rate, which has to be offered by the smaller, competing brands. This and higher sales
should lead to high profitability for the producer of the leading brand.
- Being market leader allows for advertising and other promotional material.
Consumers are often keen to buy the most popular brands.
● Definitions:
- Market share: the percentage of sales in the total market sold by one business.
- Market leadership: when a business has the highest market share of all firms that
operate in that market.

The Importance of Market Share and Market Leadership

● Internal measures of marketing success: customer satisfaction, brand awareness, loyalty and
profit margins but market share can be benchmarked against the competition.
● Reasons why market share is important:
- Being market leader can be used in advertising and promotion. It can be a convincing
argument that influences more consumers to buy it.
- Market leaders are in a strong bargaining position with suppliers and retailers.
Suppliers will want to continue long-term supply contracts with the most successful
business, not just because of high sales but also because some ‘glitter’ will rub off to
benefit their status. Retailers will be keen to stock market-leading product as
consumers will be disappointed not to find it in their stores. Strong bargaining
positions could lead to lower costs and longer credit periods form suppliers and
higher selling prices, and shorter payment periods from retailers.
- Recruitment of high-class employees is often easier for market-leading businesses as
people would rather work for the most successful business.
- Financing might become easier if investors and banks become convinced that the
status of being market leader with the highest market share adds to stability and profit
potential of the business.
● However, being market leader puts pressure on a business and key staff to continue to do as
well if not better in the future.
● Business media will look for any sign of slippage and report that a business is losing market
share and losing touch with its consumers.
 ● Too much emphasis on market share could take away attention from profitability. Price cuts
and lower profit margins are one way of increasing market share, but is this strategy
sustainable in the longer term?

Marketing objectives
● Are the goals set for the marketing function of a business. They should be focused on
achieving the overall corporate aims of the business.

For-profit organizations
● A business with clear short-term profit targets will focus on maximising sales at the highest
prices possible.
● In contrast, businesses with long-term objectives may adopt societal marketing approach.
● Examples of for-profit organizations marketing objectives include an increase in:
- Market share: perhaps to gain market leadership
- Total sales: value or volume, or both
- Average number of items purchased per customer visit
- Frequency that a loyal customer shops
- Percentage of customers who are returning customers (loyalty)
- Number of new customers
- Customer satisfaction
- Brand identity
● To be effective, marketing objectives should:
- Fit in with the overall aims and mission of the business: marketing objectives should
reflect the aims of the whole organization and they should attempt to aid the
achievement of these.
- Be determined by senior management: marketing objectives will determine markets
and products a business trades in for years to come and these issues must be dealt
with by managers at a very senior level in the company.
- Be realistic, motivating, achievable, measureable and clearly communicated to all
departments in the organization.
● Marketing objectives are important because:
- Provide a sense of direction for the marketing department.
- Progress can be monitored against these targets.
- Can be broken down into regional and product sales targets to allow for management
by objectives.
- Form the basis of marketing strategy. They have crucial impact on marketing
strategies adopted, as without a clear vision of what the business hopes to achieve for
its product, it will be pointless discussing hot it should market them.
● Definitions:
- Marketing objectives: the goals set for the marketing department to help the business
achieve its overall objectives.

Non-profit making organizations

● They are distinguished from profit-maximising organizations by 3 characteristics:
- Most not-for-profit organizations do not have external shareholders providing risk
capital for the business.
- They do not distribute dividends, so any profit (or surplus) that is generated is
retained by the business as a further source of capital.
 - Their organizational objectives usually include some social, cultural, philanthropic,
welfare or environmental dimension.
- In some ways, marketing and non-for-profit making might appear to be opposing
concepts.
● Main marketing objectives:
- Market research: how does the public view out charity and which groups are most
likely to donate?
- Identifying the best ways to communicate effectively with donors: many charities
have moved away from expensive and ineffective direct-mail shots to internet and
viral marketing campaigns.
- The need to assess the effectiveness of different promotions and campaigns to
increase value for money in the future.
● Differences in marketing in non-profit organizations compared to marketing in profit-seeking
ones:
- The importance of maintaining high ethical standards to avoid alienating the public.
- Constant feedback on the success of charity campaigns, and future issues to be
addressed, to maintain public interest and awareness.
- Free publicity with the aim of capturing the public’s imagination.
● Marketing objectives for not-profit organizations include:
- Maximise revenue from trading activities
- Increase recognition of organization by society
- Promote work and aims of the organization to a wide audience

Marketing strategies

How marketing strategies evolve in response to changes in consumer preferences

● Marketing should never stand still: changes in consumer preferences should be researched,
anticipated and acted upon by the marketing department.
● Businesses that fail to respond to changes in preference by developing and marketing new
products will usually quickly lose sales and market share.
● However, some businesses make a point of not responding to fickle fashion and preferences
changes and promote the fact that their products are largely unchanged. This is similar to
product orientation.

How innovation, ethical considerations and cultural differences may influence marketing practices
and strategies in an organization

Innovation
● Major innovations recently that have had an impact on the marketing activities have been
guerrilla marketing and internet marketing.
● In the case of internet marketing, the increasing growth of social media networks is
encouraging businesses to switch to a higher proportion of their budgets towards these forms
of communicating with customers rather than traditional forms of newspaper and TV
advertising.

Ethical considerations
● Marketing can have a major impact on whether a business achieves its ethical objectives.
 ● If a single issue is considered then the arguments for and against taking an ethical stand can
be the basis for a discussion on many other marketing issues with an ethical dimension.
● Arguments for and against advertising sweets to children:

Cultural differences
● Failing to respond to cultural differences can lead to bad feeling and bad publicity whereas
responding to local tastes and sensibilities can encourage consumers to accept a new brand as
being designed for their needs.

4.2: Marketing Planning

Marketing planning
● Market plan is often a formal written document which outlines in detail how the business unit
intends to achieve the marketing objectives derived from the corporate objectives.
● Effective marketing planning is nearly always based on clear awareness of market trends,
competitor actions and consumer wants, so market research is vital.
● Main elements of marketing plan:
- Details of the company’s marketing objectives (SMART)
- Sales forecasting to allow the progress of the plan to be monitored
- Marketing budget - how much finance is planned to be spent and how it is allocated
- Marketing strategies to be adopted to achieve marketing objectives
- Detailed action plans showing marketing tactics used to implement strategies
● Definitions:
- Marketing planning: the process of formulating appropriate strategies and preparing
marketing activities to meet marketing objectives.

The role of marketing planning

● Roles and limitations of marketing plans:
Marketing mix
● Marketing mix is made up of the 7Ps:
- Product: consumers require the right good/service. This might be an existing product,
an adaption of an existing product or newly developed one.
- Price: if set too low, then consumers may lose confidence in the product’s quality; if
too high, then many will be unable to afford it.
- Promotion: must be effective and targeted at the appropriate market; telling
consumers about the product’s availability and convincing them that ‘your brand’ is
the one to choose. Packing is often used to reinforce this image.
- Place: refers to how the product is distributed to the consumer. If it is not available at
the right time in the right place, then even the best product in the world will not be
bought in the quantities expected.
- People
- Process
- Physical evidence
● Elements should fit together into a coherent and integrated plan, however not all will have the
same degree of significance in every marketing mix.
● Definitions:
- Marketing mix: the key decisions that must be taken in the effective marketing of a
product.
- Coordinated marketing mix: key marketing decisions complement each other and
work together to give customers a consistent message about the product.

An appropriate marketing mix

● If an expensive brand of perfume was on sale at a market stall, would you be suspicious?
● If the most exclusive shop sold expensive gifts wrapped in newspaper, would you be
surprised?
● If cheap range of children’s clothing was advertised in a glossy colour magazine aimed at
professional women, would thi advertisement lead to many sales?
● These are examples of poorly integrated marketing mix decisions.
● If messages consumers receive about a product are confused or lacking in focus, they may fail
to recognize the true identity of the product. Consumers are likely to reject products because
they have not been communicated clearly, resulting in fewer long-term sales.
● The most appropriate marketing mix will therefore be:
- Based on marketing objectives that are achievable within the marketing budget
- Coordinated and consistent with each other
- Targeted at the appropriate consumers

Differences between market segments and target markets

● If a business is only using mass marketing, it is not important to differentiate between market
segments as the whole market is being targeted.
● In most cases, businesses attempt to aim their products at particular groups of consumers,
believing that these groups demand slightly different products.
● Once market segments have been identified, then businesses must decide which of these
segments are going to become target markets.
● Target markets are the segments that the business is going to aim its product.
● Definitions:
 - Market segments: a subgroup of a market made up of consumers with similar
characteristics, tastes and preferences.
- Target market: the market segment that a particular product is aimed at.

Market segmentation and consumer profile

● Sometimes referred to as differentiated marketing.
● Instead of trying to use mass marketing, different products are targeted at different segments.
This is a form of niche marketing.
● Sometimes firms only market their goods to one segment and deliberately do not aim to
satisfy other segments.
● Definitions:
- Market segmentation: identifying different segments within a market and targeting
different products or services to them.

Identifying different consumer groups

● Successful segmentation requires a business to have a very clear picture of the consumers in
the target market it is aiming to sell in. This is called consumer profile.
● Marketing mix decisions need to be appropriate for the consumer profile of the target market.
● A well-targeted product will need less advertising and promotional support than one which
does not really meet the needs of the consumers that it is aimed at.
● Markets may be segmented in 3 different ways: geographic differences, demographic
differences and psychographic differences.
● Definitions:
- Consumer profile: a quantified picture of consumers of a firm’s products, showing
proportions of age groups, income levels, location, gender and social class.

Geographic differences
● Consumer tastes may vary between different geographic areas, such as warmer clothing in
north europe compared to southeast asia.
● So it may be appropriate to offer different products and market them in location-specific
ways.

Demographic differences
● Most commonly used basis for segmentation as age, sex, family size and ethnic background
can all be used to separate markets.
● Businesses may not attempt to attract all markets, but having decided on the most appropriate
one, it will be essential to gear the price and promotion strategies towards this segment.
● An individual’s social class may have a great impact on their expenditure patterns.
● The jobs people do are one of the main factors influencing people’s income levels, but others
could operate.
● Marketing acronyms existing as abbreviations for demographic groups of consumers:
- DINKY: double income no kids yet
- NILK: no income lots of kids
- WOOF: well off older folk

Psychographic factors
● These are to do with differences between people’s lifestyles, personalities, values and
attitudes.
 ● Lifestyle is broad and often relates to activities undertaken, interests and opinions rather than
personality.
● Advantages and disadvantages of market segmentation:

Difference between niche market and mass market

Niche marketing
● Targeting products at a very small section of the whole market and may be one that has not
yet been identified and filled by competitors.
● Definitions:
- Niche market: a small and specific part of a larger market.
- Niche marketing: identifying and exploiting a small segment of a larger market by
developing products to suit it.

Mass marketing
● One product for the whole market.
● However, with increased consumer choice and more competitors operating in the market, a
business would offer a wider range of models of different sizes, power output and prices to
appeal to different segments of the mass market.
● Definitions:
- Mass market: a market for products that are often standardised and sold in large
quantities.
- Mass marketing: selling the same products to the whole market with no attempt to
target groups within it.
Advantages of niche and mass marketing:

Product positioning
 ● A product needs to be positioned once the business’ market has been segmented and targets
identified.
● It is to analyse how the new brand will relate to the other brands in the market, in the minds of
consumers.
● The first step in creating a product position map/perception map it identifying features of the
product considered important by the consumer through market research.
● The next step is qualitative market research to position each competing product on the graph
according to consumer’s perception of them
● Uses of product positioning analysis:
- Identifies potential gaps in the market. This is the segment the business should aim
for. The firm could also play it safe and position the product with other - this could be
less risky but less profitable.
- When the market with the greatest ‘niche’ potential has been identified, marketing
manager is then made aware of key features that should be promoted most.
- When monitoring the position of existing brands, a firm can see if a repositioning of
one is required. This could involve new advertising campaign or restyled package
rather than a newly launched product.
● Definitions:
- Product position map/perception map: a graph that analyses consumer perceptions of
each of a group of competing products in respect of 2 product characteristics.

Unique selling point/proposition

● Most successful products are those that are unique. It is effective in distancing from rivals.
● Benefits of USP:
- Effective promotion focusing on differentiating a feature of the product or service.
- Opportunity to charge higher price due to exclusivity.
- Free publicity from business media reporting on USP.
- Higher sales than products without USP.
- Customers more willing to identify with the brand because it’s different.
● USP can be based on any aspect of the marketing mix:
- Product: e.g electric cars
- Price: e.g matching high-street prices
- Place: e.g internet sales
- Promotion: e.g promotional slogans, such as overnight courier
● Definitions:
- Unique selling point/proposition (USP): a factor that differentiates a product from its
competitors, such as the lowest cost, the highest quality or the first ever product of its
kind; a USP could be thought of as ‘what you have that competitors don’t’

How organizations can differentiate themselves and their products from competitors
● Forms of differentiation with benefits and limitations:
 4.3: Sales Forecasting

Sales forecasting
 The benefits and limitations of sales forecasting should always be considered by managers
when attempting to predicts future sales or when analyzing sales forecast data.
Potential Benefits
 If marketing managers were able to predict the future sales accurately, the risks of business
operations and business strategic decisions would be much reduced.
 If a precise forecast of monthly sales over the next two years could be made, the benefits to
the whole organization would be immense:
- Operations department would know how many units to produce and what quantity of
materials to order and the appropriate level of stock to hold.
- Marketing department would be aware of how many products to distribute and
whether changes to the existing marketing mix were needed to increase sales.
- HR workforce plan would be more accurate, leading to the appropriate number of
workers and the most appropriate employment contracts – permanent or temporary.
- Finance could plan cash flows with much greater accuracy and make accurate profit
forecasts.
 - Strategic decision-making – such as developing new products or entering new
markets – would become much better informed.
 In reality, such precision in forecasting is impossible to achieve, because of the external
factors that can influence sales performance.
 Despite problems, such as growth of other shopping methods or general economic climate,
most businesses make sales forecasts in order to reduce to an acceptable minimum the
unforeseen nature of future changes.
 Market forecasts form an essential part of the market planning process and of the screening
process before new products are launched on the market.
 These forecasts will be based on market research data, gained from both primary and
secondary sources.
Definitions:
 Sales forecasting: predicting future sales levels and sales trends.

Quantitative sales forecasting methods – time-series analysis

 This method is based entirely on past sales data. Sales records are kept over time and, when
presented in chronological order, they are referred to as a time-series.
Extrapolation
 Extrapolation involves basing future predictions on past results.
 When actual results are plotted on a time-series graph, the line can be extended, or
extrapolated, into the future along the trend of the past data.
 This simple method assumes that sales patterns are stable and will remain so in the future. It
is ineffective when this condition does not hold true.
Moving averages
 More complex than simple graphical extrapolation. It allows the identification of underlying
factors that are expected to influence future sales.
 These are the trend, seasonal variations, cyclical variations and random variations.
 This technique ‘smooths out’ the fluctuations in time-series data and allows managers to
identify the trend more easily.
 The following examples uses a three-period moving average. Each three-period total is at the
end of the three periods it relates to but the average is located at the middle year:

 If actual sales data is plotted on a graph it shows considerable variations from one year to
another. When plotted, three-period moving average shows a clear upward trend in sales data
– and the upwards trend seems to be accelerating, allowing a line of best fit to be drawn:
  The line of best fit can then be extrapolated to allow for sales forecasts to be made.
 Note than the variations that occurred in the actual data have not been allowed for and the
forecasts obtained need to be treated with some caution.
 Using annual data such as this and using moving averages helps to smooth out the effect of
cyclical fluctuations that occur over a long period of time – often caused by the business
cycle.
 Cyclical fluctuations are much more likely to impact of income-elastic goods than necessity
products and services.

Definitions:
 Seasonal variations: regular and repeated variations that occur in sales data within a period
of 12 months or less.
 Cyclical variations: variations in sales occurring over periods of time of much more than a
year – they are related to the business cycle.
 Random variations: may occur at any time and will cause unusual and unpredictable sales
figures, e.g. exceptionally poor weather, or negative public image following a high-profile
product failure.

Four-period moving average

 Possibly the most widely used technique as it is often employed when forecasting from
quarterly data.
Definitions:
 Trend: underlying movement of the data in a time series.

Forecasting using the moving average method

 Plot the trend (moving average) results on a time-series graph.
 Extrapolate this into the future – short-term extrapolations are likely to be the most accurate.
 Read off the forecast trend result from the graph for the period under review, e.g. quarter 2 in
year 2015.
 Adjust this by the average seasonal variation for quarter 2.
 Advantages and disadvantages for the moving average method:
 4.4: Market Research

Market research
● Concerned with:
- Finding out whether consumers will buy particular product
- Reaction to different price levels
- Reaction to alternative forms of promotion
- Reaction to new types of packaging
- Reaction to different methods of distribution
● Definitions:
- Market research: process of collecting, recording and analysing data about customers,
competitors and the market.

Why organizations carry out market research

● Reducing risks associated with new product launches: by doing so, business should be able to
assess the likely chances of a new product achieving satisfactory sales. Although research
cannot guarantee success, it is a key part in new product development.
● Predicting future demand changes: travel firm may want to investigate changes to see how
this might affect demand for holidays in the future.
● How NPD is supported by market research:
- Identify consumer needs and tastes: primary/secondary research into consumer needs
and competitors
- Product idea and packaging design: testing of product and packaging design with
consumer groups
- Brand positioning and advertising testing: pre-testing of the product image and
advertisements
- Product launch and after launch period: monitoring of sales and consumer response
 ● Explaining patterns in sales of existing products and market trends: managers should be able
to analyse sales data, conduct market research and take effective action to reverse issues such
as worry in decline in sales.
● Assessing most favoured design, flavour, style, promotion and packaging for a product:
consumer tests of different product version of proposal adverts will enable a business to focus
on aspects of performance that consumers rate highest.
● Market research can be used to discover information about:
- Market size and consumer tastes and trends.
- The product and its perceived strengths and weaknesses
- Promotion uses and its effectiveness
- Competitors and their claimed USP
- Distribution methods most preferred by consumers
- Consumers preferences for packaging

How organizations carry out market research

● Qualitative research should discover the motivational factors behind buying a product.
● E.g quantitative research might establish the size of the potential market for a new luxury
item, but will consumers buy it for a certain feature or because of promotion that reflect the
consumer’s image?
● Definitions:
- Primary research: a collection of first-hand data that are directly related to a firm’s
needs.
- Secondary research: collection of data from second-hand sources.
- Qualitative research: research into the in-depth motivations behind consumer buying
behaviour or opinions.
- Quantitative research: research that leads to numerical results that can be presented or
analysed.

Methods of primary research

Surveys
● Involves directly asking consumers, usually through questionnaire, for opinions and
preferences. They can be used quantitative or qualitative.
● 4 important issues to consider when conducting surveys:
- Who to ask: it is mostly impossible or too expensive to survey all potential members
of the survey population (members of a target market). A ‘sample’ from this
population if then necessary.
- What to ask: construction of an unbiased and unambiguous questionnaire is essential
if the survey is to obtain useful results.
- How to ask: should the questionnaire be self-complete or returned by post or done
face-to-face? Could electronics be used instead?
- How accurate is it: assessing accuracy and validity of results is a crucial element of
surveys.
● Definitions:
- Survey: detailed study of a market or geographical area to gather data on attitudes,
impressions, opinions and satisfaction levels of products or businesses, by asking a
section of the population.
Questionnaire design
● There is temptation to ask too many questions which can cause respondent to get bored of
suspicious.
● It is best to try and avoid questions inquiring precise ages or income levels, which can be
done by grouping together answers (e.g please indicate which of the following income levels
you are in: $10000-$20000, etc.)
● Open questions could lead to difficulty in collating and presentation numerically but they may
provide insight into consumers thinking about a product.
● Closed questions lead to ease in presentation and analysis, but offer little in explaining the
reasoning behind consumer answers.
● Asking all open questions is not good, however questionnaires usually end with one. A better
option would be to use closed questions.
● As the design of the questionnaire has great influence over accuracy and usefulness of results,
a pilot survey should test the quality of questions.
● Other principles include:
- Make objectives of research clear so questions can be focused on these
- Write clear and unambiguous questions
- Try make sure questions follow each other in a logical sequence
- Avoid questions that seem to point to a particular answer
- Use readily understood language
- Include questions that allow classification of results by gender, living area,
occupation, etc.
● Definitions:
- Open questions: those that invite a wide-ranging or imaginative response.
- Closed questions: questions to which a limited number of preset answers is offered.

Interviews
● Response rate to self-completed questionnaires is nearly always poor. Questions could be
easily misunderstood and the sample returned could be biased in favor of respondents with
most spare time.
● Skilled face-to-face interviewers will avoid biased in the way they ask questions and detailed
questions can be explained. Follow-ups can be asked if required.
● This can be expensive, but the interviewer will continue to work until preset sample size has
been reached, whereas postal questionnaires are always uncertain.

Focus groups
● In focus discussion groups, questions are asked and group is encouraged to actively discuss
responses. All members are free to talk.
● Discussions are often filmed and used by market research department as a source of data.
● Information is often believed to be more accurate and realistic than responses to individual
interviews or questionnaires, where respondents do not have discussion opportunities
presented.
● However, there might be a risk of researchers influencing the discussion too much, leading to
biased conclusions.
● Definitions:
- Focus groups: a group of people who are asked about their attitude towards a product,
service, advertisement or new style of packaging.
Observations
● Through direct observation, marketing specialists are able to identify actions and watch
consumers respond to various stimuli.
● For smaller businesses, observational research is a simple way to find out about clients.
● Observational techniques are commonly used through cookies on computers to track user’s
web views and visits.
● Focus groups utilize observational techniques.
● Method is relatively inexpensive as main cost is observer’s numeration.
● If observer is unseen, customers often behave more naturally.
● Recall error is not a problem in observation and research can be modified to obtain the best
results possible, if necessary (such as moving closer to respondent).
● However, observational research is time-consuming and has no qualitative evidence
explaining consumer’s behaviour.
● Observer must have patience and time.
● Researchers could become distracted while observing, possibly distorting results of the
research.
● There is also a question of ethics - should customers be observed without their knowledge and
permission.
● Definitions:
- Observational technique: a qualitative method of collecting and analysing information
obtained through directly or indirectly watching and observing others in business
environments e.g watching consumers walking round a supermarket.

Test marketing
● Test marketing takes place when it has been decided to produce a limited quantity of a new
product before selling full-scale.
● Involves promoting and selling products in a limited geographical area, then recording
consumer reactions and sales figures.
● It reduces risks of new product launches failing completely, but the evidence is not always
accurate if total population does not share the same characteristics and preferences as region
selected.
● Definitions:
- Test marketing: marketing a new product in a geographical region before a full-scale
launch.

Advantages and disadvantages of primary research

Sources of secondary data

● Often undertaken before primary, but only if data exists which it may not if planned product
is so different.
● Secondary can help give focus to primary research that business will now undertake.
 ● However, secondary data:
- Is never completely up to date
- May not provide answers to specific questions the business wants answered
- Is available to competitors too
● It can be obtained from the following sources:

Market intelligence analysis reports

● Extremely detailed reports on individual markets and industries produced by special market
research agencies.
● They are expensive, but are usually available as local business libraries, although these may
not be up-to-date versions.
● Up-to-date versions can be sold directly to businesses in the market being researched.
● Examples of market research analyses:
- Mintel reports
- Key note reports
- Euromonitor international
● Owner of a small hotel wants to open another hotel in the capital, reports of hotel and catering
market would provide detail on market and consumer trends, eating and holiday habits of
consumers, the number of tourists, etc.

Academic journals
● Several are published focusing on science and techniques involved in market research.
● This would be of interest to the market research department, not so much for the data they
contain but for discussion of market research methodology.

Government publications
● Can be referred to:
- Population census
- Social trends
- Annual abstract of statistics
- Living costs and food survey
● If furniture manufacturer undecided on whether to product designs for teens or recliners for
elderly, reference to gov. Publications for the forecasted age distribution of population over
the next ten years would be a good start.

Local libraries and local government offices

● If research was needed for a small area, local rather than national data would be required:
- Local population census: total population size, age, occupation distributions
- Number of households in the area
- Proportions of local populations from different ethnic and cultural groups

Trade organizations
● Produce regular reports on the state of the markets their members operate in.
● If a garage owner wants to start stocking new sale cars details on the type and size of car most
popular among consumers would be obtained from the Society of Motor Manufacturers and
Traders. Further research might be needed to see if, locally, these national data reflected
consumer demand for garage’s own area.
Media reports and specialist publications
● Widely available although some can only be obtained via subscription.
● Before businesses use market evidence from these publications, questions should be asked
about the primary resource of the data, the collector and potential bias.

Internal company records

● If business has been trading for a long time, large quantity of secondary data will already be
available for further analysis from:
- Customer sales records
- Guarantee claims from customers
- Daily, weekly and monthly sales trends
- Feedback from customers on product, service, delivery and quality

The Internet
● Whenever research is conducted just from the internet, accuracy and relevance of the source
should always be checked.
● Secondary research will nearly always focus primary research. However, on its own, it is
rarely sufficient, which is why primary research is also undertaken.
● Secondary research gathers background data, but primary provides detailed, up-to-date
information from consumers within the firm’s target market.

Advantages and disadvantages of secondary research

Ethical Considerations of Market Research

● Gathering of market research raises ethical considerations :
- Researchers should have permission from people who will be studied to conduct
research. Is this possible with all observational methods?
- Data collection should not cause physical or emotional harm to respondents. It
requires being careful how the researcher words sensitive or difficult questions during
this interview. Some topics are always sensitive, such as research into how patients
were treated by staff in a hospital.
- Objectivity versus subjectivity in research is important. Researchers should ensure
personal bias and opinion does not get in the way of interpreting research results. This
is why the source of all data should be carefully checked and verified, if possible.
- Many types of research should be conducted on the assumption that findings are kept
anonymous. Respondents should be told whether research results will be anonymous
or not - but how can they check on this with online surveys?
- Researchers should not take advantage of easy access groups, such as children.
Should parents always be present when people under the age of 18 are subjects of
market research.
 - When presenting and analysing results they should accurately represent observation
or what researchers were told. Interview responses or observations should not be
taken out of context. Should respondents be given the right to refuse to have their
responses included in the survey results if they are concerned about the overall
findings?

Sample Size and Sampling Methods

● In most cases of primary research it is impossible or expensive to ask the entire population in
the study.
● Owing to this, sampling is essential when using primary research methods.
● The larger the sample, the more confidence can be given to the final results.
● Definitions:
- Sample: a group of people taking part in a market research survey selected to be
representative of all target market overall.
- Sampling error: errors in research caused by using a sample for data collection rather
than the whole target population.

Quota Sampling
● Population is first segmented into mutually exclusive subgroups, such as male or female.
● Then the interviewer uses judgement to select people from each segment based on specific
proportion, such as age.
● In quota sampling the selection of the sample is non-scientific and may be biased.
● The main weakness is that not everyone gets a chance at selection.
● Definitions:
- Quota sampling: gathering data from a group chosen out of a specific subgroup, e.g a
researcher might ask 100 individuals between the ages of 20 and 30 years.

Random Sampling
● All members of target population could be chosen. To random sampling the following are
needed:
- List of all people in target population
- Sequential numbers given to each member of population
- Random numbers generated by computer
● May take time to contact specific people.
● Asking the first 100 pedestrians who pass by during surveys on a shopping street is not
random sampling, it is called convenience sampling and will be biased because different
people tend to be shopping at different times.
● Definitions:
- Random sampling: every member of the target population has an equal chance of
being selected.

Stratified Sampling
● Recognizes target population may be made up of different groups with different opinions.
● Groups are called strata or layers of the population.
● For sample to be accurate, member of all strata should be used.
● People surveyed in each stratum should be selected randomly.
● Stratified sampling may also be used when a product is designed to appeal to just one
segment of the market.
 ● Definitions:
- Stratified sampling: this draws a sample from a specified subgroup or segment of the
population and uses random sampling to select an appropriate number from each
stratum.

Cluster Sampling
● When list of potential sample members is not available or target population is too regionally
dispersed, then cluster sampling will take samples from just one or few groups rather than
whole population.
● It might be just one region and it will help reduce cost, but may not be fully representative of
the whole population.
● Random methods can then be used to select samples from this group.
● Multinational researching global attitudes could save time and money by concentrating on a
few areas for its research.
● Definitions:
- Cluster sampling: using one or a number of specific groups to draw samples from and
not selecting from the whole population, e.g using one town or region.

Snowball Sampling
● Cheap and can be operated through social networking sites.
● It is likely to lead to a biased sample, as each respondent’s friends are likely to have the same
kind of lifestyle and opinions.
● Definitions:
- Snowball sampling: using existing members of a sample study group to recruit further
participants through their acquaintances.

Convenience Sampling
● Advantages are availability and quickness that data can be gathered.
● Disadvantages are the risk that sample might not represent the population as a whole and
might be biased by volunteers.
● Definitions:
- Convenience sampling: drawing representative selection of people because of the
ease of their volunteering or selecting people because of their availability or easy
access.

Results From Data Collection

● Before data can be used effectively, it must be presented and analysed.
● Methods of data presentation:
Presentatio Most useful for
n method
Tables  Wide range of results need to be recorded
 Results need to be statistically anaylsed, it is essential to have
numbers themselves, rather than taken from graphs
 There is lots of text included with results, such as headings
Line graphs  When time is a variable
 When trends and variations need to be identified
 When two or more sets of time-series data needs to be compared
Bar charts  When size or magnitude needs to be presented and compared
  Component and percentage component charts used to show how
total figure is comprises of different sections
Pie charts  Shows relative importance of sections out of total result. Can be
visually compared with other time periods; less effective when
comparisons between totals are needed
Histograms  Visually presenting frequency data when range of data has been
broken into class ranges. Can be used for simple statistical analysis
like identifying modal class.
Pictograms  When wanting to attract reader towards looking at data; often
imprecise when using one symbol to represent large number of
results

● Uses and limitations of 3 most commonly used measures of average:

Average Uses Advantages Disadvantages

Measur
e
Mean  Result range is  Includes all data.  Mean affected by
small, mean  Widely recognized as any extreme results.
can indicate average and therefore  Commonly not
likely sales easily understood. whole number.
level per period  Can analyze data
of time. Could further to assist in
help determine understanding of
reorder levels. significance of results.
 Often uses
making
comparisons
between sets of
data.
Mode  As most  Easily observed and  For grouped
frequently not calculation. Result distributions, result
occurring, is whole number. is estimates from
results could be modal group.
used for stock- Complex
ordering calculation could be
purposes. made if estimate
was not accurate
enough.
 Does not consider
all data, cannot be
used for statistical
analysis.
 May be more than
one modal.
Median  Used to wage  Less influenced by  Calculation from
negotiations. extreme results than grouped data not
 Used in mean is. straightforward and
advertising there is some
inaccuracy.
 When there is even
number of items,
value is
 approximated.
 Cannot be used for
further statistical
analysis.

4.5: The Four Ps – product, price, promotion and place

Product
 If the product does not meet customer expectations, as discovered by market research,
regarding quality, durability, performance, appearance, etc. then no matter how low the price
or how expensive the advertisement, it will not sell successfully in the long term.
 The term ‘product’ includes consumer and industrial goods and services. Consumer goods can
be both consumer durables – washing machines – and single use – as with chocolate bars.
 Industrial products such as mining equipment are purchased by businesses, not final
consumers.
 Services have no physical existence but satisfy consumer need in other ways – hairdressing,
car repairs, child mining and banking are examples of services.
Definitions:
 Product: the end result of the production process sold on the market to satisfy a customer
need.
 Consumer durables: manufactured products that can be reused and are expected to have a
reasonably long life, such as cars.

Product life cycle

 Knowing when to launch a new product or update an existing one can give a business a
crucial advantage.
 Allowing existing models of cars or computers to ‘soldier on’ in the market when other firms
are introducing attractive new or revamped ones is a classic business error that has led to
many failures.
 The life cycle of a product records the sales of that product over time. There are several
stages:
  Introduction. This is when the product has just been launched after development and testing.
Sales are often quite low to begin with and may increase only quite slowly – but there are
exceptions, such as a newly launched DVD by a major rock star.
 Growth. If the product is effectively promoted and well received by the market
Definitions:
 Product life cycle: the pattern of sales recorded by a product from launch to withdrawal from
the market.