BUSINESS UNIT 3
Laura Powell
FUNCTIONAL OBJECTIVES AND STRATEGIES• Corporate objectives - the
goals or targets of the whole
organisation usually based ...
Corporate Objectives
Finance Marketing HR Operations
UNDERSTANDING FINANCIAL OBJECTIVES
Financial Objectives - the monetary targets a business wants to achieve in a
given time...
UNDERSTANDING FINANCIAL OBJECTIVES
Cost minimisation - objectives focused on actions that can be taken
to minimise fixed a...
Internal influences External influences
Corporate and functional
objectives
- achieving corporate objectives
- Influenced ...
USING FINANCIAL DATA TO MEASURE
PERFORMANCEBalance sheet- a document that describes the financial position of a
company at...
Income statement - a document that summarises a
businesses trading activities and expenses to show
whether the business ha...
Structure of an income statement:
-Revenue and cost of sales
-Expenses (Overheads)
-Finance income and expenses
-Tax paid ...
Interpreting Published
AccountsRatio Analysis- A comparison of two or more pieces of data
taken from the financial records...
Profitability
The efficiency of a business in generating
profits.
Return on capital employed:
Operating profit x 100
Total...
Liquidity
A measure of a firms ability to meet short
term debts.
Current Ratio =Current assets : Current
Liabilities
Acid ...
Financial Efficiency
A measure of how the internal management are utilising and controlling
the business’ financial assets...
Gearing
A measure of the debt to equity ratio within a
business.
Gearing = non-current liabilities x100
Total equity + non...
Shareholders ratios
Measures of the value of returns made to the shareholders.
(The return paid to
shareholders from
profi...
Value and Limitations of the
calculations
Value Limitation
- Provides a tool for the
interpretation of accounts
- Consider...
Selecting financial strategies
Internal Sources External Sources
Retained Profit
The part of a firm’s profit that
is reinv...
Profit Centres
Individual sections of a business that are responsible for their own
costs, revenues and profits.
Reasons f...
Cost minimisation
Marketing – changes in price in the market and may need to lower
selling prices to gain market share
Ope...
Making investment decisions
Investment appraisal- a scientific approach to investment
decision making, which investigates ...
Payback
Advantages Disadvantages
Easy to calculate Ignores any costs that occur after
the point at which payback is
reache...
Average Rate of Return (ARR) Calculates average
profit as a percentage of the cost of initial investment.
Average rate of ...
Net Present Value (NPV) calculates the total return on
an investment taking into account the time value of
money
Step 1: M...
Investment
Investment Criteria – a predetermined set of
guidelines which an investment can be judged
on.
Investment apprai...
Qualitative factors affecting
decisions:
-The aims of an organisation
-Reliability of the data
-Risk
-Personnel
-The econo...
MARKETING STRATEGIES• Marketing aims - the broad, general goals of the
marketing function within an organisation.
• Market...
Types of marketing objectives:
•Size
•Market positioning
•Innovation/increase in product range
•Creation of brand loyalty/...
Factors influencing marketing objectives
Internal
•Corporate objectives
•Finance
•Human resources
•Operational issues
•Res...
Analysing Markets
Market Analysis – the study of market conditions in
order to determine their attractiveness to the busin...
Moving Averages – A method of market analysis that shows whether a
trend is significant by smoothing out fluctuations in d...
Qualitative forecasting- those methods of
prediction that are based on statistical information.
Qualitative forecasting – ...
Low cost versus differentiation
(Michael Porter’s Strategy)
Analysis of porter’s 5 forces, it’s a basic
premise that a fir...
Low Cost Differentiation
By pursuing a strategy of cost
leadership a firm sets out to be
the lowest cost producer in its
i...
Ansoff’s
Matrix
Entering International Markets
Methods of expanding into international markets:
-Exporting
-Setting up a base overseas
-Jo...
Developing and Implementing Marketing
Plans
Marketing plan – a statement of the
marketing activities, position and future
...
Assessing influences on
marketing plans
External Influences
Market Factors
Competitors actions
Technological
change
Suppli...
Personnel Available
-Skills and expertise
-Commitment towards the
objectives
Finance Available
-Budget
-Overspending (adve...
OPERATIONS STRATEGIESOperational objectives – The targets a business sets
in order to produce goods/service in the most ef...
Internal influences on operations managements objectives:
-Corporate objectives
-Finance
-Human resources
-Resources avail...
Operational management aims – the general goals of
the operations management function within an
organisation
Operations ma...
Economies of Scale
The advantages enjoyed by a firm as it increases the
scale of production leading to a fall in unit cost...
Diseconomies of scaleThe problems experienced as a firm
increases the scale of production leading to a
rise in unit cost, ...
Optimal mix of resources
Capital Intensive production- the use of a relatively high
proportion such as machinery in the pr...
Labour Intensive Production- The use
of a relatively high proportion of labour i.e.
workers in the production of a good or...
Innovation
The development of an idea into a new product or process.
Businesses invest time and money in order to make a
p...
Research and Development
The scientific investigation (research) and technical growth
(development) of a new product or pr...
Purpose and costs of
Innovation
Purpose Costs
Firms can not afford to stand still
in competitive markets.
Innovation can b...
Benefits and risks of
innovation
Benefits Risks
Creates a USP for the product Firms can make substantial
losses if innovat...
Making location Decisions
Main factors are technology, costs of factors of production,
resources, the market, government i...
Benefits of Optimal Location
Optimal location – (the best location) will depend on
an a number of factors and as location ...
Multi-site Location
When a business is operating from more than one
location.
Retailers must be close to their customers a...
International Location
Offshoring- where companies outsource business
activities, largely because labour and facility cost...
Lean ProductionLean production – A collective term relates to
working practices derived from Japan that
focus on cutting w...
Just in Time (JIT production) – A technique used to minimise stock holdings at
each stage of the production process form t...
Critical Path AnalysisA technique used to identify the order in which all
tasks need to be completed when planning a compl...
HUMAN RESOURCE
STRATEGIESHuman Resource objectives – The targets that the
HR function of a business wants to achieve in a ...
HR Objectives – Internal and External
influences
Finance – allocating capital expenditure, cutting budgets,
implementing p...
Soft and Hard HR Strategies
HR Strategies – the overall way in which a
business treats its staff.
Soft HR strategy – views...
Workforce plansA detailed plan of the strategies that the HR
department will undertake to ensure that future
workforce nee...
Internal and External influences of workforce
plans
Finance – will be affected by whether the firm is following a hard
or ...
Issues and value of using workforce
plansIssues:
-employer/employee relations
-Costs (recruitment, selection and
training)...
Organisational Structure
Factors influencing the choice of structure:
-The size of the organisation
-The nature of the org...
Improving Competitiveness
Restructuring may look to:
-Reduce costs
-Spread work load
-Reduce duplication
-Improve communic...
Managing Communication
Communication – the process of passing information
between interested parties to the right person, ...
Employee Representation
Giving a voice to employees through a recognised body that represents
them.
Forms of employee repr...
Work councils – A group made up of managers and
representative employees who meet regularly to discuss
issues relating to ...
Avoiding and Resolving
disputesIndustrial dispute – when there is a disagreement
between the employer and the employee/emp...
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  1. 1. BUSINESS UNIT 3 Laura Powell
  2. 2. FUNCTIONAL OBJECTIVES AND STRATEGIES• Corporate objectives - the goals or targets of the whole organisation usually based on its mission or aims. The purpose of corporate objectives include: • Informs decision making • Provides strategic direction • Forms the overall guiding principles of the business • Guides functional objectives • Functional objectives - the goals or targets of each functional areas of a business, usually based on its corporate objectives. Functional objectives must: • Focus on corporate objectives • Provide strategic direction within each function • Impact upon other functional objectives • Must be co-ordinated
  3. 3. Corporate Objectives Finance Marketing HR Operations
  4. 4. UNDERSTANDING FINANCIAL OBJECTIVES Financial Objectives - the monetary targets a business wants to achieve in a given time period. Cash flow targets - objectives designed to achieve a specific net cash balance at the end of a trading period. Examples of cash flow targets: •Creating a more even spread of sales revenue •Reducing the bank overdraft •Spreading costs evenly •Setting contingency fund levels •Raising certain levels of cash at a particular time.
  5. 5. UNDERSTANDING FINANCIAL OBJECTIVES Cost minimisation - objectives focused on actions that can be taken to minimise fixed and variable costs. • Tactical changes - cheaper source of raw materials • Strategic changes - relocate production abroad Reasons for setting financial objectives: • Act as a focus • Provides a point to measure performance • Improve efficiency • Gives co-ordination
  6. 6. Internal influences External influences Corporate and functional objectives - achieving corporate objectives - Influenced by other functional objectives. Competitors - leader or follower - - relative power of competition - Actions and reactions Characteristics of the firm - capital or labour intensive - Established - Low cost or highly differentiated Consumers - loyalty - Changing tastes Relationship between owners and directors -power of individual shareholders Economic conditions -star ability -growth or decline -optimistic or pessimistic. External environment - political social and technological change
  7. 7. USING FINANCIAL DATA TO MEASURE PERFORMANCEBalance sheet- a document that describes the financial position of a company at a given point in time. It compares the businesses assets with their liabilities. Elements of a balance sheet: - Assets - Liabilities - Capital Purposes of a balance sheet: - recognising the scale of a business - Calculating net assets - Understanding the nature of a firm
  8. 8. Income statement - a document that summarises a businesses trading activities and expenses to show whether the business has made a profit or a loss. When analysing an income statement its important to understand: -Profit Utilisation (How the profit after tax is used) -Profit Quality (The sustainability of the profit figure) USING FINANCIAL DATA TO MEASURE PERFORMANCE
  9. 9. Structure of an income statement: -Revenue and cost of sales -Expenses (Overheads) -Finance income and expenses -Tax paid on the profits made.Formulae: Gross profit = revenue - cost of sales Operating profit = gross profit- expenses Earnings per share= Profit for the year__ Number of
  10. 10. Interpreting Published AccountsRatio Analysis- A comparison of two or more pieces of data taken from the financial records of a business. Ratios are used to measure these financial indicators: -Profitability -Liquidity -Financial Efficiency -Gearing -Shareholder’s Returns.
  11. 11. Profitability The efficiency of a business in generating profits. Return on capital employed: Operating profit x 100 Total Equity + non-current liabilities Analysis can include comparing against other investments (E.g interest rates) and assessing branch performance to help with strategic decisions.
  12. 12. Liquidity A measure of a firms ability to meet short term debts. Current Ratio =Current assets : Current Liabilities Acid Test = Liquid Assets (Current assets- inventories) : Current Liabilities Analysis can include threats to the survival and in relation to cash flow targets.
  13. 13. Financial Efficiency A measure of how the internal management are utilising and controlling the business’ financial assets. Asset Turnover = Revenue Net Assets Inventory Turnover = Cost of sales Average inventories held Payables (Creditors) days = Payables x 365 Cost of sales Receivables (Debtors) days =receivables x 365 revenue (How efficiently assets are being utilised to generate revenue) (Measures how frequently a business turns over it’s stock) A measure of how long it takes on average for the business to pay for supplies. A measure of how long it takes on averages to
  14. 14. Gearing A measure of the debt to equity ratio within a business. Gearing = non-current liabilities x100 Total equity + non-current liabilities Lines of analysis: -You have to pay interest on loans even if profits are low. -Low gearing may be a sign of missed opportunitiesA high gearing is of greater risk if interest rates are likely to increase.
  15. 15. Shareholders ratios Measures of the value of returns made to the shareholders. (The return paid to shareholders from profit as a reward for their investment) Dividend per share = Total Dividends Number of ordinary shares Lines of analysis: -Money paid in dividends reduces retained profit -Will be influenced by financial objectives -Works as an incentive to the board of directors to maximise profits. Dividend Yield = Ordinary share dividend (p) x100 Current Market Price (p) Lines of analysis: -Market prices fluctuates -Increase to the dividend payment = rise in share price (Measures the return on the investment as a percentage of current market price)
  16. 16. Value and Limitations of the calculations Value Limitation - Provides a tool for the interpretation of accounts - Consider relationships between variables - Can compare the data - Aids decision making (by managers and investors) - Possibility that accounts have been window dressed - Need to consider reasons behind the ratios. (eg ROCE could be lower because of an investment programme that year) - Quantitative information only - Based only on past performance - External factors (economic cycle, government
  17. 17. Selecting financial strategies Internal Sources External Sources Retained Profit The part of a firm’s profit that is reinvested into the business. Ordinary share capital Money given by shareholders , dividends are paid at directors discretion and no fixed repayment terms. Sale of Assets Sales of the items owned by a business, however it may lower the firms profitability. Loan Capital Money received in agreement with an interest rate. There is no loss of ownership, however there is fixed repayment terms and interest is a finance cost on Sale and Leaseback Selling an asset then paying a lease/rent on the item.
  18. 18. Profit Centres Individual sections of a business that are responsible for their own costs, revenues and profits. Reasons for profit centres: -More focused study of a firms finances -Benchmarking to improve efficiency -The responsibility can help motivate -By placing the responsibility with the person actually involved it, may improve the efficiency in the finances. Disadvantages of profit centres: -Allocating costs (may be difficult) -Demotivation (Extra pressure and stress) -Setting targets -Diseconomies (similar tasks being carried out by managers) External changes (make it harder to reach targets and to assess the efficiency)
  19. 19. Cost minimisation Marketing – changes in price in the market and may need to lower selling prices to gain market share Operations Management – adoption of lean production techniques such as JIT to reduce waste and lower costs. Human Resources – might see delayering, increased spans of control. Outsourcing could also be used to reduce labour costs and increasing flexibility. Capital Expenditure – money used for the purchase of non current assets. Revenue Expenditure- money used for the day to day running of a business.
  20. 20. Making investment decisions Investment appraisal- a scientific approach to investment decision making, which investigates the expected financial consequences of an investment, in order to aid with decision making Payback Calculates the length of time it takes for an investment to pay for itself. Step 1: calculate during which year the investment cost will be covered. Step 2 : Calculate how many months A longer payback period means a greater degree of risk and uncertainty. Firms hope for as short a payback as possible.
  21. 21. Payback Advantages Disadvantages Easy to calculate Ignores any costs that occur after the point at which payback is reached. Concept is easy to understand Very hard to establish a target payback time. Emphasises cash flow by focusing on time taken to return the money. Payback values future costs and revenues ant the same time as current costs and revenues. Emphasises the speed of return May focus too much on the short term instead of considering the long term consequences.
  22. 22. Average Rate of Return (ARR) Calculates average profit as a percentage of the cost of initial investment. Average rate of return = Average annual profit (Total net cashflow/number of years) Initial investment X 100 Advantages Disadvantages Can easily be compared with the next best alternative eg IR The ARR is harder and more time consuming to calculate. Shows the true profitability and takes into consideration every item of income and expenditure. Considers all income and expenditure as equal in value.
  23. 23. Net Present Value (NPV) calculates the total return on an investment taking into account the time value of money Step 1: Multiply net cash flow by the relevant discount factor Step 2: Add up all the NPVs to calculate the total return on the investment. Advantages Disadvantages Only method that considers the time value of money. More time consuming and difficult to calculate Reduces the importance of long term estimates and helps make conclusions more accurate. More difficult to understand and may hinder in decision making NPV gives a precise answer. Relies on the discount rate used which is up to judgment.
  24. 24. Investment Investment Criteria – a predetermined set of guidelines which an investment can be judged on. Investment appraisal – Is used to try to minimise risk and help inform decision making. It considers: -Gearing -Opportunity cost -Predictions -Competitors reactions -Corporate objectives
  25. 25. Qualitative factors affecting decisions: -The aims of an organisation -Reliability of the data -Risk -Personnel -The economy -Image -Subjective criteria Marketing – will investment result in new products being marketed? Operations Management – might see new machinery that will require training for the workforce. Human Resources – employer/employee relations could be strained if redundancies occur.
  26. 26. MARKETING STRATEGIES• Marketing aims - the broad, general goals of the marketing function within an organisation. • Marketing objectives - the specific, focused targets of the marketing function within an organisation. • Marketing strategies - long term or medium term plans devised at senior management level and designed to achieve the firms marketing objectives. • Marketing tactics - short term marketing measures adopted to meet the needs of a short term threat or
  27. 27. Types of marketing objectives: •Size •Market positioning •Innovation/increase in product range •Creation of brand loyalty/goodwill •Security/survival Reasons for setting marketing objectives: •To act as a focus in decision making •To provide a point to measure against •To improve co-ordination between departments •To improve efficiency by examining reasons for success and failure in
  28. 28. Factors influencing marketing objectives Internal •Corporate objectives •Finance •Human resources •Operational issues •Resources available •The nature of the product External •Market factors •Competitors action and performance •Technological change •Economic factors •Suppliers •Political factors •Legal factors
  29. 29. Analysing Markets Market Analysis – the study of market conditions in order to determine their attractiveness to the business. Reasons: -Inform decision making -Devising strategy -Understanding the market -Identify sales patterns -Realistic target setting -Keeping up to date with market changes -Reviewing competitors actions -Evaluation of past actions
  30. 30. Moving Averages – A method of market analysis that shows whether a trend is significant by smoothing out fluctuations in data. -This allows for a better identification of an overall trend. -Sufficient data is needed to give validity to the trend identified. Extrapolation – using the previous patterns of numerical data in order to predict values in the future. Correlation – The identification of a relation ship between two variables. E.g. marketing budget and sales The use of ICT: -Using the internet to collect consumer opinions to inform marketing. -Wide availability of statistical data, e.g. the census -Loyalty cards to analyse consumer buying -Competitor profiles and investor details to inform decisions.
  31. 31. Qualitative forecasting- those methods of prediction that are based on statistical information. Qualitative forecasting – considers reasons to why certain actions take place. Methods of qualitative forecasting: -The oracle technique (asking individual experts for their views) -Brainstorming -Individual hunch
  32. 32. Low cost versus differentiation (Michael Porter’s Strategy) Analysis of porter’s 5 forces, it’s a basic premise that a firm should be one thing or another and clearly focused on their choice of strategy. Strategic advantage Low producer cost High differentiated Strategic target Mass Market Cost leadership Differentiation Niche Market Focused cost leadership Focused Differentiation
  33. 33. Low Cost Differentiation By pursuing a strategy of cost leadership a firm sets out to be the lowest cost producer in its industry. Having the ability to offer a product of service that stands out from competition. Price is a key element in the marketing mix. Firms may benefit from increased sales volume and a greater scope to charge a higher price. Both operational and financial objectives focus on cost minimisation in these firms. The product may be better than competition and has a USP. Promotion may be exclusive and promote brand loyalty. Operation objectives will focus on R&D and innovation.
  34. 34. Ansoff’s Matrix
  35. 35. Entering International Markets Methods of expanding into international markets: -Exporting -Setting up a base overseas -Joint ventures -Franchising -Licensing Benefits Risks Wider Target Market and Achieving growth Cultural, social and language differences Boosting profitability Greater use of intermediaries Spreading risks Legislation Helping international competitiveness Economic variables abroad Global branding Political factors such as advice and help from conflicting countries suchExpertise from around the world
  36. 36. Developing and Implementing Marketing Plans Marketing plan – a statement of the marketing activities, position and future activities. Components include: -A SWOT Analysis -A marketing budget -Sales forecasts -Markets Strategies -Marketing tactics
  37. 37. Assessing influences on marketing plans External Influences Market Factors Competitors actions Technological change Suppliers Political Factors Social Factors Legal Factors Environmental Factors Finance – The money available will impact on the marketing budget. The marketing department may have to justify this and it is likely they will look at the correlation between previous budgets and sales. Operations Management – The firm will need the ability to meet demand. If the firm has a good record with R&D this will be incorporated into the marketing plan as the products will need to be promoted before they are launched. Human Resources –Skilled marketing employees will influence the plan with their own ideas whilst others across all the functions will be integral to the successful implementation of these
  38. 38. Personnel Available -Skills and expertise -Commitment towards the objectives Finance Available -Budget -Overspending (adverse variance) -Unrealistic forecasting Operational ability -Meeting deadlines -Matching supply to demand Conflict within the organisation -Across functional areas -Within marketing Control -A plan like any document must have flexibility -Key employees must be able to monitor and respond to the plan Time Frame -Co-ordination of all activities is crucial if the plan is to work. Issues in implementing Marketing Plans
  39. 39. OPERATIONS STRATEGIESOperational objectives – The targets a business sets in order to produce goods/service in the most effective way. It will include the following areas: -Meeting quality -Cost (unit) and volume(capacity utilisation) targets -Innovation -Efficiency
  40. 40. Internal influences on operations managements objectives: -Corporate objectives -Finance -Human resources -Resources available -The nature of the product External influences on operations managements objectives: -Market factors (Nature of the product) -Competitors actions and performance -Technological change -Economic Factors -Political factors -Legal factors -Environmental factors -Supplies
  41. 41. Operational management aims – the general goals of the operations management function within an organisation Operations management objectives- the focused targets of the operations management function within an organisation Operations management strategies – long/medium term plans designed to achieve the firms operations management measures Operations management tactics – short term operations management measures adopted to meet the needs of a short term threat or opportunity.
  42. 42. Economies of Scale The advantages enjoyed by a firm as it increases the scale of production leading to a fall in unit cost. Methods of economies of scale: -Purchasing (Bulk buying) economies - Buying in bulk secures lower prices although suppliers have a lower profit margin buy have high volume. -Technical Economies –Spending more on larger and more efficient machinery, a lower fixed cost over a greater output. -Specialisation Economies – Employ specialist people to focus on particular areas who are better qualified, more experience and more
  43. 43. Diseconomies of scaleThe problems experienced as a firm increases the scale of production leading to a rise in unit cost, making the firm less competitive. Methods of diseconomies of scale: Communication diseconomies- as a firm grows in size it becomes more difficult to communicate efficiently. Coordination diseconomies–as a firm grows it becomes more difficult to co-ordinate the increased number of personnel and customers. (Taller structures)
  44. 44. Optimal mix of resources Capital Intensive production- the use of a relatively high proportion such as machinery in the production of a good or service. Advantages Disadvantages Increased productivity High investment outlay Improved quality and speed Lack of human initiative Reduced labour costs Greater resistance to change by workforce e.g. retraining to use new equipmentGreater opportunities for economies of scale
  45. 45. Labour Intensive Production- The use of a relatively high proportion of labour i.e. workers in the production of a good or service. Advantages Disadvantages Often cheaper, especially when produced in low wage locations. Employer/employee relations can be a problem. E.g. industrial disputes and industrial action Workforce can easily adapt to change, especially multi-skilled. Lack of skilled workers in some industries. Continuous improvement through workforce can benefit the firm. E.g. ideas HRM costs can be very high e.g. recruitment, selection and training. Government funding often available to protect jobs in the economy.
  46. 46. Innovation The development of an idea into a new product or process. Businesses invest time and money in order to make a profit. Product innovation- changing a product that already exists or developing an invention into a brand new product. Process innovation – changing a process of production that already exists into practise a brand new production process. How does a strategy of innovation influence other functional areas. Finance: -Financing innovation -Budgetary control Human Resources: -Workforce planning -Industrial relations Marketing: - Market led marketing - Effective marketing
  47. 47. Research and Development The scientific investigation (research) and technical growth (development) of a new product or process. Factors that effect how much an organisation spends: -The nature of the product -Competition -The market -Company finance - Chances of success - Efficiency of innovation - Company culture
  48. 48. Purpose and costs of Innovation Purpose Costs Firms can not afford to stand still in competitive markets. Innovation can be costly in the R&D stage and drain on resources. Todays innovations are tomorrows potential starts and cash cows. For all innovations there is an opportunity cost. A firm that comes up with the right innovation can guarantee future income if it is protected by a patent. Few innovations see the light of day so a firm may effectively be wasting finance. Although it is expensive the alternative risk of losing future markets might be worse.
  49. 49. Benefits and risks of innovation Benefits Risks Creates a USP for the product Firms can make substantial losses if innovation fails. Less competition due to protecting the ideas using patents. Other companies are likely to react with their own innovations. More efficient and cost effective production processes. Legal implications often arise with other firms questioning whether the product/process is an innovation Likely to be a premium product with opportunity for premium pricing strategies. Operational difficulties and the company may suffer setbacks as they may be in hurry to release the product.
  50. 50. Making location Decisions Main factors are technology, costs of factors of production, resources, the market, government intervention infrastructure and other qualitative factors. Quantitative factors Qualitative factors Easier to identify for a firm More difficult to identify Investment appraisal, break even analysis, cost minimisation and economies of scale. They are based on value judgments and might include staff, expert and customer opinions. Cost considerations – labour, building, material and transport costs Human resources – impact on employer/employee relations and workforce planning. Revenue – sales potential Can link to environmental targets Grants that may be available to locate in areas of low economic activity. Consider the impact on the reputation of the firm and its brand
  51. 51. Benefits of Optimal Location Optimal location – (the best location) will depend on an a number of factors and as location decisions are strategic in nature, it will be decided at board room level. Quantitativ e Qualitativ eHigh fixed costs in prime locations (rent) Lower labour costs in less affluent areas Government grants Good infrastructure (access for staff and customers Quality of product (are staff skilled?) Working environment (Harder to attract quality
  52. 52. Multi-site Location When a business is operating from more than one location. Retailers must be close to their customers and many large UK organisations mass produce products where labour is cheap but base their head quarters in the UK Advantages: -Lower costs -Improved market focus -Avoidance of trade barriers -Increased flexibility -Overcoming cultural barriers Disadvantages: -Globalisation -Increased unit costs -Increased risks -Loss of control -Cultural differences
  53. 53. International Location Offshoring- where companies outsource business activities, largely because labour and facility costs are much cheaper there. Outsourcing – where companies give responsibility for some of their activities. Cost reduction: takes place due to lower fixed and variable costs. Locating internationally can reduce labour costs and raw materials. The UK/EU has very high land costs compared to developing countries. Trade barriers: Anything that limits the free movement of goods and services between countries. -Protectionism -Tariffs -quotas
  54. 54. Lean ProductionLean production – A collective term relates to working practices derived from Japan that focus on cutting waste whilst maintaining or improving quality. Time Based Management The effective management of resources to ensure that unproductive time is eliminated from the production process. Flexibility is crucial so that firms are successful and: -Have reduced lead times -Less wastage through increased efficiency -Faster development time for new products.
  55. 55. Just in Time (JIT production) – A technique used to minimise stock holdings at each stage of the production process form the delivery of raw materials through to meeting customers demand. Kaizen – A system that concentrates on small, but frequent improvements in every aspect of the production process. This requires a highly motivated and committed workforce and is a vital component of Total Quality Management in order to improve the quality of the production process. Benefits Drawbacks Less costs in holding stock Little room for error Less working capital required Very reliant on suppliers Less obsolete/ruined stock Unexpected orders are hard to meet Lower associated costs e.g. security and insurance High initial set up costs Complex systems have to be put in placeAvoids having unsold stock Possible loss of purchasing economies.
  56. 56. Critical Path AnalysisA technique used to identify the order in which all tasks need to be completed when planning a complex project. The critical path is the set of activities that will lengthen the duration of the project if delayed.Value of CPA Limitations of CPA Identifies the critical activities allowing them to be closely monitored. Is only a starting point for a successful project Shortens the overall time of a project by identifying simultaneous activities. Relies on estimations of durations Improves focus on project Does not take into account external influences. Greater productive efficiency Large projects can be too complex for CPA. Allows for JIT
  57. 57. HUMAN RESOURCE STRATEGIESHuman Resource objectives – The targets that the HR function of a business wants to achieve in a given period of time. They may focus on a number of areas: -Matching workforce skills, size and location to business needs -Minimising labour costs -Marking full use of workforce potential -Maintaining good employee/employer relations
  58. 58. HR Objectives – Internal and External influences Finance – allocating capital expenditure, cutting budgets, implementing profit centres and increasing ROCE all effect HR. Operations Management – whether the firm is labour or capital intensive, An innovative firm will require expertise and high quality workers. Marketing– Low cost will mean lower wages whilst differentiation implies creative thinking. Diversification may require investment for training and recruitment.External Influences -Workforce skills and availability (skills shortages – demographics) -Technological change (Greater capital intensity make use of tech) -Market conditions (Whether its growing or what- effects demand for workers and consumer habits as tastes change for jobs) -Political factors (laws e.g. Minimum wage and age discrimination) -Social factors ( Family commitments) Internal Influences
  59. 59. Soft and Hard HR Strategies HR Strategies – the overall way in which a business treats its staff. Soft HR strategy – views employees as valuable assets, a major source of competitive advantage and a vital importance in achieving strategic objectives Hard HR strategy – views employees as valuable assets, a major source of competitive advantage and of vital importance in achieving strategic objectives - Control mechanisms - Centralised decision making - Tall organisation structure - McGregor’s Theory X - Empowerment - Consultation - Greater autonomy and responsibility - Flatter organisational structure - Maslow's higher level of
  60. 60. Workforce plansA detailed plan of the strategies that the HR department will undertake to ensure that future workforce needs are met. Strategies may include: -Training or redeployment -Internal promotion or external recruitment -Natural wastage -Relocation or restructuring
  61. 61. Internal and External influences of workforce plans Finance – will be affected by whether the firm is following a hard or soft approach. Soft approach may require bigger training budgets. Operations Management – May involve new technology, innovation and kaizen groups. Capital intensive industries may see redundancies. Marketing– An objective of increased market share will lead to an increased demand for workers, often requiring different skills and experience. External influences: -Market conditions -Labour market and demographic trends -The state of the economy and government policy -Legislation -Local factors
  62. 62. Issues and value of using workforce plansIssues: -employer/employee relations -Costs (recruitment, selection and training) -Corporate image -Market failure -Opportunity cost -Motivation Value: -Informed decision making -Natural wastage (save future redundancy costs) -Respond to changing nature of the labour market -Sufficient staff with the right skills to allow the business to run effectively.
  63. 63. Organisational Structure Factors influencing the choice of structure: -The size of the organisation -The nature of the organisation -The culture and attitudes of senior management -The skills and experience of its workforce -The dynamic/ external environment. The relationship between different people and functions in an organisation. Hierarchica l A formal structure with clear levels of authority and channels of communication. This may be functional or divisional. Matrix A dynamic structure with project teams compromising of people from different function and different levels. Informal There is no clear hierarchal structure, creativity and an enterprising culture is promoted.
  64. 64. Improving Competitiveness Restructuring may look to: -Reduce costs -Spread work load -Reduce duplication -Improve communication -Respond to changes in technology -Meet new demands Centralisation: Decisions made at the top of the hierarchy. -few decision makers speeds up decision making -Maintains tight control -Bureaucratic Decentralisation: Decisions made at many levels within the hierarchy. -Delegates decision making -Frees up management time -Provides motivation -Reduces bureaucracy Delayering: Taking out levels of the hierarchy. -Flatters structures -Empowers employees as less direct supervision -Expertise may be lost -Widens span of control
  65. 65. Managing Communication Communication – the process of passing information between interested parties to the right person, at the right time and in a format that is understandable to the recipient. Effective is important: -Coordinates – motivates – clarifies roles -Eases the implementation of change -Enables feedback -Facilitates decision making -Keeps everyone informed Methods of communication – must be appropriate to the content being delivered. Barriers of communication – as information overload, cultural and language problems can damage the performance of the workforce.
  66. 66. Employee Representation Giving a voice to employees through a recognised body that represents them. Forms of employee representation: -Work councils -Employee groups -Trade unions Advantages Disadvantages Medium for effective two way communication Opportunity cost of time Reduces feeling for ‘them and us’ Can cause conflict due to different agendas Employees kept informed Slows down decision making Employers have some understanding of employee perceptions Employer may not be able to respond to employee wishes Improved motivation Non homogeneous employees
  67. 67. Work councils – A group made up of managers and representative employees who meet regularly to discuss issues relating to the business and specifically issues affecting the workforce. -Pay and working conditions – Workforce plans -Proposed or planned changes to business activities Employee groups – A group made up of management, HR manager and elected employees from specific areas of a business in order to facilitate two way communication. - Can meet to discuss specific issues affecting the workforce Trade Unions – National organisation with a remit to protect its members and improve their economic and working conditions. -Securing jobs – Maximising pay -Ensuring safe conditions and fair treatment of members by
  68. 68. Avoiding and Resolving disputesIndustrial dispute – when there is a disagreement between the employer and the employee/employer representative. Industrial action – when the employees take actions to try and impose pressure on the employer. These actions might include: -Work to rule – Demonstration -Lobbying - Strike
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