POB lecture 2

1. Principles of Business
Purpose of Business – Part 2

2. Overview
2
• Discuss the notion of the free market and concepts of the
invisible hand; critically evaluating the role of business from
shareholder value to stakeholder value and sustainability
• Illustrate how organisations are founded and the role of
having a purpose and vision in a number of the most
impactful and successful businesses e.g Apple, Microsoft and
Facebook
• Evaluating the multiple environments in which business
operate
• Discuss major trends in globalisation including KPIs of
different fast growing countries
• Determine how organisations can do business across borders
• Highlight the major challenges; political, cultural, social and
logistical of doing business globally

3. Learning Outcomes
3
• Critically evaluate the changing nature and role of
business
• Determine the role of corporate purpose and
vision
• Articulate the multiple environments a business
operates in
• Critically evaluate the challenges and
opportunities for businesses operating on a global
scale

4. Role of the free market
It is not from the
benevolence of the
butcher, the brewer or the
baker, that we expect our
dinner, but from their
regard to their own self
interest. We address
ourselves, not to their
humanity but to their self-
love, and never talk to
them of our own
necessities but of their
advantages.
Adam Smith

5. Characteristics of a free-market; the
invisible hand
According to the invisible hand
theory, each of us, acting in our
own self-interests, generates a
demand for goods and services
that compels others to deliver
those goods and services in the
most efficient manner so that
they may be able to receive
compensation from others and
make a profit in doing so. In this
process, resources are allocated
in the most efficient manner, in
contrast to a process that relies
on a centrally planned system.

6. An explanation in 60 seconds
View Video: https://www.youtube.com/watch?v=ulyVXa-u4wE

7. However is it always efficient?

8. Inefficiencies in the market
Moral Hazard Principle-Agent &
Information Asymmetry
Monopolistic CompetitionPublic Interest or
Good & Externalities

9. An example of a free market fall out: The
Credit Crisis
View video: https://www.youtube.com/watch?v=bx_LWm6_6tA

10. 10
The visible hand:
A new form of state capitalism
Source: Economist, 2014

11. The invisible hand: A myth?
View video: https://www.youtube.com/watch?v=9qjvwQrZmpk

12. Organisations are to moving beyond self-interest

13. Why have a Corporate Mission or Vision?
“Data from a 10 year growth study of
more than 50,000 brands showed
companies with a purpose at the
centre of all they do, outperform the
market by 400 percent.”
Jim Stengal,
Ex-CMO
Procter & Gamble
A Vision Drives
65% to go
the extra
mile
2nd most
important
hiring
reason
64%
would be
more
loyal
Source: Calling Brands’ survey, You Gov, 2013

14. The Ashridge Mission Model
Why the company exists
Policies and behaviour patterns
CompetitivePosition&
Competencies
Whatthecompanybelievesin
Success Factors
Source: Ranchhod and Gurau, 2007:16

15. Market Defined Mission Statement
According to Kotler et al (2013), a mission statement is “a
statement of the organisation’s purpose – what it wants to
accomplish in the larger environment”
Why
How
What
“Model of Purpose” by Simon Sinek
View video: http://www.ted.com/talks/simon_sinek_how_great_leaders_inspire_action

16. Consider the role of the founder in creating
a mission

17. Purpose & Culture

18. Multiple Environments of Business
Source: Bovee, et al, 2013

19. PE(D)ST Analysis
Economics
Technology
Social
Political
Demographics
EVIDENCE BASED
REGULATION
INCREASE IN
REGULATOR
ENFORCEMENT
GLOBAL REGULATION
& PRIVACY
ASSET PRICES INCREASEUK RECOVERY
ROLE OF SOCIAL
FINANCE
60% LIVING IN
URBAN AREAS (50%
NOW)
5M MORE OVER 65’S
>SINGLE PERSON
HOMES AND <30S
LIVING W PARENTS
ASSET PRICES INCREASEUK RECOVERY
ROLE OF SOCIAL
FINANCE
Open vs Closed Mobile & Tablet Digitisation

20. Conduct a stakeholder analysis
Source: www.staekholdermap.com

21. Increase in and
application of
technology
Liberalization of
cross-border trade
and resource
movements
Forces Driving Globalization
Development of services
that support international
business

22. Growth of
consumer
pressures
Increased global
competition
Forces Driving Globalization
Changing political
situations and
government
policies
Expanded cross-
national
cooperation

23. Trends in globalisation: Trading blocks
Source: Daniels et al, 2013

24. Members of Major Trading Blocs
Source: Daniels et al, 2013

25. FDI Inflows and Outflows
Source: Daniels et al, 2013

26. Various ways of doing business internationally
Source: Bovee et al, 2013

27. Challenges in doing business globally
• The external environment affects a company’s international
operations
• Managers must understand social science disciplines and
how they affect functional business fields
• Consider:
Physical
Factors
Social
Factors
Competitive
Factors

28. Physical and Social Factors
• Geographic influences
– natural conditions influence business locations
• Political policies
– countries determine where and how business occurs
within their borders
• Legal policies
– influence how a company operates
• Behavioral factors
– may require adaptation in to local conditions
• Economic forces
– explain differences in costs, currency values, market size

29. The Competitive Environment
• Competitive strategy for products
– Cost strategy
– Differentiation strategy
– Focus strategy
• Company resources and experience
– market leaders have more resources for international
operations
• Competitors faced in each market
– local or international

30. Essential work for next week
• Please consult the OLE for details of:
– Essential readings*
– Seminar/workshop preparation work*
– Recommended further readings
– Any additional learning
* Essential readings and preparation work must always be completed in time
for the next session
30

31. Appendix – Sources for illustrations
Slide 4:
www.whatiseconomics.org
Slide 5:
www.thebillyleepontificator.com
Slide 7:
www.jupiterjenkins.com
Slide 8:
www.imbd.com
Slide 16:
www.bombsbeat.com
Slide 14:
www.cartoonwork.com
Slide 15:
www.unilever.com
Slide 16:
www.ted.com

32. End of presentation
© Pearson College 2013