cima e2 tuition notes 2011
TRANSCRIPT
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CIMA E2
Enterprise Management
Tuition Notes
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Contents
Contents
Contents ........................................................................................ 3
LEARNING OUTCOMES GRID ..................................................... 5
Paper Information .......................................................................... 8
How to Pass .................................................................................. 9
The Verb Hierarchy...................................................................... 10
Strategic Management & Assessing the Competitive Environment. (A)12
A2 (c) Explain the relationship between different levels of strategy. 12
A2 (b) Compare and Contrast Approaches to Strategy Formulation 15
A1 (a) Discuss the nature of competitive environments ............ 15
A1 (b) Distinguish between different types of competitiveenvironments ............................................................................ 15
A2(b) Compare and contrast approaches to strategy formulation39
A2(a) discuss concepts in established and emergent thinking instrategic management .............................................................. 55
C1 (b) demonstrate the importance of organisational culture .... 88
C2 (g) Analyse issues of business ethics and corporate governance............................................................................................... 113
Management of Relationships (C)................................................ 66
C2 (a) Analyse the relationship between managers and theirsubordinates, including legal aspects affecting work and employment............................................................................................... 104
C1 (a) discuss the concepts of power, bureaucracy, authority,responsibility, leadership and delegation .................................. 66
C2 (b) Discuss the roles of negotiation and communication in themanagement process, both within an organisation and with externalbodies ....................................................................................... 82
C2 (d) Identify tools for managing and controlling individuals, teamsand networks, and for managing group conflict ......................... 97
C1 (c) identify the nature and causes of conflict ....................... 97
C1 (d) discuss alternative approaches to the management of conflict................................................................................................. 97
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C2 (e) Compare and contrast ways to deal effectively with disciplineproblems ................................................................................. 106
C2 (f) Explain the process and importance of mentoring juniorcolleagues ................................................................................ 87
C2 (c) discuss the effectiveness of relationships between the financefunction and other parts of the organisation and with externalstakeholders ........................................................................... 111
Project Management (B) ............................................................ 116
B1 (a) Identify a project, a programme and their attributes ..... 116
B1 (d) Identify the characteristics of each phase in the project process
............................................................................................... 117B1 (b) Apply suitable structures and frameworks to projects to identifycommon project management issues ..................................... 119
B2 (a) Produce a strategy for a project ................................... 128
B1 (g) Identify structural and leadership issues that will be faced inmanaging a project team ........................................................ 119
B2 (c) Explain the roles of key players in a project organisation124
B2 (b) Recommend strategies for the management of stakeholder
perceptions and expectations ................................................. 126B1 (c) Construct an outline of the process of project management............................................................................................... 127
B1 (f) Produce a basic project plan, incorporating strategies fordealing with this uncertainty, in the context of a simple project128
B1 (e) Apply tools and techniques that would need to be applied in theproject process, including the evaluation of proposals ............ 138
B1 (h) Compare and contrast project control systems ............ 147
B1 (i) discuss the value of a post-completion audit ................. 149
B1 (j) Apply a process of continuous improvement to projects151
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LEARNING OUTCOMES GRID
A Strategic Management and Assessing the CompetitiveEnvironment 30%Lead Component
1. Discuss differentcompetitiveenvironmentsand key externalcharacteristics of
theseenvironments
(a) discuss the nature of competitiveenvironments;
(b) distinguish between different types ofcompetitive environments.
2. Discussdevelopments instrategic
management
(a) discuss concepts in established andemergent thinking in strategicmanagement;
(b) compare and contrast approaches tostrategy formulation;
(c) explain the relationship between differentlevels of strategy in organisations.
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C Management of Relationships 30%Lead Component
1. discussconceptsassociated withthe effectiveoperation of anorganisation
(a) discuss the concepts of power,bureaucracy, authority, responsibility,leadership and delegation;
(b) demonstrate the importance oforganisational culture;
(c) identify the nature and causes of conflict;(d) discuss alternative approaches to the
management of conflict.
2. Discuss theactivitiesassociated withmanaging peopleand theirassociatedtechniques
(a) Analyse the relationship betweenmanagers and their subordinates,including legal aspects affecting work andemployment;
(b) Discuss the roles of negotiation andcommunication in the managementprocess, both within an organisation andexternal bodies;
(c) Discuss the effectiveness of relationshipsbetween the finance function and otherparts of the organisation and externalstakeholders;
(d) Identify tools for managing and controllingindividuals, teams and networks, and formanaging group conflict;
(e) Compare and contrast ways to dealeffectively with discipline problems;
(f) Explain the process and importance ofmentoring junior colleagues;
(g) Analyse issues of business ethics andcorporate governance.
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Paper Information
THE EXAM
Syllabus topics and weightings
A. Strategic Management & Assessing the Competitive Environment
30%
B. Project Management 40%
C. Management of Relationships 30%
Format of the Paper
Section A 50 Marks
Five compulsory questions, each worth 10 marks. Short scenarios maybe given, to which some or all questions relate
Section B 50 Marks
One or two compulsory questions. Short scenarios may be given, to
which questions relate.
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How to Pass
Have sound theoretical knowledge
(Attend Tuition Classes)
Practice application skills
(Question Practice)
Be prepared!
(Attend Revision & QBR)
Read the question requirements
Add value to the scenario material
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The Verb Hierarchy
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Overview of Paper
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Strategic Management & Assessing theCompetitive Environment. (A)
A2 (c) Explain the relationship between different levels ofstrategy.
The concept of strategy
A strategy is something that an organisation implements totake it from where it is now to where it wants to be at somepoint in the future.
A course of action, including the specification of resources,to achieve a specific objective.
Characteristics of strategic planning
Strategic planning is characterised by the following factors:
Long-term planning strategic planning looks at the longer-term strategy of the organisation.
Emphasis on external factors strategic planning requiresthe external environment to be taken into account whenformulating strategies.
Resource analysis strategic planning involves analysing anorganisations resources to determine resourcerequirements.
Objectives strategic planning requires the establishment of
organisation objectives which are achievable given theexternal factors and realistic given the internal resourceavailability.
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Levels of strategyThere are basically three levels of strategy: corporate strategy,business strategy and functional level strategies:
Corporate strategy
Overall purpose and scope
Decisions on acquisitions, mergers and sell offs
Decisions to enter new markets
Embracing new technologies
Development of corporate policies (i.e. policy on corporatesocial responsibility)
The extent to which the SBUs are free to make strategicdecision (centralised or decentralised approach)
Business strategy set within the broad framework of thecorporate strategy
How the SBU approaches a particular market
Winning customers and beating rivals competitive strategycan be formulated depending on the degree of autonomyallowed
Marketing issues (segmentation & marketing mix)
Functional level strategies
Dealt with at the departmental level within the SBU such asmarketing, finance and production.
These strategies are to ensure that there is a balanced
portfolio of resources for business and corporate strategyimplementation.
Without the appropriate resource, product and/or businessunit strategies could not be successfully undertaken.
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CorporateStrategy -
Head Office
Business
StrategySBU SBU
Functional
Strategy
Financial
Operations
Human
Resources
SBU SBU
Question
V plc operates in the leisure and entertainment industry. It has a range ofdifferent ventures worldwide including fitness centres. Casinos, cinemas
and sports bars, each of which operates as a separate business
Required
Distinguish between the different levels at which strategy should exist in Vplc.
(10 Marks)
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A2 (b) Compare and Contrast Approaches to StrategyFormulation
A1 (a) Discuss the nature of competitive environments
A1 (b) Distinguish between different types of competitiveenvironments
The strategy formulation process
According to Johnson and Scholes, there are three stages in theprocess of strategy formulation: strategic analysis, strategic choiceand strategic implementation.
Strategic analysis requires the analysis of the internal andexternal environments. A corporate appraisal (or SWOT analysis)is undertaken to ascertain the internal strengths and weaknesses
and the external opportunities and threats.
Strategic evaluation & choice requires management to identifystrategies to take advantage of strengths and opportunities andstrategies to minimise weaknesses and threats.
Strategic implementation (Review & Control) requiresorganisational change, which will need to be managed.
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Strategic Analysis and Competitive Analysis
The strategy of an organisation must allow it to achieve agood fit with its environment and internal resources.
The information from the external environment helps toanalyse potential opportunities and threats and thecompetition it faces.
The information from the internal audit helps to analyse theorganisations strengths and weaknesses.
External/Environmental Analysis
All of the factors outside of management control which canaffect the performance of the business and the success of itsstrategies. (There are various levels within the environment)
o Nature of the environment Degree of turbulence and uncertainty
Organisations need to be flexible (E1)o Macro-environment
PEST
Create opportunities or threatso Micro-environment
5 Forces
Competitive pressures
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Environmental uncertainty
Uncertainty is:
The inability to predict the outcome from an activity, due to alack of information about the required input/outputrelationships, or about the environment within which theactivity takes place.
Uncertainty can also be defined as the difficulty in makingreliable assumptions about the future
Causes of Environmental Uncertainty
Complexity the increasing number of variables that impactupon the firm (and how difficult they are to understand)(theuse of the rational planning model to generate a singlescenario strategic plan ignores this scenario planningwould allow if a what if approach)
Interaction of the variable the idea of complex adaptivesystems (carrying out the strategic planning process annuallymeans that any changes in the business environment during
the year cannot be incorporated into the strategic plan planning should be carried out on a continuous basis)
Dynamism the rate of change in the variable that impactupon the firm. Our assumptions are soon out of date. Thishas occurred because of, amongst other things, shorteningproduct life cycles and swifter communications (the diffusionof knowledge)
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Impact of uncertainty
Reduces planning horizon
Encourages emergent strategies
Increases information needs and perceived informationneeds
Can lead to conservative strategies
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PEST/PESTEL framework(Key drivers of change)
Political/legal influences
Economic factors and influences
Social values and demographic factors
Technological change and factors
Again, if you are asked to apply the PEST model to anorganisation, simply look for the things that might affect theorganisation and put each of them under the most appropriateheading with an explanation as to why you feel each activity is anopportunity or a threat. (i.e. what impact do they have on theorganisation)PEST(LE) Analysis
Benefits Identify and capitalise on opportunities Obtain objective qualitative information giving a deeper
understanding of its markets More sensitive to changing needs of customer Improve the quality of strategy formulation and reduce risk Education and awareness of the industry which should
reduce surprises
Political Analysis
Stability of political system
Availability of tax incentives
Government intervention in the market etc
Economic Analysis
Interest rates
Exchange rate
Inflation rate
Fund movement control
etc
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Social Analysis
Gender
Age of population Birth growth rate
Changing tastes and fashions
etc
Technology Analysis
R&D national expenditure
Types of technology available
Usage of technology
etc
Legal Analysis
Intellectual property legislation
Minimum wage regulation
Pricing regulation
Competition regulation
etc
Ecological Analysis Pollution regulation
Environmental protection legislation
etc
Sources of information
industry analysis
regulatory and professional bodies
press
government suppliers
watchdog groups
trade associations
consultants
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The Competitive environment five forces model
Porter identified five competitive forces that provide a usefulframework for assessing the competitive forces at work in anindustry /market
It can be used to determine whether that industry/market isan attractive one to enter.
It is the collective strength of these forces that will determinethe profit potential.
Threat of new entrants
Competitive
Rivalry
Threat of New
Entrants
Threat of
Substitutes
Bargaining Power
of suppliers
Bargaining
Power of Buyers
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Threat of substitute products or services
Bargaining power of buyers
Bargaining power of suppliers
Rivalry amongst existing firms
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Evaluation of Environmental ModelsBenefits Limitations
Consider a wide rangeof potential impacts They can distort reality(the real business world
does not fall into neatsegments)
They allow for divisionof work
They present theenvironment as external(the boundary betweeninternal and external isblurred)
They provide a commonlanguage
Networks andinterdependencies areoverlooked
They provide an insightinto key strategic issues
They overloadmanagement(should only a smallnumber of factors bemonitored?)
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Question
T is the CEO of S Company, a manufacturer of hair and body care
products. Over the years the company has been market leader inits field. It has achieved this through being at the forefront ofproduct innovation. S Company has invested heavily in researchand development, which has enabled it to be the first in the marketto introduce new variants of the product range. However, this hasmeant that the cost of operations has spiralled, leading to anincrease in the price of the companys products.
Up until last year, the company has been very successful inincreasing its market share. However, the most recent
performance indicators show that sales are down. It would seemthat supermarket own brand products are stealing market shareand T is worried about the future ability of the company to meet itsobjectives for continual growth. T has decided to undertake astrategic review, the first stage of which will involve conducting anappraisal of its external environment.
Required
Explain what would be involved in undertaking an appraisal of SCompanys external environment, and how the information couldbe used to help T in his review.
(10 Marks)
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Competitor Analysis
The systematic review of all available information (marketing,
promotion, financial, etc.) on the activities of competitors in order to
gain a competitive advantage
The Purpose of competitor analysis is:
o To help understand our competitiveadvantage/disadvantage relative to competition
o To forecast competitors future strategies and how tocounteract them
o To give an informed basis for the construction of the firmsstrategies, to gain or sustain competitive advantage
o To assist with the forecasting of the returns on strategicinvestments when deciding between alternative options
o To forecast competitors likely reactions to the firmsstrategic decisions
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The following process can be used for gathering competitiveintelligence:
Identify competitors current strategy
Identify competitors objectives
Identify competitors assumptions about the industry/market
Identify competitors resources and capabilities
Information that should be gathered:
o Products and serviceso Marketingo Human resourceso Operationso Management profileso Socio-political informationo Technologyo Organisational structureo Competitive intelligence capacityo Strategyo Customer value analysiso Financial information and Cost structures
Sources of data
From partnership
Physical analysis of competitors products
Banks and financial markets
Ex-employees of competitors
Generalisation from own cost base Industrial experts and consultants
Physical observations of their operations
Published financial statements
Competitor press releases
Trade and financial media coverage
Inspection of wage rates in job adverts
Availability of the market segments they serve
The work methods they employ
Competitor threat
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We can link thito which comp
Number of rivmarket a mafiercely compe
Entry and mo
Cost structureprofit will mak
Degree of vertpower but re
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s back to Five Forces Analysis anetitors are a threat depends upon:
ls and the extent of differentiation irket for commodity products is alwtitive
ility barriers
anything that makes it harder toit more fiercely competitive
ical integration vertical integratiomoves flexibility
prise Management
____________
the extent
n theys more
ake a
gives
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Strategies that can be used against competitors and potentialnew entrants
Attack competition
Market segmentation
Occupy new territory
Block first mover advantage
Rewrite the rules of the game
Technical innovation
Higher levels of service
Co-operation
Competitor Accounting
Evaluation of barriers to entry
Estimate the present value of the costs that an entrant willincur to overcome barriers
Compare with present value of returns
Estimate competitors costs
Regarding competitor analysis
you should make sure that you are able to discuss the role of
competitor analysis do not forget that it is strongly linked toFive Forces Analysis.
in scenario questions, you should be looking for clues to theindustry structure and, therefore, the nature of thecompetition that a firm in likely to experience in that industry.
you should also be able to describe a process for gatheringcompetitive intelligence, including the sources you would usetailored to the scenario of the question
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National Competitive Advantage
Porters Diamond
This model can be used to answer questions such as:
1. Where should an organisation locate to gain a competitiveadvantage?
2. Why certain organisations are successful international firmsand how they sustain superior performance?
3. Where should an organisation locate part of its operations(e.g. production) to take advantage of what a country offers?
4. What are the implications for competitive strategy (home andoverseas)?
The four elements on the diamond that need to be analysed
are;
1 Demand conditions
o The demand conditions in the home market are importantbecause: If the demand in terms of volume is substantial, it
enables the firm to obtain the economies of scaleand experience effects it will need to compete
internationally.
Firm strategy,structure and rivalry
Related andsupporting industries
Demand conditionsFactor conditions
Firm strategy,structure and rivalry
Related andsupporting industries
Demand conditionsFactor conditions
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The experience the firm gets from supplyingdomestic consumers will give it an informationadvantage in international markets, provided that:
(i) its customers are critical and demandingenough to force the firm to produce at world-class levels of quality in its chosen productsand
(ii) its customers encourage the firm to developnew and sophisticated products.
2 Related and supporting industries
o The internationally competitive firm must have enjoyed thesupport of world-class producers of components andrelated products. Moreover, success in a related industrymay be due to expertise accumulated elsewhere.
3 Factor conditions
These are the basic factor of production referred to ineconomic theory. Factors may be of two sorts:(i) Basic factors such as raw materials, semi-
skilled or unskilled labour and initial capitalavailability. These are largely natural and notcreated as a matter of policy or strategy.
(ii) Advanced factors such as infrastructure,training and skill, R & D experience, etc. are amatter of strategy.
4 Firm structure, strategy and rivalry
Intense rivalry can lead to emergence of firms with strongcompetitive characteristics.
Search for competitive advantage within a nation usescompetitive skills, which promote domination in worldwidemarkets.
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The model also includes Governmentand Chance Events.
1. The role of government - subsidies, encouraging enterprise,infrastructure building, legislation and education all impact onfirms.
2. The role of chance events can change the other elementson the diamond such as war, terrorism and nationaldiscoveries.
Gaining a national advantage
Successful firms from a particular country tend to havelinkages between the four factors, a phenomenon that Portercalls clustering.
Clustering may take place in two ways:1 Common geographical location (eg Silicon Valley, City
of London)
2 Expertise in key industry (eg Sweden in timber, woodpulp, wood-handling machinery).
Clustering allows for the development of competitiveadvantage for the following reasons:
(i) transfer of expertise, eg through staff movement andcontracts
(ii) concentration of advanced factors (egtelecommunications, training, workforce)
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Sources of Information for Environmental Analysis.
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Internal Analysis
Appraising internal resources and capabilities
Identification of those things the organisation is good at incomparison to the competition
Position Audit Value Chain
Value Chain
Possibly one the most powerful techniques for analysing thestrengths and weaknesses of an organisation and its
component functions. The model looks at the functions within the organisation to
determine where value is added, either by cost leadership ordifferentiation the only two routes to competitive advantage(according to Porter).
According to Porter there are five primary activities and foursupport activities.
The primary activities:
1 Inbound logistics of raw materials and input components eg.storage, inventory control, materials handling etc.
2 Operations that transform inputs into products eg.manufacturing, packaging and assembly etc.
3 Outbound logistics of the finished goods eg. transport and
distribution etc.
4 Marketing and sales, eg sales administration receivingorders etc.
5 Customer service, which includes after sales activities,installation, repairs and customer training etc.
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The support activities:
1 Procurement how the resources are purchased for theorganisation.
2 Technology development how systems and technologyassist the firm.
3 Human resource management how people are organisedand managed within the organisation.
4 Firm infrastructure how the firm is organised, eg
centralised, decentralised, product based etc.
Linkages among primary and support activities need to beexamined in order to identify areas of competitive strengths andany possible synergies from the sharing of value chain activities.
The value added by the entire system is the difference betweenthe revenue received by the last time buyer and the costs
generated in the system. This is shared between the firms at thevarious stages of the value system.
Firm infrastructure
Technology development
Human resource managementProcurement
Inboundlogistics
Operations Outboundlogistics
Marketingand sales
Service
MARGIN
MARG
IN
Firm infrastructure
Technology development
Human resource managementProcurement
Inboundlogistics
Operations Outboundlogistics
Marketingand sales
Service
MARGIN
MARG
IN
Suppliersvalue chain
Firmsvalue chain
Channelsvalue chain
Customersvalue chain
Competitorsvalue chain
Suppliersvalue chain
Firmsvalue chain
Channelsvalue chain
Customersvalue chain
Competitorsvalue chain
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The SWOT analysis - Corporate appraisal
SWOTA critical assessment of the strengths and weaknesses,opportunities and threats (SWOT analysis) in relation to theinternal and environmental factors affecting and entity, in order toestablish its condition prior to the preparation of the long term plan
SWOT forces management to focus on the big issues.
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The Use of Stakeholder Mapping
Stakeholder analysis
Stakeholders are those individuals or groups who have an interestin, can be affected by or can affect the outcome of the strategy.
Stakeholders exert powerful influences on a business and
management must balance the returns to various stakeholdergroups
Internal stakeholders employees and management
Connected stakeholders shareholders, customers andsuppliers
External stakeholders governments, community, localpressure groups
The Mendelow Matrix assessing power andinterest of stakeholders
A useful checklist for the management of stakeholders is asfollows:
Identify the key stakeholders
Determine vested interests
Identify the specific stake
Evaluate stakeholder influence status, claim on resources,formal representation in decision making process
Modify project strategy
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InterestLow
High
Resolving Competing Objectives (Cyert & March)
Satisfying Sequential attention
Side payments
Exercise of power
Handling Conflict (Thomas)
Avoidance avoid, suppress, ignore. This is not
recommended as it does not resolve the conflict which maybreak out again when the parties meet in the future
Accommodation one party putting the others interest first.
Compromise each party gives something up if both partiessee this as losing something it may not be ideal
Competition parties seek to maximise their own interestsand goals, it creates winners and losers and can provedamaging to the organisation
Collaboration differences are confronted and jointly
resolved so that a win: win outcome is achieved
Minimal Effort - DirectionKeep Informed - Education
& Communication
Keep Satisfied -Intervention
Key Players - Participation
Mendelow's
power-interestmatrix
High
Power
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A2(b) Compare and contrast approaches to strategyformulation
A2(a) Discuss concepts in established and emergent thinkingin strategic management
The strategy formulation process
According to Johnson and Scholes, there are three stages in theprocess of strategy formulation: strategic analysis, strategic choiceand strategic implementation.
Strategic analysis requires the analysis of the internal andexternal environments. A corporate appraisal (or SWOT analysis)is undertaken to ascertain the internal strengths and weaknessesand the external opportunities and threats.
Strategic evaluation & choice requires management to identifystrategies to take advantage of strengths and opportunities andstrategies to minimise weaknesses and threats.
Strategic implementation (Review & Control) requiresorganisational change, which will need to be managed.
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Rational Strategy Process
Mission &Objectives
CorporateAppraisal
(SWOT)
Strategic OptionGeneration
StrategyEvaluation &
Choice
StrategyImplementation
Position Audit
Internal Analysis
Environmental Analysis
External Analysis
Competitor Analysis
Review &
Control
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This approach generally involves a deliberate step by stepapproach.
The company will start with the existing strategy of theorganisation
The current strategy is then evaluated using information fromthe internal and external environment
The information from the external environment helps toanalyse potential opportunities and threats
The information from the internal audit helps to analyse theorganisations strengths and weaknesses.
Strategic alternatives are evaluated to determine whichstrategy will best position the organisations strengthswhile minimising threats and weaknesses.
The organisation can then determine if the organisationshould continue with its existing strategy or formulate a newstrategy in order to compete more effectively.
Then a plan is prepared to assist in the implementation of thechosen strategy and then evaluating performance to
determine whether or not goals have been achieved.
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MissionA mission is an open-ended statement of the firms purposes andstrategies.
A statement of the purpose of the business
A statement of its products and markets
A statement of its competitive strategy or positioning
A statement of its principles, ways of doing business and
social responsibilities. A definition of the industry the organization competes in
S
C
O
P
E
Organisational goals and objectives
General statement of aim or purpose may be qualitative innature
A goal is a target such as we want to increase our market
share. An objective is a quantification of a goal.
Organisational objectives when set by managers should beSMART
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The goal structure is the hierarchy of objectives in theorganisation.
Mission Statement is translated into
Objectives perform five functions1. Planning2. Responsibility3. Integration4. Motivation5. Evaluation
Strategic
Tactical
Opertaional
Individual
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Approaches to formulating business strategy
Typical features of the process
~ A designated team for strategy development
~ Formal collection of information for strategy purposes
~ Collective decision making by the senior management team
~ A process of communicating and implementing the strategy
~ Regular review and control of the strategy
Benefits Drawbacks
Avoids short termbehavior by consideringthe nature of theenvironment. Anticipatingcompetitor actions isabout being proactive inplanning in order to keepahead.
Goal congruence
providing direction for thedifferent areas of thebusiness. Targets set atdifferent levels with enablethe strategy to beimplemented andreviewed.
If the company has a clearidea of where it is going
then the stakeholdersperceptions of thebusiness should beimproved. Investors maybe more confident ofhigher returns which couldlead to a higher shareprice.
Can be too infrequent toallow the business to bedynamic. If the businessenvironment changesunexpectedly then thecompanys performancemay deteriorate further.
A formal approach doesnot encourage the
development of moreradical and innovativestrategies and oftenresults in the loss ofentrepreneurial spirit sinceit encourages rewards tobe given to managers whocarry out their part of thestrategy sticking to the
conventional way of doingbusiness.
Does not encouragecontributions from staffwho are lower down thehierarchy. Yet it is oftenthese staff who are mostin touch with the customerand can see the impact of
competitor activity.
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It assumes that the
strategist can makereliable businessassumptions about thefuture and particularlyabout the opportunitiesand threats that face thecompany.
Too expensive &complicated for small
businesses
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Strategy and Small
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Business
Business goal aligned with
owner manager
Limited number of options
Limited resources
Expensive and time consuming
Could get in the way of creativity
& innovation
prise Management
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Alternatives to the rational approach to Strategy
There is a need to question some of the assumptions of therational approach
People not organizations have objectives peoples beliefsare partially irrational therefore any strategy based on themwould not be completely rational
Senior management should not be the only people involvedin setting the strategy
The process is not a simple step-by step process
Actual strategies often need to be adapted
Strategies are often adaptive the organization adapts to thecircumstances around it
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Emergent strategies
Strategy is best constructed as an emergent process. In a rapidly
changing and dynamic environment Mintzberg contends thatformal planning is inadequate and rather, it is better that theorganization retains flexibility and be ready to adapt strategy as itscompetitive environment changes.
Mintzberg suggested that few strategies are consciously plannedbut are the results of patterns of behaviour and emerge throughthe ways in which people do things.The totality of an organisations strategies can be seen as a
combination of planned and emergent strategies.
Planned
or
Intended
Strategy
Deliberate
Strategies
Realised
Strategies
Unrealised
Strategies
Emergent
Strategies
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Evaluation of approaches to strategy
A rational approach is usually used as the basic framework
(evolutionary) Strategies can be influenced by irrational factors (adaptive,
systems)
Most real world strategies are balanced between the two(incremental taking small steps and testing strategies asthey go)
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Resource Based versus Positioning Views onstrategy formulation:
Positioning view competitive advantage stems from the firmsposition in relation to its competitors, customers or stakeholders. Itis sometimes called an outside-in view because it is concernedwith adapting the organisation to fit its environment.
Positioning based view strategy should start with the setting of amission and strategic objectives. These should be expressed interms of the customers the firm seeks to serve and the needs itseeks to satisfy, ie what market it is in. Assessing resources andcompetencies should be undertaken in terms of how they affect theability of the business to serve this market and to identify whereimprovements in these will be needed. It places the customer andmarket at the centre of strategy
Resource based view the principle of the resource based view isthat management should identify which of the activities carried outby the firm are not easily copied or improved on by competitors.Management should make these activities the core competenciesof the business and then develop products and services basedupon them.
This is an inside-out view of strategy because the firm must go insearch of environments that enable it to harness its internal
competencies.
Modern strategy formulation is tending towards the resource basedview for the following reasons:
Strategic management should focus on developing corecompetencies. The sensible path open to management is todevelop key competitive strengths that will sustain the business inthe uncertain times ahead. Therefore identify the competencies
first and develop objectives aimed at exploiting and maintainingthem.
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It will avoid the firm losing sight of what it is good at. Some earlyobjectives-led views insisted that missions be formulated in termsof the needs that the firm satisfied. Consequently railways foundthemselves in the transportation business which led tounsuccessful diversification into road services where the firmscould not compete. Attention to core competencies means firmswill stick to the knitting.
Underlying Principles of the Resource Based Approach
Sustainable competitive advantage depends on theorganisations possession of unique resources or distinctivecapabilities that cannot be easily replicated by its competitors
Resources include all assets, capabilities, organisationalprocesses, information and knowledge controlled by a firmthat enable it to create and pursue effective strategies
Writers views on the resource based approach
Barneyo Valuableo Rareo Difficult to imitateo No freely available substitutes
Kayo Competitive architectureo Reputationo Innovationo Ownership of strategic assets
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Critical Success Factors
The identification of critical success factors is a key part of thestrategy development process since they will help to determine theresources and competences needed to achieve competitiveadvantage. They are important in establishing where a businessmust excel to outperform thecompetition and as such CSFs are
crucial elements of the firms business strategy.
Customers will value product/service features to a greater or lesserextent and so it will be critical to the development of a businessidea to understand which features are of particular importance.CSFs relate to those product or service features that areparticularly valued by a group of customers, and can be used todistinguish between the offerings of potential providers.
In summary, CSFs are those factors where performance
requirements will be fundamental to the competitive success andidentifying the skills processes and technologies that support them.
Core competences are closely related to CSFs since they are thedistinctive group of skills and technologies that enable anorganisation to provide a particular set of benefits to customers. Inother words, the things that the business must do well and bedifficult for competitors to imitate in order to deliver on the criticalsuccess factors that will give it competitive advantage.
The things the company has to do well in order to outperform thecompetition (usually customer focused)
1. Identify the CSFs2. Identify the underpinning competences3. Identify performance measures4. Ensure advantages are sustainable5. Monitor competitors
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Question
The PAX company is a successful supermarket chain. It has astrong reputation for innovation with its successful launch ofinternet shopping and clothes ranges. PAX Companys ability toprovide value for money through the efficient use of operations, itsuse of the latest technology and its strong customer focus hasenabled it to gain the largest share of the market in Country S.
Following detailed analysis, the senior management of PAXCompany has concluded that the market in Country S has reachedsaturation point and that the only opportunity for significant growthis to develop activities in new markets abroad.
Acting partly on the advice of the central governments OverseasAdvisory Board, and using its own research team, PAXs Boardhas made the strategic decision to enter into a new market inCountry Y. The location selected for the first supermarket is in thesuburbs of a growing city where groceries, clothing and the othernon-food products that PAX intends to supply are currentlyprovided by a large number of small shops.
This is a major new project for the PAX Company, and as suchrequires strong project management skills. D has been appointedas project manager and is already facing significant challenges interms of the reactions to the project from different stakeholders.
The land on which the supermarket will be built has beenpurchased and following a series of negotiations with state andlocal government officials, planning permission has been granted.
However, there have been strong protests from a number ofgroups including the Citys Civic Society, local residents andshopkeepers who are located near to the proposed development.
The Civic Society is concerned about the detrimental impact on thelocal environment. Residents are concerned about the potentialincrease in traffic and the danger it poses to the children at thelocal school. The shopkeepers are fearful about the impact of thenew supermarket on their future business prospects.
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The media including television, radio and newspaper have
publicised the fears of the local residents and shopkeepers andthese two groups, together with the Citys Civic Society haveformed a coalition to attempt to prevent the development.
Required(a) Explain how the project team should manage the different
stakeholders who threaten the future of PAX Companysproject to open a supermarket in Country Y. (13 Marks)
(b) Discuss the Resource Based approach to strategicmanagement, making reference to the resources andcompetences that appear to give PAX Companycompetitive advantage.
(12 Marks)(Total for Question 25 Marks)
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A2(a) discuss conin strategic manag
Changes in the buthe following:
Saturated home
Trade barriers co
Improved commu
Access to cheap
Increasing comp
Fast changing
In todays businessso that they can be
The Flexible Firm
Structure
Handy The Sham
CORE
OUTSOURCING
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epts in established and emergement
iness environment have occur
arkets
ming down
nications technology
r resources
tition
nvironment organisations need toore responsive to change.
rock Organisation
PERIPHERAL
prise Management
____________
t thinking
ed due to
be flexible
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Employment
Numerical
Functional
Temporal
Financial
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Complex organisational forms
Remember, an organisations strategy should focus managementon being both efficient and effective. Efficiency (doing things right)and effectiveness (doing the right things) must be pursuedsimultaneously in todays competitive environment.
This drive has widened some organisational structures to includeexternal groupings such as franchised firms, resellers who areallowed to sell other products, joint ventures, partnerships andalliances. In this way it is possible to have a market penetration atlowest cost and internally reduce overheads by outsourcing
activities considered non-core into the market.
Network Organisations
Network organisations rely on relationships with otherorganisations in order to carry out their work. Eg Amazon, UKhospitals, Airlines
Network organisations can choose to buy in a range of value-
creating activities:
Contract staffing
Use of specific capital assets
Outsourcing elements of production or service provision
Reliance on outside organisations for referral of business
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Transaction cost theory
Purpose of transaction cost analysis
To identify the most economically viable solution
Identification of unique competences
To support organisational restructuring
Information technology has helped companies to lower
transaction costs making it worthwhile to contract withexternal suppliers.
Transaction Costs are concerned with the costs of controlspecifically related to the delivery of a product or provision of aservice
Transaction Cost = Unit Cost + Cost of Control
. Williamson suggests two methods of controlling resources anddeciding how to manage transaction costs
to buy in (market solutions) and which to own and operate directly (hierarchy solutions)
Transaction cost theory states that companies exist because theycan conduct transactions internally more cheaply than they canwith external companies.
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When the organisation relies on outside suppliers for an input orservice (market solution) in addition to the price for the bought-inservice it will incur the following transaction costs:
negotiation and drafting of the contract
Monitoring the suppliers compliance
Penalty payments if the contract needs to change
Pursuing legal actions for redress due to non performanceThese costs arise because both the firm and the supplier wish tobe protected and use the contract to define the risks that each aretaking on.
Bounded rationality neither party can completely anticipatethe future
Opportunistic behaviour- each party seeks to pursue theirown economic self interest.
Managers will often suggest an internal solution in order tomake their lifes easier in terms of control and certainty, andit increases their empire.
Consideration of the decision (in-house or external)
If these transaction costs become too high the
organisation may reduce its costs by taking the supply in-house (hierarchy solution).
Another and the most important reason for bringing thetransaction in-house is due to asset specificity.
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Asset specificity cost of an external solution is low whenspecificity of the assets are low i.e. the assets required tofulfil the contract are readily transferable to othertransactions.
Asset specificity can force the buyer into long term contractswith the sole supplier, or encourage an in-house supply asthe high asset specificity may result in no suppliers comingforward on the market
o Siteo Physicalo Human
The asset specific concept of Williamson suggests thatcorporations reduce transactions costs by verticallyintegrating which creates a more complex internalenvironment. (a company ends up operating in morethan one market with more than one product)
To-day this concept is challenged and organisations willconsider the external market place
Due to realisation that internal costs can beundervalued
Due to the fact that technology lowers the cost ofsearching & maintaining the supplier relationship
The conclusion that should be drawn is that the decisionshould be based on the most economically viable solution forthe company (i.e. the shareholders).
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A Wider Stakeholder /Ecological perspective
Shareholder Perspective (Friedman) the primary purpose of an
organisation is to make as much money as it can, maximisingwealth for its owners and that it is the role of the state to regulateorganisational activities from a social perspective.
Stakeholder Perspective accepts that organisations should havea duty towards the wider community and society.
Social responsibility can be defined as accepting responsibilitiesover and above legal responsibilities. Issues commonly associated
with social responsibility include:
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How does social responsibility conflict with benefitingshareholders?
Extra cost involved in implementing sociallyresponsible strategies
o Cost of treating emissions and waste Reduced revenues
o Refusing to do business in certain countries Management time should be about running the
business Funds that may otherwise have been paid out in
dividends are instead being used to make charitable
donations
Can social responsibility improve shareholders returns? Any strategy that conflicts with the needs and values of
society is unlikely to survive in the long termo Negative publicity McDonalds received
Reducing waste and pollution and saving energy andrecycling resources may lead to lower overheads, which
in turn can help to improve profits. Could attract socially conscious consumers Increase corporate image and have a positive effect on
share price
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Ecological Perspective
Closely aligned with social responsibility
Concerned with relationship of the organisation & its naturalenvironment
Companys need to monitor their impact on the environment
Areas that might be considered will include
Carbon emissions
Energy reduction
Treatment of waste Compliance with environmental legislation
Continuous improvement
Triple bottom line accounting (financial/social/environmental)
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Ethics is the code of moral principles and values that governbehaviours with respect to what is right or wrong.
good ethics is good business this imposes on the business theduties of being a good corporate citizen
The importance of ethics
Ethical issues are important for a number of reasons:
Some organisations have incomes larger than those of manynation states. How these companies use their wealth has
numerous implications for the well-being of the countries inwhich they operate.
Typically, senior managers in big firms occupy positions wherethey can hurt or promote the interests of large numbers ofemployees, and might take decisions affecting entirecommunities.
Consumers increasingly judge the worth of a company in termsof how it deals with ethical and environmental problems.
Certain business practices are considered unethical throughout theworld. Examples are:
The dumping of products, ie selling them at less than cost pricein order to drive competing firms out of business;
Covert involvement in the political affairs of a country;
Knowingly breaking the law on consumer protection, healthand safety of employees, equal opportunities, pollution of thephysical environment, etc.
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Professional ethics are principles that guide the decisions andbehaviours of managers with regard to whether they are right orwrong in a moral sense.CIMAs ethical guidelines: remember COPPI
Confidentiality
Objectivity
Professional competence and due care
Professional behaviour
Integrity
Encouraging ethical behaviour
Codes of practice
A code of practice is a document published by a governmentagency, professional body, trade association or other relevantauthority outlining model procedures for good practice in a
particular field. Some large organisations issue their own in-housecodes of practice on particular matters.
Codes give examples of excellent and bad behaviour, andrecommendations regarding how things should be done.Government codes of practice (eg those issued by the EqualOpportunities Commission) are not legally binding, but will belooked at by the courts when adjudicating cases.
Role of the professional bodies/organisations inregulating members behavior
o Education and communication
o Training
o Punishment
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Management of Relationships (C)
C1 (a) discuss the concepts of power, bureaucracy, authority,responsibility, leadership and delegation
Power is the possession of a controlling influence.
Power is the ability to exert influence. To have power is to be ableto change the behaviour or attitudes of other individuals.
The sources of power
Power does not simply derive from an individuals level in theorganisational hierarchy. John French and Bertram Raven haveidentified five sources or bases of power. Each may occur at alllevels.
Reward poweris based on one person having the ability to rewardanother person for carrying out orders or meeting otherrequirements.
Coercive power, based on one persons ability to punish anotherfor not meeting requirements, is the negative side of rewardpower.
Legitimate powerexists when a subordinate acknowledges that amanager has a right or is lawfully entitled to exert influence
within certain bounds.Expert power is based on the perception or belief that a person
has some relevant expertise or special knowledge thatothers do not.
Referent power, which may be held by a person or a group, isbased on one persons desire to identify with or imitateanother. For example, popular, conscientious managers willhave referent power if subordinates are motivated to emulatetheir work habits.
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Bureaucracy is based on authority derived from the lawand written rules. Weber suggests eight characteristics
Specialisation
Hierarchy
Rules and regulations
Impersonality
Appointed officials
Career officials
Fulltime officials
Public/private division
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Authority is the right to do or act (to take actions andmake decisions)
Weber defined three bases for authority
Charismatic derived from the personality of the leader
Traditional derived from custom and practice
Rational-legal
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Responsibility involves obligation (accountability).Responsibility cannot be delegated, the buck should stop with theresponsible manager.
Delegation is the process whereby a manger or
supervisor transfers part of his or her authority to asubordinate.
Delegation is an important aspect of organisation and effectivemanagement. Without delegation, formal organisations could notexist. If there were no delegation the chief executive would beresponsible for everything and would be the only person with theauthority to do anything. Consequently nothing much would everget done. Because management is the act of getting things done
(accomplishing objectives) through the work of other people, to putit simply, it is obvious that management could not succeed withoutdelegation.
Reasons for Delegation
Effective time management routine task are reduced sothat time can be spent on strategic decisions
Effective stress management staff have physical andmental limitations this reduces personal job overload
Speeds up decision making and implementation(decentralisation allows managers to react quicker to localchanges)
Assists with progression succession planning and careerdevelopment
Increases the job satisfaction of employee - increasemotivation (unless delegation only of mundane tasks withoutsatisfaction to the subordinate)
Effective deployment of resources employee has the
expertise
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Process of Delegation (TARA)Targets / Standards
Set the targets/performance levels required (individualchosen should be capable of reaching the standards)
Set the levels of authority
Set the level of resources to be made available in order tocomplete the task (ensure these are made available)
Actual Performance
Ensure that there is a mechanism for measuring actualperformance this should be achievable if SMARTobjectives were set
Regular Review
Maintain frequent contact to review progress made, giveconstructive feedback and be available for help andadvice if requested
Action (appropriate)
Frequent review allows action to be taken if the task is notbeing completed as required (accountability remains withthe superior it is important to keep the task on track)
Why is there a reluctance to delegate?
Lack of confidence in the abilities of subordinates
Fear of releasing so many duties that the managereventually becomes redundant
Organisational culture may not encourage delegation(delegation is seen as avoiding ones own duties)
Desire of managers to keep control
Manager not trained in delegation Seen as ineffective time management (quicker to
complete the job yourself than spend the time explaining itto someone else)
Ineffective stress management the manager should notdelegate so much as to overload a subordinate totally.
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Question
G, the senior partner of L, a medium sized accounting firm, hasworked for L for over twenty years and has a sound knowledgeand understanding of the different activities of the firms business.over the years G has become known for his fairness in how hemanages staff. he is also well liked and respected for hisenthusiastic approach. He always has time to encourage andmentor younger members of staff.
The firm has recently invested in new technology which willimprove the effectiveness of its office systems, but will mean thatthe roles and responsibilities of the support staff will change. Ghas taken on the difficult role of leading the project to introduce thetechnology and new working practices. He knows that the projectwill be meet with some resistance from some members of staff andhe will need to draw on various sources of power to ensure thechanges are successfully implemented.
RequiredDescribe the different sources of power that G has and which will
help him in introducing the changes (10 Marks)
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Management Leadership
Classicalo Scientific (Taylor)o Functions (Fayol)o Bureaucracy
Human Relationso Mayoo Herzberg
Systemso Trist & Bamforth
Contingencyo No one best
approach
Direction
Vision
Influencing others
Achieving goals
Foresight
empowerment
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Leadership getting people to do things willingly
Leadership involves possessing vision, and the ability tocommunicate that vision.
Can leaders be trained or is someone born a leader?
Robert Blake and Jane Mouton
Blake and Mouton argued that managerial competence can betaught and learned. Their managerial gridprovides a framework forunderstanding and applying effective management.
High country club team
9 management management
Middle-of-the-road management
impoverished authority-compliance1 management managementLow
Low 1 9 highCONCERN FOR PRODUCTION
CONCERNFOR
PEOPLE
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John Adair
Effective leadership requires a bringing together of task, team and
individual needs.
McGregor (assumed knowledge from P4)
Theory X
Theory Y
Kurt Lewin
Democratic
Laissez-Faire Authoritarian
Concern for task
Concern for team Concern for individuals
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Likert identified four basic leadership styles(Tannenbaum & Schmidt)
ExploitativeAuthoritative(Tells)
BenevolentAuthoritative(Sells)
Consultative
(Consults)
Participative(Joins/Abdicates)
DecisionsImposed
Increasing trust in subordinatesability
More participative motivationalstyle
Increasing delegation
Increasing communication
Increasing teamwork
Complete trustand discussion
Motivated bythreats
Motivated byrewards goals agreed
Centraliseddecision making
High degree ofdelegation
Rare supervisor/subordinatecommunication
Frequentcommunication
Superior andsubordinate actas individuals
Superior andsubordinatesact as a team
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Leadership style will depend on
Tasko Simple/complexo Structured/unstructuredo Significanceo Innovation required
Individualo Motivation
Theory X and Y
Maslows hierarchy of needs
Herzbergo Maturity (Hersey & Blanchard)
Willingness
Ability
Knowledge of task have they carried out thetask before?
Leader/subordinate relationship (Fiedler)o Militant low relationshipo Co-operative high relationship
Leader position/power high/low (Fiedler)
Group needs/organisational needs
Types of groups
A group is defined as two or more people who interact with andinfluence each other toward a common purpose.
Formal groups
Formal groups are created deliberately by managers and chargedwith carrying out specific tasks to help the organisation achieve itsgoals.The most common type of formal group in organisations is thecommand group, which includes a manager and his subordinates.Permanent formal groups include command groups andpermanent committees. Temporary formal groups include task
forces and project groups that are created to deal with a particularproblem and are disbanded once the problem is solved.
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Informal groups
Informal groups emerge whenever people come together and
interact regularly. Members of informal groups tend to subordinatesome of their individual needs to those of the group as a whole. Inreturn, the group supports and protects them.Informal groups may further the interests of the organisation Saturday morning football games, for example, may strengthen theplayers ties to the organisation. They may also opposeorganisational objectives, such as high performance standards,when these are considered harmful to the group.
Tuckman on groups
Tuckman suggested that groups go through four stages ofdevelopment. It is only when these stages have been successfullycompleted that the group can concentrate on the attainment of itspurpose.
Forming (ie getting to know each other) This is the initial periodwhen the individual members of the project team cometogether, finding out about each others attitudes, abilitiesand characters. The initial objectives and parameters of theteam work are established which, in this case, will bedetermined by the project scope. It is at this stage thatindividuals will work out initial roles. Relationships,acceptable behaviours and codes of conduct.
Storming (initial conflict as individuals compete for leadership
positions and to influence the direction taken by the group).This stage can be characterized as a period ofdisagreements, arguments and high emotion. As membersof the team begin to work together and get to know eachother, so they present their different views on the best way ofachieving the project objectives and different approaches toworking on the project.
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Norming (the establishment of shared values) It is important thatconflicts at the storming stage are resolved. It is importantthat team members reach agreement over any issuesthrough negotiation, compromise and finding areas ofcommonality. Team cohesion develops during this stageand norms of what is acceptable behavior, which in turn willgovern individual members behavior whilst on the project,are established. This stage is important in agreeingprocedures and standards of performance.
Performing (where the group utilises its strengths to perform
desired activities). When the group has successfullyprogressed through the three earlier stages it will havecreated cohesiveness to operate effectively as a team whileworking on the project. At this stage the team will finally beable to concentrate on the achievement of project objectivesand it will be at its most efficient because all energies arefocused on the project task, rather than conflicts within thegroup.
There is a further stage, adjourning, which will happen when theproject comes to an end, and project team members returnto their normal duties. This is something referred to asmourning, when the project team disbands.
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Belbin on groups
Many groups find difficulty in moving beyond the second and third
stages. Team-building exercises, to encourage group cohesion,are an attempt to solve such problems.
Research has shown that individual contributions to groups differ,and that in some cases they are effective whilst in others they arenot. Belbin has argued that each individual has a preferred teamrole and a secondary role which he adopts if unable to occupy hispreferred role. These roles are:
Chairman (setting the agenda),
Shaper (defining the task),
Plant (generating ideas),
Monitor/Evaluator (evaluating ideas),
Company Worker (organising the group),
Resource Investigator (seeking out resources),
Team Worker (maintaining group cohesion),
Finisher (ensuring deadlines are kept),
Expert (technical person).
On the basis of research of this type managers have attempted toinfluence group performance by selecting appropriate teammembers.
Whilst team working is generally thought to be a useful approachto achieving organisational goals, it can have negative effects.The most damaging of these is groupthink, where pressurestowards group conformity stifle creativity.
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Group norms and conformity
Over time, group members form expectations about how they and
the other members of the group will behave. They exert pressureon one another to ensure that these expectations are met. Theanticipation of rejection or acceptance by the group is usuallyenough to ensure that members conform to their groupsexpectations in advance.
When an individual does not conform to group norms, the othermembers of the group will initially try to persuade the deviant toconform. They will try to reason with him or make pointed jokes athis expense. If this approach fails, they are likely to increase thepressure. If the norm being violated is considered important, theywill use criticism, sarcasm, ridicule and finally ostracism totalrejection of the individual through the silent treatment.
Group cohesiveness
The cohesiveness, of a group is an important indicator of howmuch influence the group has over its individual members. Themore cohesive the group is, the more strongly members feel about
belonging to it, the greater its influence. If the members of a groupfeel strongly attached to it, they are not likely to violate its norms.
Cohesiveness and performance
Studies have found that the output of members of cohesive groupstends to be more uniform than that of members of less cohesivegroups. These findings are important for managers becausecohesive groups commonly set their own production standards.Groups that are hostile to management may restrict their output tolevels well below management standards. This sort of restrictionoften occurs among factory work groups paid by piece ratesbecause they may believe that if they reach or surpassmanagement standards, management will establish higherstandards or lower rates.
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Project objectives need to be clear and accepted bymembers of the team
Objectives need to be reinforced throughout the project,using team briefings
Team building exercise are helpful when there is a diversityof views and attitudes.
Individual members need to participate, divergent viewsneed to be encouraged, the emphasis being on a carefullyconsidered decision making process. (the opposite would bethe concept of groupthink when members agree with a
decision which they know is wrong or where the group fail toexamine all of the options available or the Abileneparadox when no-one wants to disturb the consensus.)
The group need to consider the implications of any decisionand assess the acceptability of any associated risk. (Riskyshift phenomenon is where groups are prepared to takeriskier decisions than would be taken by any one individualmember of the group).
Making formal groups effective
Because formal groups are vital to successful organisations,managers must learn to use them effectively.
Several formal procedures are useful in helping groups operateeffectively:
The group goals should be clearly defined, preferably in writing.
This will focus the groups activities and reduce discussion ofwhat the group is supposed to do.
The groups authority should be specified. Can the groupmerely investigate, advise and recommend, or is it authorised toimplement decisions?
The optimum size of the group should be determined. Withfewer than five members, the advantages of group work may bediminished. Potential resources increase as group size
increases.
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C2 (b) Discuss the roles of negotiation and communication inthe management process, both within an organisation and
with external bodiesNegotiation
Preparation
Opening both sides present their position
Bargaining persuade the other side that your case is strong
Closing reach agreement (win: win)
Negotiation involves argument and persuasion in order to
strengthen ones own case by undermining the opposition.
It occurs when there is no established set of rules forresolving the conflict and parties are committed to search foran agreement rather than fighting openly.
Negotiation is often necessary within organisations to resolveconflicts of interest between two or more parties which havearisen because the parties have different objectives.
It has, overtime, become a useful and civilised way ofsettling disputes. In earlier times industrial disputes oftenresulted in industrial sabotage by workers and sometimesphysical violence between workers and their employers.
It is likely that conflicts will arise as a result of therestructuring proposals which will involve the need for therelocation of staff and possible redundancies.
These conflicts may be resolved through negotiationbetween management and the unions who are representingemployees.
The process of negotiation between employers and tradeunions is often referred to as collective bargaining andinvolves at least two parties with a defined interest.
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Without any negotiation the result could be that the unioncalls for industrial or strike action which could have adetrimental impact on the companys future survival.
Approaches to the negotiation process can be throughfocussing initially on each sides primaryobjectives, ratherthan becoming distracted by minor negotiating points at anearly stage.
It is necessary to maintain some flexibility within thenegotiation process and for both parties to be prepared tosettle for what is fair.
It is important to listen to what the other side wants and tomake an effort to compromise so that both sides can attaintheir goals.
However, this is often where negotiation can fail because ofthe tensions between the different objectives that can nevercoincide.
This could occur since the unions main objective will be tokeep jobs, whilst the organisation may see no alternative to
job cuts if it is to survive in the long term.
It is likely that in the first stages of negotiation that the unionwill reject the proposals as unacceptable and will prepare itsnegotiation strategy. While the union will not want to agree to
job losses it might recognise that they are inevitable andconcentrate instead on persuading management to provide
generous severance pay above the legal minimum.
The ideal will be to achieve a win-win outcome where bothsides achieve enough of their objectives to be satisfied withthe end result, trading-off wins and losses so that each sideget something in return for everything it concedes on. Win-lose or lose-lose outcomes are in no ones best long terminterest.
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It is suggested that effective negotiation between should gothrough the following four stages:
Preparation which involves both parties gathering information andinsight to the problems in order to understand the constraintsacting on the negotiating parties. Who is involved in thenegotiation, what the concerns of each party are and what the goalof the negotiation is will need to be determined. Another keyfeature at this stage is to determine the time for negotiation