MBA405 10 Handbook

Global Organizational Environment MBA405
MB460 Organisational Context (2008-2009)
University of Gloucestershire Business School All rights reserved. No part of this publication may be reproduced, stored or transmitted in any form or by any means, including but not limited to photocopy, recording, or any
This booklet is printed on cream-coloured paper with the aim of making it more accessible. Large print copies can be provided on request. We can also arrange production of braille or audio versions. Please contact Laura Jefferies on 01242 714337 or email ljefferies@glos.ac.uk if you have any special requirements that you would like to discuss.
Global Organizational Environment
Introduction
Aims
This study guide has been written to support your learning on this module. The assumption has been made that each module requires xx hours work, of which xx hours is in the classroom. This guide indicates the activities we will expect students to prepare in anticipation of each session in order to maximize the learning potential of the class contact time. The reading and preparation should take you between 30-40 hours overall, leaving you 40-50 hours to research and prepare your assignment work. This module specifically aims to: present an analysis of the organization as an open system, and to analyze the interface between the organization and its global macro-environment examine the relevance of environmental factors to successful organizational management, enable the student to evaluate the general and specific environments affecting organizations, assess how managers can respond to the opportunities and threats generated by environmental, industry and market analysis, interpret the influence of the micro- and macro-economic environment on organizations, examine different organizational contexts, evaluate ways in which managers make sense of their environments and 'manage' in increasingly uncertain, turbulent and hyper-competitive conditions
Gloucestershire Business School
Module MBA 405 Introduction
Learning Outcomes
On successful completion of the module the student should be able:
to demonstrate an ability to analyze and evaluate the interface between the organization and its environment, and the impact that the environment has on management decisions; to understand markets and competitors, and evaluate the dynamics of an industry; to research and synthesize material from a range of sources, and examine specific organizational environments using appropriate analytical tools; to evaluate practice in a range of organizational sectors with a view to recommending courses of action for management
Format
The overall purpose of the module is for you to develop an awareness of the context in which organizations operate, and an ability to analyse a wide range of information in order to make strategic decisions. The module comprises 12 sessions which focus on learning how to use appropriate analytical frameworks and apply those frameworks to specific real world business situations. Each session consists of a total of fifteen hours of study. This is made up of a three hour class session and eight hours of guided independent study. The independent study will normally be made up of reading and other activities in preparation for the class session.
Module MBA405 Introduction
Module Content
The topics are as follows: Topic 1 - Organisational Purpose and different types of global business Topic 2- analysis of the environment The role and significance of the environment, the impact of general environmental influences on organizations; technology , sustainabilty Topic 3 - the macro-economic environment The role of government and domestic economic policy environment; international issues - trade and exchange rates; Topic 4 - the micro-economic environment Analysis of the competitive environment - a study of markets; how markets adapt to changing competitive conditions. The marketing environment market analysis, segmentation, targeting and positioning. Topic 5 The global trading environment. Regional trading blocs and the BRICS Topic 6 -making sense of uncertainty Analysis of tools and techniques used to monitor the environment. The role and significance of scenario planning.
Structure of Sessions
Week/ session 1 2 3 4 5 6 7 8 9 Theme Organizational form and purpose Transnational business and its role in contemporary society Understanding the managerial environment Understanding the macro-economic environment and its impact on organisations Understanding the European environment Understanding the global environment 1 Understanding the global environment 2: Emerging Economies on three continents Understanding the competitive environment Understanding the environment and
Module MBA 405 Introduction
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its impact on organisationspresentations Delivering customer value Managing market performance Making sense of uncertainty
Other Resources
You will have some background study that you need to do during this module.
Compulsory Reading
The module textbook is: Harrison A. (2010) Business Environment in a global context. Oxford; Oxford University Press Background Reading Other texts that you may find helpful are: Brooks, I., Wilkinson, J. and Weatherston, J. (2010), The International Business Environment, Challenges and Changes Harlow , Pearson. Farnham D.,(2005), Managing in a Business Context, IPD Johnson, G., Scholes, K. and Whittington R. (2008), Exploring Corporate Strategy, 8th Edn, FT Prentice Hall. Morrison J. (2006) The International Business Environment 2nd Ed. Basingstoke Palgrave Needle, D. (2010), Business in Context, 5th Edn, Cengage Learning. Palmer, A. and Hartley B., (2008), The Business Environment, 6th Ed McGraw Hill. Sloman, J. (2006), Essentials of Economics, 6th Edn, Prentice Hall. Worthington, I., and Britton, C. (2009), The Business Environment, 6th Edn, FT Prentice Hall. You are not required to read all of these, but may wish to use these texts to support particular sessions of the module.
Module MBA405 Introduction
Journals In addition, the following journals are a valuable source of additional information: Financial Times http://www.Ft.com The Economist http://www.economist.com Harvard Business Review http://www.hbsp.harvard.edu Long Range Planning http://www.lrp.ac Management Today http://www.clickmt.com/index.cfm Oxford Review of Economic Policy http://www3.oup.co.uk/ecopol Strategic Management Journal http://www.interscience.wiley.com Business Strategy Review http://www.blackwellpublishers.co.uk/journals/BSR Times CD-ROMs Knowledge@Wharton www.knowledge@wharton.upenn.edu www.mckinseyquarterly.com A number of the above such as Harvard Business Review and Strategic Management journal are available through EBESCO Business Source Online on University Learning Centre website.
On-line Sources
It is vitally important that you become familiar with the on-line source available in University Learning Centre. You can gain access to a wide range of journals via the Internet . You will be shown how to access this information in your induction sessions. .
Week 1
Analysis of the Environment Organizational Form and Purpose

Aims
To examine the different types of business organizations and how they are governed, i.e. whom is the organization to serve and how are the purposes and priorities of the organization to be determined.
Learning Outcomes
At the end of the topic you should be able to: Discuss the different types of organizations that exist and their relative strengths and weaknesses identify the main influences on an organizations purpose, understand and apply the concept of corporate governance, identify the major stakeholders of the organization and their expectations, analyse the position of stakeholders with respect to power and interest, discuss the relationship between governance and stakeholders, critically assess the range of ethical stances found in organizations.
Reading
Read: Chapter 1 of Harrison A (2010) chapter 1-1.4 and 7.3.3
Module MBA405 Analysis of the Environment- Organizational Form and Purpose
Overview Organizations vary in size and form from small one man businesses to large public limited liability companies or stateowned enterprises. Each of these business forms has its relative advantages and disadvantages e.g. organizations may grow large to raise additional finance but with growth comes loss of control. Understanding the inter-relationship between the organization and its environment is fundamental to the process of strategy formulation. When making strategic decisions about the organizations direction and scope you need to examine its purpose and the vision that members of the organization have of how the organization should be in the future. Organizations exist for a range of reasons: to provide goods and services, to provide employment, to satisfy expectations of different groups of people. to make a profit for shareholders or to raise funding for charitable activity This topic will look at how the organization manages the expectations of its stakeholders and the influence they have on its purpose. It will examine this in the broader context of corporate governance. Four basic questions can be posed about organizational purpose: Whom should the organization serve and how should its purpose and direction be determined? This is known as corporate governance. It consists of examining where the power to influence purpose resides within the organization, the processes in place to supervise executive decisions, and the accountability of those responsible for making these decisions. Whom does the organization serve? This examines the role of stakeholders: who they are, their expectations of the organization and how they can influence purpose. Which purposes should the organization fulfil? Whose needs does the organization exist to satisfy? How should these purposes be prioritised?
Corporate Governance
The issue of governance arises in commercial organizations as a result of the notion of divorce of ownership from control, i.e. the fact that the people who make the decisions in the company may be distinct from those who benefit from its performance, the owners. This is also described as the principal-agent problem. In addition there is political pressure that organizations should become more accountable to their owners and other stakeholder groups. This may give rise to a conflict of interests between different stakeholder groups and create problems for managers who have to handle these conflicts. The first responsibility of a governing body is to ensure the organization fulfils the wishes and purposes of its owners.(Johnson and Scholes, 1997) In the UK the Board of Directors, consisting of executive and non-executive directors, would oversee the activities of managers within a private sector organization. In a public sector organization, such as a local council, this role would be performed by the Chief Executive and the elected members of Council. However, because there is only one Board and managers often sit on that Board, there is no countervailing power to prevent managers from dominating the strategic decision-making process.
The role of directors and senior management has been recently scrutinised. The outcomes of this investigation were the Cadbury (1992) and Greenbury (1995) reports. The Cadbury report called for a non-statutory code of practice for all listed public companies. This included a clear division of responsibilities at the top of the organization to ensure that no one person had total power to make decisions, a larger role for non-executive directors and regular board meetings and audits. As power results from holding information attention was drawn to the need to disclose information to stakeholders. The role of non-executive directors was developed by the Greenbury report (1995), but this is better known for its examination of directors pay. Further reports have commented on different aspects of governance and codes of practice/ The recent scandals in the USA e.g. Enron and elsewhere Parmalat in Italy and Maxwell Group in the UK are further evidence of the need to deal with issues of corporate governance. These have triggered further reports in the UK on different aspects of corporate governamce such as Higgs (2003), Smith(2003) and Turnbull (2005) and led to the Sarbanes-Oxley Act (2002) in the USA. Given the credit crunch and the financial crisis over the lastfew years experts have called for greater regulation of the banks. In July 2009 Sir David Walker, an ex-City regulator produced a report reviewing governance for the banks and made recommendations about nonexecutive directors and bank bonuses amonst other issues. For further information look at Butler, P (2009) Learning from Financial regulations mistakes The McKinsey Quarterly June. Gillian Tetts (2009) book Fools Gold is a good overview of what happened with the financial system .
Stakeholders
Schoemaker (1995) refers to the concept of stakeholders. Tony Blair popularised this term a few years ago by talking about a stakeholder society. Stakeholders are defined in the business context ...as any group or individual who can affect or be affected by the performance of the organization. (Freeman, 1984) Thus customers, suppliers, employees, managers, and shareholders are but a few of the stakeholders of a typical organization. Each stakeholder group has personal and collective expectations of the organization, but these expectations are likely to conflict, e.g. cost efficiency versus
jobs, growth versus independence. Stakeholders individually are unlikely to influence the strategy of an organization, but collectively because they share similar expectations they are likely to have a bigger effect. Stakeholders are not always equally powerful or interested in the strategy of the organization so will need to be prioritised.
Mendelow (1991), discussed in Johnson ,Scholes and Whittington (2008), devised an approach to stakeholder mapping which prioritises stakeholders according to how much impact they can have on the organization and how interested they are in the activities of the organization. This allows managers to identify and prioritise key stakeholders and develop strategies for dealing with them. This is an important part of the strategic decision-making process. An illustration of this can be found on page 158 of Johnson, Scholes and Whittington (2008) where the stakeholders of Tallman GMBH , a German bank, are mapped. In this case the mappings were done to show how stakeholders might react to the closure of a facility in Toulose. As the environment changes and different strategies develop, stakeholder power and interest will change. There is a view that individually stakeholders have little power. However Eric Kight a fund manager for Knight Vinke has had some success in influencing the strategy of different companies such as HSBC and Royal Dutch Shell.( Business Week 24/01/05)
Obligations
Corporate governance determines the minimum obligations of an organization to its stakeholders, but to what extent should the organization exceed this? Here are four possible stances an organization might take: short-term shareholder interests - Governments should prescribe by legislation how the organization will be constrained, i.e. corporate governance. The organization will do the bare minimum, and then pursue its own objectives.
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longer term shareholder interests - this recognizes that it may be in the interests of shareholders to manage other stakeholders well. multiple stakeholder interests - stakeholders interests should be incorporated in the purpose and strategies of the organization, e.g. Quaker, Rowntree (employee care), Body Shop (not selling unethical products). shaper of society - financial considerations would be a secondary consideration to the impact the organization may have on society, e.g. the British Heart Foundation wishes to promote healthy living but to do so must generate an income. These stances help an organization decide the type of organization they wish to be, and the behaviour that is adopted by the organization. The stance that the organization takes will ultimately affect its mission, vision, objectives and goals.
Session
The session will explore these issues more fully and will consist of a lecture by a member of course team to the group as a whole. After the lecture you will then split into seminar/syndicate groups to discuss issues inherent in the cases. The responses will be fed back within seminar groups. Activity Identify the major stakeholders and their expectations for the following organizations: a theatre, e.g. the Everyman in Cheltenham, a university, a public limited company, e.g. Walls/Birdseye, Haier a bank e.g. HSBC.
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Manchester United (or another premier league football club) Choose one of the above examples and draw a Mendelow Matrix to map the power and interest of the major stakeholders. What is meant by the principal-agent problem? In a takeover bid where the CEO fights off the bid is this in his/her interests or the interests of the shareholders. ( look at what happened at Blue Circle when they resisted the bid from Lafarge initially)
Further Reading
This is a useful follow up to this topic: Bonini S. Court D and Marchi A (2009) Rebuilding corporate reputations The McKinsey Quarterly June Maier S.(2005) How global is good corporate governance? EIRIS accessed from www.eiris.org Wheeler, D. and Sillanpaa, M. (1998), Including the stakeholders: the business case, Long Range Planning, 31:2, pp.201-210.
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Week 3
Analysis of the Environment Understanding the Managerial Environment

Aims
This session aims to introduce you firstly, to the nature and significance of the external environment, secondly it develops a framework for analysing the organizations environment, which allows one to identify and evaluate the impact of specific environmental factors on different sectors.
Learning Outcomes
At the end of the first session of this topic you will be able to: recognize the organization as an open system, understand the different dimensions of the environment complexity, stability, market diversity and hostility, recognize the importance of environmental scanning and how different environmental conditions can be managed, understand the potential importance of the environment to the organization by identifying sectors/industries where the environment has played a major role in shaping industry structure. Analyse the environment by applying the PEST (PEST LE C/PESTLE) framework.
Preparation
The reading and pre-sessional activity for the week should take about six hours. At the end of the session there are some selfassessed questions to work through to consolidate your learning of the material. These should take you about an hour.
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Module MBA405 Analysis of the Environment Global Organisational Environment
Reading
You should read: Chapters 1.5 of Harrison (2010) Case study Global forces and European Brewing Industry (to be issued in week one) Other useful articles for this session include: Beinhocker E.D, Farrell D. and Greenberg E. (2008) Why baby boomers will need to work longer. The McKinsey Quarterly, November Bonini S.M., Mendonca L.T and Oppenheim J.M. (2006) When social; issues become strategic. The McKinsey Quarterly May Bryan,L. and Farrell, D. (2008) Strategy under uncertainty, The McKinsey Quarterly December-both article and interview Court, D Farrell D and Forsyth J.E. (2007) Serving aging baby boomers The McKinsey Quarterly no 4 Courtney H., Kirkland J. and Viguerie P. (1997) Strategy under Uncertainty, Harvard Business Review , Nov-Dec Ginter, P. and Duncan, J. (1990), Macro environmental analysis, Long Range Planning, December Overview The strategy of an organization is concerned with the setting of long-term goals and establishing the means by which these goals will be achieved. In order to have a clear view of where they want be in five or ten years time, organizations need to understand their current strategic position and the factors that may affect this in the future. Analysing and understanding the nature of the environment in which the organization is operating is part of the strategic process. To most people in the 1990s a study of the environment means green issues, but environment in a business context requires a much broader definition, A firms environment represents all of the external forces, factors, or conditions that exert some degree of impact on the strategies, decisions and actions taken by the firm. (Pitts and Lei, 1996) A study of the organizational environment is important for two reasons: therefore
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it allows organizations to identify potential opportunities and threats that they may face in the future, by identifying opportunities for and threats to the organization, they can develop possible future strategies. Organizations are usually described as open systems. In the systems approach to management, organizations transform inputs, e.g. labour, raw materials, designs into outputs, e.g. cars, marketing campaigns, MBA/MSc graduate. They do not undertake this transformation process in a vacuum but are affected by a broad range of factors (economic, political, legal etc.) that not only influence the organization itself, but also its suppliers and customers.
Types of Environment
Miles (1987) investigated the different types of environmental conditions under which organizations operate and identified ways of classifying the environment according to dimensions such as: the speed of change in the environment, complexity, diversity, hostility.
Environments differ in terms of how quickly change takes place, e.g. in the period 1950-1979 the NHS and local authorities would have been described as operating under stable conditions. Very little external change took place, and where it did the pace of change was relatively slow. This was not true of the period 1980-95 when the parameters affecting these organizations changed much more quickly, i.e. the environment became dynamic. The complexity of the environment depends on the number of different variables that impact on the organization and whether these variables are independent or inter-related. Johnson and Scholes (1993) use NASA as an example of an organization operating in a complex environment because it has to deal with a diverse set of very technical and interrelated influences. A simple environment is one where there are only a few external influences. An example might be a childrens nursery, but even here the environment has become more complex as nurseries now have to deal with government legislation requiring them to accept vouchers.
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Environmental diversity can be seen as a continuum that recognizes the fact that organizations may operate in one or many markets. If an organization operates in a number of product or geographic markets, then it must monitor each product, service, and geographic market separately, e.g. as the UK emerged from the recession of 1990-93 Europe was still experiencing its downturn, so UK exporters would have had to develop different strategies for dealing with its domestic and European markets. The final factor under consideration is whether the environment is safe or hostile. BT as a monopolist operated in a relatively safe environment prior to privatisation, whereas grocery retailers often face hostile competition through price wars, brand proliferation or advertising campaigns. When analysing the environment it is usual to use a PEST LE C Framework. The Political environment has an effect at a number of geopolitical levels: global, European, national and local, e.g. deregulation of the airline industry in Europe allowed for entry and growth of low cost airline sector in Europe. However, this created threats for the full service airlines such as KLM and British Airways. Technology has changed the nature of the products we use and the processes by which products are made and services provided, e.g. in the printing industry the replacement of the hot metal process by new technology had a radical effect on the type of workers required to produce newspapers and magazines, the range of products and the location of the business. The Internet has had a dramatic impact on how businesses compete. Companies like Amazon.com are redefining the rules of engagement in the retail book sector. Social influences include the changing demographic pattern of the country and its impact on demand for goods and services, e.g. an increasing proportion of 80+ year-olds in the population creates a huge increase in demand for health care and residential homes for the elderly Ecological influences have an impact on organizations, not just on the operational side but in the way products are marketed to customers. Organizations are required to respond to regulation via Acts of Parliament like the Environmental Protection Act 1990, but many organizations are driving environmental initiatives as they believe it is good business to do so. The purpose of exploring these factors is to generate a list of opportunities and threats facing the organization and then
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prioritise them in terms of the expected impact on the organization. Table 1.1 on page 15 in Harrison identifies a wide range of different factors that can impact on industry. Not all of the factors listed will affect every organisation so in undertaking an environmental analysis of an organization you must make the analysis relevant to the sector in which the organization operates.There are no hard and fast rules about how many factors should be identified, but consultants like Argenti (1989) recommend about 6-8 of each. It is a common mistake for managers to believe that the mere generation of a list of opportunities and threats is sufficient without considering their relative importance and how much these issues will affect the organization. It cannot be emphasised too strongly how important it is to prioritise these issues. Then managers can determine a strategy for dealing with these anticipated changes. The result is that managers become more pro-active and better prepared rather than having to react to a crisis. This process might be linked to the organizations strategic vision and the generation of potential scenarios.
Activities
Before coming to the session: look for current examples of how the environment impacts upon organizations by scanning the newspapers and journals. You will be asked to contribute examples from your reading in the lecture. Answer the following questions based on the case Global forces and the European brewing industry What changes have taken place in beer consumption and what factors have influenced these changes in demand? What strategies have brewers adopted to gain control of the market? Looking at Table 3 one can observe that brewing companies are multinational/global in nature. Why do you think this is the case? If you were running a brewery in the UK in 2010 what do you think the key environmental factors would be affecting the business?
Session
The session will be based around the following activities:
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A lecture that identifies the key issues in the external environment and how those factors affect organizations. The application of the PEST framework to the Global Brewing industry
Self-assessed Questions
Below are some questions to test your understanding of the session: Give examples of organizations that have: a complex environment, a diverse environment, a dynamic environment.
Select examples from the quality newspapers of how organizations are affected by their external environment. Discuss why two organizations in the same sector might see their environment in different ways. Discuss some of the consequences of an aging population in terms of product/service marketing, employment, social welfare, savings and investment. In what ways is the impact of new technology on your sector evolutionary or revolutionary? What are the commercial pressures on organizations to become more environmentally conscious? How does this link with the discussion in week 1 on different ethical stances?
Further Reading
Should you wish to access further information about this topic then you should read one or more of the following: Handy, C. (1995), Beyond Uncertainty, Chapter 1, Hutchinson. Johnson, G. and Scholes, K. (2008), Exploring Corporate Strategy 8th Ed FT Prentice Hall
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Week 4
The Macro-economic Environment the Economy and the Role of Government

Aims
In this session we will explain in the first session how the macro-economic environment works and consider how it affects the operation of organizations. The second session will look at exchange rates and the debate about the Euro.
Learning Outcomes
By the end of this session you will be able to: recognize the way in which an economy operates at the macro level, understand the objectives and instruments of government macro-economic policy, discuss how the macro-economic environment affects an organization, analyse recent performance of the UK economy and likely trends in the future.
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Preparation
Before class you are required to have completed the reading specified and prepared answers to activities (3.2) to (3.4). This should take two hours. Reading Please read at least one of the following: Chapter 4.1-4.4 of Harrison (2010). Or the following journals: British Economic Survey, Business Economic Review, Economic Affairs, Barclays Economic Review, Oxford Review of Economic Policy
Overview: The Macro-economy

The macro-economy can be described as being concerned with ...the total number of people employed and unemployed, the average level of prices, the total national output and aggregate consumption (Lipsey, 1998). The macro-economist is therefore engaged in trying to understand these broad economic variables and what in turn determines them. For the manager it is not important to be expert on the various theories and ideas macro-economists use, but it is important to have some understanding of how these changes occur and affect business decision-making. From this discussion there are four important measures, which are used in the macro-economy. There is a measure for inflation, economic output, unemployment, and balance of payments. See the figures for the UK economy at the end of this chapter.
The Circular Flow of Income

Any economy can be understood at a simple level as the interaction of two participants, consumers and producers. To understand this in the context of a macro-economy you need to read about the circular flow of income and refer to the diagram below. h b money income: wages, rent, o u interest, profit u s resources: land, labour, s i commodities e n h e o s l s d s e c t o s Gloucestershire Business School e c output of goods and services 20 t o payment with money r
Flows within a simple economy The textbooks do not explain the process in depth, but it works like this: Stage (1) Firms exist as entities whose sole purpose is to produce goods and services. Stage (2) In order to fulfil this purpose they require certain resources (factors of production) - land, labour, capital and enterprise. Stage (3) Firms need to purchase these from people (households) and pay rent (for land), wages (for labour) and interest (for capital) and profit (for enterprise) which are collectively known as factor payments. Stage (4) With the factors of production, firms produce goods and services which are purchased by households (consumption) with the factor incomes received earlier. Stage (5) Not all income is spent as consumption; some is leaked in the form of saving, taxation and spending on imports. Stage (6) Income is injected in, however, as investment, government spending and exports. Stage (7) So long as the funds leaked are injected back into the economy, firms will have sufficient funds to purchase the factors of production they need to maintain output.
Role of Government
If you are comfortable with the basic idea that an economic system can be explained as a circular flow of income, the next important point to consider is the role of Government in the system. The way in which funds are leaked and injected back into the economy through taxation and Government spending is one role and is known as fiscal policy. This will be returned to later. For now we take a broader look at Government activity in terms of the objectives it has for the economy. You might wonder why the Government actually has objectives, which is more to do with political science than economics. The fact is it has objectives which make the Government an important part of any understanding of the macro-economy. The text books tend to simply list these objectives as follows: a modest rate of inflation,
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a reasonable rate of economic growth, low rates of unemployment, a balance of payments in equilibrium or surplus.
It is beyond the remit of this session to debate how much these objectives can be achieved through market forces, but it is simply a fact of life that Governments in the past have sought to try and achieve a number of these simultaneously, and in so doing have encountered a range of problems. In your reading keep in mind that it is naive to think Governments today try to achieve these objectives through explicitly managing the macro-economy and instead focus on one problem, which above all needs to be kept under control. Governments main economic objective and focus in terms of economic management is to ensure that inflation is kept within manageable levels in comparison with other economies. The reasons for this will be discussed in class, but if inflation is allowed to increase to levels well above those in other countries the economic consequences may be considerable. If inflation spirals to very high levels it may even undermine the monetary system as a whole. Do you know what the current target is for inflation and how the Bank of England manages this?
Tools of Economic Management

Having established that Government has objectives but this today largely focuses on inflation, the next thing you need to consider is the tools available to achieve the goals identified. In other words, how is Government able to manage the economy? There are two broad approaches: fiscal policy which uses taxes and spending which are announced during the Budget, monetary policy which uses money supply and interest rates. Fiscal policy has a history of being part of Governments attempts to influence demand in the economy. This approach is known as following the Keynesian model, which you will have seen in your reading. A pure Keynesian would argue that an economy could be fine-tuned through altering the amount of tax taken and spent. A government trying to increase aggregate demand in the economy in order to increase output and economic growth may reduce taxes and/or increase spending. It will probably need to borrow in order to do this, which results in a Public Sector Borrowing Requirement (PSBR). If Government undertakes to reduce demand it will do the
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opposite and this should result in a surplus, which can then be used to repay earlier borrowing known as a Public Sector Debt Repayment (PADRE). Fiscal policy is therefore a tool for managing demand and is used in order to increase or decrease demand. Underlying this is a belief that the economic cycle is caused by movements in demand. A recession is therefore managed through increasing demand and a boom through reducing demand. The fiscal policy tool is essentially a method of smoothing the economic cycle, which will in effect meet the economic objectives of Government outlined above. Fiscal policy in theory can be used as a tool in this way and certainly was in the 1960s and 1970s. There were problems, which emerged in the way inflation in particular became a problem when demand was stimulated using fiscal policy, which resulted in the famous Stop Go era of Government economic management in the 1960s. The 1970s then saw a number of problems with inflation, which Keynesian demand management ideas seemed to have no answer for. Although Government had massive Spurs in the late 1980s and early 1990s, these were more due to economic problems at the time rather than specific attempts by Government to use fiscal policy as a tool of economic management. Since the 1970s, the emphasis in terms of economic management has been to use money supply and interest rates to try and achieve certain economic objectives, which for most of the period have been to do with inflation. This approach is known as monetary policy and in its most extreme form is believed by Monetarists to be the only tool Government should use, with inflation being the only legitimate economic objective. It is not necessary for you to understand the theoretical detail behind monetary policy. What you need to be aware of is that primarily through interest rates Governments try to influence demand in the economy in turn to affect inflation. The Monetary Policy Committee meets monthly in the UK to determine interest rates. Through altering interest rates demand can be altered through affecting consumption, saving and investment spending. An increase in interest rates will increase saving and reduce consumption and reduce investment spending. Although these might not necessarily be beneficial in themselves, the view is that short-term reductions in investment are worthwhile because of the problems inflation may bring. Similarly, interest rates affect exchange rates and those involved in trade are usually affected significantly when interest rates change. Interest rates are also used to change money supply by influencing the credit creation abilities of the banking sector. A pure Monetarist argues that the real tool of interest rates is to change money supply, which in turn through
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something known as rational expectations directly alters prices. The theory behind this is quite difficult to follow intuitively, but you may wish to raise it in class. In conclusion, Government tools for managing the economy to meet whatever objectives can be grouped under fiscal and monetary policy. Fiscal policy is now out of date in any real sense because it is not possible to fine-tune an economy through altering taxes and spending. Monetary policy uses interest rates to affect demand and although not perfect, interest rates do influence short-term demand and are largely used to try and achieve the one real economic target of Government - low rates of inflation.
Other Points for Consideration

Please do not gain the false impression that Government is unable to influence the economy outside of fiscal and monetary policy. The public sector is the biggest employer by far and Government can therefore directly and indirectly affect average earnings, growth and inflation. It can and does use the tax system to encourage training and where firms locate, which does have a significant impact on the long-term productivity of companies. The use of tax incentives in this way designed specifically to improve the productivity of labour is collectively known as supply-side policy, which is a long-term strategy, designed to reduce the level of unemployment. Government also sets laws and the regulatory framework which companies work within. Although much of this is now decided at the European level, the UK is still the main arbiter of standards and in certain industries such as financial services and the privatised utilities, regulation under broad guidelines laid down through Parliament is a major issue for companies to deal with. In these ways and in many others the Government acts as an important player in the economy and is thus able to influence it in many ways. Management of the economy to achieve the objectives outlined is a much more complex operation than your reading will suggest. The science is not so well developed. In a simple sense, Government uses interest rates as a tool for short-term demand management and taxes and spending for longer term supply-side objectives in the macro-economy.
Activities
You should now be in a position to try and answer the following questions:
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Find a recent article on either the British economy or the economy of your country from the quality newspapers or the Economist and (a) assess how the economy is performing and (b) the impact of that performance on business organizations operating there. What do you see as the main role of government and how effective are major tools for managing the economy? (3) Why do you think Governments are concerned about high levels of inflation? Session The session will breakdown into the following activities: introduction and overview (1hr 30 minutes) group activity (1hr and 30 minutes)
Activity
You will be provided with a set of data showing key economic indicators. Look at the data and identify any relationships between the economic variables listed and give a rationale for that relationship. Find a newspaper article or an article from the Economist which discusses the economic situation in either the UK or a country of your choice e.g. China, USA, Germany. Based on the article/s you find, answer the following questions How would you describe the state of the economy? In terms of growth, inflation, unemployment etc What particular economic problems face the government? What are the implications of the economic situation for organizations operating in this country?
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Week 5
The Macro-Economic Environment The European Environment

Aims This session has two central aims: one is to explore the key issues arising from the European environment as well as their main implications for business organisations; the other is to examine the dynamic changes in the European Union (EU) and issues arising from successive EU enlargements and the creation of the European single currency. Learning Outcomes By the end of the session you will be able to: Appreciate the major geopolitical and related developments which have taken place in Europe in recent years; Understand the institutional and policy-making framework of the EU and its significance to modern business operations; Analyse the issues arising from successive EU enlargements, particularly the impact of the latest enlargement on both old members (EU-15) and new members (former Communist countries); and Explain the recent development of EMU (European Monetary Union) and the debates on the Euro, particularly about whether or not the UK should join the European single currency.
Preparation and Pre-reading

You are required to read the following chapter and article BEFORE the session: Chapter 13 Towards a new Europe, in: Harrison, A. (2010). Business Environment in a global context, Oxford University Press. Cameron, D.R. 2004. The Challenges of EU Accession for Post-Communist Europe. [online]. Available at: <URL: http://aei.pitt.edu/9273/01/Cameron.pdf > (Please find the article online, print it out and bring it with you to the session.)
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Class Activities Based on the above reading, consider the following questions: What are the benefits of the single European market? Are there any limitations? What are the advantages and disadvantages of the UK adopting the Euro? Read Camerons article to a) examine the impact (positive vs. negative) of the recent EU enlargements on both old member states and new member states respectively; b) explore the consequences of widening EU without deepening it sufficiently. Further Reading Daniels, J. Radebaugh, L. and Sullivan, D. (2008) International Business: Environments and Operations. Harlow: Pearson Education. De Grauwe, P. (2007) Economics of Monetary Union, 7th Ed. Oxford: OUP. Harris, P. and McDonald, F. (2004) European Business and Marketing, 2nd Ed. London: Sage. Jovanovic, M. (2005) The Economics of European Integration. Cheltenham: Edward Elgar. Tsoukalis, L. (2005) What kind of Europe? Oxford: OUP. Wetherly, P. and Otter, D. eds. (2008) The Business Environment: Themes and Issues. Oxford: OUP. Supplementary online Reading Given that this subject is dynamic, it is strongly suggested that you look for articles online on European development, EU and Euro from the Financial Times and The Economist. In addition, the following several main EU sites are worth exploring: Europa: http://europa.eu/index_en.htm European Commission: http://ec.europa.eu/index_en.htm European Parliament: http://www.europarl.europa.eu/news/public/default_en.htm European Sources Online: http://www.europeansources.info/ Business Europe: http://www.businesseurope.com/ European Voice: http://www.europeanvoice.com/
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Overview
The issues concerning the macroeconomics of a single currency in Europe is essentially a debate about the merits of retaining a currency and an exchange rate with other countries. As long ago as 1848, John Stuart Mill questioned the need for countries to maintain their own currencies which he saw as an inconvenience for countries engaged in trade. His argument was that countries retained a currency in order to assert their nationality rather than for any real economic reason. Some of these thoughts you will no doubt have read about yourself. For many the single currency and EMU is more about politics than economics with EMU itself described as a political wolf dressed in an economic sheeps clothing.
Exchange Rates
For us the debate needs to remain fixed on the economic arguments and before we do this you need to be comfortable with the notion of exchange rates, what they are and why they exist. Please do not get confused about what an exchange rate is. It is simply a price. How much one currency can buy of another. For example, an exchange rate of 1:$2 simply means that 1 can buy $2 or vice versa. An appreciation in the is then simply the being able to buy more $s. An example would be the exchange rate appreciating from the previous rate to 1:$2.50. In other words, 1 now buys $2.50. A depreciation in the would result in the opposite; the would buy fewer $s. If that is clear, you should be aware that if an exchange rate is a price then there must be a market for it, which involves supply and demand for currency. The suppliers of foreign currency are the banks who hold it for accountholders and are able to supply to anyone anywhere in the world. The users of currency can be individuals, corporations and on occasion, the Government. From your reading please make sure you understand the two reasons these groups use foreign currencies. The terms vary,
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but they fall into two broad categories. The first reason is that users have a fundamental need to hold foreign currencies and therefore demand currency for this reason. The fundamentals boil down to trade. If I travel to the USA I need $s. My travel maybe business or pleasure, but I am in effect trading with the USA and need $s because of it. Companies trading with the USA are in a similar position. If ICY have suppliers from the USA they must pay them in $s and therefore need to buy dollars in order to do this. If they invest in the USA they will again need $s. Clearly the reverse is true and the various reasons for trade and travel between countries generates a fundamental demand for currency. Any change in the pattern of trade will therefore affect the price of currencies, i.e. the exchange rate. There are no figures on this, but it is believed that less than 5% of demand for currency comes about because of these fundamental reasons. By far the most important source of demand for currency is for the second reason you will have read about. Over 95% of demand for currency comes from speculators who buy and sell currencies for short-term gain. George Soros is famous for this and there are many others like him. In addition, banks and large corporations speculate on foreign exchange markets. For speculators the prime objective is to take advantage of short-term movements in interest rates. If ceteris paribus interest rates in the UK rise, speculators will buy s and sell other currencies and deposit these s in the UK. This increase in demand will cause the to appreciate against other currencies. According to the Bank of England, over $1.3 trillion is traded in foreign exchange markets every day around the world, with over $300 billion in London alone. The majority of this is speculation. The result is that no individual Government can outspend these money market speculators. What can a Government do if it wants to influence the rate of exchange for their currency? Think about the experience Chancellor Lamont had on Black Wednesday when he tried to keep the within the Exchange Rate Mechanism! In short, speculative demand for currency determines shortterm exchange rates whilst fundamental demand based on underlying trade and economic activity determines the longterm trend of exchange rates. Your reading should make this clear. Following on from this, the next thing you need to think about is what the actual rate of exchange at a point in time means. This can get theoretical and you may have seen the famous Fisher Equilibrium which looks at interest rates and prices as being equal to exchange rates. Do not get confused. That identity is simply saying what we have just looked at. The actual rate of exchange should reflect underlying trade and speculation. Trade is about prices and speculation about
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interest rates. The identity is a theoretical representation of this. An exchange rate over time is a measure of relative interest rates and relative prices for goods and services. At any point in time this is not the case, but over time it should be. Relative interest rates determine speculative demand and relative prices (or movements in prices to be more exact; inflation) determine trade in goods and services. This latter is termed the Purchasing Power Parity explanation of exchange rates. Before we move on there is one other aspect you need to be clear about. Arbritrageurs are also involved in foreign exchange markets. They are essentially the banks and speculators, but they play an important role in ensuring coherence between the rates of exchange of different currencies. An example would be if the rate of exchange between the and $ was 1:$2 and the rate of exchange between and DM was 1:3DM, then the rate of exchange between the $ and DM must be $1:1.50DM. If it were not, there would be a certain profit depending on the rates between the three currencies. Arbitrageurs therefore work by buying and selling currencies, which ensures the overall rates of exchange between the various currencies, is coherent. You might want to do an example for yourself. What would happen if the rate between and DM was not as before, but instead was 1:2DM?
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Week 6
The Macro-economic Environment Understanding the Global Environment

Aims
The aim of this session is twofold. Firstly, to introduce you to some of the main perspectives on the increasingly global environment organisations operate in and, secondly, to develop an understanding of some of the main implications for organisations of this significant change in the external operating environment.
Learning Outcomes
At the end of this session you will be able to: Demonstrate an understanding of the main impact of globalisation on the business environment Discuss and critically examine the dominant perspectives on, and drivers of globalisation; Demonstrate an understanding of the forces underlying globalisation; and Understand the importance of globalisation in terms of both cost reduction and cost recovery.
Preparation and Essential Reading

You are required to read the following chapter and case study BEFORE the session: Chapter 2 The Globalisation of Business, in: Harrison, A. (2010) Business Environment in a global context, Oxford University Press. Particularly, the Case Study: Globalisation of the Car Industry on pages 52 55.
Class Activities
Based on the above reading, consider the following questions:
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1. Which do you consider to be the most important forces driving the globalisation process? 2. How is the increasingly global nature of the external organisational context impacting on organisations? 3. To what extent is globalisation a threat and why? 4. According to the case, a) To what extent was the international expansion of Japanese car manufacturers beneficial to the development of the US and Western European car industries in the 1970s and 1980s? b) Why do competing companies frequently form alliances? c) What are the implications of the gradual shift in car manufacturing from North America and Western Europe to Asia, Latin America, and Central and Eastern Europe?
Overview
Globalisation and the global economy concept is an area on which much has been written. In order to examine the issue of globalisation it is necessary to start at the macro level to put it into context. For Thurow (1996), the on-going globalisation process has fundamentally changed the environment within which organizations operate. It presents organizations with a brave new world, where not only are the players in the business game different but the rules of the game have altered substantially. For example, one major shift has been the changing nature of competition. Given the differing socio-economic structures that countries have, competition is now no longer simply about products, organizations and managers but also about competing social settlements. The main variables in a social settlement are, wages paid, hours worked and social costs incurred. The old argument was that if you had the right firm with the right management making the right product you would be successful. This was the role of strategy - taking the organization into its environment with confidence. The problem is that, due to globalisation, power relationships are shifting away from management towards the environment. This has led to more of a focus on the structural environmental factors, such as those encapsulated in the social settlement. Generally, what becomes clear from any analysis of the literature on the global environment is that the world tomorrow will be significantly different than the world today. Managers and organizations must behave in a different manner if they are to succeed. More specifically, the forces underlying globalisation can be analysed from the perspective of push and pull factors:
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Push Factors: Factors that force a firm to contemplate moving from their home market. These include: Saturated home markets Limited home market growth Increased competition in home market Increasing cost of regulation Negative social settlement conditions
Pull Factors: Factors that attract firms into international markets. These include: New markets/Customers Market liberalisation Internationalisation of industry Favourable social settlement conditions
There are also many benefits organizations gain from global expansion: Benefit more from core competencies: Applying unique skills in different markets Gain from location economies: Benefiting from the global division of labour. Realise greater experience curve economies: Organizations can benefit even more from learning effects and economies of scale The global environment can assist organizations in both their aims of cost reduction and cost recovery. Cost reduction involves the constant search for efficiency savings in order for an organization to remain competitive in an increasingly competitive world. This, organizations can do through the international division of labour and the re-location of operations. For example, if labour costs are a significant part of the cost of a product then production facilities can be shifted to other parts of the world, which have an advantage in this area. This has occurred in virtually every industry, from cars through sports wear to electronics. The global environment also allows organizations to gain access to new growing markets, which makes it easier to recover their costs from the market place. For example, many organizations from the advanced economies are setting up operations in China not simply because of the lower labour costs, but also for the huge market potential that is there. In a similar fashion, this is why the Japanese set up transplant operations in Europe not to
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reduce costs but to gain access to approximately 360 million high-income consumers.
Further Reading
Bhagwati, J. (2004) In Defense of Globalisation. Oxford: OUP. Daniels, J. Radebaugh, L. and Sullivan, D. (2008) International Business: Environments and Operations. Harlow: Pearson Education. De Wit, B. and Meyer, R. (2004) Strategy Process, Content, Context: An International Perspective, International Thomson Business Press, 3rd Ed. London, pp.534-549. Dicken, P. (2007) Global Shift: Mapping the Changing Contours of the World Economy, 5th Ed. London: Sage. Hamilton, L. and Webster, P. (2009) International Business Environment. Oxford: OUP. Hirst, P. and Thompson, G. (2006) Globalisation in Question. Polity Press. Gray, J. (1998). False Down: The Delusions of Global Capitalism. Granta. Wetherly, P. and Otter, D. eds. (2008) The Business Environment: Themes and Issues. Oxford: OUP. Yip, G.S. (2003) Total Global Strategy II. 2nd Ed. London: Prentice Hall.
Week 7 The Global Environment (II): Emerging Economies in Three Continents

Aims
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This session has two central aims. Firstly, to provide an overview of emerging economies mainly in Asia, America and Africa, and to compare and contrast their economic, political and other developments. Secondly, to look particularly at the BRIC countries (Brazil, Russia, India and China) which are increasingly significant globally and then Africa which has been struggling to reform.
Learning Outcomes
By the end of the session you will be able to: Understand the main characteristics of emerging economies and their rising influence globally; Explain the reasons for Latin Americas slow progress and Africas lagging development in comparison with Asias fast growth; Critically evaluate the contribution of the BRIC countries to the world economy (particularly in the recent recessional time) and the ways they differ from other major economies; Identify the potential challenges facing the BRIC countries over the coming decades; and Discuss the potential solutions to Africas future development and prosperity.
Essential Reading
You are required to read the following chapters and article BEFORE the session: Chapter 14 Contrasting Developments in the Americas, Chapter 15 Asias Economic Potential and Chapter 16 Africas Struggle for Reform, in: Harrison, A. (2010) Business Environment in a Global Context, Oxford University Press. Goldman Sachs. 2003. Dreaming with BRICs: The Path to 2050. [online]. Available at: <URL: http://www2.goldmansachs.com/ideas/brics/book/99-dreaming.pdf > (Please find the article online, print it out and bring it with you to the session.)
Class Activities
Based on the above reading, consider the following: (1)Compare and contrast the emerging markets in three continents: Asia, America and Africa. (2)What has made the BRIC countries different from other major Economies?
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(3)Why have the BRIC countries now gained importance in the eyes of Western economists, investors and politicians? (4)What will the BRIC countries need to do in order to secure their solid growth over the coming decade? (5)What have been the major barriers inhibiting Africas economic development and how can these be overcome? Further Reading Green, D. (2006) Faces of Latin America. Latin American Bureau. Gordon, A.A. and Gordon, D.L. (2001) Understanding Contemporary Africa. Lynne Rienner. Guest, R. (2004) The Shackled Continent: Africas Past, Present and Future. Pan Books
Week 8 Class presentations
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Week 9 The Micro-economic Environment Market Structures and Industry Analysis

Aims
This session aims to introduce the theory underpinning the operation of different market structures, to demonstrate the link between market structure, a firms behaviour and its performance and to apply Porters five forces model as a means of understanding the specific environment in which organizations operate.
Learning Outcomes
At the end of the session you will be able to: understand different types of market structures and their implications for the behaviour of firms, identify appropriate examples of market structures, understand the measurement of competition by concentration ratios, consider aspects of competitive behaviour and how Government seeks to regulate behaviour via the Competition Commission. Understand and be able to apply Porters five forces model to gain insight of an organizations strategic position Preparation The reading and pre-sessional activity should take about four hours. At the end of the session there are some issues arising
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from the session that are worthy of further reflection to consolidate your learning of the material. These should take you about an hour leaving you three hours to do some research for your assignment.
Reading
Read: Chapters 9 of Harrison (2010), pages 233-263 Porter, M. (1989), How competitive forces shape strategy, Harvard Business Review, March/April. Porter M. (2008) The Five Competive Forces that Shape Strategy Harvard Business Review January The Global Auto http://.knowledge.wharton.upenn.edu Industry
These readings give an overview of the structure, conduct and performance debate, different types of market structures, the market behaviour associated with these markets and Porters (1985, 2008) approach to the competitive environment.
Overview
The understanding of different types of market structures is best illustrated by a series of examples. The diamond market: a monopoly De Beers has maintained monopoly control of the worlds diamond market by controlling production and by purchase rights. In 1958, on news of the discovery of diamonds in Soviet Siberia, Oppenheimer, De Beers CEO, offered to buy Russias entire production at prices guaranteed to keep the market price of diamonds high. This transaction was facilitated through a series of subsidiaries in Switzerland and Luxembourg to hide the connection between communist Moscow and capitalist Pretoria. This agreement worked until 1990 when Russia, starved of cash, demanded a better deal. Eventually De Beers and the Russians struck a five-year deal for 95% of Soviet production in exchange for $1b annually. De Beers operates its monopoly via the Central Selling Organization (CSO), which is a single market channel that sells to selected buyers at fixed prices. The theory tells us that monopolists can usually control the price or the supply, but not both. However, De Beers, by emphasising the purchase of diamonds as an investment, had managed to do both.
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Customers are invited to tender for mixed sets of diamonds. They either buy the whole set or none at all. Buyers have little choice to accede to these requirements because there is nowhere else to obtain diamonds. In the Soviet Union a Yakutia conglomerate called ARS mined the diamonds and the Committee on Precious Metals (CPM) oversaw the market. As the Soviet Union broke up, the CPM started undercutting De Beers. The latter responded by cutting prices on small gems by 11% at high cost to the Russians. Russia was keen to sell more to generate extra income in hard currency and sought to increase the amount sold outside De Beers from 5% to 20%. Why do you think De Beers was so concerned to maintain control of the world diamond market? In your view does a monopoly in this market benefit or harm the customer? How does competition policy in UK define monopoly? In general what are the costs and benefits to the consumer of a monopoly?
Monopolistic Competition
The restaurant and car maintenance sectors are examples of competitive markets. In each case the sector is characterised by a large number of suppliers. The car maintenance sector comprises over 20,000 workshops maintaining and repairing vehicles. 75% of these employ less than 10 staff and have an average turnover of little more than 100,000. With so many operators the market is highly competitive, but specialism (on particular types of car) and location allow garages some control over price. What type of competitive behaviour is likely in these markets? Why are there so many operators in this type of market?
Oligopoly
The characteristics of an oligopoly are as follows: a small number of firms dominate the market, hence the level of concentration is usually quite high, each firm needs to be aware of how its rivals are behaving - this is known as conjectural interdependence, moderate entry barriers, product may be homogenous, e.g. petrol, or differentiated, e.g. beer,
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competition by non-price methods preferred.
As there are a few large firms competition tends to be intense. Competition by price would lead to price wars and create instability for operators in the industry so oligopolists tend generally to avoid price competition and compete by non-price methods such as advertising and sales promotion. Under certain circumstances the pressure to avoid competition becomes so great that companies seek to collude, i.e. join together to fix prices. This is deemed to be anti-competitive according to UK legislation.
The Brewing Sector

The brewing sector has increased in concentration since the MMC in 1986 decided that the brewers were acting against the public interest via their vertically integrated operations of owning pubs and breweries. The Beer Orders (1986) declared that the larger breweries must sell off excess pubs and introduce guest beers in an attempt to increase competition. Brewers sought to circumvent the MMC requirements by shedding their vertically integrated structures, e.g. Grand Metropolitan sold its pubs to Courage and Courage sold pubs to Grand Metropolitan. As a result of merger activity in the sector, whereas in 1986 the six largest brewers controlled 80% of the market, by 1998 four brewers controlled 77%. 1. What is meant by concentration and vertical integration? 2. What has happened in brewing since 1998? Refer back to Global forces case in week 2 3. How do firms in the brewing sector compete? 4. What are the roles of the Competition Commission and the OFT? 5. What are restrictive practices? UK legislation aims to make markets more competitive on the premise that greater competition makes companies more efficient and the consumer has a bigger choice of goods and services. Sometimes merely the threat of competition is sufficient to keep prices down. In contestable markets, i.e. those where costs of entry and exit by potential rivals are zero (Sloman 2006), firms will not exploit their monopoly power as entry barriers are so low. If a company increased its prices another firm would enter to undercut and take market share. A village store selling newspapers would be an example of a contestable market.
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The starting point for a discussion of Porters five forces model is to consider what is meant by an industry. This term is used loosely to describe any situation in which there are buyers, suppliers and competitors so could be applied to traditionally public sector operations like the Health Service, Higher Education or Local Authorities. To define the industry in which an organization operates you should take into account the following: the consumers whose needs the organization is meeting, the current and potential competitors who aim to meet those needs, the suppliers that enable the organization to deliver its product or service. Levitt (1980) considered that Parker, the pen company was not in the writing instrument market, but in the distinctive gift market. Reflecting on how the industry is defined allows you to get a better picture of the organizations activities and informs its strategic decisions. The underpinning rationale for Porters view of industry structure is that the profitability of an industry is neither random nor the result of industry-specific influences, but is determined in part by the industrys market structure. The five forces specified affect the level of competition at the level of the specific business unit (SBU). Using this analysis allows you to gain insight into the organizations competitive environment. Which are the dominant forces in the industry and what are the underlying factors, which are driving these five forces? The first dominant force is competitive rivalry. This measures the degree of competition in the sector and considers how many players operate in the sector, their relative size and power, the industry sectors growth, the extent of fixed costs and excess capacity, the diversity of competitors and exit barriers. Now you see what you can discern about the other four forces: threat of entry, power of buyers, substitutes, supplier power.
Can you identify what factors might drive these forces? Your reading of Morrison (2002) and Porter (1989) should enable you to answer this and the following questions:
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What are the impacts on key competitors? What can be done to influence the impact of the five forces? How may the five forces change over time? What are the deficiencies of this model?
Activity
Using the five Forces framework, analyse the nature of the competitive environment facing an organization in the car industry? In the airline industry? In the fashion retailing sector in the UK? In the banking sector?
Reflection
To what extent do you think this model can be applied to the public sector?
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Week 10 Delivering Customer Value

Aims
The session examines and evaluates the concepts, rationale and application of segmentation, targeting and positioning as essential aspects of developing differentiation and delivering customer value.
Learning Outcomes
To identify the stages within the segmentation process. To evaluate the key bases used in segmentation within consumer and industrial markets. To apply the principles of segmentation to aid in delivering customer brand value To utilise and evaluate models to aid in building customer value.
Preparation
Please select a market and consider the different ways in which you could split it into customer segments. Create a listing of the criteria that you could use, and for each one consider what type of you would need to implement its use and how this data could be gathered. Please bring this information to class.
Reading
Hooley, G. J., Saunders, J. A. & Piercy, N. F. (2007). Marketing Strategy & Competitive Positioning (4th Ed.). Hemel Hempstead: FT Prentice Hall Chapters: 9 and 10 Cohen, S. and Ramaswamy, V. (1998). Latent Segmentation Models. Marketing Research, Summer, 15-21.
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Overview
Understanding Segmentation, Targeting and Positioning
Classic economic perspectives often include the underlying assumption that all customers are alike, and that a willingness and ability to buy is all that distinguishes buyers. Such a view obviously takes no consideration of factors such as size and nature of the decision-making unit, attitudes, product preferences and usage patterns that could affect a customers ability or desire to buy a particular product. It is factors (or bases) such as these that marketers use to identify groups and sub-groups within total markets. This process is termed segmentation. Market segmentation consists of dividing a heterogeneous market into a smaller number of more homogeneous submarkets. This can be achieved through the application of a wide variety of bases: for example, in industrial markets, by company size, frequency of purchase, expected benefit and loyalty. However, the basic logic underlying the process is always the same: Not all buyers are alike. Subgroups of people with similar backgrounds may be identified. behaviors, values or
The subgroups will be similar and more homogeneous that the market as a whole. It should be easier to deal with smaller groups than with large groups of dissimilar customers. (Zikmund and DAmico (1995). The aim of this grouping exercise is to cluster similar customers with different and sometimes unique demands. For example, the market for shaving products can be subdivided by the gender of the user. The mens sub-market can be further segmented on the basis of a customers product type preference wet or electric. The mens wet-shaving segment can be further split on the basis of the preferred benefits the customer values for example, convenience (fully disposable razor and heads); sturdiness (reusable handle with a limitedlife, disposable head), or aesthetic appeal (e.g. handle and stand to be kept and used with disposable blades). These segments could again be segmented, and so the process would continue. The final number and nature of segments identified can, in part, depend on the marketers creativity in the application of segmentation bases.
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This process does not simply identify sub-markets, but also facilitates an organizations assessment of which of the potential sub-markets to concentrate its marketing effects on. This means that what a firm is looking for are meaningful segments, which provide the most potential for the organization. Focusing its efforts in this way means that the organization can allocate its marketing resources most efficiently and effectively. The sub-group(s) that are selected by the organization are termed the target market(s). Target marketing is based on the assumption that differences among buyers are related to meaningful differences in market behaviour. The identification of market segments that are not meaningful has little value to the marketer. The following criteria have to be met to make a segment meaningful: It must display characteristic(s) that separate it from the rest of the overall market (these characteristic(s) must be stable over time). It is large enough to be profitable. It is accessible to distribution and promotional efforts.
It displays a unique need and will be responsive to marketing efforts designed to meet this need. The potential of the segment should be measurable. A number of these criteria raise issues of measurement and the ability and means used to identify segments. There is a good deal written on the possible mechanisms and techniques that can be applied; and to fully appreciate the complexities of the segmentation process, the issues of different metrics and methods must be explored. Once meaningful segments have been identified, a decision can be made by the company regarding which target marketing strategy is most appropriate. There are four commonly used strategies: Undifferentiated marketing: where everyone is a customer. Concentrated marketing: zeroing in on a single target market. Differentiated marketing: different buyers different strategies. Custom marketing: each customer is delivered a customised marketing mix.
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The selection of a strategy is dependent on the number of meaningful segments identified and the goals and resources of the organization itself. After a target strategy has been adopted, the positioning for the product must be determined. The market positioning of a product refers to the way which customers perceive the offering in relation to its competition. The essence of a positioning strategy is to identify a products competitive advantage and stress salient characteristics and benefits to differentiate the product in its market. This is achieved through the manipulation of the marketing mix to provide the tools to generate the desired positioning.
Session in Week 11
This session will focus on performance analysis through a number of class-based activities. Students should attend having read the articles, and be prepared to engage in discussion and analysis activity.
Reflection
Consider the applicability of STP techniques in a range of consumer, industrial and not-for-profit markets.
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Week 11 Managing Marketing Performance

Aims
This session builds on the previous weeks and focuses on the methods of analysis used in marketing to examine the nature and potential of a particular customer value proposition. It considers methods of assessing the measuring and evaluating performance of brands. It also explores the issues and difficulties of conducting such analysis.
Learning Outcomes
To examine the range of tools and mechanisms available to managers for analysing overall and specific market potential. To assess methods of evaluating a brands current and future financial performance. To evaluate the relative merits of constituent elements used within marketing performance. To examine the contribution of performance analysis to managing in dynamic organizational environments.
Preparation
Please read the following and be prepared to discuss the content in class. Cavusgil, S. T. (1997). Measuring the potential of emerging markets: an indexing approach. Business Horizons, JanuaryFebruary, 87-91. Walters, G. P. and Samiee, S. (2003). Executive Insights: Marketing strategy in emerging markets: the case of China. Journal of International Marketing, 11(1), 97-106. As you read, think about the following points:
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What are the benefits to applying systematic measures to compare brands? Are there potential difficulties in adopting such an approach? What other criteria would you suggest were used to assist in the task of performance assessment?
Reading
Hooley, G. J., Saunders, J. A. & Piercy, N. F. 2007). Marketing Strategy & Competitive Positioning (4th Ed.). Hemel Hempstead: FT Prentice Hall. Chapters: 5, 6 and 7.
Overview
Understanding the Market
This session considers the necessity of developing a focused understanding of potential and existing markets. In doing this, the session builds on the previous weeks topic, which considered the nature and analysis of markets and industries at a broader level. Gaining an understanding of potential and existing markets often relies on assessing current or potential market attractiveness and evaluating the companys current or potential strengths in serving a specified market (See Porter, 1987). Market attractiveness can be assessed using a wide range of measures based on the situation and the nature of the market itself. This means that there is no single best set of criteria, or indeed methodology. However, Hooley et al. (1998) suggest that, all things being equal, a market will generally be more attractive if: It is large, It is growing, Contribution margins are high, Competitive intensity and rivalry are low, There are high entry and low exit barriers, The market is not vulnerable to uncontrollable events.
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They also state that the companys strengths and potential strengths in serving a particular market must be considered relative to customer requirements and to competitor strengths in serving the market. Other things being equal, the companys existing strength in a market will be greater where (relative to the competition): It commands a high market share, It is growing faster than the market It has unique and valued products or services, It has superior quality products, It has better margins, It has exploitable marketing assets It can achieve production and marketing efficiencies It has protected technological leadership. (p.45)
In both the context of analysing market attractiveness and company strengths, a company must consider the relative importance of each aspect identified to reach an overall assessment and assist in the selection of a target market. This begins to hint at some of the potential difficulties in developing appropriate metrics for assessing market attractiveness. It also suggests that assessing market attractiveness is closely aligned with the topic of market segmentation, targeting and positioning.
Reflection
Consider how you would begin to evaluate the performance of an organisation operating within a specific market and what this would mean in relation to the nature of the customers in such segments
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Week 12
Analysis of the Environment Making Sense of Uncertainty

Aims
This session focuses on the tools and techniques that managers can use to monitor the changing business environment. It will explore in detail the role and significance of scenario planning as a way of analysing dynamic environments.
Learning Outcomes
To analyse the range of tools available to managers for monitoring the environment. To analyse the use of scenarios as a means of analysing turbulent business environments in the process of strategy formation. To evaluate the pros and cons of scenarios as a management tools. To examine how scenarios are constructed.
Preparation
Please read an article on scenarios and be prepared to discuss the content of the article in class. The following list is an example of resources that can be accessed through Emerald. These are just some of the articles found by typing the word scenarios. Bodd, R. and Postma, T. (1997), Strategic learning with scenarios, European Management Journal, December. Costa, J. (1995) Am empirically based view of the concept of environmental scanning, International Journal of Hospitality Management Vol 7, issue 7, p 4-9. Courtney H., Kirkland J. and Viguerie P. (1997) Strategy under Uncertainty, Harvard Business Review , Nov-Dec
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Godet, M. and Roubelat, F. (1996), Creating the future: the use and misuse of scenarios, Long Range Planning, 29:2, April. Mercer, D. (1995), Scenarios made easy, Long Range Planning, August. Mercer, D. (1995), Simpler scenarios, Management Decision, Vol. 33.No.4 (downloadable in full text format from Emerald) Moyer, K. (1996) Scenario Planning at British Airways-a case study, Long Range Planning, Vol.29,No.2 pp. 172-181. Raimond P. (1996) Two Styles of Foresight: Are we predicting the Future or Inventing It?, Long Range Planning, Vol. 29, No.2,pp208-214. Ringland, G. et al,(1999) Shocks and Paradigm Busters (Why do we get surprised?) Long Range Planning, Vol.32, No. 4,pp.403-413. Ritson, N. (1997), Strategic planning in action, Management Accounting, December. Schoemaker, P.J.H. (1995), Scenario planning: a tool for strategic thinking, Sloan Management Review, Winter. Stout, D. (1998), Use and abuse of scenarios, Business Strategy Review, Summer. Wack, P. (1985), Scenarios, uncharted waters ahead, Harvard Business Review, Nov-Dec. As you read the article think about the following points: What are the benefits of scenario planning as a management tool? What are the disadvantages of using scenarios? Under what circumstances is the use of scenarios most appropriate?
Reading
Schnaars S and Ziamou P (2001) The Essentials of Scenario Writing Business Horizons July-August Skapinker M. (2001) How to guess the unguessable Financial Times October 4th (distributed in class)
Overview
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Tools for Managing the Environment

Understanding the nature of the environment enables managers to deal more successfully with their operating conditions. When managers face simple/static environments, managers will be able to consider the future by reference to the past. Common tools used are extrapolation and forecasting, e.g. if the demand for a product has shown the same seasonal variation for the last ten years, then it is reasonable to assume this will remain so in the future. The danger inherent in this approach is that managers may become myopic and complacent and fail to notice that changes are taking place, e.g. Wang Industries ignored the growing importance of microcomputers believing that mainframes would continue to dominate the market. Recognising the nature of the environment allows managers to develop ways of handling the environmental uncertainty. There are a range of tools available, the use of which varies depending upon the environmental conditions the organization faces. Extrapolation and forecasting are appropriate if conditions are simple and stable. However, more sophisticated techniques are needed where the environment is complex and dynamic. In a dynamic environment understanding the past does not always help the manager to see what is in the future. One technique commonly used is the creation of scenarios, which allow the user to explore wider possibilities and hence come to terms with uncertainty, Scenario planning simplifies the avalanche of data into a limited number of possible states. (Schoemaker, 1995) Shell is one of many companies that have adopted this technique, which will be explored in more depth in the session.
Session
This session will focus on how to build scenarios
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Global Organizational Environment MBA405

MB460 Organisational Context (2008-2009)

Global Organizational Environment

Gloucestershire Business School

Module MBA 405 Introduction

Gloucestershire Business School

Module MBA405 Introduction

Gloucestershire Business School

Module MBA 405 Introduction

Gloucestershire Business School

Module MBA405 Introduction

Gloucestershire Business School

Analysis of the Environment Organizational Form and Purpose

Gloucestershire Business School

Module MBA405 Analysis of the Environment- Organizational Form and Purpose

Gloucestershire Business School

Module MBA405 Analysis of the Environment- Organizational Form and Purpose

Gloucestershire Business School

Module MBA405 Analysis of the Environment- Organizational Form and Purpose

Gloucestershire Business School

Module MBA405 Analysis of the Environment- Organizational Form and Purpose

Gloucestershire Business School

Module MBA405 Analysis of the Environment- Organizational Form and Purpose

Module MBA405 Analysis of the Environment- Organizational Form and Purpose

Gloucestershire Business School

Analysis of the Environment Understanding the Managerial Environment

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Gloucestershire Business School

The Macro-economic Environment the Economy and the Role of Government

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Overview: The Macro-economy

The Circular Flow of Income

Module MBA405 Analysis of the Environment Global Organisational Environment

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Tools of Economic Management

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Other Points for Consideration

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

The Macro-Economic Environment The European Environment

Preparation and Pre-reading

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Gloucestershire Business School

Module MBA405 Analysis of the Environment Global Organisational Environment

Gloucestershire Business School