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    Book Business1

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    1.3 a2 Business organisation and environment Toa coats aed rvemse louput Poimasinsng pn Figure 1.3.4 Prof maximisation the greatest possible ifference between total revenue sd taal cost + High short-term profits may lad competitors to enter the market. + Many business sk to maximise sales in onder to secure the greatest market dare posible, rather than maximise profits The business would expect to make 4 target rate of profit om these ales. + Owners of smaller busineses may be more concerned with isues of independence and keeping control ~ there miy be of more importance than making higher profit + Most business analyse assess busines performance through return on capita ‘employed ~ the sate of profit returned on each dollar inverted inthe business ~ rather than through total profit, + Profi maximisation may well be the preferred objective ofthe owners/shareholders, bu other stakeholders will gwve priority to other issues. Managers cannot ignore these. Hence, the rowing concer aver job security for the workforce and the cavironmental concems of local residents may force profitable business decisions to be iodifed, giving lowe profit levels + Tn practice itis very dificul to aes whether the point of profit maximisation has been reached. and constant changes to prices or output to attempt to achiewe it may wel lead to negative consumer reactions Profit satisfic ‘This means aiming to achieve enough profit to keep the owners happy but not aiming to work flat out to make as much profc as posible This soften the objective of owners of smal businesses who wish to live comforeably but do not want to work very long hours in order to earn more profit, Growth "The growth ofa business ~ in terme of sles or value of output ~ has many potentil benefit forthe managers and owners Larger firms willbe les likely tobe taken over and should be able to benef from cconomies of tele. Managers may gain higher talaries and fringe benefits. Business that do not attempt to grow may ceate to be ‘competitive and, events will love their appeal to new invertors. Business objectives bared on growth have imitations + Qver-tapd expansion can lead to cash flow problems + Sales growth might be achieved at che expense of lower profit margins Organisational objectives + Larger + Using profits to finance growth ~ retained profits ~ can lead to lower short-term rewurns to shareholder. winesses ean experience disceonomics of tesle + Growth into new busines teas and activites can result in a loss of focus an direction for the whole organisation, Increasing market share Closely inked to orerll growth ofa Busnes isthe marketshare it enjoys within its than maker Its poutble fran expanding butnes to afer alow of arte share if the mutket is growing st fer rate than the Bosnes el Increasing make share indicates thatthe marketing ix ofthe business proving tobe nore succes than that of ts competitors Benefit resting fom being the bran leader with the highest tmatket sare include: «+ Reualers will be keen to stock and promote the best-selling brand, + Profit margins offered to retailers may be lower than for competing brands asthe shops ae s0 ecu to stock it ~ this leaves more profit for the producer. + Fifective promotional eampaigns are often based on buy our product with confidence — ste the brand leader Survival “This likely to be the key objective of most new busines startups, The high flare rate cof new burineter means that to survive forthe fist two years of trading ean important aim for entepzeneurs. Once the business har become firmly evablished then other Tonger-term objectives canbe established. Maximising short-term sales revenue “This could benef managers and staff when ralaies and bomues are dependent on sles revere levels However, fncreed ale are achieved by redcing pics, the actal profit of che busines might fl. Maximising shareholder value Management, esecily n pblc nated company, ake decisions hat im to incense the company tae prie and dividends pid shaeholdes These ares mht be schiewed by purmung the goa of profit maximaation Thu sharholder value objective pus the interes ofhusholes above the of exer saksholdes. Ethical objectives es Ethical objectives are ages based on a moa code forthe busines fr example, ‘doing «thes: moral guidelines the ight thing’ The growing aceptance of corporate soil responsibilty ha led to that determine deison- Dusinesies adopting an‘ethieal cade’ to inihience the way in which decisions are ken, 9KiN9 “Most decisions have an ethical oF moral dimension. For example: ethical code (code of fonduat: a document + Should toy company adverse products to young children so that they'peste'theirSRraitey compen s rules ‘parents into buying thers? and guidelines on stat + Lex acceptable to take bribes in order to place an onder wath anotaer company? bbehaviour that must be + Should a bank invest inc followed by all employees opany that manufactures weapons oF ests new chemicals fom animale? + Bicacceptable to fed genetically modified food to catle? 43 1.3 44 Business organisation and environment + Do we accept lower profits inthe short term by purchasing lest-polisting production suipment? + Should directors receive substantial pay hikes and bonuses wh business might be being made redundant? + Tei acceptable to close a fctory to save cost and increase profits even though many Jobs willbe lost and workers may find it hard to get other jobs? + legal controls and inspections are weak in a country, acceptable to pay very lowe wages for long hours of work since this poliey will reduce the Gems eos? other workers in the + Should a business employ child labour to reduce cots compared with employing ads? + Should a business continue to produce potently dangerous goods as long ano one finds we out? ‘These at all examples of ethical lemmas. The way in which employees behave and take decisions i these cases should be covered and explained by 2 company’ ethical code of conductTo what extent should busincees take ethie into considertion when ‘making decisions? There s now considerable evidence that more and more companies ae considering the ethicl dimension oftheir actions ~ not just the impact they might have on profit Ditterent people will hve diffrent answers to thete dilemmas, Some managers will argue that any business decision that reduces costs and increases profits is acceptable at long ait is legal ~ and some might argue that even illegal actions could be justified 00, Other managers will operate their business scconding to erict ethical rile and will argue thi, even if eer actions ae not illegal, hey aze not right. Moral, they cannot be justified even if'they might cut coss andl increase sles. Evaluating ethical objectives ‘Adopting and beeping to a act ethical code in decion-making can be expensive in the short ern For exarple + Using ethical and Pairrade suppliers can add toa business cos «Not aking bribes to secure busines contracts can mean odng out on sigicant ale + Limiting the advertsng of toys and other child-relted products to an adil audience to reduce pester power ina rev in loot sale. + Accepting that it is wrong fix pices with competitors might ead eo lower prices and profits «Paying fir wages ~ even in very low-wage cconomes— rte cont and may reduce fam compettivenes gun business that exploit workers ever inthe long erm there could be substantial benefits from sting ethically For example: + Avoiding potently expensive court exes can reduce cost of fines + While bad public fom being ‘aight ating unethicly can lead to lost consumer, loyal and long-term reductions in sles, thieal policies wil ead to good pubicy snd increased les + Ethical businescsatact ethical customers and, as global pressure grows for corporate social responsibility, this group of consumers i nezessng, + Bical businescs ate more likely to be awarded government contracts + Well-qualifed staff may be atracted to work for companies that have ethical and socially responsible policies. Organisational objectives ACTIVITY 1.3.3 SIAM CEMENT GROUP (SCG) ‘The SCG has sre ethical code of conduct Its key features ae shown in the ‘able below. Business ethics Code of conduct + faieess oll who hae business Ushoding te princes of honesty and ‘alainships with the company, fame Including socety and envronment Protecting the pronertes anc reputation + Macing busines gains mn a poser ofsce: manner Conducting busines in the best + Noallances with poltical partes interests of SCG ana fs stakeholders + Noreserminaton/weatment af al staff | + Behaving approprately at 3! tes fang stakeholder grou towards others ‘According to 3 report by Judith Ross, 35 CG expanded beyond Thaland managers came Under pressure to compromise on its corporate code of ethics. The company’s standards fon bribes and ether improper payment, fr example, made i lffcu to compete in places where sch unethical payments are a ray of life. Tis example demonstrates the ‘assic problem: should fim conform fo the andards ofthe county they operate in or should they tr 9 expert thee own high moral principles to other lands? Source: Acted from ntsuihbowk hoses 22 marks, 44 minutes 1. Explain what you understand by the term ‘corporate code of ethic a 2 Discuss how SCG and its employees might benefit from a corporate code of ethics. [8] 2. Shoulda business such a SCG ever ute unethical methods in a country where ‘they are the ‘norm’ = for example, the giving and accepting of bribes? Justify your answer, ho Corporate social responsibility (CSR) Objectives that focus on meting socal responsible at ineressingyinportant for ‘mom busines orgniatons “To whom is busines answerable? Should busines activity be solely concerned with raking profits to meet the objectives of shareholders and investors or should busines: decisions also be intiuenced by the needs of other stakeholders? When a fim fly accept it legal and moral obligwions to stakeholders otser than investors ii aid eo bbe accepting corporate social esponsibility (CSR) (One important measure ofa fr’ atitude to is social responsiblity i the way in whieh ideal with environmental jstes. Our environment ean be greatly afected by Dusness activity Air and noite polltion fiom manufictaring proceie, road congestion caused by heavy trucks, busines expansion into countey ates, emisions of ges that can lead to global warming and the use of scarce non-renewable natural esourees are all environmental inues that ate of increasing concern to people and governments all lover the world. How should business managers eaet to these concerns? Should they respond by adopting environmentally safe o gicen policies, even ifthese ae expensive, for should they always ake the cheapest opsion no matter what the consequences for the cuvitonment might be? stakeholders: people or sroupe of people who fan be affected by ane ‘therefore have an interest In any action by an organisation corporate social responsiblity: this concept applies to those businesses that consider the interests of secety by ‘aking responsibilty forthe Impact oftheir dedsions and activities on customers, lerployees, communities and 45, 1.3 Business organisation and environment ‘Other issues connected withthe concept of CSR ros over ino ethieal decisions. In fact, the two concepts ate closely inked. Examples of recent CSR. developments include + the grown in the number of firms that promote argan and vegetarian food increasing numbers of retailers emphasising the proportion oftheir products made fiom recycled marerials + business that ree to stock goods that have been tested on animals or foods bared fon genedally modified ingredient, Tn these cases, the action being taken because rade and reputation might be low ifit Js not or because such ation is increasingly profitable? Might businesses be criticised for paying lip service vo CSR. nither than prised for their genuine concern for society and the environment? Conceivably frm ate being ethical or environmentally conscious because they have an objective thas Peter Drucker a famous waiter on management, call pable esponsibility’ because they want to behave in these ways, However, many consumer groups and pressure groups ae sill dubious as to whether these objectives are based on genuinely held belit, “Teble 1.5. look atthe benefits and drawbacks for businesses of adopting CSR. policies, + The mage of the ousress nits proses cn be improved witha gen or socal resconsble approach. This could become a major compettive advantage lcting new ‘estore’ ad jay fom esting custome + Bracing the bestratated nd ror fle employees ray become soir 2s many workers il preter o wore for Snd be asocated wh soialy aware businesses. + Bad pubty and pressure group acy vesuting rom socal iresponsilebehasour sould not ase, Shoreran costs could ineeas,e fiting ant-pllton esuipment, paying workers abovepovery wage level, pasng supplies promptly not exsoiingwuherble groups in Scterieng Shareoles may be eluctant to accep lover short-run profs even thouge long-un grt might nee Loss of cost ana price competitiveness if rival businesses do ro accept socal responses and have ewer costs ssarest, + The good of ether sakenaker groups, resulting Tom socal responsible beraiur, cou ao beter rebons rth mers, supple, customers 2nd the local community + Higher long-term prota shoul eh ram a ofthe ‘actors ave * Consumes maybe prepared to pay higher ces for products made na sci resconsble manner, but during En econame recession, they right just preter Io ices and ‘worry les about how products wee made Trev cule be a canserslesocalbacsich against, business that cam tobe sally response butt thscoveres to operate in sci responsible ways, 9.9 future mater came to use sustamaale timber bat bass ftom ranfores supplies ths s sometimes vtered t 5 "greenwast Table 1.3.3 Benefits and drawbacks of corporate sdal responsi Changes in corporate responsibility 46 Avsiudes towards corporate responsiblity have changed overtime. The standards that companies ae expected to teach ae determined by societal norms, nd in most countries these now focus on saksholdes rather than shareholders “The main reasons for changing corporate approuches to social responsiblity include: + incceaing publicity from international pressure groupe that ute the internet to communicate blog. ate finds and organise boycotts + the United Nations Millennia Development Goal, agreed by more than 120 counteies in 2000, which includes environmentally sustainable growth’ ~ this Organisational objectives ths forced many developing nations to inset that new company investment in their economy takes environmental concerns into consideration + global concern over climate change and the impact this could have on social snd economic development ~ this is forsing companies to confront the climatic consequences of their actions and investments, the rapid increase in Ws fart in Germany + legal changes at local, ational and European Union level ~ these have forced bbasinesies to refrain fom certain practices In mot countries, businewes ean no longer ‘ay sll very low wages or avoid legal responsibilty for their products CSR and corporate strategy changes “The changing corporate arategies ofthe world’s mining ompanies area exellent example of how firms may adopt diferent anategiee towards their social responsibilities in response to pressure Tn the 1970s and 1980s, many mining companies signed mineral -power ‘extraction deals with undemocratic poiteal regime, Environmental concerns were tiven very low priaity andthe interest ofthe local ar indigenous peoples (displaced by the mine workings) ignored, The Gratberg (West Paps) and Bouguinile (Papua New Guinea) gold and copper mines are wef case studies. + In Bougainville joint owners ofthe mine, RITZ. and Freeport, allowed the government to wie force fo put down cial unestcatsed by the displacement of people by the rine and its environmental damage The company took a very tough lie and miliary action took place next to the mine. Evennualy.che company was forced to close it + The Grasberg mine, which opened later chan Bougainville benefited fiom a very disfernt objective by RITZ towards its social responsibilities a «real ofthe poor publicity over its policy in Papua New Guinea.A trust fund has been set up to spend 1% of total mine revenue to fund village development, In addition, ane quarter of the total workforce ie dsvwn from local communities + RITZ went even further with the Jabduka uranium mine in northern Australia, Pablicity by the local Mirar tribe and thei eapporters led to an unprecedented extuordinary gencrl mecting of shareholders, which led tothe mine being closed: it has never reopened Measuring CSR — social audits Social audits ceport on fins socal’ performance and are becoming an important way socal audit: an for businesesto report on their corporate socal responsibility record. They asess the independent report on impact a business has on society and how efecvey it ethical Behaviour matches up tothe impact business has i tie objeies Socal audi an indade an etvronentl ait (ee abow) but 21068 Thi can cover they give deals of other impacts on society too. These incl pollution levels, heal Hey pve deals of oes ap *y too These studs nd safety record s0urees + health and sfey record eg number of accidents and faites of supplies, customer + contributions lea eommanity events and charities satisfaction and contribution + proportion of supplies that come from ethical sources, eg Pairtade Foundation see communi suppliers + employee benefit schemes + feedback fiom customers and suppliers on how they perceive the ethical uture of the Dasiness activities ‘The social audit will aso contain annual target to be reached to improve a firm’ level of social responsibilty and details of the policies to be followed to achieve these aims By researching and publishing thete report irms ae often able to identify potentially a7 1 3 Business organisation and environment . antisocial behaviour and tke steps to rt thit ont of the company’ practices Publishing detailed and independently verified social audits can improve a frm public fnmage, increase consumer loyaley and give the busines clear direction for ture improvement in is social responsibilty achievements. The benefits and limitations of social audits ate considered in Table 1.3.4 + Ieenis what social esponsibies the business * If the social asi nat independently checked ~ as pubs rmeesng and wnat stil needs tobe craved 2ecours must be wil te taken serious by fakaholes? + Sets atgets for improvement insocalperormence by | + Time and money must be devote to procing 3 detales comparing audi with he bes-perfrming msn the soci au = st ely necessary ne egy inaurty reauies? + Gives rection tthe acton plans a busines stl needs to | + Many consumers may ust be intersted in cheap goods, not pot inta efecto chev ts socalethieal sjectves, ‘whether the businesses they buy for ae socal esponsibl + Improves a cornganys ble mage na the cance wes sea | + socal auth doesnot pove that s buses being scaly marketing ool reese sales, responsi Table 1.3.4 Benefits and instatons of oc audi Evaluation of social audits + Until social audits are made compulsory and there is general agreement about what ‘hey should include and how the contents wil be verified, rome observers will not take them serial + Companies have been accused of using them as publicity sunt of 2smokescreen'to hide their teue intentions and potentially damaging practices, + They can be very time-consuuning and expensive to produce and publidh and this may sake them of Fimited value to small basinestes or those with very limited finance ACTIVITY 1.3.4 ‘CORPORATE SOCIAL RESPONSIBILITY Corporate social and environmental awareness has become essential for companies at they realize that they mus ten to all stakeholders if they are to achieve their objectives. ‘The combination of environmental responsibilty, business ethics and profits is one ‘hati attracting increasing attention. Many chief executive ofcers of leading companies now disagree with te idea that the interests of shareholgers and those of other stakeholders (employees, community, customers and soon) must always confit Increasingly, corporations seek to weld these two seemingly opposite forces so that "doing good’ and "doing good busines’ become the same thing. Social and environmental responsibilty has moved from 3 ‘nice ‘0 do"to a ‘need to Go’ The importance ofthe employee has been highlighted bythe so-called war for ‘alent. Recruiting the brightest and best nas Become a key concern, says a human resources manager at PrcewaterhouseCoopers: "Tere is such a limited numberof the right type of graduates, and they are choosy about the type of company they will work for. The cost of recruiting and retaining staf i likely 20 be higher if you fare not sen to bean ethical employer and organisation’ A company’s reputation also ha significant impliations for its inanal performance, Analysts believe i lone of the key factors in the valuation of companies. One company could have a 48, Organisational objectives higher stock market valuation than another solely an account of its good sci and ‘environmental reputation. ‘Shell, a company with traditionally one of the worst reputations among environmental and social pressure groups, has made enormous efforts to reinvent set 34a socially ‘tesponsible business. It has stated it aims as nothing les than to become ‘the leading ‘multinational in econami, environmental and soda responsibly shells chairman has sai tha the rearon for Shel's conversion to environmental protection i: "We ‘wont achieve our business goals unless we are listening to and learning from the full, ‘ange of our stakeholders in society 32 marks, 64 minutes, 1. Define the following terms highlighted inthe article: 1, busines ethics, a be. socially responsible Busines. a 2. Analyse two factors given inthe article which could encourage a business to adopt ethical and socially responsible objectives and strategies 1 2, Discs the likely cort and benefits for Shel ofthe company working towards being seen asthe leading multinational in economic, environmental and sedal esponsibility to) 4. Examine whether businesses should change their strategies of corporate tesponsibilty overtime 0 ACTIVITY 1.3.5 VIRGIN'S ENVIRONMENTAL POLICIES - GREEN OR JUST “GREENWASH'? ‘The Virgin Atlantic jumbo je that flew between London and Amsterdam using a proportion of biofuel was a world fist. This fuel was derived from Brazilian babassu nuts and coconuts and is much les polluting than ordinary jt kerosene. The airline’ boss, Sir Richard Branson, halled this a a ‘vital breakthrough’ forthe industry, Other ‘wel publicised fuel-saving measures used bythe alline ae the towing of aircraft to ‘he runways for take-off instead of using their own engines and offering frstdlass passengers tain tickets to travel to the airport In place of chautfeur-driven cas. Unfortunately, very few passengers have taken up this las offer, and towing of aircraft has been stopped ait causes damage to the undercarriage. Greenpeace’s chet sientst has labelled these efforts to make ar travel more environmentally friendly ‘high altitude greenvrash’ and sad that es air travel was ‘the only answer tothe growing problem of dimate changing pollution caused by ale travel A Friends of the Earth spokesperson said that biofuels do ile to reduce ‘emisions, ad large-scale production of ther leads to higher food rics. 18 marks, 36 minutes 1. Analyse why Virgin Atlantic it making efforts to reduce the amount of jet fuel ‘eerosene) used by its aircraft. a) 2 To what exten wil the company lose or benefit from these well publicised attempis to reduce alr pollution? to, 49 1.3 50 Business organisation and environment Lay 8 8 8&= =—est—se Africas Big Tobacco’ lst frontier, and companies are conquering the continent stick by stick. Even the very poor can afford the cost ofa single cigarette. So the world’s eacing tobacco companies ae targeting ica in the some strategic way ary organisation would approach an expanding and proftable marke, Unlike many more developed countries the regulations on cigarette sales in African counties i elativaly relaxed. The sale of packs, for examole, with fewer than 20 cigarettes \s prohibited in countries Ike the US, whereas seling cigarettes single, or ‘one-one,’ is allowed in African countries. Tobacco use deckring inthe developed world. thas reached a plateau inthe strongest marker, Asia, However tis growing in Aca, because of the continent's booming population and rapicly expanding midele clas. {can you be principled and work fora tobacco company that targets markets in developing counties? Issues relating to corporate objectives Some important ite eating to corporst objectives include the flowing + They must be based on the corporate sms and should link in with it + They shouldbe achievable and measurable ifthe are to motivate employees. + They need to be communicated o employes and investors in the busines Unless seaff are informed ofthe objectives and their own targets that result from these, then the busines i unlikely to be succes + They form the framework for more specific departmental or strategic objectives — sce below, + They shosld indicate atime scale for their achievement ~ remember SMART! Conflicts between corporate objectives Conflicts between cbjectivs can often cur Thete conflicts will need to be resaled by senior manages and decisions taken on the most giant objective for he next time Period The most common conics that can acura: «+ growth versus profit ~ achieving higher sales by raising promotional expenditure and by reducing prices willbe kel to reduce short-term profits + shore term vers Jong term ~ lower profit and cish How may need to be accepted fn the short term if managers decide to invest heavily in new technology or the evelopment of new products that might lead to higher profits in the longer term + stakeholder conflicts these ate covered in dealin Chapter 1.4 ACTIVITY 1.3.6 IS STS PLC SUCCESSFUL? STS ple collects waste from houses offices and factories. Most of the waste is burned, te produce heat and electricity for the companys own use. This saves costs and reduces the impact on the environment by net using areas of land te buy the rubbish, Decent increase in customers has meant that not al af the waste can be burned and Organisational objectives the company as dumped it in old quarries where it causes smels and gas emisions Investment in abour-saving equipment has allowed she business te save on wage {oss The company’s new mision statement ito become the county's number ane ‘waste business and to protect the environment for our childrens benef. Ths har been explained o all shareholders in a recent letter to them, but the workers ofthe company were not involved in helping create the mision statement and they have not been informed efi. The latest company accounts stated:"We aim to maximise returns to shareholders {through a strategy of aggressive growth. Our objectives ate to expand year on year” ‘These acount contained the folowing data Em En En Ea Saks revenue (im) 20 3 3 20) Net ert Sn) 3 3 10 20 Totalvale of eounen/= 720 140 160 780 waste market Sm Number of employees 1000) 350 0) 0) 26 marks, 52 minutes 4. a, Define the term ‘mission statement. Ry 'b. Explain ane benefit STS might gain from it new mision statement. fa 2. a, Explain what you understand by SMART objectives. fl 1b. STS’ objectives are not completely SMART. Analyse two problems that might ase from this co] 2. STS aim is'to maximize returns to dnareholder through a strategy of aggresive ‘grout Using the data provided, evaluate the extent to which they are Being succesful in achieving this objective. oy Factors determining corporate objectives There ate several reatons why fm have diferent objectives. Corporate culture "This can be defined atthe code of behaviour snd atitudes that influences the decsion= snaking syle ofthe managers and other employees of the business, Culture ia way of | oing things that shared by all hoxe in the organiation, If directors are aggressive in pursuit oftheir aims, keen to take ove rival businesses and cate litle about social or environmental factors, then the objectives ofthe busines will be weny diffrent dom thote of a business owned and controled by ditectors with 3 mone ‘people’ or social orientated cultre. Size and legal form of the business ‘Owners of small businesses may be concerned only with a satisficing level of profit, Larger businesses, perhaps controlled by directors rather than owners, such as most public limited companies, might be more concerned with rapid busines growth in onder fa increase the tatus and power ofthe managers This is often a reslt ofthe divorce between ownership and contol, Dizectors and managers may be more concerned about their Bonuses. salaries and fringe benefits— which offen depend on sheer busines size — than on taximising returns to shareholder, 51 1.3 52. Business organisation and environment Public sector or private sector businesses State-owned organisations tend not to have profit as a major objective. Quality of service targets ae often set, however, such atthe maximum days fora patent to wait for an operation, Even businesses earning revenv in the public sector, such asthe pot service, may have among their objectives the target of maintaining services in on-proftable locations Well-established businesses [Newly formed businesses ate likely to he driven by the desire to survive aa costs— the failure rate of new firms inthe fist year of operation is very high Later. once well cetublshed, the business may pursue other objectives such as growth and prof Changing business objectives Businesses cam change ther corporate objectives ove ime: Thee changes will be in response to interna factor suc resource constan,o entero factor such a henge inthe soci and econems entrant Some ofthe mos sgican resons for business changing ther objectives include the falowing + A-business may have sated the survival objective by operating for several years and now the owners with to pursue objectives of growth or increased profit The internal esourcesof the business might have increased whieh will llow the objective of growth to be reaistially etabliched + An important senior manager responsible for international expansion might leave the busines, which leds to focusing on growing the business in domestic markets until an fective replaceuient can be found. «The external competitive and economic environment may change, The entry into ‘he market of a powerfl rival or an economic recesion may lsd a firm fo seth fom growth to survival a it main aim. The UK ailine British Airways (BA) has ;ponded tothe dsl impact of inereated low-fire competition and the recession by focusing let on ie objectives to increase business-class and ise cats marketshare and sore on costacusting and low fares, This hat led to serious disputes with tade unions representing BA ebin sat + Ashortterm objective of growth in sales or market share might be zeplaced by 2 longer-term objective of maximising profit ffom the higher level of ales. Business objectives need to be tlexible enough tobe adapted to reflec internal and external changes, but they should not be ehanged ton dramatically or frequently 3 thie ‘muy sevlt an the loss of many ofthe benefits of setting SMART targets. ancluding 3 lose of focus, esse of disection and specific measures to judge present performance. Before making 2 significant change to objectives, senior managers need to consider: + the internal or external change significant and long-lasting enough to nuke a change in objectives necesary? + What would be the risks of not adapting objectives to meet the new sation? + What would be the cose and other consequences of new business objectives forthe bosiness and it ae? + How can changed objectives — and the stategics noeded to achieve them - be cffecively managed within the busines? Organisational objectives [Nipolltion sone way in which business att can damage the environment sould comparis be forced wo use desnersroducion methods? ACTIVITY 1.3.7 PEUGEOT CITROEN SET CLEAR OBJECTIVES ‘The chairman of the ear manufacturer Peugeot Citroen has set the company the aim ‘of becoming the mest competitive carmaker in Europe in 2015”. This overall im ‘supported by more specific and measurable objectives. The profit margin af each car sold is targeted to increase from 2% to 7% by 2015. The overall sales objective was to reach four milion carsales a yearby 2010. One milion carsales are aimed for Inthe 53 1.3 ‘SWOT analysis: a form cof strategic analysis that identifies and analyses the main intemal nrengtns ang Wetknestes and external ‘opportunities and threats ‘that wil influence the future direction and success cof a busines: 54 Business organisation and environment ‘emerging markets by 2015. In Europe, one ofthe most competitive car markets inthe ‘world, the target ito increase sales by 300000 cars a yearby the same date Departmental operating targets have azo been established. For example, the human resources department must prepare for upto 8000 jb losses and operations must aim ‘tp et fixed manufacturing cos by 30% and costs of purchasing car parts by 46% 2 year Marketing must plan to launeh 12 new models nthe Chinese market. “The chairman alto announced his intention to take both Jeb secur * Salayandbeetis that compare val to sirar | + Compete salaes and othe beefs posts of resporstlty n othe businesses Opporunies for responsibly ane creer + Ressonsies offered and eats ofthe post Ssdrancement Opp for rai saring or sare purchase cme “Shareholders | + Annual dvdends ata kel at east comparable Wo | « Tncoyporated bus nesses shoul be operated in ror busnesee accordance wih comnenys law Shae price sing ovr tine + Anna accounts seven te arenes + Secinty of rvesiment 1 Sateiestazen to crease shareholoe value {+ ity tse shares when required vere Customers |» Vale for money Not beak the fv on consumer protein and 5 Produt quay nd safety Securate advertizing + Guorantees: + Nottaking ssvontage of wulerale customers, + Serve levels Such 3 the elder ard not using high-pressure Longer eras for yay Seling tacts + Shing cstomer assurances about quly, celery hte, sence level and continued supp of tal components and mater “Supplies + Speed of payment + Estalsh elective tworway reatnships that we of * Leveland regulary of oer benefit tthe business and suppers + aires of teatrent eg. roteeing explotedby a | + avod excessive pressure on smaller or weaker very ge customer business apples to cut ces + Py ar prices and pay invoices promptly “Government | + Creston fabs and incomes that Boost he + oy profit ta conor 1 keep scurate accounting records 0 vue protean + Toes pale. Prof tax beshown value of output produced as this adds 0 GEP | « Provide nformation to goverment as requested * Irpact on wider society is prodction Keep wha loa ins e.g. 0n emloyment erronmentaly sustainable? contracts ond paluton levels Banks and other | + Secu ofthc loans andthe ably ol he + Pay interest cretore, buses to repay them 1 Pay back capital aed + Pomot payment of interest an capa owed by the bases Specalnteest |» Pressure groups —compagning to achieve a change |» Pressure qrouns— recognise genuine concern ‘prune in business Secsonelaerries cover business activity; Business may respond by + focal community ~ encouraging busines te act ranging decsions or operators in commaniys meres anato avo harmfcl | + Local community = aves poltion and other production meinas Garaging operations, spor fa local gus ‘Competiars |» Famess of compte racic: > To cmpete fry and within the awe 1 siategc pans f he busines + itis nota spars of business to rode etal of Is Srategic pans to competes Table 1.4.1 Stacerolders ners and busines responsibil test #akeholses 6a Stakeholders ACTIVITY 1.4.1 [MAJOR PALM OI. COMPANIES ACCUSED OF BREAKING ETHICAL PROMISES Pali oll sone ofthe woes most versatile raw materials Ris estimated that itis an ingredient in 50% of all products sold bya pica sermarket is wed in a wide range of products {rom margarine, cereals, csp, sweets and baked goods to saps, washing powders and cosmetics but soften lted as just vegetable a So, ts production benefits customers of these Prosicts.n dition, an estimated 15 milion smal farmers grow ‘he cop in Indonesia, along with about 500000 people directly ‘employed in the sector in Malaysia plus thse connected with related industries. The governments ofthese countries have sneouraged production ast isa major expert fr these economies Destruction caused by palm cl production wove the inusty has 2 poor mage. Palm ol production has ed to deforestation with resulting negative impact on climate change. There has been substantial ls of willie habitat, even endangering the orangutan alm ol companies have been acused by community groups of ving naive people off the land which isthe used for pal ol reduction. Sealy responsible businesses, such 35 KL Kepong in Malaysia have agreed to an ethical code which aims to make palm ol production ‘utainabe' ith fair teatment for al local population affected by. However, many companies have been acute of breaking the code a there ina strong werld body to sap them Behaving responsibly in any as, food manufacturers want ‘so maximize profit and final consumers want the cheapest raw materal possible. 27 marks, 54 minutes 1. Define the following terms highlighted in the article «a. secally responsible business . maximive profits plantations. Explain the interests of any two of KL Kepongs stakeholder groups. ‘Analyse te impact on these two stakeholder groups ofa decision by KL Kepong to close one ofits palm ol al Ry ic) 8 4, Discus why an expansion ofthe palm oll industry in either Malaysia or Indonesia likely to cause conflicting Views between stakeholder groupe 1 ACTIVITY 1.4.2 inst decision ni xpasion ofthe business ne 1 Hore|ab and caeeropportunises 2 More complex lies of communication afte expansn ry 1 Hore jobs fr local residents and increased Spering in othe local businesses 2 Exeral casts caused by creased watfc and los of green Flas for amet se Takeover of competing firm thant integration} © The rae business maybe more ‘ewe and offer creer promotion ‘opportunites 2 Ralonasaton may occur to avoid waste and cut cost — abs might be lost Ifthe busness expands onthe exiting Site, local job vacances and incomes might increase 2X Ratonasaton of upliated offices or factores might lea to sures and job loses Tew Tnrodicedinto| production maths 7 Traning and promotion opportunities right be offered 2X Tes unltina staff ul be eared snd those unable olesrn new sls. ‘ay be made redundant 7 Leal businesses proving Tservees could benef fom merasea orders 2X Specials! wercers may not be avalable bly so mote staff may nee fo commute “able 142 Potersal conflicts of interes between stakeholder groupe 65 1 4 Business organisation and environment rt 15 marks, 30 minutes 4. nthe three examples in Table 1.4.2, analyse the likely postive and negative effects on two other stakeholder groups i 2. State two other examples of business decisions. Try to use actual and recent examples from your evn county ‘Analyse the potential conflts of interest between any three stakeholder groups. 1 Can all stakeholders benefit from business activity? sit misleading to suggest that business decisions o activities always lea to significant contict between stakeholder groups? Possibly yes. Read the following cae sady activity Teindicates that business can be operated in ways that lead to mutual benefit for moet = not all~ takeholders ACTIVITY 1.4.3 JLP— ARE ALL STAKEHOLDERS SATISFIED? ‘The succes of the John Lewis Partnership (owning John Lewis department stores and \Wattrose supermarkets shows that giving all employees 2 substantial stake in the performance of a business and opportunities to influence management decisions has Advantages. The 2073 annual employee profit share bonus was 17% of their salaries — Up from the 14% ofthe previous year Ths annual bonus is one reason why JLP has the lowest rate of labour turnover of any major UK busines ‘According to Charie Mayfield, the chairman ofthe Partnership, the ‘we're all inthis ‘together spirit central tothe modern growth of John Levis and Waitrose. Sales at ALP outlets are rising a faster rate than for other competing retailers, showing that customers increasingly appreciate the never knowingly undersld promi ofthe business and its huge range of quality, value for money products. Local communities and ceneral government benefit from the huge investment programme of Pit Spent €200milon on new stores and refting existing anes even when the UK ‘economy wasn recession, Suppliers are competing strongly with each ther to make sure that ther products are displayed in the JP stores at gives brands addtional prestige JLP claims that all major strategies consider ethical and CSR issues aswell as ‘their potential profitably. Perhaps only JLP's competitors might feel aggrieved atthe sucess of this business But some business analysts claims that even val retalrs can benefit from JLPs growth = ‘or example, by copying some ofits practices and business models. The performance of ‘the Sports Dect stores has been transformed since the busines introduced a generous employee share ownership scheme 16 marks, 32 minutes 1. Explain how two internal stakeholder groups and two external stakeholder ‘groups can benefit rom rsing sales and profits at JL 8 2. Discuss whether stakeholders can gain mutual benefits in ll business ‘rganisations wy 66 Stakeholders k= #é | Imperial Tobacco to close factories in UK and France Despite recently announcing a 16.7% rise in annual profit to £1.26 billon, Imperial “Tobacco is closing two of is lst cigaretze-making factories in Western Euroge ~in the UK and France. Up to 1000 jobs willbe lost at the two factories and trade unions have promised to oppose the closures, Union leaders accuse Imperial Tobacco management af putting shareholders first by relocating production to low-labour cost countries in Eastern Europe. An Imperial Tobacco spokesperson said that these decsions had been party crven by falling cigarete sales in high-income countries as 2 result of government and pressure groups’ campaigns against smoking wiich high ght the serious health rks, The Tack ofthis kind of bad publicity in countries such a5 Turkey, Greece and Russa means ‘that these are the mares Imoerial Tobacco is targeting ~ ane these ate the counties in hich cigarettes wil, increasingly, be produced. 11. Comment on the conflict in stakeholders’ interests that arses from the article 2. Discuss the ethical questions businesses face when they make jab cuts Evaluating stakeholder conflict (One way of reducing conflict is to compromise, For example. a business siting to reduce costs may close one ofits fuctories in stages rather than immediately to allow worker! titne to find other jobs but as reul, business costs wil fall more slowly Plane to buld » new chemical plant may have to be adapted to move the main ste away ffomn a housing exit to protect the local community, but the new ste might be rior expensive The introduction of 24-hour Right t an sport ~ to the benefit of the ailines and pasengers — may only be accepted iflocal residents ate offered sound insolation in their homes, thereby increasing cost for the axport and airlines, (Clea. senior management must estab its priorities in these situations. They need to decide who the most important stakeholders are in each ease, what the extra cast of resting the needs ofeach stakeholder group will be, and whether bad publicity resulting fiom fulure to mect the interes of one group will lead to lost revenue ~ pethape tis willbe grester than the eos savings oft satin this group, Tbe | 4.5 considers methods available to business to reduce stakeholder confict, nd the potential advantages and disadvantages of each. err ote ‘otiatin = to sabe "An independent abtrator wil ear he | Methersakeholer grou wl be Hl to raceive inaustaldsputes between | arguments fam bath ices arc decide on | exact hat they wontes, woreets ano managers ‘hat they conser t be far solution. | The cost of the busess might se ifthe arbiter Bot sles can are beforehand whether proposes higher wages or eter work conditions thssetements ining, tats they have | than the erpoyer was orgnalyofferng to acept Wiorkeparicpaver =to | Workers have areal conibaton Some managers believe that paricpaon wastes Improve communication, | rake te many buses deceans. Ue and vesoures 9. in meetings tha te ust Setsion-making andteduce | Parvepaton can motvate staf to work | "aking shops and thatthe rae of the manager potental confiets between | more effectively to manage, not he work's. toorcts and managers 3. Some infomation cannot be dscdeset ttf other ‘ores cone, employee than senior managers, eg. sensitive deta about rectors future product launches "13 Meivods to reduce stakehokier confit ~aavantages and dsadvontages [able continues over 67 1 4 Business organisation and environment . reer Pree Proftaharing schemes = ta. | The workforce iallocated snare of | Paying werkers share af ne profits can reduce reduce contictoeiween | annual pais beer these ae paid out in| retained profs used fr exoasion othe business) \wotkes and srarenobiers over | dvdends to shareholders. Sang business | andor profs pa otf shareholders, unkss the ‘the alecation of prtis ard'e | profs can encourage workers towore | scheme resus in nigher profs due a nceased Shae the tenes a company | ways that wl tease longterm emoloyee matin. succes prefab “Svesoonersip sonemes= | These sche, nladng shave olin | Admnsiraton cons, rege pact on employee rereauce cnfictberneen | (ergnt to buy shares aa specfied price | motivation ithe share price fal, tion of \wotkes, managers Inthe fue) am to alow employees at | cvineshia~ ne isu of atonal shares means nd sorehober Silevelincating recon) bene! | tht each ans a smal shae ofthe comin from the sucess ofthe busines aswel as | Emoloyes may have 0 stay wth the company for 3 shoreholdes. Share ownership shoul help cerain numberof yer before they susly so the to algnthe interests of employees wth | motivation elect cm nee staf may be Fried those af sharers, Table 1.43 Continued ‘Communicaters ‘Communicators understand and expres ideas and information confidenty and creatively in ‘more than one language and in avaretyof medes of communication, 18 learner profile Samsung‘ one of the wort biggest companies tia lant Korean conglomerate that produces everything fom mobile hones to shis to televisions. tis even invohed in services ee insurance and theme parks. ts turnover is $268 billion and * employs 427000 people, Dr Ob-Hyun Kwon is the CEO of Samsung. Dr Kwon has a BSc in Electical Engineering ‘rom Seoul National Unversity, an MSc in Flectrical Engineering from KAT (Korea Advanced institute of Science and Technology) and a PD in Electrical Engineering from Stanford Unversity, USA. He has been with the business since 1985. Soure: Aaapied fom wsusarsung.com Discuss with your class the importance ofthe chief executive officer (CEO )of a business being an efectve communicator lke Dr Oh-Hyun Kwon, the CEO of Samsung ACTIVITY 1.4.4 DDAILY RECORD: "MERGER RESULTS IN JOB LOSSES’ “The merger of two of the largest airlines inthe country wil lea to job losses, reports the Dally Record. Special Alr and Flights4U have announced a huge merger which will result ina business worth over $2 billion. The long-term plans are tw ctfer more route and cheaper prices to passengers The merger has the support of the government as ts expected

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