CHAPTER 1: INTRODUCTION TO BUSINESS

I. Organizations
Title Content

Types - Profit-oriented organizations: accountancy firm, multinational car

manufactures,..
- Not-for-profit organizations: local authority, army

Reasons for - Overcome people individual limitation

existence - Save time
- Synergy
- Pool their expertise

Similarities A social arrangement for the controlled performance of collective goals

(Definition of which has a boundary separating it from its environment
organizations)

Differences - Ownership: private/ public sector

- Control: owners themselves, on behalf, indirectly by government
sponsored
- Activity
- Size: small/ local/ international
- Legal status: company, unincorporated body
- Sources of finance: borrowing, government funding, share issues
Technology: high/ low use of technology

II. Business
2.1. Definition of business
An organization that is oriented towards making a profit for its owners so as to maximize their
wealth and that can be regarded as an entity separate from its owners.

2.2.Types of business
Profit orientation Non-profit orientation

Reference Generally referred to as Frequently structured & run

business like a business

Primary objective Maximize profit/ dividend/ Provide goods and services

wealth for the owners to their beneficiaries at
minimized cost

Example Charities, trade unions,

governmental agencies,
hospitals, schools,...

III. Stakeholders in the business

3.1. Definition of stakeholders
 - Literally a person or group of persons who has a stake in the organisation. This means
that they have an interest to protect in respect of what the organisation does and how it
performs
- Ex: shareholders in a company

3.2. Natural capital, sustainability, corporate responsibility

Natural capital Sustainability Corporate responsibility

Everything that the planet Concerns the use of: Concerns:

provides humans and
business organizations to use
in order to live.
- Tangible resources: natural
capital and energy
- Intangible resources:
human/intellectual capital and
relationship with stakeholders
- The organisation’s ideas
and values on how to use
resources
- Promoting the positive
impacts of their use
- Reducing the impact of nay
negative impacts

IV. Business’s objectives

4.1. The hierarchy of objectives
The combination of primary objective and secondary objective to ensure the achievement of the
primary objective

Primary objective Secondary objective

Content Maximize profit to increase Support the primary objective

the shareholder wealth

Details - Shareholder wealth can only - Market position

be maximised if profit is - Product development
earned at an acceptable level - Technology
of risk. - Employees & management
- Profit cannot be pursued at
any cost. Any business is
subject to the laws and
regulations of the country in
which it operates, and it also
has social responsibilities.

4.2. Profit satisficing: Decisions might be taken by managers with their own managerial
objectives in mind rather than the aim of wealth maximization.

4.3. Revenue maximization: A business may act to maximize revenue in order to maintain or
increase its market share, ensure survival, and discourage competition.
4.4. Multiple objectives:
- Market standing: market share, customer satisfaction, size of product range, distribution
resources
- Innovation: technology, eg: automation, intelligent systems
- Productivity: meeting targets for the number of outputs within set timescales
- Physical & Financial resources: efficient use of limited resources
- Profitability: ROA, ROE, ROS,...
- Manager performance & development: meeting objectives & positive environment, managerial
succession,...
- Worker performance & attitude: labor productivity, stability
- Corporate responsibility: community & environmental impacts, labour standards, employment
protection,...

4.5. Constraint theory: decisions for some business areas are taken without reference to the
wealth objective at all

V. Missions, goals, plans, and standards

5.1. Planning & Control

5.2. Mission
- Definition: The business’s basic function in society’ expressed in terms of how it satisfies its
various stakeholder.
- Elements of mission: purpose, strategy, policies & standards of behaviour, value
- Vision: some businesses also have a vision of the future state of the industry or business
which determines what its mission should be.

5.3. Goals
- Definition: a desired end result
- Types:
+ Non-operational objectives (qualitative goals)
+ Operational objectives (quantitative goals): should be SMART - Specific, Measurable,
Achievable, Relevant, Time-bound

5.4. Plans & Standards

- Plan: state what should be done to achieve the operational objectives.
- Standard & Target: specify a desired level of performance. Can be expressed in terms of:
+ Physical standards: eg: units of raw material/ units
+ Cost standards: convert physical standards into money measurement by the application
of standard prices
+ Quality standards
 CHAPTER 2: MANAGING A BUSINESS
I. Management
1.1. Definition
- “Getting things done through other people’ (Mary parker Follett)
- Example:
+ In a business -> acts on behalf of owners
+ In a public sector organization -> acts on behalf of the government

1.2. Power, authority, responsibility, accountability & delegation

1.2.1. Power
- Definition: the ability to get thing done
- Classification:

Base of power Examples

Coercive power: the power of physical Workplace bullying

force

Reward/ Resource power: based on Managers have access to information,

control over valued resources contacts and financial rewards for team
members

Legitimate/ Position power: associated Manager has the power to authorize

with a particular position in the certain expenses, instructions
organization

Expert power: based on experience,

qualifications, expertise

Referent / Personal power: based on

force of personality which can attract,
influence or inspire other people

Negative power: the power to disrupt Strike, refusal, sabotage,...

operations

1.2.2. Authority (Position/ Legitimate power)

- The right to do something, or to ask someone else to do it and expect it to be done
- Areas:
+ Make decisions within the scope of authority
+ Assign task

1.2.3. Responsibility & Accountability

- Responsibility: the obligation a person has to fulfill a task which they have been given
- Accountability: a person’s liability to be called to a account for the fulfillment of tasks
1.2.4. Delegation: gives someone else the responsibility and authority to do smt, while remain
responsive & accountable for that thing being done properly

1.3. Types of manager

Types Examples

Line manager: has authority over a Trưởng phòng tài chính

subordinate

Staff manager: has authority in giving Trưởng phòng nhân sự

specialist advice to another manager or
department, over which they have no line
authority.

Functional manager: has functional authority, CFO thu thập số liệu từ những phòng ban
a hybrid of line and staff authority. khác để tạo BCTC

Project manager: has authority over project Có thể là line hoặc staff manager
team members in respect of the project in
progress.

1.4. The management hierarchy

1.5. The management process

- Planning: setting detailed objectives and targets in the light of the overall objective,
forecasts and resources.
- Organizing: identifying the processes, technology and people that are required and then
allocating and co-ordinating the work.
 - Controlling: follows on from reviewing plans in the light of experience, control actions will
often have to be taken to ensure that the overall objective can still be met.
- Leading: generating effort and commitment in a team.
- Feedback is an important part of the management process at every point.

1.6. Managerial roles

- Informational roles: handling data and information
- Interpersonal roles: dealing with people
- Decisional roles: making decisions:
+ Allocate resource to operations
+ Handle disturbances
+ Negotiate
+ Solve problems
+ Act á entrepreneur, eg: spotting gaps in the market, unmet needs in clients

II. Culture
2.1. Definition: The common assumptions, values and beliefs that people share, ‘the way we
do things round here’.

2.2. Tensions that affect the type of culture (Robert E Quinn)

+ Internal process culture: looks inwards to make its internal environment stable
and controlled: unchanging goals, defined methods, rules & procedures, eg:
public sector organizations
+ Rational goal culture: effectiveness is satisfying external requirements:
businesses are structured and controlled to deal effectively with the outside
world, eg: large established businesses
+ Open systems culture: highly flexible with the ever-changing and unpredictable
external environment, eg: new business unit working with fast-changing
technology
+ Human relations culture: looks inwards to maintain its existence and the well-
being of staff, eg: support service units
III. Management models
3.1. What is a model?
- Definition: Models are used in management theory to represent a complex reality
- Examples: a client’s business, which is then analysed and broken down into its
constituent parts.
- Roles of management models:
+ Help to explain the past, which in turn
+ Helps us to understand the present, and thus to predict the future, leading to
more influence over future events, and less disturbance from the unexpected.

3.2. The rational goal model of management

- Rational goal culture looks at the reasons why the business does something to make
sure it is done as well as possible
- Five principles of scientific management:
+ Determine the one best way of doing a particular task
+ Select the best person to do this task on the basis of their metal and physical
capabilities
+ Train the worker to follow the set procedure very precisely
+ Give financial incentives to ensure the work is done in the prescribed way
+ Give all responsibility to plan and organise work to the manager, not to the
worker.

3.3. The internal process model of management

- Internal process model looks at how the organisations is doing things, not at why
- Characteristics:
+ Rationally
+ Hierarchical lines of authority
+ Rules and procedures
+ Division of labour
+ Impersonality
+ Centralisation

IV. Business functions

4.1. Key functions in business
- Marketing (sales & customer services)
- Operation or production (R&D and procurement)
- Human resources
- Finance
- Information technology

4.2. Marketing management

4.2.1. What is marketing?
- Definition: the management process which identifies, anticipates and supplies customer
requirements efficiency and profitability
 - Distinction:
+ Customer: purchases & pays for a good or service
+ Consumer: the ultimate user of the good or service
4.2.2. Consumer & Industrial market
- Consumer market: the markets for goods and services bought by individuals for their
own or family use
- Goods categorization:
+ Fast-moving consumer goods (FMCGs): high volume, low unit value, fast
repurchase, eg: bread, baked beans,...
+ Service: delivering intangible goods or services rather than goods to the
consumer, eg: insurance, broadband, utilities (electricity, water,...), holidays
+ Consumer durable: low volume, high unit value
● White goods, eg: fridges, freezers,...
● Brown goods, eg: mobile phone
● Soft good: synonymous with consumer durables, eg: clothes, bed linen
- Business to consumers (B2C): businesses which operate in the consumer market,
selling to consumers
- Business to business (B2B): businesses operate in industrial markets

4.2.3. The marketing mix and segmentation

4.2.3.1. Marketing mix
- Definition: the set of controllable marketing variables that a firm blends to produce the
response it wants in the target market
- The four “Ps”:
+ Product: quality of the product as perceived by the potential customer, eg: stated
purpose, aesthetic factors, brand factors, packaging,...
+ Price: prices to the customer, eg: discount structure, promotion pricing, methods
of purchase,...
+ Promotion: advertisement of a product, eg: sales promotion, public relation effort
+ Place: distribution channel decisions, eg: website, position of warehouse,..
- The seven Ps of services marketing:
+ People: excellent recruitment and policies, good training programmes, effective
motivational programmes,...
+ Processes: enquiries and reservations, registration procedures,...
+ Physical evidence: logo, staff uniform, store layout,...

4.2.3.1.1. Product
- Definition: Anything that can be offered to a market for attention, acquisition, use or
consumption that might satisfy a want or need.
- Characteristics:
+ It includes physical objects, services, persons, places, organisations and ideas.
+ Marketers tend to consider product not as things with features but packages of
benefit that satisfy a variety of consumer needs.
- Elements of a product:
 + Basic (core) product: real benefits to be gained from the product, eg: a car’s
safety needs
+ Actual product: eg a Ford Focus
+ Augmented product: eg: extended warranty
- General factors to be considered when taking a product from basic to actual and
augmented:
+ Quality & Reliability: pricing decision -> positioning the product
+ Packaging: functional or part of overall appeal
+ Branding
+ Aesthetics, eg: smell, taste, appearance
+ Product mix: range of products
+ Servicing/ Associated services
+ Technology: the degree of technology

4.2.3.1.2. Price
- Particularly important as it is the only P producing revenue
- Influences on the business’s pricing policy:
+ Costs: price above their total cost, including share or overheads
+ Competitors: price being dictated by the market
+ Customers: a consideration of customer expectations
+ Corporate objectives, eg: maximise profits, achieve a target revenue figure,
market share,...

4.2.3.1.3. Promotion
- Types of promotion:
+ Advertising
+ Sales promotion
+ Public relations
+ Digital marketing
+ Direct marketing
+ Personal selling
- Promotion techniques:
+ Push: ensuring products/ services are available to consumers by encouraging
intermediaries
+ Pull: persuading the ultimate consumers to buy

4.2.3.1.4. Place

Sell direct Use intermediaries

Process Producer -> Customer Producer -> Wholesalers ->

Retailers -> Consume

Advantages - No need to share profit - More efficient logistically

 Sell direct Use intermediaries

margins - Costs usually lower

- Control over ultimate sale
- Speed of delivery to ultimate
consumer likely to be quicker
- Consumers expect choice at
point of sale
- Producers may not have
sufficient resources to sell
direct

4.2.3.2. Market segmentation

- Definition: the division of the market into homogeneous groups of potential customers
who may be treated similarity for marketing purpose
- The segmentation allows to vary its marketing mix to each of the segment it caters for:

Segment of market Target segment

High income groups Promotion - create the image of quality,

status

Families with children Product - size, safety

Low income groups Price - low: product - reliability, economy

4.2.4. Marketing orientation and its alternatives

- Marketing orientation: A marketing-oriented business is one which accepts the needs of
potential customers as the basis for its operations. Its success is seen as being
dependent on developing and marketing products that satisfy those needs.
- Alternatives:
+ Sales orientation: sell more of the product or service which they already have
available
+ Production orientation: preoccupied with making as many units as possible
+ Product orientation: fall in love with its products

4.2.5. The effect of technology

- All aspects of marketing products are increasingly affected by advances in technology,
esp by intelligent systems
- Eg: online booking system

4.3. Operations and production

4.3.1. Operations management
- Definition: Creating as required the goods or services that the business is engaged in
supplying to customers by being concerned with the design, implementation and control
of the business’s processes so that inputs (materials, labour, other resources,
information) are transformed into output products and services.
 - 4 Vs of operation:

4 Vs Definition Characteristics

Volume Operations differ in the - High volume -> capital-intensive operation

volume of inputs & the (specialization of work & well-established
volume of outputs systems) -> low unit cost
- Low volume -> specialization is not achievable
-> high unit cost

Variety refers to the range of
products/ services an
operation provides or the
range of inputs handled
- High variety: flexible operation & capable of
adapting to customer needs -> complex works -
> high unit cost
- Low variety: well-defined work with
standardisation -> low unit cost

Variation in Demand might vary with the
demand time of the year (eg: tourism
industry), time of day (eg:
telecom traffic)
- High variation (fluctuating demand): problem
with capacity utiisation -> have to anticipate
variations -> high unit costs
- Low variation (stable demand): high level of
capacity utilisation -> low unit costs

Visibility An operation is exposed to - High visibility: more staff are needed -> high
its customers and can by unit costs
seen by them - Low visibility: time lag between production &
consumption -> low unit costs

- Balancing key variables:

+ External & Internal demand for goods & services
+ Resources
+ Capacity of long-term assets of the business
+ Inventory levels
+ Performance of the process which creates the goods or services

4.3.1.1. Research and development (R&D)

- Sometimes seen as part of operation functions, marketing functions or a separate
function
- R&D involves:

Pure research Applied research Development

Definition Original research to Research which has an The use of existing

obtain new scientific or obvious commercial or scientific & technical
technical knowledge practical end in view knowledge to produce
or understanding. new technology,
 There is no obvious products or systems,
commercial or before starting
practical end in view commercial production
operations

Characteristic - Product research: Needs constant

finding new and improved improvement
products for the market
- Process research:
developing new and
better ways of producing
goods/ services

4.3.1.2. The effect of technology

Automation can be used to control and monitor the production and delivery of goods/ services

4.3.2. Procurement
4.3.2.1. Definition
- The acquisition of goods and/or services at the best possible total cost of ownership, in
the right quantity and quality, at the right time, in the right place and form the right source
for the direct benefit or use of the business.
- Element of procurement mix:
+ Quantity: size & timing of orders from suppliers will be dictated by:
● Time, eg: delays
● Cost of holding inventories, eg: tied up capital, storage space,
insurance,...
+ Quality, eg: quality of input resources
+ Price: favourable short-term trends in prices -> procurement decision
+ Lead time: the time between placing and delivering of an order

4.3.2.2. The 5 rights of procurement

- Organisation’s procurement team -> secure competitive advantage => part of supply
chain
- 5 rights: right quantity, right quality, right price, right time, right place
- The supplier delivery aspect of procurement: inbound logistics + outbound logistics +
distribution -> organization’s value chain

4.3.2.3. The supply chain

- Definition: the network of organizations, systems, resources and activities that are
required to turn raw resources -> product or service provided to a customer
- The integration between organizations and other supply chain members:
+ Upstream supply chain members: provide the materials and production of the
goods/ services
+ Downstream supply chain members: involve after the product has been
manufactured
4.4. Human resource management (HRM)
4.4.1. Definition
The creation, development and maintenance of an effective workforce, matching the
requirements of the business and responding to the environment. (John Naylor)

4.4.2. Different approaches to HRM

- Hard approach: emphasis the resource element of HRM
- Soft approach: emphasis the human element of HRM
+ Short-term: commitment, competence,...
+ Long-term, eg; individuals/ organizational well-being,..

4.4.3. The Harvard four Cs model of HRM

- HRM policies need to be derived from a critical analysis of:
+ Stakeholder demands
+ Situational factors, eg: labour market conditions, management style,
technology,...
- The model of HRM should be evaluated under 4 headings:
+ Commitment, eg: employees’ motivation, loyalty, job satisfaction
+ Competence, eg: employees’ skills, abilities, potential
+ Congruence, eg: managers & employees share a common vision
+ Cost-effectiveness, eg: operational efficiency and productivity

4.4.4. The effect of technology: Intelligent system & Artificial intelligence

4.5. IT management

4.6. Introduction to organizational behaviour

4.6.1. What is organizational behaviour?
The study and understanding of individual and group behaviour in an organisational setting in
order to help improve organisational performance and effectiveness. (Larry Mullins)

4.6.2. The organisational iceberg

4.6.3. Models of human behavior
4.6.3.1. Taylor’s Model: Scientific Management

Assumptions Conclusions

- People are rational economic animals ->
maximizing economic gain
- People respond as individuals
- People can be treated in a standardised
fashion
- Main motivator: high wages
- Manger’s job: tell worker what to do
- Worker’s job: do what they are told and get
paid

4.6.3.2. McGregor’s Model: Theory X & Theory Y

Theory X Theory Y

- Individuals dislike work & always avoid
- Lack ambition,dislike responsibility, prefer to
be led
- Desire security
- To achieve business objectives: coercion,
control and punishment system
- Commitment to objectives: reward, self-
actualisation
- Physical & mental effort in work
- Learn to like responsibility
- To achieve business objectives: self-control
& direction
- Need to develop more intellectual potential
of average human

4.6.4. Motivation
4.6.4.1. Overview
- Definition: The degree to which a person wants certain behaviours and chooses to
engage in them.
- Categorisation of motivated workers:
+ Higher productivity
+ Better quality at work & less waste
+ Greater sense of urgency
 + More feedbacks & suggestions for improvement
+ More feedback demanded from superiors

4.6.4.2. Relevant theories

* Maslow’s Content Theory: the hierarchy of needs
- Idea: People have needs -> formulate goals & strategies to achieve needs -> behavior
- Models: basic/ physiological needs -> safety needs -> social needs -> status/ego needs
-> self-actualisation needs

* Herzberg’s Content Theory: Hygiene and motivation factor

Hygiene factors Motivating factors

- Company policy & administration - Sense of achievement

- Supervision - Recognition
- Salary - Responsibility
- Relationship with other staff - Advancement
- Working conditions - The job itself
=> Both theory emphasis the importance of non-financial motivators

4.6.7. Group behavior

4.6.7.1. Overview
- Group: A collection of people with the following characteristics:
+ Common sense of identify
+ Common aim or purpose
+ Existence of group norms
+ Communication within the group
+ The presence of a leader
- Usefulness of group

4.6.7.2. Stages of group development

Stages Characteristics

Forming Seeking to:

- Define the purpose of the group
- How the group will operate

Storming Conflict stage:

- Preconceptions are challenged - norms of attitude, behavior,...
- Members compete for chosen roles

Norming Establishes the norm - decision, behavior patterns, level of trust and
openness, roles,...

Performing Capable of operating to full potential

4.6.7.3. Team roles

- The leader: co-ordinating & operating through others
- The shaper: committed to the task; aggressive & challenging; promote activity
- The plant: thoughtful & thought-provoking
- The evaluator: analytically criticism
- The resource-investigator: not new ideas person but tend to pick up others’ ideas and adds to
them
- The company worker: turn general ideas into specifics, practical & efficient
- The team worker: concerned with the relationship within the team, is supportive & defuses
potential conflict situation
- The finisher: ensure timetables are met

4.6.8. Leadership style

4.6.8.1. The effectiveness of given manager:
+ Authority: sufficient rights to control and judges
+ Autonomy: giving necessary & reasonable freedom of action
 + Leadership: to win a willing and positive response

4.6.8.2. Likert’s 4 leadership style

Styles Details

Exploitative-authoritative - Decisions are imposed by managers on subordinates

- Subordinates are motivated by threats
- Authority is centralised with minimal delegation
- There is little communication between superior and subordinate
- There is no teamwork

Benevolent-authoritative - Leadership is by a condescending form of the master-servant

relationship
- Subordinates are motivated by rewards
- There is some degree of delegation of responsibility
- There is little communication between superior and subordinate
- There is relatively little teamwork

Consultative - Superiors have substantial but not complete trust in their

subordinates
- Motivation is by rewards and some involvement in objective-
setting
- There is an increasing degree of delegation
- There is some communication between superior and
subordinate
- There is a moderate amount of teamwork

Participative - Superiors have complete confidence in subordinates

- Motivation is by rewards and participation in objective-setting
- There is a high degree of delegation
- There is much communication between superior and
subordinate
- There is a substantial amount of teamwork

4.6.9. Delegation
4.6.9.1. Definition: Delegation involves giving a subordinate responsibility and authority to carry
out a given task, while the manager retains overall responsibility.

4.6.9.2. Pros & Cons

Pros Cons

▪ The manager can be relieve of less
important activities
▪ It enables decisions to be taken nearer to
the point of impact and without the delays
caused by
▪ Too much supervision can waste time and
be demotivating for the subordinate
▪ Too little supervision can lead to
subordinates feeling abandoned and may
results in an inferior
reference upwards
▪ It gives businesses a chance to meet
changing conditions more flexibly
▪ It makes the subordinate’s job more
interesting
▪ It allows for career development and
succession planning
▪ It brings together sills and ideas
▪ Team aspect is motivational
▪ It allows performance appraisal
outcome if they are not completely happy with
what they are doing
▪ Manager tries to delegate full responsibility,
that is s/he uses delegation to ‘pass the buck’
▪ Manager only delegate boring work
▪ Manager tries to delegate impossible tasks
because s/he cannot do it themselves
▪ Managers may not delegate enough
because they fear their status is being
undermined and they
want to stay in control
▪ Subordinates may lack the skills and
training required
 CHAPTER 3: ORGANIZATIONAL AND BUSINESS STRUCTURES
I. Introduction to organisational structure
1.1. What is organisational structure?
Formed by the grouping of people into departments or sections and the allocation of
responsibility and authority, organisational structure sets out how the various functions
(operations, marketing, human resources, finance etc,) are formally arranged

1.2. The building blocks & co-ordinating mechanisms of organisational structure

1.2.1. The building blocks
- Operating core: people directly involved in the
process of obtaining inputs & converting into
outputs, eg: direct operational staff
- Middle line: conveys the goals set by strategic
apex, eg: middle/ first-line manager
- Strategic apex: ensures the organisation
follows its mission, eg: top managers
- Support staff: function independently of the
operating core, eg: PR, legal counsel, the
cafeteria, security
- Technostructure: standardise work processes
& techniques, outputs, skills
- Ideology: values, beliefs, traditions, eg: culture

1.2.2. Coordinating mechanisms

- Direct supervision: giving orders by a superior
- Standardisation of work: laying down standard operating procedures
- Standardisation of skills: requiring workers to have particular skills/ qualifications
- Standardisation of outputs: specification of results
- Mutual adjustment: informal communication & self-government

1.3. Classical principles of organisational structure (Fayol)

Organisation should follow the 14 guiding principles to function effectively & efficiently
- Division of work: work should be specialization
- Scalar claim: authority should flow vertically down a clear chain of command
- Correspondence of authority & responsibility: have enough authority to carry out all
responsibilities
- Appropriate centralisation: decisions should be taken at the top
- Unity of command: subordinate should receive orders from 1 boss only
- Unity of direction: 1 head & 1 plan for each activity
- Initiative: employees should be encourage to use discretion within their authority
- Discipline
- Order
- Stability of personnel
- Equity
 - Remuneration: rewards should be fair
- Esprit de corps: harmony and teamwork

1.4. Modern approaches to organisational structure

- Multi-skilling: tasks to performed more flexibly, using labour more efficiently
- Flexibility: respond swiftly

1.5. Communicating the organisational structure

II. Types of organisational structure

 Types Features
Entrepreneurial - Similar to Mintzberg’s
structure simple structure
- Entrepreneur has
specialist knowledge of
product/service
- Entrepreneur has total
control over running of the
business
- Most suitable: one product
or a group of similar
products
Functional - Similar to Mintzberg’s
structure machine bureaucracy
- Jobs grouped by common
feature and ranked
inhierarchy
- Clear lines of reporting
and authority exist
- Formal procedures and
paperwork characterize this
type of structure
- The vertical flow of
authority can go up and
down through the structure
from top to bottom
- Most suitable:
+ Single product/closely-
related product forms
+ Relatively stable
environment
+ A smaller enterprise
Divisional - Similar to Mintzberg’s
structure divisionalised structure
- Business is split into
divisions
- Divisions are typically
given responsibility for their
profits and assessed in
terms of profit
Advantages Disadvantages
- Quick decisions can - Cannot expand
be made with skill beyond a certain size
and flair - Cannot easily cope
- Goal congruence – with diversification
the entrepreneur’s into new
objectives are products/services
pursued exclusively about
- Flexible/adaptable which the
to change entrepreneur does
not have specialist
skills/knowledge
- Lack of career
structure for lower
level employees
- May be to
centralised
- Good career - Structure is very
opportunities rigid and unsuitable
- Can be efficient as for growth and
functional task are diversification
well-known and - Tendency towards
understood by authoritative non-
individuals participative
- Exploits specialist management style as
functional skills clear levels of
authority are
enforced
- Poor decisions/slow
decisions which have
to pass along a line
of authority
- Functional heads
may build empires
and interfunctional
disputes may result
- Flexible in adapting - Squabbles over
to growth and allocation of central
diversification costs can occur
- Good for developing - Interdivisional
managers as they are trading problems
given responsibility - It may be impossible
for divisional profit to identify completely
- Reduces the independent products
 - The typical approach is to
use a holding or parent
company and subsidiaries
- Most suitable:
+ There are larger, more
diversified businesses
+ There is diversity by
product and/or location
Matrix structure - Similiar to Mintzberg’s
adhocracy
- Formalises vertical and
lateral lines of
communication
- Managers appointed for
projects or customers
- May be temporary
- Most suitable:
+ Complex/hi-tech
industries
+ Educational
establishments where there
may be lecturers reporting
to both subject and course
heads
+ Research and
development (R&D)
departments
III. Centralisation & Decentralisation
3.1. What is centralisation?
- Look in 2 ways:
+ Geography: Some functions may be centralised rather than ’scattered’ in different
offices, departments or locations.
number of levels of or
management markets for which
- Encourages a separate divisions
greater attention to can be set up
efficiency, lower costs
and higher profits
- Better decisions on
performance made
by managers ‘in the
know’
- Releases top
management to
concentrate on
strategic issues
- Reduces the
likelihood of
unprofitable products
and activities being
continued
- Reflects importance - Conflicting demands
of project or on staff time
customer, so may - Conflicting demands
improve relationships over allocation of
and other resources
sales - Dilution of authority
- Business co- of functional heads
ordinated with regard
to technology,
information, ect
 + Authority: : Centralisation also refers to the extent to which people have to refer
decisions upwards to their superiors. Decentralisation therefore implies increased
delegation, and autonomy at lower levels of the business
- Refer to how much authority/ decision-making ability is diffused throughout the
organisational structure:
+ Centralised structures: upper levels retain authority to make decisions
+ Decentralised structurers: authority to make decision is passed down to lower
levels of hierarchy

=> Definition of centralised organisation:One in which decision-making authority is concentrated

in one place, that is the strategic apex.

3.2. Factors affecting the amount of decentralisation in a business

- Leadership style: authoritative -> more centralised
- Size of organisation: increases -> more decentralised
- Extent of activity diversification: more diversified -> more decentralised
- Effectiveness of communication: decreases -> more centralised
- Ability of management: more able -> more decentralised
- Speed of technological advancement: lower managers are more familiar with changing
technology -> more decentralised
- Geography of locations: spread -> more decentralised
- Extent of local knowledge needed: required -> more decentralised

=> Centralisation: greater control & coordination

Decentralization: greater flexibility as authority is delegated

IV. Span of control: tall & flat businesses

4.1. Span of control
- Definition: the number of people (subordinates) reporting to 1 person
- Henri Fayol’s principles & theories:
+ Needs to be tight managerial control from the top
+ Should be restricted to allow maximum control consistent
+ Too wide (too many subordinates) -> too much of the manager’s time will be
taken up
+ Too narrow (too few subordinates) -> fail to delegate, high cost of supervision
- Influence:
+ Manager’s capabilities: physical & mental limitations
+ Nature of the manager’s workload: more non-supervisory work -> the narrower
the span of control & the greater the delegation of authority
+ Geographical dispersion of subordinates: take more effort to supervise
+ Subordinate’s work: do similar tasks -> wider span; close group cohesion ->
narrower span
+ Nature of problems: time consuming problem -> wider span
+ Degree of interaction between subordinates: help each other -> wider span
 + The amount of support that be received from other parts of org, eg:
computerised, data analytics,...)

4.2. Tall and Flat businesses

- Scalar chain: chain of command from the most senior to the most junior
- Tall business
- Flat business

Alliances

Types Definition Advantages Disadvantages

Joint venture A separate business ▪ Less capital is ▪ Disputes over how

– usually but not required than if the the business should
always a limited businesses were on be run, costs
company – can be their own, so there is incurred,
formed in less risk management charges
which the business ▪ Reduces ▪ If the venture
take a financial stake competition breaks down, the
and management is ▪ Enables firms to specials skills of a
provided as agreed. gain access to business may be
restricted markets used against it by its
▪ Access to the skills former
of each party joint venture partner
▪ Possible lack of
financial support

Licenses A licensing
agreement is a
permission to another
company to
manufacture
or sell a product, or to
use a brand name.

Strategic alliances A strategic alliance is Similar to those of In addition

an informal or weak joint venture ▪ The looser
contractual arrangement is easier
agreement between to break
parties or a minority ▪ The may
cross-shareholding contravene
arrangement. competition laws
▪ There may be less
commitment than to a
joint venture, so the
benefits are not as
great
Agents Agents can be used
as the distribution
channel where local
knowledge and
contacts are
important. The
agreement may be
restricted to
marketing and
product support.

Groups As companies are ▪ Funds can be ▪ Financial reporting

entitled to own moved around a for groups can
shares, groups of group of companies become extremely
companies may form. ▪ Having distinct parts complex
or one whole allows ▪ Groups of
different structures companies require a
and cultures to be great deal of
developed administration in
as appropriate to terms confirming the
each business in the public
group information held
▪ Risk of failure is about them
spread ▪ While legally the
▪ Minority share risk is spread, the
holdings can be failure of a group
retained in company can have
subsidiaries by the very detrimental
entrepreneur in the effects on all the
business other companies in
▪ Skills, expertise, the group
equipment and
administration
matters can be
shared and/or
centralised.
 CHAPTER 4: INTRODUCTION TO BUSINESS STRATEGY
I. What is strategy?
1.1. Definition: the direction & scope of an organization over the long term

1.2. Levels of strategy

Corporate strategy Business strategy Functional strategy

Determined at main board Form in strategic business - Refer to main functions, eg

level for the business as a units (SBUs) and relate to
whole how a particular market is
approached, or a particular
SBU acts
production/ operating,
procurement, finance, IT,
human resources &
marketing
- How those deliver
effectively the strategies

- Corporate missions & SBUs: a section, within larger

objectives
- Product/ market decisions
- Major investment decisions
- Financing decisions
- Relations with external
stakeholders
business, responsible for
planning, developing,
producing & marketing its
own products/ services
Competitive strategy:
- how advantage over
competitors can be achieved
- marketing issues

II. Introduction to strategic management

2.1. Definition
- Involves:
+ Taking decisions about the scope of a business’s activities
+ The long-term direction of the business
+ The allocation of resources
=> Involves an entire cycle of planning & control at a strategic level - strategic planning
- Strategic analysis
- Strategic choice
- Implementation of chosen strategies
- Review & control

2.2. Planning vs Strategic plan

Planning Strategic plan

Establishment of objectives & formulation, Statement of long-term goals & a definition of

evaluation and selection of policies, the strategies and policies which will ensure
strategics, tactics and action required to achievement of these goals
 achieve them

- Long-term/ strategic planning

- Short-term/ operational planning

2.3. Making strategic decisions

III. The strategic planning process

3.1. The stages of strategic planning

3.2. Strategic analysis

3.3. Strategic choice

=> At the end of the process, the business should have 3 types of strategy
- Competitive strategies: how it competes (strategies for competitive advantages)
- Product - market strategies: where it competes & direction of growth (which markets?)
- Institutional strategies: method of growth, eg relationships with other businesses

3.4. Strategy implementation

The conversion of strategies chosen -> detailed objectives for operating units & plans to achieve
IV. Analysing the environment
4.1. Business’s external environment
- Environment of a business: everything outside its boundaries

- Definitions:
+ General environment: covers political, legal, economic, social/ demographic,
ecological, technological (PESTEL) influences in the countries a business
operate in
+ Task environment: factors of particular relevance to the business (competitors,
customers, suppliers)
● Simple -> few competitors & predictable outcomes, suppliers
● Complex
- Environment issue: time horizon of changes in the external environment
+ Long-term impact -> careful planning
+ Short-term (immediate impact) -> crisis management

4.2. Environmental uncertainty

Static environments Dynamic environments

Characteristics - By relatively slow environmental Rapid change & Complexity

 changes, eg: farmers
- Institutional factors: being protected
from competition by regulations

The Four Four Ss: Four Ds:

- Static - change is slow - Dynamic - increasing speed of
- Single - product/ market change through time
- Simple - technology - Diverse - multiple products and
- Safe many markets
- Difficult - analysis
- Dangerous

Assessment - Studying the business’s historic & Dynamic environments the past is
current environment often a poor guide to the future
- Useful predictor of the future

4.3. Analyzing the general environment: PESTEL analysis

- Identify factors which are currently affecting the industry & those likely to become
significant
- Business must identify few key influence -> key opportunities, key threats
Factors Influences

Political - Capacity expansion: government policy -> increase/ cut business’s capacity,
eg: direct taxes, allowances for investing equipment, incentives in a particular
area, incentives for foreign businesses
- Demand, eg: legislation, taxes/ subsidies
- Divestment & rationalisation: selling off/ closure of businesses (in defence)
- Emerging industries: promoted/ damaged by the gov
- Entry barriers: discourage by restricting investment/ competition, use of
quotas & tariffs for overseas
- Competition:
+ Purchasing decisions
+ Regulations & controls -> growth & profits, eg: minimum product
 quality standards
+ Infrastructure
+ Fragmented -> prevent concentration of too much market share in the
hands of 1 or 2 producers

Economic - Local economic trends, eg types of industry, rents, labour rates, house
prices,...
- National economic trends: GDP increased/ decreased -> demand for goods
- Inflation -> distorts decisions, wage inflation
- Interest rate -> cash flow
- Tax levels -> how much businesses can invest/ return to shareholders +
how much consumers have to spend
- Government spending -> suppliers to the gov
- The business cycle -> growth and followed by decline as the nature of trade
- Productivity

Social/ - Growth -> national & regional population

demographic - Age -> age distribution
- Household & family structure -> basic social units & size
- Social structure -> different attitudes & access to economic resources
- Employment -> changes in workplaces and in legislation
- Wealth -> rise in standards of living -> more demand

Technological - Types of product are made and sold

- Which products are made
- Which service are provided
- Which markets
- Which businesses are managed
- Means & extent of communications with external clients
- Businesses manage & analyse data
- Which information is stored and communicated
- Risk of losing data
- Developing & retaining knowledge & skills

Ecological - Resource inputs, eg sustainable physical resources

- Waste outputs -> not to attract fines
- Legislation
- Government -> regulations
- Disasters
- Demand, eg friendly products
- Pressure group, eg green activities
- Nature capital

Legal - General legal framework: contract, tort, agency

- Criminal law
- Company law
- Employment law
- Health & safety law
- Data protection
- Consumer protection
 - Environment
- Tax law

4.4. Analysing the competitive (task) environment: Porter’s five forces analysis of an
industry

Market Industry

Comprises customers/ potential customers Comprises those businesses which use a

who have needs which are satisfied by a particular competences, technology, product/
product/ service service to satisfy customer needs -> compete

Porter -> 5 competitive forces which influence the state of competition in an industry as a whole:

Threats Impact Barriers to entry

The threat of - Bring extra capacity & more
new entrants competition
- The strength will vary,
depends on:
+ strength of the barriers to
entry -> discourage new
entrants
+ likely response of existing
competitors to the new entrant
- Scale economies: increased -> cost/ unit
will falls -> new entrant need to operate
large
- Static market: new entrant has to capture
a large slice of the market
- Product differentiation -> good brand
image & strong customer loyalty
- Investment requirements: high -> strong
barriers -> high risk
- Switching costs (time, money,
 convenience) -> affect retailer/ distributor
- Access to distribution channels -> hard to
establish new & hard to gain access to
existing distribution
- Cost advantages of existing producers,
independent of scale economies:
+ Patent rights
+ Experience & know-how
+ Gov subsidies & regulations
+ Favoured access to raw materials

Threat from Good/ service by another

substituted industry which satisfies the
products (good/ same need -> affected
service by
another
industry)

The bargaining power Characteristic Factors

Of customers - Customers: ultimate - How much customer buys?

consumer & buyer from
distribution channel
- Wants: better products/
services with lower price
-> affect profitability
- How critical the product?
- Switching cost
- The product are standards
or specialised
- Customer’s own profitability
- Customer’s ability to bypass
- Skills of customer’s
purchasing staff
- Product quality

Of suppliers Exert pressure for higher - 1 or 2 dominant suppliers?

prices in the industry
- New entrants/ substitute
product to supplier’s industry
- Have other customers
outside the industry
- Important of the supplier’s
product to the customer’s
businesses
- Specialised product?
- Switching costs

Rivalry amongst current competitors in the industry

- Affect the profitability as a whole
- Form of: price, competition, advertising battles, sales promoting campaigns, new
products, after sales services, guarantees or warranties
- Factors:
 + Market growth: competing for a greater market share -> more intensified
+ Cost structure: high fixed costs -> compete on price
+ Switching: easily -> compete more (eg: Coca vs Pepsi)
+ Uncertainty -> likely to formulate more competitive strategy
+ Strategic importance: success is a prime objective -> act competitively
+ Exit barriers -> difficult to leave the industry (out-dated long-term assets, cost of
redundancy payments, the effect of withdrawal)

4.5. Analysing the competitive (task) environment: competitor analysis

- Competitor analysis -> analyse the situation & potential activities of competitors within
the industry (The fifth force in Porter’s model)
- Businesses must identify who its current competitors
- Types of competitors:
+ Brand competitors: offering similar products, eg: McDonald vs Burger King
+ Industry competitors: similar products but are different in another ways
(geographical market, ranges of products, distribution methods), eg: Amazon vs
Walmart
+ Generic competitors: compete for the same disposable income with different
products, eg iTunes (music) vs Netflix (movies)
+ Form competitors: distinctly different product that satisfy the same need, eg:
matches & lighters for cigarette
- Factors to analyze competitors:
+ Competitors’s strategy
+ Competitor’s assumptions
+ Competitor’s current & potential situation
+ Competitor’s capability
- Competitor’s reaction profile (Kotler)
+ Laid back: does not respond to moves by its competitors
+ Tiger: responds aggressively to all opposing moves
+ Selective: reacts to some threats in some markets but not to all
+ Stochastic: unpredictable

V. Analysing the business

5.1. Aspects to be analysed
- Resources & competencies (positon & resource audit)
- Value chain
- Supply chain
- Products & markets (product life cyle & BCG matrix)

5.2. Analysing resources & competencies (the position audit)

5.2.1. Position audit: part of the planning process which examines the current state of the entity
in respect of:
+ Resources: tangible & intangible assets & finance
+ Competencies
 + Products, brands & markets
+ Operating systems - production & distribution
+ Internal organisation
+ Current results
+ Returns to shareholders

5.2.2. 9 Ms model categories factors to be review in a resource audit

5.2.3. Limiting factor/ Key factor

- Definition: anything which limits the activity of an entity. An entity seeks to optimise the
benefit it obtains from limiting factor
- After identify limiting factors:
+ Short-term: make best use of the resources available
+ Long-term: reduce the limitation

5.3. Analysing Porter’s value chain

- Value chain: Business organise & perform activities in taking inputs from the
environment -> processing -> selling at a selling price that greater the costs incurred
+ Activities:
● By which a business creates value in its products (value activities)
● Activities may be value drivers or cost drivers
+ Value drivers: elements by which a product/ service/ activities that increase the
amount of value consumers place on it
+ Cost drivers: any activity that affects the cost of a product/ service

5.3.1. Activities in the value chain

The margin: the excess the customer is prepared to pay over the cost to the business of
obtaining resource inputs & providing value activities

-> Value chain: the sequence of business activities by which in the perspective of the end-user,
value is added to the products/ services produced by an entity

Primary activities - Inbound logistics: receiving, handling & storing inputs to the
production system
- Operations: convert resource inputs into final product
- Outbound logistics: storing products & its distribution to customers -
packing, warehousing,...
- Marketing & sales
- Service

Support activities - Procurement: acquire the resources inputs to the primary activities,
eg: purchase of materials
- HRM
- Technology development
- Firm infrastructure

=> Linkages:
- Activities in the value chain effect one another: costly product design/ better quality ->
reduce the need for after sales service
- Linkages require coordination: reducing the level of inv -> smooth functioning of
operations, outbound logistics…

5.3.2. Using the value chain

Secure competitive advantage by:
- Inventing new/ better ways to do
 - Combining activities in new/ better ways
- Managing linkages in its own value chain
- Managing the linkages in the value system

5.4. Analysing the supply chain

- Supply chain management (SCM): optimising the activities of businesses working
together to produce goods/ services
- Aims to manage the chain from input resources to the consumers
- Aspects:
+ Partnership relationships
+ Reduction in customers served & concentration on customers of high potential
value
+ Electronic data interchange (EDI)
+ Early supplier involvement
+ Distribution system
+ Joint problem-solving
+ Supplier representative ons site
=> The chain should be considered as a network rather than a pipeline - third parties like
transport firms helping to link the businesses

5.5. Analysing products & markets: the product life cycle

- Definition of product life cycle: how a product demonstrates different characteristics of
profit and investment over time
- Purpose: examine its portfolio of goods & services as a whole
- Aspects of a product:

Aspects Definition Characteristic

Product class broad category of product, eg: cars, Long maturity stage
newspapers,..

Product form different form a product can take, eg: Conform to the classic life cycle
twin tub, automatic washing machine,... pattern (fig below)

Brand particular type of the product form, eg: Particular brand might have an
Ford Focus erratic life cycle
 Stage in life cycle Annotate

Introduction - New products -> takes time to find acceptance -> slow growth in
sales
- Units costs are high -> low output & expensive sales promotion
- Early teething troubles with production technology
- A loss-maker

Growth - New products gain market acceptance -> rise sharply in sales ->
profits -> unit costs falls
- Competitors are attracted

Maturity - Rate of sales slows down -> reaches a period of maturity

- The longest period of a successful product's life
- Good profits

Decline - Over capacity of production -> decline in sales

- Severe competition -> fall profits
-> leave the market
-> modify & promote to prolong the product life or search for new
market segments

=> Need to assess:

- Stage of its life cycle
- Product’s remaining life
- Urgent is the need to innovate

5.6. Planning products & markets: the BCG matrix

 - Assess a business’s products in terms of potential cash generation and cash
expenditure.
- Product (SBUs) are categorized in terms of market growth and relative market share
- Definitions:
+ Market share: one entity’s sale of a product or service in a specified market
expressed as a percentage of total sales by all entities offering that product or
service
+ Rate of market growth: high or low depends on the conditions in the market
+ Relative market share: assessed as a ratio - market share compare with the
market share of the largest competitor (> 1 -> SBUs is the market leader)

Terms Feature Strategy

Stars - In short-term: Capital expenditure > the Build - forgo short-term earnings and
cash they generate to maintain the profits to build market share
market position
- Promise high returns in the future

Cash cows - Little capital expenditure & generate
high levels of cash income
- Mature products can be invigorated by
competitors who could come to dominant
the market
- Use to finance the stars
Hold - maintain the market position
Harvest - take maximum earnings in
short-term at the expense of long-
term development if weak

Question - Considerable capital expenditure in the - Build

marks hope of increasing their market share - Harvest
- Allow to die quietly as they are
squeezed out of the expanding market
by rival product

Dogs - Ex-cash cows that have now fallen on - Divest - release resources for use
hard times elsewhere
- Modest net cash outflow or even - Hold
modest nest cash inflow
- Cash traps which tie funds and provide
poor return on investment
 - Useful role: complete a product range
or to keep competitors out

VI. Corporate appraisal

6.1. SWOT analysis

- Corporate appraisal: critical assessment of the strengths and weaknesses, opportunities
and threats in relation to the internal and environmental factors affecting an entity ->
establish its condition before the preparation of the long-term plan
- Strengths & Weaknesses:
+ Shortcomings in business’s present skills & resources
+ Strengths in its skills and resources which it should seek to exploit
- Opportunities & threats:
+ Profit-making opportunities which can be exploited by the business’s strengths
+ Environmental threats against which the business must protect itself, eg:
declining economy, competitor’s actions, government legislation, industrial unrest

6.2. Combining the elements of the SWOT analysis

VII. Setting strategic objectives

7.1. What are we trying to achieve?
Detailed stakeholder analysis -> formulating business’s mission and objectives

7.2. Stakeholder analysis

7.2.1. Stakeholders’ conflict
7.2.2. Stakeholder mapping: power and interest (Aubrey Mendelow)

Power:
- Which stakeholders can influence a business’s objectives
- Sources of power: internal or external

Internal sources of power (for directors/ managers/ employees)

- Hierarchy: formal power over others
- Influence/ reputation: charismatic leadership or group consensus
- Relative pay: better paid employees
- Control of strategic resources: trade unions when demand for output is high and labour
is scarce, size of budget allocation
- Knowledge skills
- Environmental control: finance and marketing staff may have more detailed knowledge
of the external environment than other functional staff
- Strategic implementation involvement: many people -> the use of personal discretion in
decision-making can give some element of power
External sources of power:
 - Control over strategic resources: major suppliers and shareholders
- Involvement in implementation
- Knowledge and skills
- External links
- Legal rights

Interest of stakeholders: where their interest rests? & how interested they are?
- Key players (segment D): strategy must be acceptable to them at least ideally they
should participate in it - major customer
- Keep satisfied (segment C): treat with care. If often passive, they are capable of moving
to segment D - large institutional shareholders
- Keep informed (segment B): do not have great ability to influence strategy but their
views can be important in influencing more powerful stakeholders - community
representatives and charities
- Minimal effort (segment A): they can simply be directed

7.3. Determining the mission and strategic objectives

Terms Characteristics

Mission statement: formal document Should be include the 4 elements

that states business’s basic function in - Purpose
society expressed in terms of how it - Strategy
satisfied its stakeholders - Values

Strategic objectives: primary strategic
objective
Goals & targets: the strategic
objectives should be translated into
quantified and specific goals
Strategies, plans and standards
VIII. Choosing a corporate strategy
8.1. Porter’s generic competitive strategies
Generic competitive strategies
Cost leadership: producing at the lowest cost
in the industry as a whole
Differentiation: the provision of a product or
service which the industry as a whole
believes to be unique
- Policies & standards of behavior
Specific business strategies that tie with the overall
corporate strategy of the business
- Competitive strategy
- Investment strategy
- Financial strategy
Functional strategy for each area - operations,
marketing, HR, procurement,...
Characteristics
How?
- Economies of scale
- Latest technology
- Improve productivity
- Minimize overhead costs
- Get favorable access to sources of
supply
- Cheaper countries
Categorized:
- Breakthrough products: radical
performance advantage - lower price
- Improved products: better
performance at a competitive price
- Competitive products: combination of
price & performance
How?
- Brand image
- Give special feature to make it stand
out
- Exploit other activities of the value
chain
- Use IT to create new services or
product features
 Focus (niche): involves a restriction of - Cost-focus: lower cost goods in that
activities to only part of the market (a segment
segment) - Differentiation-focus: differentiated product
to that segment

8.2. Ansoff’s matrix: product/ market strategies

Existing products in current markets: purse market penetration

- Maintain or increase share
- Secure dominance of growth markets
- Restructure a mature market by driving out competitors
- Increase usage by existing customers

Existing products in new markets: pursue market development

- New geographical areas
- Different package size
- New distribution channels
- Differential pricing policies and create new market segments

New products in current markets: pursue produce development

- Introduce new products to existing and new customers in current markets
- Product development forces competitors to innovate
- Newcomers to the market might be discouraged

New products in new markets: pursue diversification

- Growth: new products and new markets should be selected offering prospects for growth
which the existing product-market mix does not
- Surplus: funds not require for expansion needs can be invested in diversification or they
could be returned to shareholders
8.3. SFA analysis
- Suitability
- Feasibility:
- Acceptability: strategy relates to people’s expectations of it
+ Financial considerations
+ Customers
+ Government
+ The public
+ Risk