HIGHER LEVEL (HL)

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9 Νοε 2013 (πριν από 3 χρόνια και 9 μήνες)

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1.2 OBJECTIVES, STAKEHOLDERS
AND THE EXTERNAL ENVIRONEMNT

HIGHER LEVEL (HL)

OBJECTIVES & CHANGE (p23
-
24)


Organizations need to change objectives in
response to changes in the internal and external
environment.


The business environment is constantly changing
and internal resources


labour
, machines,
technology, finances and so
-

also vary over time.


A business does not work in a bubble.


It’s activities are influenced by factors outside of
the control of the business, over which it has no
control.

The need to constantly

review a corporate plan

Key Issues


An excellent corporate plan set two years ago
may no longer be “fit for the purpose”.


Success is the past doesn’t always guarantee
success in the future.


Therefore an organization’s objectives need to
be kept constantly under review.

Negative Changes in the

Internal Environment


Negative changes in the internal environment can
include HR problems like high staff turnover, lack
of skills, reduction in productivity and low
motivation.


There may be financial issues too, such as poor
cash flow.


These problems are a threat to a business.


Organizations will have to adjust their objectives
to address these issues and put in place
appropriate strategies to improve the situation.

Positive Change in the

Internal Environment


Positive changes in the internal environment
should lead to a review of business objectives.


Particularly talented employees need to be
developed, unexpected revenues invested,
new product ideas investigated.


All of these will have implications for strategic
planning and corporate objectives.

The External Environment

Threats & Opportunities


The external environment can provide both
opportunities and threats.


It is often the case that an organization may have
to alter radically the way that it does business in
response to a major change in the external
environment, especially if the change undermines
the competitive advantage or the USP that the
organization enjoys.


These required changes could result from many
factors including new competition, changing
technology or unexpected economic recession,
such as the credit crunch that started in 2008.

Companies must adapt and change to
their environment


The history of commerce is littered with
remains of “household names” that failed to
adapt to the changing business environment,
perhaps because they did not have the
resources to do so or they became
complacent or arrogant about their position.


When change happens it can occur very
quickly and undermine the whole foundations
of a business empire.

Major Corporate Failures


The bank failures of Lehman Brothers in the
US and
Landsbanki

in Iceland are significant
examples of corporate failure.


In 2007, these institutions seemed completed
secure, but a year later that both filed for
bankruptcy with huge debts.

Strategy must be continuously

checked and reviewed


A strategy is not for ever.


It must be continuously checked and reviewed.


Targets for all business departments are set at the
beginning of a planning cycle, but must be updated.


The corporate plan is likely to have
planning horizons



times when actual results and performance are
compared to initial targets and reviews of progress are
made.


This review should form the basis of the next planning
cycle and can lead to a business changing its objectives
in response to progress, or lack of progress in achieving
its goals.


Crucial Factors to consider, when evaluating the
need to change objectives:


How significant are the changes?


Can the business continue to operate in its present
form?


What are the resource costs of change,
eg
: financial
implications and costs, HR requirements and new
technologies required?


Can the business retain its competitive advantage?


Can the business reposition its products (goods or
services) or seek new customers and or products?


What will be the consequences of senior management
imposing new objectives on the business?


How can the workforce be involved in the process of
changing the direction of the business?

Changes in CSR over time
(p40
-
41)


There is a clear debate as to the level and
extent of CSR (Corporate Social Responsibility)


As a society changes and evolves, so does the
pressure on organizations to conform to
particular norms of
behaviour
.


Businesses are made up of individuals who are
also customers and citizens, so businesses are
a reflection of those individual
social values.

Changes in CSR over time


Businesses should play a role in stewardship of
our environment since they enjoy the benefits
of its resources.


As concerns increase about resource depletion
and environmental damage from production
so do the pressures on organizations to
conform to defined codes of behavior and
good practice

The case
against

socially responsibility


Some economists and politicians argue that is not an
organization’s role to act responsibly as this costs
money and therefore reduces profit to shareholders.


All businesses should be doing is being productivity
efficient by making the most efficient use of scarce
resources.


Protection of the environment and individuals in the
production chain is the role of government and the
legal system, not that of commercial organizations.


This narrow viewpoint dates back to the classical
economist, Adam Smith.

STAKEHOLDER CONFLICT &

CONFLICT RESOLUTION


Stakeholders all have varying objectives and
demands and it can be very difficult to reconcile
competing needs and aspirations.


Eg
: Shareholders will want to maximize
profitability while employees will want to
maximize their wages


which will add to costs
and reduce profits.


Similarly, local communities will want to minimize
pollution while the directors may want to grow
the size of the business, which may add to
pollution and with it their salaries. (There
appears to be some correlation between
organization size and directors pay).

STAKEHOLDER CONFLICT &

CONFLICT RESOLUTION


Conflicts and pressures between stakeholders
are therefore commonplace.


Happiness is when we can find a compromise
or solution to the conflicting objectives that
satisfies everyone.

SOLUTIONS TO

STAKEHOLDER CONFLICTS

There are a range of solutions to stakeholder

conflict including:



Arbitration



Workers Councils



Stakeholder Directors




Performance
-
related play



Share option schemes for workers


Competitors joining forces




Arbitration



In larger organizations, when workers and
managers can not agree on changes to working
practices, pay rates or how staff are managed
both sides can use the services of an arbitrator or
reconciliation service.


These independent and respected individuals or
groups will have been asked to decide on what is
fair from the evidence presented by both the
company and the workforce representatives.


At the start of the process or talks both sides can
agree that the solution is binding on them, that
is, they will accept whatever solution is
recommended by the arbitrator.

Workers Councils


Sometimes it can be beneficial to set up a
workers council made up of representatives from
all areas and all positions of responsibility in the
organization.


They meet regularly and provide a forum for
discussing concerns and issues that specific
groups may face.


It also means the external stakeholders feel they
are being consulted about strategic changes that
may be happening.

Stakeholders Directors


There might be workers, bankers or community group
representatives.


In some cases appointing a worker director can also
produce similar results to a workers council, but
perhaps more detailed discussions and information can
be aired.


Workers directors have to bear in mind that they may
receive financially sensitive information about the
company and must be careful how they use this
knowledge to persuade the workforce that a certain
compromise is the best solution they might get.

Stakeholders Directors


Community directors can work in similar ways,
perhaps gaining more local charitable donations
in exchange for company expansion in a town.


Banks in some countries, such as Germany and
Japan, often sit on the supervisory board of
directors.


The banks may well be stakeholders as well as
lenders.


In this way its it’s hoped that the interests of the
company and the lenders are united and the
banks are less likely to suddenly to stop providing
financial support.

Performance Related Pay


Paying workers more if they improve their productivity
can be a compromise solution to conflict, especially
when a business is struggling to increase its efficiency
and where workers want more money.


The problems often reappear shortly after the pay rise
goes through, as workers tend to get use to the new
level of wages and then want more.


Where there are cycles like this, it can be because
there is more underlying discontent about the
management methods in the business and workers
dissatisfaction is not really because of low wages.

Share Option Schemes for Workers


Instead of increasing costs by increasing workers’ pay,
shareholders and managers may agree to start a share
option scheme, where workers can buy shares in the
company at a discount.


Assuming the value of the shares rises in the medium
term, the workers wealth will also rise when they sell
their shares.


Existing shareholders will see a dilution or reduction in
the proportionate stakes but it is usually quite small.


Usually such schemes work in very large companies.

Competitors joining forces


Competitors may join forces to form distribution
groups and gain negotiating power, for example
with large retailers.


In some industries where power in the
distribution channel is with the large retailers it
pays for competitors to join together, possibly in
a collusive way, and force retailers to give them
more for their produce.


This has happened in food retailing, for example
with milk supplied from diary farmers to
supermarket groups in the UK.