CIMA Exam Guide

Absorption Costing, Activity-based Costing and Marginal Costing

noreply@blogger.com (reeyz) — Wed, 06 Aug 2014 23:16:00 +0000

In Absorption Costing, Activity-based Costing and Marginal Costing, we we learn to:

Discuss the possible conflicts between cost accounting for profit reporting and inventory valuation and the information for decision-making.

This is still part of "Pricing and Product Decision"!

1) Allocation and Apportionment

*Note: the first stage of analysis of Overheads is to determine the overhead cost for each cost centres.

Cost Allocation - this is possible only if we can identify a cost as specifically attributable to a particular cost centre (i.e., the salary of the manager of the packing department)

Cost Apportionment - is necessary when it is not possible to allocate a cost to a specific cost centre (i.e., the salary of the manager who is managing packing and operation department or the cost of rent and rates might be apportioned according to the floor space occupied by each cost centre).

2) Overhead Absorption

Overhead Absorption is the amount of indirect costs assigned to cost objects. Indirect costs are costs that are not directly traceable to an activity or product. Cost objects are items for which costs are compiled, such as products, product lines, customers, retail stores, and distribution channels.

Selecting the most appropriate absorption rate
It is generally accepted that a time-based method should be used wherever possible, i.e. the machine hour rate or the labour hour rate. This is because many overhead costs increase with time, for example, indirect wages, rent and rates.

However, each absorption method has its own advantages and disadvantages:

(a) Rate per unit. This is the easiest method to apply but it is only suitable when all cost units produced in the period are identical. Since this does not often happen in practice this method is rarely used.

(b) Direct labour hour rate. This is a favoured method because it is time-based. It is most appropriate in labour-intensive cost centres, which are becoming rarer nowadays and so the method is less widely used than it has been in the past.

(c) Machine hour rate. This is also a favoured method because it is time-based. It is most appropriate in cost centres where machine activity predominates and is therefore more widely used than the direct labour hour rate. As well as absorbing the time-based overheads mentioned earlier, it is more appropriate for absorbing the overheads related to machine activity, such as power, maintenance, repairs and depreciation.

(d) Direct wages cost percentage. This method may be acceptable because it is to some extent time-based. A higher direct wages cost may indicate a longer time taken and therefore a greater incidence of overheads during this time. However, the method will not produce equitable overhead charges if different wage rates are paid to individual employees in the cost centre. If this is the case then there may not be a direct relationship between the wages paid and the time taken to complete a cost unit.

(e) Direct materials cost percentage. This is not a very logical method because there is no reason why a higher material cost should lead to a cost unit apparently incurring more production overhead cost. The method can be used if it would be too costly and inconvenient to use a more suitable method.

(f ) Prime cost percentage. This method is not recommended because it combines methods (d) and (e) and therefore suffers from the combined disadvantages of both.

Absorption Costing

Something to do in establishing COST PER UNIT (i.e., how much does it cost to produce something)
AIM: Establish the Full (Production) Cost/unit
Reasons:

Pricing (i.e., Cost Plus)
Product Profitability
Statutory Reporting (i.e., Inventory valuation)
Budgeting/Control/Decision-making

Helping out the financial accountant to value the finished-goods stock at full production cost

Overhead Absorption Rate (OAR) = Budgeted Overhead cost/Budgeted Level of Activity

Level of Activity:

Time Basis (Hours) - (i.e., labour hours or machine hours)
Units (Output)
Measure of Cost (%) - Direct Materials/Direct Labour/Total Prime Cost

Reciprocal Servicing - the service cost center not only provides the service to the production cost centers but also provides the service to the OTHER SERVICE COST CENTER.

This is critical - as we apportion and reapportion the costs until all the monies are out of the service cost centers.

Pricing

Cost Plus - simplest form of pricing. If we know already the cost, we simply add a margin on the cost to reflect our price.

Note: Cost Plus pricing doesn't consider volume. It doesn't take into account the market price.

Cost Base:

Full Production Cost
Full Cost (includes expenses) --> absorb the expenses to the product
Marginal Cost

Understanding the difference between cost and price:

3) Predetermined overhead absorption rate

Predetermined overhead rates mean that the rates are calculated in advance of the period over which they will be used.

MAIN REASON: Overhead costs are not incurred evenly throughout the period - as it fluctuates every month.

Under-or -over absorption of overheads

Under- or Over- absorption of overhead exists when the actual spending is less or more as compared to predetermined overhead.

The reasons for under- or over- absorption of overheads

4) Activity based costing

Activity based costing - because production became more mechanised, thus the traditional absorption costing will not give an accurate rate as this is more applicable to labour-intensive production.

ABC is a refined absorption costing methodology, which uses cost pool and cost driver as compared to cost center and overhead absorption rate.

Two categories of cost driver:

Resource cost driver - measure of the quantity of resources consumed by an activity. This is used to assign the cost of a resource to an activity or cost pool.

Activity cost driver - measure of the frequency and intensity of demand placed on activities by cost objects. This is used to assign activity costs to cost objects.

The different stages in ABC calculation:

Identify the different activities within the organisation. Compared to a traditional overhead system, ABC has more number of activities, which depends on how the management subdivides the organisation's activities
Relate the overheads to the activities. This is the creation of 'cost pools.'
Support activities are then spread across the primary activities. The base is the cost driver that is the measure of how the support activities are used.
Determine the activity cost drivers. This is based on the factor that drives the consumption of the activity. The question is - what causes the activity to incur cost?
Calculate activity cost driver rates = Total cost of activity/Activity driver

4 Categories of Activities

Unit level activities - costs that are related to the number of units produced (i.e., indirect materials or consumables)
Batch level activities - costs that are related to the number of batches produced (i.e., material ordering, where an order is placed for every batch production)
Product level activities - costs that are driven by the creation of a new product line and its maintenance (i.e., designing the product)
Facility level activities - costs that are related to maintaining the buildings and facilities (i.e., maintenance of buildings, plan security)

In ABC, all costs are variable
Environment - where ABC can apply:

Production - repetitive nature
Complex - multi-product or many processes
High Overhead costs

Problems of ABC

Cost/Benefit
Implementation risk
Focus on Cost Allocation (Internal)

5) Marginal costing and Absorption costing

Marginal Costing

The focus is on cost behaviour and the changes in the level of activity.
Used for specific application like making decisions. The changes in the level of activity are vitally important
Not used in statutory reporting purposes

Variable Cost

Varies proportionately with the activity
Variable Cost per unit is constant
Product Cost
Treatment: Charged to the cost unit and to the income statement as part of the cost of sales

Fixed Cost

One that remains constant
Fixed Cost in total is constant
Period Cost
Treatment: Charged to the Income Statement in the period in which they are incurred

Uses of Marginal Costing:

Decision Making
Budgeting (both marginal and absorption costing can be used in budgeting)

Terminologies:

Marginal Cost = sum of variable costs (Variable cost and marginal cost are used interchangeably)
Contribution = Sales - Variable Cost (Fixed cost + Profit)

Profit - is calculated for a period of time, thus marginal cost and absorption cost will differ because of the fixed cost. The change in stock will dictate the differences.

Overall the profit will be the same over time but in individual accounting periods, profits may differ.

Reconciling Item = Fixed Cost/unit X Change in Stock

Impact on Profit

Stock is constant - Marginal Costing profit (MCP) = Absorption Costing Profit (ACP)

Increase in Stock - Marginal Costing profit (MCP) < Absorption Costing Profit (ACP)

Decrease in Stock - Marginal Costing profit (MCP) > Absorption Costing Profit (ACP)

P2 Performance Management Syllabus

noreply@blogger.com (reeyz) — Wed, 06 Aug 2014 15:52:00 +0000

Paper P2 continues the analytic theme of Paper P1 Performance Operations (for example in terms of identifying relevant costs). However, its main focus is on the application of information in the management processes of decision-making and control, from a performance optimising perspective. The first section covers the key contributors to operational performance – revenue; decisions of what to produce, at what price. The second section covers costs; how to manage them to maximise profitability. The role of control in monitoring and improving performance then comes to the fore in the final two sections, dealing with principles and practices in the use of responsibility centres and budgeting.

Syllabus structure
The syllabus comprises the following topics and study weightings:
30% - Pricing and Product Decision

Relevant Costing and Short-Term Decisions
Marginal and Absorption Costing
Pricing
Linear Programming
Cost-Volume-Profit

30% - Cost Planning and Analysis for Competitive Advantage
20% - Budgeting and Management Control
20% - Control and Performance Measurement of Responsibility Centres

Assessment strategy
There will be a written examination paper of three hours, plus 20 minutes of pre-examination question paper reading time.

The examination paper will have the following sections:

Section A – 50 marks
Five compulsory medium answer questions, each worth ten marks. Short scenarios may be given, to which some or all questions relate.

Section B – 50 marks
One or two compulsory questions. Short scenarios may be given, to which questions relate.

Full syllabus here

How To Pass P2 Performance Management?

noreply@blogger.com (reeyz) — Wed, 06 Aug 2014 15:36:00 +0000

CIMA P2 Performance Management is a continuation of the analytic theme of P1 (Performance Operations). However, P2 will focus more on the application of information in the management processes of decision-making and control.

The first section of P2 covers mainly the key contributors to operation performance (i.e., revenue; decisions of what to produce, at what price). The second section covers costs (i.e., how to manage them to maximise profitability).

So, what should be our strategy to pass this exam? Perhaps, we should start on how we're going to prepare for this exam paper - by studying of course!

I've listed down my personal strategy on how I will nail this exam once I enter the exam room! I don't have plans to topnotch this paper - I just want to pass.

1) Familiarise and understand the syllabus

There is no point of studying the entire textbook from cover to cover if some parts of it won't be included in the exam. Unless you have plenty of time, you can really devote most of it in getting used to the questions that will mostly appear.

The syllabus structure for P2 has been communicated to the students. As you can see, Pricing and Product Decisions and Cost Planning and Analysis for Competitive Advantage has 30% each weight. If you can get all the questions related to these two topics correctly, you've already passed at 60% mark!

2) Read the study text and answer the example questions

There is no way you'll be able to pass P2 if you immediately jump into answering the questions from Past Papers. You should at least know the basic theories - like what is relevant cost or ABC costing or Cost-Volume Profit, etc.

3) Practice, practice, practice

The key really in passing P2 is by constant practicing in answering the questions. The exam is actually more or less 90% computation - so, it means you need to compute!

In practicing, don't simply copy the model answers. At least, try to come up with your own solution. Once you have your own proforma answers, live everyday with those answers!

4) Read the Post Exam Guides

The Post Exam Guides are comments from the examiners about the common mistakes of the students who took the past exams. These aim to guide you on how marks are allocated on the questions, expected outline of the answers and the usual mistakes committed.

5) On the Exam itself, Write Legibly!

Put yourself on the examiners' shoes, would you be encouraged to understand and put marks on a very chaotic and disorganised answers? Most likely you want to mark all of them wrong.

Answer the questions! Plan your Answers! Write Clearly!

Relevant Cost and Short Term Decisions

noreply@blogger.com (reeyz) — Wed, 06 Aug 2014 14:44:00 +0000

In Relevant Cost and Short Term Decisions, there are three learning outcomes we can get from this discussion:

Discuss the principles of decision making including the identification of relevant cash flows and their use alongside non-quantifiable factors in making rounded judgement.
Explain why joint costs must be allocated to final products for financial reporting purposes, but why this is unhelpful when decisions concerning process and product viability have to be taken.
Explain the usefulness of dividing costs into variable and fixed components in the context of short-term decision-making.

1) Relevant Cost and Non Relevant Cost

Relevant Cost - affected by decisions being taken
Non-relevant cost - cost is the SAME regardless of the decisions being taken

Sunk/Past cost - spent and cannot be recovered (i.e., NPI Cost)
Fixed Overhead - do not increase/decrease as a result of decision being taken (i.e., Space, Building)
Committed cost - expenditure that will be incurred in the future, but as a result of decisions taken in the past that cannot be changed (i.e., Special packaging for new product)
Historical cost depreciation - do not result in any future cash flows/ book entries only
Notional cost - only relevant if they represent an identified cost opportunity to use the premise (i.e., notional rent/notional interest)

2) Opportunity Cost

Opportunity cost - value of the benefit sacrificed when one course of action is CHOSEN, in preference to an alternative. This is the forgone potential benefit from the best rejected course of action.

3) Avoidable and Differential/Incremental Cost

Avoidable Cost - specific cost of an activity or sector of a business which would be avoided if the activity or sector did not exist (i.e., shutting down a department - cost of labour/rental cost)

Differential/Incremental Cost - difference in total cost between alternative; calculated to assist in decision making. This is Incremental revenue less incremental cost equals Incremental gain/loss. Ultimately, we'll choose an activity that will give us incremental gain.

4) Limiting Factor Decision-Making

Limiting Factor - any factor that is in SCARCE supply and that stops the organisation from expanding its activities further, that is, it limits the organisation's activities.

Examples: (All the factors of production)
1) Materials
2) Labour Hours (Supply of Skilled Labour)
3) Machine Hours (Machine capacity)

Aim: Maximise Contribution

Steps in Making Decision when there is a limiting factor:

Check if limiting factor exist (i.e., materials required to produce the maximum demand vs available materials.
Calculate the contribution per unit of limiting factor (Note: Do not take the contribution per unit alone. It should relate to the limiting factor)
Rank the products from highest to lowest contribution per unit of limiting factor
Allocate the available materials according to the rank

- Product at Maximum production
- Product at balancing/residual for production

5) Further Decision Making

Make or Buy

Discontinue a product

Deciding when to close a department

Further processing

Free P2 Performance Management Resources

noreply@blogger.com (reeyz) — Wed, 06 Aug 2014 08:21:00 +0000

If you are really into studying CIMA, of course, you are much willing to buy all the study materials available that will aid in passing the exam. But, it is no joke to purchase those big textbooks and carry them whenever you want to read them. Just imagine - one Kaplan textbook costs around £35, excluding delivery.

So what I did -- I did a widely search online of any free study materials that I can use in preparation for the P2 Performance Management Exam. And I'm so much willing to share them to you!

The good thing about these free study materials - you can sync this to your iPad, iPhone or any Tablet or Smartphone that will be accessible to you anytime. Also, it ranges from the full-length study materials to summarised versions from expert tutors online.

CIMA P2 Performance Management Study Text by Jo Avis

CIMA P2 Notes by LSBF

CIMA P2 Revision Summaries by Acorn

CIMA P2 Express Notes by ExpGroup

5 Reason Why I Study CIMA

noreply@blogger.com (reeyz) — Wed, 06 Aug 2014 05:35:00 +0000

The good thing about being an accountant - we have choices on what we want to specialize in. We can choose to be an external/internal auditor, an investment professional, an insurance agent, an accounting professor, or simply as a simple accountant. In my case, I never thought I will be specializing in Management Accountant.

Before I decided to take CIMA, I already had CPA under my belt but my experience comprises mainly of 5 solid years of being a Management Accountant. I was contemplating if I will take CIMA or other Chartered Accountants. But then, I found five good reasons why I should choose CIMA among all others.

1) Global Recognition

By becoming a CIMA member you will join the world’s largest professional body of management accountants. You will be able to use the Chartered Global Management Accountant (CGMA) designation and be part of a truly global network.

2) Combine finance and business
CIMA focuses on business, giving you more than just accounting knowledge. You will not only be financially qualified but also professionally trained in business management, capable of advising on business strategy and risk management.

3) Employability
As a CIMA student or member, you show employers that you have a commitment to uphold the highest ethical and professional standards. The ongoing professional development also keeps your qualification relevant.

The updated syllabus, which will take effect in January 2015, is built around addressing the ‘employability’ needs of businesses and people by helping them develop the skills and knowledge needed to create and execute successful strategies.

4) Post-graduate study
It is like taking an MBA - but a lot more convenient, cheaper and easier!

5) Boost Earning potential
A CIMA qualification can increase your earning potential, even while you are still studying. The global salary surveys show what you can expect to earn as a fully qualified or part-qualified professional.

See 2013 salary surveys

CIMA Certificate | The CIMA Examiner’s Guides to the Certificate Exams

noreply@blogger.com (reeyz) — Wed, 06 Aug 2014 04:03:00 +0000

The following guides will help you gain an understanding of what is required to succeed in the certificate level exams. Each paper assesses a different fundamental area of management accounting and as such requires a slightly different approach. Check them out below…

C01 fundamentals of management accounting

C02 fundamentals of financial accounting

C03 fundamentals of business mathematics

C04 fundamentals of business economics

C05 fundamentals of ethics, corporate governance and business law

E2: Chapter 2 - The Nature of the Competitive Environment

noreply@blogger.com (reeyz) — Wed, 09 Jul 2014 14:21:00 +0000

2.1 Introduction
2.2 Environmental impact assessment
2.3 Different stages in environmental analysis

2.3.1 Analysing the macro-environment
2.3.2 Analysing the micro-environment/industry environment
2.3.3 Industry life cycle analysis
2.3.4 Illustration of external environmental analysis – Example of a car manufacturer
2.3.5 Evaluation of environmental models
2.3.6 Survival and success factors

2.4 Causes of environmental uncertainty

2.4.1 Impact of uncertainty
2.4.2 Has uncertainty really increased?

2.5 Competitor analysis

2.5.1 The importance of competitor analysis
2.5.2 Competitor analysis – key concepts
2.5.3 Levels of competitors
2.5.4 Gathering competitor intelligence
2.5.5 Forecasting competitors’ response profiles

2.6 Competitor accounting

2.6.1 Evaluation of barriers to entry
2.6.2 Estimate competitors’ costs

2.7 The global economic environment

2.7.1 The new global economy

2.8 National competitive advantages

2.8.1 Porter’s Diamond
2.8.2 Demand conditions
2.8.3 Related and supporting industries
2.8.4 Factor conditions
2.8.5 Firm structure, strategy and rivalry
2.8.6 Other events
2.8.7 National competitive advantage
2.8.8 Losing competitive advantage
2.8.9 Porter’s strategic prescriptions
2.8.10 Comment on Porter’s Diamond 95

2.9 Country analysis and political risk 96

2.9.1 Political risk 96

2.10 Sources of information for environmental analysis 97

2.10.1 Environmental scanning 97
2.10.2 Accessing environmental information 98
2.10.3 Detailed environmental analysis 98
2.10.4 Categorisation of information sources 99

E2: Chapter 1 - The Nature of Strategic Management

noreply@blogger.com (reeyz) — Tue, 17 Jun 2014 14:56:00 +0000

Objectives:

Compare and contrast the approaches in STRATEGY FORMULATION
Discuss concepts in an emergent thinking in STRATEGIC MANAGEMENT
Explain and discuss the relationships between DIFFERENT LEVELS OF STRATEGY
Discuss the nature of COMPETITIVE ENVIRONMENTS

Contents:

1.1 Introduction to the nature of strategic management
1.2 The concept of strategy

1.2.1 Common themes in strategy

1.3 Levels of strategy

1.4 A model of the rational strategy process

1.4.1 Mission, objectives and goals
1.4.2 The link between mission, goals and objectives
1.4.3 The goal structure
1.4.4 External environmental and competitive analysis
1.4.5 Internal analysis/position audit
1.4.6 Corporate appraisal (SWOT)
1.4.7 Strategic options and choice
1.4.8 Strategy implementation
1.4.9 Review and control

1.5 Criticisms of the rational model of strategy formulation
1.6 A formal top-down strategy process

1.6.1 Benefits of the formal top-down approach to strategy
1.6.2 Drawbacks of the formal top-down approach to strategy

1.7 Strategy and small businesses
1.8 Achieving competitive advantage – alternative perspectives: resource-based view versus the positioning view

1.8.1 Competitive advantage and economic theory
1.8.2 The positioning approach
1.8.3 Resource-based view
1.8.4 Principles of resource-based theory
1.8.5 The implications of the resource-based view for strategy development

1.9 Alternative approaches to formulating strategy

1.9.1 Emergent strategies
1.9.2 Logical incrementalism

1.1 Introduction to the nature of strategic management

Strategic Management

Decisions that organizations make about their future direction and the development and implementation of strategies which will enhance COMPETITIVENESS of the organizations
Aim is to establish the purpose of the organization and guide the managers on how to implement those strategies to achieve the goals

1.2 The Concept of Strategy

Strategy

A course of action, including specification of resources required, to achieve a specific objective. Strategy refers to how to be unique, how to have an advantage or how to sustain that advantage over time.

Let's use Apple as an example. Apple strategy is how they can make iPhone the no. 1 smartphone in the world, or how iPad the no. 1 tablet over time

Strategic plan is statement of long-term goals along with a definition of the strategies and policies which will ensure achievement of these goals.
Strategic plan is a roadmap to grow your business. Included in a strategic plan are:

Executive Summary
Brief description of the business
Company mission statement
SWOT
Goals
KPIs
Target customers
Industry analysis
Competitive analysis and advantage
Marketing plan
Team
Operations Plan
Financial Projections

Corporate strategy is the pattern of major objectives, purposes and goals and essential policies or plans for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be.

1.2.1 Common themes in strategy

V-alue to the stakeholders
O-rganization's resources are used to meet the environmental challenges
C-hallenges are faced (competitors and customer requirements)
A-ctivities and actions required to meet the objectives
L-ong term direction of the business

1.3 Levels of strategy

Typically, strategies occur at different levels of the organization. This is where the levels of strategy appeared and built the hierarchical levels of strategy.

Corporate Strategy - the strategy focused on the overall purpose and scope of the organization. In simple terms, this is about knowing what type of business should the organization should be in.

What are the good examples of events or issues encountered at this level of strategy?

decisions on acquisitions, mergers and sell-offs or closure of business units (i.e., Hewlett-Packard bought Autonomy and EDS)
relations with key external stakeholders such as investors, the government and regulatory bodies (i.e., Apple CEO Tim Cook meets the Chinese officials)
decisions to enter new markets or embrace new technologies (i.e., Microsoft bought Nokia)
development of corporate policies on issues such as public image, employment practices or information systems (i.e., Pannone, a Manchester-based law firm, pays for its employees divorces)

Business Strategy - the strategy that is concerned with how an operating or strategic business unit

approaches a particular market.

A SBU or strategic business unit is a division within a larger organization, that has a degree of autonomy, typically being responsible for developing and marketing its own products or services.

A good example of business unit is the PPS or Printing and Personal Systems Group of Hewlett-Packard. This is a merged business units of IPG and PSG.

Management of the SBU will be responsible for winning customers and beating rivals in its particular market. Consequently, it is at this level that competitive strategy is usually formulated.

The considerations at this level will include:

marketing issues such as product development, pricing, promotion and distribution;
how should it segment the market – should it specialize in particular profitable segments.

The fundamental measure of winning customers:

Am I creating a customer?
Am I creating more customers?
Are my customers becoming more loyal?
Am I creating value to the customers?

Functional Strategy - The functional (sometimes called operational) level of the organisation refers to main

business functions such as sales, production, purchasing, human resources and finance.

Functional strategies are the long-term management policies of these functional areas. They are intended to ensure that the functional area plays its part in helping the SBU achieve the goals of its corporate strategy.

Example of Functional Strategies are:

Marketing strategy that deals with pricing, promotion, selling and distribution
R&D strategy that deals on product innovation and process improvement
HRM strategy that deals on the people in the organization
Financial strategy that involves financial planning
Information Management strategy is about the alignment of information management within an organization with its business and corporate strategies to gain strategic advantage

1.4 A model of the rational strategy process

Formal or Rational Strategy approach - the traditional approach to strategic management.

Rational strategy process seeks to answer questions concerning where the organisation is now, where it should go in the future, and how it should get there.

First step: What are the mission and objectives of the organization? This is where the strategy will start, with its existing strategy. The mission will is the ultimate purpose of the organization's existence, like what business it is in.

Second step: Gather information from external and internal analysis.

External analysis assesses if the strategy of the organization fits on its environment. These represent the threats and opportunities and the competition that the organization faces. PEST framework helps in the analysis of the macro or general environment and the 5 forces model in analyzing the competitive environment.

Internal analysis is about the organization's internal resources and capabilities. What the company is good at as compared to the competitors? This will involve resource audit - financial resources, human skills, physical assets, technologies and so on.

For an organization to survive and prosper, it depends on the adequacy and sustainability of 'resources' and 'competences.' Resources are what the organization has while Competences are the activities and processes
through which the organisation deploys its resources effectively. Michael Porter's Value Chain helps to identify the internal position of an organisation.

After gathering the information from external and internal analysis, it's time to do the SWOT analysis or Corporate Appraisal. SWOT stands for Strengths, Weaknesses, Opportunities and Threats.

At this stage, management will assess the ability of the business, following its present
strategy, to reach the objectives they have set.

They will draw on two sets of information:
(a) Information on the current performance and resource position of the business. This
will have been gathered in a separate internal position audit exercise.
(b) Information on the present business environment and how this is likely to change
over the period of the strategy. This will have been collected by a process of external
environmental analysis and competitor analysis.

Third step: What are the Strategic Options and Choices?

After doing the SWOT analysis, management needs put all the options that will lead to having a choice. Strategic Choice is basically a process of choosing alternative strategic options generated by the SWOT analysis. Management needs to seek to identify and evaluate alternative courses of action to ensure that the business reaches the objectives they have set.

The strategic choice process involves making decisions on:

What basis should the organisation compete and on what basis can it achieve competitive advantage (How does Apple managing the competition with Samsung?)
What are the alternative directions available and which products/markets should the organisation enter or leave? (By launching an iPad, this became the alternative directions of Apple that took the market by surprise)
What alternative methods are available to achieve the chosen direction? (Apple's alternative methods will probably include making a thinner or smaller iPad for those consumers who are particular with the sizes.)

After evaluation and coming up with alternative strategic options, the management will decide how they are going to execute - by taking advantage and leveraging on the strengths and opportunities, at the same time minimizing and preventing the weaknesses and threats. This is called the Strategic Direction.

Strategic Direction will include options to penetrate the market, develop a new product, develop a new market and diversify.

These directions entail to come up with methods how to do either options. These are the Strategic Methods, which will bring different ideas on how to perform the Strategic direction. It can be through internal development, acquire a new company or merge to another company that will help to penetrate the market or diversify, or strategic alliance.

After choosing the strategic direction and method of achieving that, the next step is to evaluate. The evaluation stage considers each options available and assesses if these fit the mission or objectives of the organization.

Fourth step: Implementation stage of strategy

This stage is actually the most tedious part of the rational strategy process. This is where the detailed plans, policies and programs are formulated. This will also involve the acquisition of required resources that will make the strategy happen. There are two (2) decisions that management will focus on:

(1) Tactical programmes and decisions - these are essentially about implementing some of the key elements of the strategy like developing new products, recruitment or downsizing of staff or investing in new production capacity.

(2) Operational programmes and decisions - these cover the day-to-day matters such as meeting
particular production, cost and revenue targets.

Fifth step: Review and Control

After the implementation, it doesn't stop there. This will be an on-going process that will require reviewing both the implementation and the overall continuing suitability of the strategy.

It will consider two aspects:
1. Does performance of the strategy still put the business on course for reaching its strategic
objectives?
2. Are the forecasts of the environment on which the strategy was based still accurate, or have unforeseen threats or opportunities arisen subsequently that might necessitate a reconsideration of the strategy?

1.5 Criticisms of the rational model of strategy formulation

I - nvolvement in the strategy. Senior management should not be the only people involved in setting strategy. Senior management are too detached and lack understanding of the details. Also, they will most likely not to consider the the social processes, values and cultures of the staff in the division.

S - tep-by-step. Strategy formulation is not a simple step-by-step process. In reality, it is much more of a jumbled-up process and can include considerable backtracking and revisiting of earlier stages in the model.

N - ot something decided in advance by managers. Apply Mintzberg's model of Managing. Strategy is often recounted by managers long after the event. Strategy emerges as a pattern from the piecemeal decisions of management. Another name for this view is adaptive because it sees the organisation as

adapting to the circumstances around it.

O - rganizations are incapable of having objectives. Organization is a collection of people, with people has a variety of goals. These objectives may be in conflict with the other and change from time to time. It is also inevitable that the objective of the organization will please the stakeholders group.

R - ational process of strategy shouldn't apply. The excessive rationality in decision-making will rob a manager of the motivation and commitment necessary to implement the strategy successfully.

E - ventually, organizations follow the strategies that aren't set. Management suffered from bounded rationality during the strategy formulation. This means that they cannot have perfect knowledge of the future and so any strategies developed will fail to take into account all eventualities.

1.6 A formal top-down strategy process

Features:

A-ssigned Team. A designated team responsible for strategy development. This will include strategic planning unit reporting to top management, groups of managers and business consultants
F-ormal collection of information for strategy purposes. This includes environmental scanning reports, specially commissioned reports, management accounting information and research reports.
T-eam working together for the decision-taking. Collective decision-taking by the senior management team.
E-ngage a process for the communication and implementation. A process of communicating and implementing the business strategy.
R-egular review and control of the strategy. Management will monitor the success of the strategy by receiving regular reports on performance and on environmental changes.

Benefits:

A-voids Short-Termist Behavior. Management will focus on long-term development of the business

I - ssues are Identified. Management is proactive and keeps ahead of the change when the business environment in the plans and decisions are considered.

G-oal Congruence. This is basically about the coordination of each team player that will make the strategy successful.

I-mproves stakeholder perceptions of the business. This gives a clear idea on where the business is going, which gives confidence to the stakeholders that the organization is progressing and will become successful.

C-ontrol has basis. Provides a basis for strategic control. This includes essentially the implementation and completion stage of the strategy. It ensures that there is someone looking after the development of the strategy, has clear programmes and policies, and targets and reports enabling review of success of the strategy.

E-nsures continuity and develops future management potential. This relates to the fact that formal strategy formulation is a collective process.

Drawbacks:

D-ynamic. It is too infrequent to allow the business to be dynamic.(for example by continuing to make a product no one wants)

E-ntrepreneurial spirit. There is loss of entrepreneurial spirit.

D-ifficulties of implementation.

U-ncertain business environments. Successful implementation requires the participation of middle and junior management, together with operative staff. There is a danger that the formal process will not build the support of these people and hence will be misunderstood or resisted.

C-omplicated and expensive for small businesses. The opportunity cost in terms of the time away from direct management of the operational parts of the business are likely to be too great.

E-xcludes the development of radical or innovative strategies. The need to retain consensus among the management team means that radical ideas are too often rejected.

1.7 Strategy and small businesses

The top-down process is not suitable for small businesses due to following reasons:

G-oals are different as compared to big companies. Small businesses often do not exhibit the economic rationality and single-minded pursuit of dividends and growth often associated with businesses governed by external shareholders.

R-esources are limited. Smaller firms lack the resources to invest in new strategic ventures

and rapid growth.

O-rganizational structure. Strategic implementation demands the setting up of an appropriate structure and selection of an appropriate team to carry it out.

S-cope of product/market choices are limited. Small-business managers typically consider a much narrower range of strategic options than do their large-business counterparts.

1.8 Achieving competitive advantage – alternative perspectives: resource-based view versus the positioning view

Positioning view sees competitive advantage stemming from the firm’s position in relation to its competitors, customers or stakeholders. It is sometimes called an outside-in view because it is concerned with adapting the organisation to fit its environment.

Criticisms of Positioning View, from resource based theorists perspective:

The competitive advantages are not sustainable.
Environments are too dynamic to enable positioning to be effective.
It is easier to change the environment than it is to change the firm.

Resource-based view is based on competitive advantage stemming from some unique asset or competence possessed by the firm. This is an inside-out view of strategy because the firm must go in search of environments that enable it to harness its internal competences.

Resource-based theory raises a number of issues:

Conflict with conventional product/market-based views of strategy
Challenges the rational model of strategy
RBT can lead to different conclusions.

1.9 Alternative approaches to formulating strategy

Emergent strategies

According to Henry Mintzberg, real strategies are combination of planned strategy and unanticipated emergent strategies
Defined as patterns or consistencies realized despite, or in the absence of, intentions’

Logical incrementalism

Logical incrementalism is the term developed by Lindblom to describe how
government administrators ‘muddle through’ from year to year rather than carry out bold
strategic initiatives
Accept that they cannot foresee the future and survive by muddling through, taking small steps based on what has been done and has worked in the past
For Quinn, a manager must map where he or she wants the organisation to go and then proceed towards it in small steps, being prepared to adapt if the environment changes or if support is not forthcoming.

1.10 Stakeholders

Stakeholders - Those persons and organisations that have an interest in the strategy of an organisation

They include:
● shareholders and owners
● management
● employees
● customers/clients
● suppliers
● local community
● local and national governments
● trade unions
● media
● regulatory bodies
● pressure groups

The influence of stakeholders
Strategic decision-making requires managers to consider stakeholders when setting the mission and objectives of the firm. This is for two broad groups of reasons:

Issues of stakeholder power. This view observes that, like it or not, management must recognise that stakeholders can affect the success of a strategy, depending on whether they support or oppose it.

For example, customers refusing to buy products, shareholders selling their shares or staff striking would disrupt any strategy. The view concludes that management should consider stakeholders before setting strategic objectives.

Issues of organisational legitimacy. This more radical view suggests that firms are required to be good citizens because they are only permitted to exist by society on sufferance of not abusing their power. Consequently, although working primarily for the shareholders, management must ensure that its decisions do not ignore the interests of other stakeholders.

Mendelow Matrix

Mendelow (1991) developed a framework to help analyse stakeholders power and interest

To keep track of changes in the potential influence of different stakeholder groups. By plotting the matrix periodically, management can be alerted when a strategy may need to be changed to accommodate (or avoid a threat from) particular stakeholders.
To assess the impact of a particular strategic development on stakeholders. For example, managers proposing a factory closure could use mapping to identify where opposition to closure may come from and how it might be managed.

Assessing interest of stakeholders

Where their interests rest

Powerful stakeholders will pursue their self-interest. Example of these are managers, whose interests are their career and pay, or employees who require higher pay and good working condition.

How interested they are

Not all stakeholders have the time or interest to follow management's decisions.
Example of these are the high personal financial or career investment in what the business does or the absence of alternative.

1.11 Meeting the objectives of shareholders

Learning Curves

noreply@blogger.com (reeyz) — Tue, 08 May 2012 07:47:00 +0000

Overview

The resources required to produce the given amounts of a product tend to decline as output accumulates
Cause of decline -- > learning curve. Workers become more adept at a task the more they perform it. This is measured mathematically
Cumulative average time per unit/batch decreases by a fixed percentage each time the cumulative production doubles
Learning rate = %

When does learning curve theory apply?

Labor intensive - product made largely by labor effort
New - brand new or relativity short-lived product
Complex - product made in small quantities for special orders

Example 1

A firm with a learning rate of 80% takes 50 hours to make its first unit. It has now made a total of 16 units. How long will the next 16 units take?

Formula Approach

Example 2

Derive the formula for the 80% learning rate and apply it to confirm the cumulative average time per unit for 16 batches in the previous illustration
Using the same formula, calculate the cumulative average time per unit for 20 batches
The formula is calculated as follows:

b = log 0.8/log 2 = -0.322
y = ax -0.322
At 16 batches: 50 x 16 -0.322 = 20.48
At 20 batches: 50 x 20 -0.322 = 19.06

Uses of the learning curve

Price setting
Budget setting
Production scheduling

Limitations of learning curve theory

Not always present
Assumes stable conditions which allow learning to take place
Assumes certain degree of motivation among employees
Breaks between repeating production of an item must not be too long or workers will forget and learning will have to begin again
Maybe difficult to obtain enough accurate data to decide what learning factor is
Learning is eventually cease

Practice Test

36 Batch Processing (10 Marks)

Standard direct labor cost of one batch of 100 units of product is $50.40
Standard time of 4.2 hours @ $12 per hour, with average time expected per batch based on product life of 12,800 units or 128 batches
Expected time for the first batch was 20 hours and an 80% learning curve
Company already completed 32 batches with total actual direct labor cost of $3,493
Direct labor variances:

Direct labor rate = $85 adverse
Direct labor efficiency = $891 adverse

Required:

Actual rate of learning
Total direct labor cost

Answers:

a) Y = axb

Standard cost of actual labor hours worked is actual cost less the adverse direct labor rate variance

$3,493 - $85 = $3,408

Actual labor hours worked is $3,408/$12 = 284 labor hours
Hours per batch = 284/32 = 8.875 hours per batch
Learning rate = 5√(8.875/20) = 0.85 = 85% --> 32 batches represents 5 doublings of output

b) Total direct labor cost

Actual labor rate is $3,493/284 = $12.30 per hour
b = log .85/log 2 = -0.2345
Average time: Y = axb

20 X 128 -0.2345 = 6.41 hours

Total cost = average time x no. of batches x actual labor rate

6.41 x 128 x $12.30
$10,092

37 The Learning curve effect

Actual output is 560 units, 3500 hours at a cost of $57,750
Standard time of 8 hours @ $15 per hour
Expected time for the first 600 units was 8 hours and an 90% learning curve
Direct labor variances:

Direct labor rate = $5,250 adverse
Direct labor efficiency = $14,700 Favourable

Required:

Planning and Operating variances
Importance of learning curves in the context of Target costing
90% learning index of -0.1520

Answers:

a) Y = axb

Y = 8 X 560 -0.1520 = 3.057 hours

Total time for 560 units (560 X 3.057 hours) = 1,712 hours

Cost Planning and Analysis For Competitive Advantage

noreply@blogger.com (reeyz) — Wed, 02 May 2012 13:21:00 +0000

Cost Planning

Continuous improvement

Involves a constant effort to eliminate waste, reduce response time, simplify the design of both products and processes and to improve the quality and performance of activities that in turn will result in an increase in customer satisfaction

Japanese manufacturers identified two approaches to continuous improvement:

Target Costing

Setting of a target cost to challenge product designers to produce products within tight cost targets
A cost management tool for reducing the overall cost of a product over its entire life-cycle with the help of production, engineering, research and design
Four basic steps of Target Costing:

(1) Define the Product
(2) Set the Price and Cost Targets
(3) Achieve the Targets
(4) Maintain Competitive Costs

Happens before production
Competitive Market Price - Desired Profit = Target Cost
CIMA - Target Costing Discussion Paper

Kaizen Costing

Continuous improvement in ALL aspects of a company's performance, at every level. These improvements are through small incremental amounts rather than through large innovations
Setting of continuously more challenging cost targets to encourage a continuous drive for increased efficiencies
Yashihuro Moden defines kaizen costing as "the maintenance of present cost levels for products currently being manufactured via systematic efforts to achieve the desired cost level."
Happens during production
CIMA - Kaizen Costing Discussion Paper

Value Analysis

Systematic interdisciplinary examination of the factors affecting the cost of a product or service, in order to devise means of achieving the specified purpose most economically at the required standard of quality and reliability
AIM: Improve profitability by reducing costs without necessarily increasing prices, comprising the quality or usefulness of the product
Focus: To meet customer needs, while reducing costs
Value Analysis is a planned, scientific approach to cost reduction which reviews the material composition of a product and production design so that modifications and improvements can be made which do not reduce the value of the product to the customer or to the user. (i.e. quality for purpose should not be compromised.)

Functional analysis

Analysis of the relationships between product functions, their perceived value to the customer and their cost provision
Product functions -- represent the end benefits for customers. A mobile phone may offer a variety of functions: phone calls, music player, surfing the net, sending/receiving texts, camera and so on
Breakdown the product into its many functions and places and price or value on each of these functions which reflects the amount the customer is willing to pay.
Function 1 + Function 2 + Function 3 = Selling price of the product

Value Analysis Functional Analysis Value Engineering - CIMA

Value Chain - The Philosophy of Continuous Improvement

Principle

Excellence in manufacturing is necessary for success, but it will not work alone. A firm must appreciate the relationship between all the factors in the value chain -- the sequence of business factors by which value is added to the organization's products and services

World-class manufacturing

The philosophy of continuous improvement and first class performance that underpins those organizations that get the 'value chain right.'
7 Keys to World-Class Manufacturing

1) Reduce lead times
2) Speed time-to-market
3) Cut operations costs
4) Exceed customer expectations
5) Manage the global enterprise
6) Streamline outsourcing processes
7) Improve business performance visibility

Just-in-time concept

A system where the objective is to produce products as required for use of by a customer, rather than for stock. It is a 'pull' system, responsive to demand.

Just-In-Time (JIT)

Production system which is driven by demand for finished products whereby each component on a production line is produced only when needed for the next stage of production so there is little work in progress, and finished goods produced only when required by customers so there is little finished goods inventory.
JIT Purchasing - a purchasing system in which material purchases are contracted so that the receipt and usage of material, to the maximum extent possible, coincide, reducing material inventories
Features of JIT system:

Workers are multi-skilled and flexible and can easily adapt to changing demands
Reduces stockholdings as one of the outcomes
Aiming of 'zero defects', since any defect will mean late delivery to customers
Pull principle -- producing to customer demand

Just-in-time production method is also called the Toyota Production System. To meet JIT objectives, the process relies on signals or Kanban (看板 Kanban?) between different points in the process, which tell production when to make the next part.

Total Quality Management (TQM)

Quality - best viewed from the customer's perspective - is the product 'fit for purpose'? Failure to meet the customer's requirements will put a firm out of business
Cost of failing to deliver quality:

Appraisal costs - costs of measuring conformity with requirements, e.g. quality control inspections
Prevention costs - cost of ensuring that defects do not occur in the first place
Internal failure - e.g. costs of reworking failed products
External failure - e.g. product replacement, lost sales due to impact on reputation

Features of TQM

Focus on continuous improvement
Workforce training
Focus on product design
High quality information feedback systems to facilitate improvements
Use of performance measures
Focused on meeting customer needs
Workforce coordination and use of initiative
Emphasis on prevention not detection
Constant change is expected and normal

TQM functions on the premise that the quality of products and processes is the responsibility of everyone who is involved with the creation or consumption of the products or services offered by an organization. In other words, TQM capitalizes on the involvement of management, workforce, suppliers, and even customers, in order to meet or exceed customer expectations. Considering the practices of TQM as discussed in six empirical studies, Cua, McKone, and Schroeder (2001) identified the nine common TQM practices as cross-functional product design, process management, supplier quality management, customer involvement, information and feedback, committed leadership, strategic planning, cross-functional training, and employee involvement.

Business Process Re-engineering (BPR)

Involves examining business processes and radically redesigning these processes to achieve cost reduction, improved quality and customer satisfaction.
About major changes to how business processes opearate

Gain Sharing Arrangements

Involves those employees or suppliers who are involved in solving a problem or making an improvement, sharing in the benefits generated
Key features:

Knowledge sharing between staff in the organization and with the external parties (e.g. suppliers) who are working towards the solution
Contracts with suppliers and unions of the terms for gain sharing
Accurate measurement of results to facilitate calculation of benefits

Cost Analysis

The Overhead Problem

Absorption Costing

Originally designed for production companies to deal with production costs. It is less suitable for service and retail organization
Overheads were then only a small part of the overall costs and inaccuracies in absorption were small and insignificant
Never intended for use in short-term decision making, and a number of modern activity-based approaches have subsequently been developed

Direct Product Profitability

Modern way of absorbing overheads in retail organizations
Traditionally, bought-in cost was deducted from selling price to give gross margin. This was of little use for cost control and decision making.
DPP deducts 1) buy-in price 2) indirect costs - based on the way the goods are used or created
DPP Calculation:

Advantages of DPP:

Cost analysis resulting in a more, accurate cost unit
Pricing decisions, now based on more accurate cost units
Management of warehouse space, by understanding the costs of stan's each product
Rationalism of product range based on accurate profitability estimates
Merchandising decisions

Activity-based costing (ABC)

In traditional costing systems, product costings can be inaccurate resulting in poor pricing decisions. This is because they tend to use labour or machine hours - an outdated approach, as most overheads do not vary directly with hours

Traditional Costing

Costs are gathered together, based on where they are incurred, i.e., cost centers and the cost objects are costed based on absorption rates

ABS Costing

Costs are gathered together, based on resource cost drivers into cost pools or cost activities, and the cost objects are costed, based on activity cost drivers

Absorbing overheads using ABC

Identify and collect overhead costs
Pool costs based on activities which have consumed resources
Allocate overheads to products based on cost drivers (e.g. quality control overhead may be allocated on the basis of the no. of inspections

Example:

Machine overhaul overhead amounts to $180,000 in one year.
The cost driver has been identified as the number of set-ups, and 450 were carried out in the year
Charge out rate for set-ups is $180,000/450 = $400 per set-up
A product range requiring 75 set-ups = $400 X 75 = $30,000
If 25000 units of the product were produced, then the overhead per unit is $30,000/2500 = $12

Usefulness of ABC

Production overheads are high in relation to direct costs
Product range is diverse
Products use differing amounts of the overhead resources (e.g. complex versus simple products)
Consumption of overhead resource is not primarily driven by volume

Activity-based Management (ABM)

A system of management which uses activity-based cost information for a variety of purposes, including cost reduction, cost modelling and customer profitability analysis. AIM: use the information to ensure that the customer needs are met using a minimum of resources.

Advantages

Duplication - Identifies where activities are duplicated, causing waste

Overhead Control - Used to monitor overhead causing activities and thereby control overhead costs

Non Value Added - Helps to identify a non-value-added expenditure

Empowers Managers - Flags up changes in activity or resource consumption - empowers managers to view fixed costs as potentially variable

Customer Profitability Analysis

Different customers and customer groups will make use of different activities to varying degrees, e.g. amount of time used for product advice
ABC permits the creating of customer profiles and the analysis of customer profitability recognizing where customers cause additional costs to the company
Information can be used to target profitable customers and review the business model currently offered to less profitable ones, e.g. start changing for advice above a certain basic service level

Distribution Channel Profitability

Overview

Channel - point of purchase which may be direct (i.e. sales team) or indirect (i.e. through retailers). A company selects is a critical driver of business profitability
The method of channel distribution chosen can account for a significant proportion of total cost and choosing the wrong channel can result in significant losses.
It is just important for companies to cost channels as it is to cost products and customers.
Activity-based costing information makes it possible to cost these channels by creating cost pools for activities and understanding the affect of different channels on the cost drivers, e.g. selling to retailers will result in fewer deliveries than selling directly to customers.

Strategic Activity Management

This recognizes that individual activities are part of a wider process, which help to achieve the overall strategic aims.

ABC information can be used to assist strategic decisions, such as

Add-Value or Non-Value Added
Mass production to smaller lots
Changes in activities and components affect the suppliers and the value chain.

Using ABS in service industries and activities

ABC can be used by all types of organization, such as retail, service and government departments, and in all areas of the business. The key difference from manufacturing organizations are the types of cost pools, and the cost drivers used.

Problems with implementing ABC/ABM

Bureaucratic - many cost pools and significant recording of costs. In turn this is time consuming and costly

Lack of enthusiasm -- Finance staff might not understand ABC or understand the business well enough to make ABC work effectively

Complex IT - which be be expensive and time consuming to implement

Pareto Analysis

Overview

Based on the observed phenomenon that 80% of population's wealth is owned by 20% of the people
Approximation of the principle holds true in many business situations, e.g. relationship between

Contribution and revenue
Customers and profit
Stock items and stock value

Exam Rules and Regulations

noreply@blogger.com (reeyz) — Wed, 09 Nov 2011 02:48:00 +0000

Please read these carefully
1. Admission to the Exam Room

a) You must bring the following to gain entry to the exam room:

Your admission advice which you need to download from the CIMA website. Students sitting exams in Sri Lanka must also download their attestation form from the CIMA website and have it signed. This will not be posted to you.
Identification showing your photograph, with your name printed and your signature.
You should also bring a blue or black pen, a pencil and a calculator

b) You should be at your desk ten minutes before the start of the reading time for each exam. It is your responsibility to:

Make sure you sit at the correct desk by checking that your desk number matches the desk number on your admission advice for that paper. Please note that your desk number may change with each paper you sit.
Fill in the attendance slip before the start of each exam. This is a two-part slip – the bottom half is your receipt as confirmation that you attended the exam. Retain the completed receipt for four months from the date of the exam.

c) The doors to the exam room close 35 minutes after the start of the exam. You will not be allowed to enter the exam room after this time unless you have the permission of an invigilator.

2. Completing the front cover of your answer book

a) You will be issued with an answer book at the start of the exam.
b) You must write your candidate number on the front of your answer book. Your candidate number is on your admission advice. The invigilators will tell you when and where to complete these details on your answer book.

3. Completing your answer book
a) Write your answers in blue or black pen. You may use a pencil to draw diagrams or graphs.
b) Begin the answer to each question on a new page and write the question number in the boxes provided at the top of the page. You must clearly show the marker where a question is continued later in the book.
c) Any rough workings must be included in your answer book and then crossed through with a single line.
d) Supplementary answer books will only be handed out when you have completed your initial answer book. You must state that you are also using a supplementary answer book on the front cover of your answer book and ensure they are fastened together before collection at the end of the exam. November 2011 2

4. Permitted exam materials
a) Any personal belongings such as briefcases, mobile phones, books, dictionaries, revision notes or written material of any kind must be left in an area designated by the invigilators. They should not, under any circumstances, be left near your desk.
b) You must switch off all mobile phones prior to entering the exam room.
c) You may bring a bottle of water into the exam room.
d) Calculators must be clearly visible on your desk so that invigilators can inspect them.

We allow the following types of calculator:
- scientific calculators, including those with basic programming functions
- those with standard memory functions
- solar powered (at your own risk).

We do not allow the following types of calculator:
- those with alpha-numeric keyboards (an alphanumeric display of stored data – including text- equations or
alphanumeric formulae)
- personal organisers
- checklists and memo pads
- those that make a noise
- those that are programmable from other sources by detachable modules, barcodes, tapes or cards
- those that feature graphical displays (can often be identified by model types that end in the letter ‘G’ and
typically have larger screens)
- those that do not have their own internal power supply
- those that allow text to be saved in their memory
- calculator functions on watches or mobile phones
- those with symbolic algebraic capability.

You cannot use your calculator instruction booklet during the exam. It is your responsibility to check the functionality of your calculator before you use it in the exams.
Please remember that, in your answer book, you must show the steps you took to arrive at your answer.
For more information on calculators please visit our website at:
www.cimaglobal.com/Documents/ImportedDocuments/guidance_on_calculators.pdf

5. Reading time

20 minutes reading time is added to the three hours exam time for all exam papers.
During the 20 minutes you can:

make notes on or highlight your question paper.
You are not allowed to:
write in your answer book
use your calculator.

6. Conduct during Exams
a) If you need to leave the room to go to the toilet you must be accompanied by an invigilator.
b) Eating, unless for medical reasons, is not permitted in the exam room.
c) Smoking is not permitted.
d) If you contravene exam rules by, for example cheating, helping another candidate to cheat or by having materials or items with you that could give you an unfair advantage, you will be reported to CIMA’s Examinations and Assessment Oversight Panel. This is likely to result in your exam paper being voided. It may also result in CIMA taking disciplinary action against you. The following are deemed to be examples of contravention of exam rules:

Having any book, notes or documents on you at any time during the exam November 2011 3 Having any book, notes or documents in a situation which suggests you could have used them during the exam
Talking to, copying from, or in any way communicating with, another candidate
Using a mobile phone, including the calculator function
Leaving the exam room without the permission of an invigilator
Removing answer books and/or question papers, whether used or blank, from the exam room, during or after the exam.This list is not exhaustive.

e) Disruptive conduct during exams will not be permitted. The invigilator has the right to terminate the exam of any candidate whose behaviour is disruptive and to have the candidate escorted from the exam room. In such cases a full report will be made to CIMA’s Examinations and Assessment Oversight Panel.
f) Your answers must be written in the answer book. This includes answers to the objective questions. Any answers written on your question paper will not be marked.
g) Do not write any personal communications to the examiner or marker in your answer book. Any such
communication, particularly where it contains vulgar or threatening language will be reported to the
Examinations and Assessment Oversight Panel.

7. At the end of the exam
a) You must stop writing as soon as you are told to do so. If you do not stop writing when told, the invigilator will report your actions to CIMA.
b) You must ensure that you fasten all supplementary answer books and pieces of graph paper inside your answer book before the invigilator collects it.
c) At the end of the exam you must stay in your seat until all answer books, question papers and any other materials provided have been collected by the invigilators.
d) If you wish to leave the exam before the normal finish time you must notify the invigilator who will collect your answer books, question papers and any other provided materials before permitting you to leave the exam hall. You cannot leave the exam room during the first hour and 20 minutes or the final 15 minutes of the exam.

8. Liability
CIMA will not be liable for any loss of, theft of or damage to personal belongings left in or outside the exam room. Any personal items brought to the exam are done so at the owner’s risk CIMA Contact Centre.

If you need more information, please contact our staff at the CIMA Contact Centre.
Email: cima.contact@cimaglobal.com
Phone: +44 (0)20 8849 2251
Fax: +44 (0)20 8849 2450
CIMA Contact
26 Chapter Street
London SW1P 4NP
United Kingdom
www.cimaglobal,com

If you are based outside the UK you might find it easier to contact your local office

Managing Human Capital

noreply@blogger.com (reeyz) — Tue, 01 Nov 2011 10:20:00 +0000

A – Human Resource Management

1) Human resource management

a. What is human resource management?
Human Resource Management (HRM) – process of
- evaluating an organizations human resource needs,
- finding people to fill those needs, and
- getting the best work from each employee by providing the right incentives and job environment

b. The objectives of HRM (DOCS)

D – Develop an effective human component for the organization which will respond effectively to change

O – Obtain and develop the human resources required by the organization and the use and motivate them effectively

C – Create and maintain a co-operative climate of relationships within the organization and to this end to perform a ‘firefighting’ role dealing with disputes as they arise

S – Social and legal responsibilities will be met relating to the human resource

c. Why is HRM important?
Benefits of HRM (PEER)
P – Increased productivity
E – Enhanced group learning
E – Encouragement of initiative
R – Reduced staff turnover

d. Human resource management
HRM is based on the assumption that the management and deployment of staff is a key strategic factor in an organization’s competitive performance.

i. Armstrong – HRM as ‘strategic approach to the acquisition, motivation, development and management of the organization’s human resources.’

ii. Bratton and Gold – HRM as
- emphasizes that employees are crucial to achieving sustainable competitive advantage
- that HR practices need to be integrated with the corporate strategy
- and that HR specialists help organization controllers to meet both efficiency and equity objectives

iii. Tyson and Fell – suggest four major roles for HRM which illustrate the shift in emphasis to the strategic viewpoint (COBS)

C – Change
O – Organization’s central value system
B – Boundaries of the organization are maintained
S – Stability and continuity are provided

e. The human resource cycle (SPART)
S – Selection, people with the qualities and skills required
P – Performance, truly dependent on the other 4 components
A – Appraisal, targets set that contribute to the achievement of the overall strategic objectives of the organization
R – Reward, motivate and ensure valued staffs are retained
T – Training and Development, skills remain up-to-date, relevant, and comparable with the best in the industry

f. The Guest model of HRM – aim to result in high staff commitment and high quality flexible employees. Achieving these three HRM outcomes will facilitate the achievement of the behavioral, performance and financial outcomes.

g. Limitations of HRM models

External factors – competition, technology, political/legal, economic factors and social/cultural factors will all impact upon HRM
Internal factors – organizational structure and culture will also impact upon HRM

2) Human resource management theories

a. Ability – skill, knowledge and capability required of employees in order to fulfill the objectives of the organization
Taylor: Scientific management
According to Frederick W Taylor, management should be based on ‘well-recognized, clearly defined and fixed principles, instead of depending on more or less hazy ideas’

Principles of Scientific management (BIDS)

B – Bringing together of the science and the scientifically selected and trained men
I – Intimate co-operation between management and workers
D – Development of a true science of work
S – Scientific selection and progressive development of workers

b. Opportunities – employees work within an environment that is provided by their employer
Weber: Bureaucracy, rational form
Max Weber developed a theory of bureaucracy which divides the organization into jurisdictional areas (production, marketing, sales and so on) each with specified duties.

Lawrence and Lorcsch: Contingency theory
Contingency theory is based upon the idea that the organization’s structure and management approach be tailored to the situation

c. Motivation – an employee’s desire to perform their role. It is often linked to the outcome and any reward
i. Taylor, maximizing prosperity – using science to determine fair pay and selection. He believes that highest remuneration motivates the workers

ii. Mayo, Schein: Human relations – people are motivated by social or belonging needs

iii. Maslow’s hierarchy of needs – there are 7 innate needs that motivate people

iv. Herzberg’s two-factor content theory – motivators and hygiene factors

v. Adams: Equity theory – deals with issues of fairness

vi. McGregor’s Theory X and Theory Y

Theory X – most people dislike work and responsibility and will avoid both if possible
Theory Y – individuals wants to satisfy their individual needs through work and wish to make a contribution towards goals that they have helped to establish

vii. Vroom: Expectancy theory – human beings are rational and are aware of their goals and behavior.

There are two factors that strengthen the motivation;
1) preference for a certain outcome or valence and
2) outcome will result from certain behavior.

viii. Schein, common behavioral traits – there are four groups of man;
1) rational economic man,
2) social man,
3) self-actualizing man, and
4) complex man

ix. Goal-setting theory – goals can motivate

x. Mullin’s classifications of motivation – three classifications
1) economic reward,
2) intrinsic satisfaction and
3) social relationship

d. Psychological contracts – between individuals and organizations

Coercive contract – individual considers that they are being forced to contribute their efforts and energies involuntarily
Calculative contract – accepted voluntarily by the individual
Co-operative contract – individual identifies themselves with the organization and its goals to that they actively seek to contribute further to the achievement of those goals

3) Employee motivation: Remuneration
Pay is part of the reward system, and can be a motivator in certain circumstances.
a. Payment systems – two elements; pay and benefits
b. Pay structures
- Graded – levels of job grades
- Broad-banded structures – whole workforce
- Individual – used for senior management
- Job family structures – in terms of skill levels or responsibility
- Pay or profession/maturity curves – pay must be progressive to allocate pay fairly
- Spot rates – market price
- Rate of age – bracket for employees based on age
- Pay spines – relative across a range of roles
- Manual work pay structures – recognize the difference in status between those who work in manual roles against those in other parts of the organization
- Integrated structures – one grading system

c. Pay differentials – key to determining salaries for employees

d. Incentive schemes – to improve performance by linking it to reward
i. Performance related pay (PRP) – the most common individual PRP scheme for wage earners is straight PEICEWORK: payment of a fixed amount per unit produced, or operation completed
ii. Bonus schemes – supplementary to basic salary, and have been found to be popular with entrepreneurial types, usually in marketing and sales
- Group incentive schemes – offer a bonus for a group
- Value added schemes – improvements in productivity increases value added, and the benefit can be shared between employers and employees on an agreed formula
iii. Profit-sharing – offer employees bonuses, perhaps in the form of shares in the company, related directly to profits. This is based on the belief that all employees can contribute to profitability and that contribution should be recognized.
iv. Difficulties associated with incentive schemes
- Increased earnings simply may not be an incentive
- Workers are unlikely to be in complete control of results
- Greater specialization in production processes means that particular employees cannot be specifically credited with the success of particular products
- Instrumental orientation may encourage self-interest performance at the expense of teamwork
- It is easy to manipulate the rules of incentive scheme
- Poorly designed schemes can produce labor cost increases out of proportion to output improvements
v. Total reward schemes – is a bundle of cash and non-cash motivators offered to staff

4) Employee motivation: Other factors

a. Job redesign, rotation, enlargement and enrichment – can be used to improve the motivation of employees by introducing changes in their work

i. Job redesign – to improve performance through increasing the understanding and motivation of employees

ii. Job rotation – allows for a little variety by moving a person from one task to another

iii. Job enlargement – increases width of the job by adding extra, usually related tasks

iv. Job enrichment – increases the depth of responsibility by adding elements of planning and control to the job, therefore increasing its meaning and challenge

b. Job characteristics model – (Hackman and Oldman) sets out the links between employee motivation, satisfaction and performance and the characteristics of their job or role

MPS or Motivating Potential Score – attempt to measure a job’s potential to produce motivation and satisfaction.

Five core characteristics SITAF

S – Skill Variety: the breath of job activities and skills required
I – Task Identity: whether the job is a whole piece of work with a visible outcome
T – Task significance: the impact of the job on other people
A – Autonomy: the degree of freedom allowed in planning and executing the work
F – Feedback: the amount of information provided about the worker’s job performance

5) HR management in different types of organization

a. Project-based teams – away from traditional hierarchies towards flatter structures with reporting lines that cross functional boundaries. They operate using multi-skilled employees organized into various work team based around factors such as customer groups or particular projects

b. The new organization
i. Flat structure – more responsive because there is more direct relationship between the organization’s strategic center and the operational units serving the customer
ii. Horizontal structure – functional versatility is key to flexibility
iii. Chunked or unglued structure – teamworking and decentralization or empowerment, creating smaller and more flexible units within the overall structure
iv. Output-focused structure – focus on results, and on the customer, instead of internal processes and functions for their own sake
v. Jobless structure – the employee becomes not a job-holder but the vendor of a portfolio of demonstrated outputs and competences

c. Virtual organization (TACO)

T – Territorially organized without the overhead cost of local offices, without the difficulties of supervision, communication and control
A – Adopt flexible cross-functional and multi-skilled working, by making expertise available across the organization.

C – Centralize shared functions and service without the disadvantages of geographical centralization and with the advantages of decentralized authority
O – Outsource areas of organizational activity without losing control or co-ordination

6) Working arrangements

a. Attitudes and values
i. Multi-skilling – involves individuals who are able to perform a variety of team tasks, as required
ii. Flexibility – about being able to respond and adapt quickly to rapidly changing customer demands
iii. Empowerment – involves giving employees the freedom to take responsibility for their goals and actions

b. Flexible working arrangements – balance between professional and personal responsibilities
i. Flexitime – arrangement where employees work the standard number of hours in a workday, but are given some flexibility as to when they work these hours
ii. Compressed week – employee works the standard number of hours in one-or two week period, but compresses those hours into fewer work days
iii. Job sharing – two employees share one position
iv. Part-time/reduced hours – employee works less than the standard work week hours
v. Telecommuting or homeworking – employee works either part or all the week from a location other than the standard place of work

c. Flexibility in organizations

i. Numerical – use of temporary workers – both contractors and agency staff
ii. Financial – achieved through variable systems of reward
iii. Task – involves having employees able to undertake a wider range of tasks.

7) The HR plan
a. HR planning – concerns the acquisition, utilization, improvement and return of an enterprise’s HR

Budgeting and cost control
Recruitment
Retention
Downsizing
Training and retraining to enhance the skills base
Dealing with changing circumstances

b. Strategic analysis

Environment – population and education trends, policies on the employment of women and on pension ages and trends generally in the employment market must be monitored
HR strengths, weaknesses, opportunities and threats need to be analyzed
HR utilization – how effectively the organization is currently utilizing its staff
Objective – core and subsidiary objectives should be analyzed to identify the manpower implications

c. Forecasting

Estimating demand – accurate forecasts of turnover and productivity
Estimating supply – current works and the external labor market
Position survey – compares the demand and supply

d. Closing the gap between demand and supply: The HR plan

Recruitment plan – numbers, types of people, when required, recruitment program
Training plan – numbers of trainees required and/or existing staff needing training, training program
Redevelopment plan – program for transferring, retraining employees
Productivity plan – improving productivity, reducing manpower costs, setting productivity targets
Redundancy plan – where and when redundancies are to occur, policies for selection and declaration of redundancies, re-development, re-training, or relocation of redundant employees, policy on redundancy payments, union consultation
Retention plan – actions to reduce avoidable labor wastage

e. Tactical plans

Pay and productivity bargaining
Physical conditions of employment
Management and technical development and career development
Organization and job specifications
Recruitment and redundancies
Training and retraining
Staffing cost

f. Staffing shortages or surpluses
i. Shortage
- Internal transfers and promotions, training
- External recruitment
- Reducing labor turnover, by reviewing possible causes
- Overtime
- New equipment and training to improve productivity so reducing the need for more people
ii. Surplus
- Allowing employee numbers to reduce through natural wastage
- Restricting recruitment
- Introduce part-time working for previously full-time employees
- Redundancies – as a last resort, and with careful planning

g. Stages in human planning

h. Control over the HR plan

Actual numbers recruited, leaving and promoted vs planned numbers
Actual pay, conditions of employment and training vs assumptions in the HR plan
Periodical review of HR plan

8) Ethical behavior

a. Ethics in business practice – the application of ethical values to business behavior
Three Elements (I DO BEST)
I – concern an individual’s professional responsibility to act
DO – concern the ‘real world’ practical actions an individual can take
BEST – concern choices between different courses of action

‘Trust me’ – family owned business
‘Involve me’ – run by board of directors
‘Show me’ – demonstration of trust
‘Prove to me’ – required independent verification and assurance
‘Obey me’ – when the law creates legislation to cure instances of unethical behavior

b. Social Responsibility policies and reports
i. Corporate social responsibility – approach to helping the community and reducing the environmental impact of the organization
ii. Corporate Responsibility reports – focus included figures or statistics covering areas such as the organization’s carbon footprint and impact on the environment

c. CIMA’s Ethical guidelines
i. Observe the highest standards of conduct and integrity
ii. Uphold the good standing and reputation of the profession
iii. Refrain from any conduct which might discredit the profession

Fundamental principles (BIOP-C)

B - Professional behavior – protect the reputation of the professional and the professional body, and comply with relevant laws and regulations

I - Integrity – must not be party to anything which is deceptive or misleading
O - Objectivity – fairness and avoiding all forms of bias, prejudice and partiality
P - Professional competence and due care – remain up-to-date with current developments and are technically competent
C - Confidentiality – confidential information will not be revealed without specific permission or unless there is a legal professional right or duty to do so

B – Human Resource Practices

1) Good HR practice
a. Recruitment and selection
Recruitment – concerned with finding applicants: going out into the labor market, communicating opportunities and information and generating interest

Selection – consists of procedures to choose the successful candidate from among those made available by the recruitment effort

b. The recruitment process
i. Job Analysis – process of collecting, analyzing and setting out information about the content of jobs in order to provide the basis for a job description and data for recruitment, training, job evaluation and performance management.
ii. Job Design – current approach is the development and outlining of competences
Competence – capacity that leads to behavior that meets the job demands within the parameters of the organizational environment and that, in turn, brings about desired results.

Different types of competences (POG)

P - Behavioural/personal – underlying personal characteristics and behavior required for successful performance, for example ability to relate well to others
O - Work-based/occupational – expectations of workplace performance and the outputs and standards people in specific roles are expected to obtain
G - Generic – can apply to all people in an occupation

Parameters of job design
a) Job specialization
b) Regulation of behavior
c) Training in skills

iii. Job Description and person specification
Job Description – sets out the purpose of the job, where it fits in the organization structure, the context of the job, the accountabilities of the job and the main task the holder carries out

4 Main Purposes of a Job Description
a) Organizational – job’s place in the organization
b) Recruitment – information for identifying the sort of person needed
c) Legal – basis for contract of employment
d) Performance – set around the job description

iv. Advertising job vacancies – the choice of advertising medium will depend on COST, FREQUENCY, the frequency with which the organization wants to advertise the job vacancy and its SUITABILITY to the target audience

v. Initial screening – reviewing curriculum vitaes and selecting some candidates for interview

c. Selection – involves a filtering process, by reviewing applications forms, interviewing and testing

i. Application forms – usual for jobs below executive level and all levels in the public sector

ii. The interview: Preparation – finding the best person for the job through direct assessment and giving the applicant the chance to learn about the business

iii. The Interview: Conduct – layout of the room and number of interviewers, manner of the interviews, questions should be put carefully, give candidates chance to talk and ask questions

iv. Type of job interview (TIPS)

T - Tandem
I - Individual
P - Panel
S - Sequential

v. Limitations of interviews CASEL

C – Contagious Bias
A – Assessment is incorrect
S – Stereotype
E – Halo Effect
L – Logical error

vi. Testing the candidates
- Psychological tests and personality test
- Cognitive test – thinking processes
- Proficiency test – measure ability to do work involved
- Psychometric test – All of the above

vii. Advantages and disadvantages of test
Advantages: (3S)
- Sensitive measuring instrument
- Standardized
- Same
Disadvantages
- Over-simplify complex issues
- Culturally-specific
- Results should only be used to support other selection methods

viii. Group selection methods – consist of series of tests, interviews and group situations over a period of two days or so, involving a small number of candidates for a job.

ix. Assessment centers – refers more the process of selection rather than to any specific building. It involves the candidate’s behavior being observed and judged by more than one assessor, using specifically developed situations.

x. Are assessment centers effective? – also used to identify training and development needs or to enhance skills.

xi. References – enables an employer to check the basic accuracy of the candidate’s CV.

xii. Negotiation - it is important that both employer and employee feel that the exchange they have contracted is a FAIR one.

xiii. Realistic job previews – know what they are letting themselves in for. It involves a prospective employee spending some time shadowing an existing employee in a similar role

d. Induction – orientation

Dialogic learning – integrating recruits into how the organization operates including the overall culture, beliefs and mission

e. Legal and ethical issues

2) Human resource development

a. Training and development strategy
b. Effective learning programs
c. Training and the organization
d. Training and the employee
e. Possible shortcoming of training
f. Training and development needs
g. Setting training objectives
h. Incorporating training needs into individual development program
i. Formal training
j. On the job training
k. The learning cycle (Kolb)
l. Training in different industries or sectors
m. Evaluating training
n. Career management
o. Management development
p. The transition from functional to general management

3) Appraisal
a. Why are appraisals needed?
b. The purpose of appraisal
c. An appraisal system
d. Problems of appraisal system
e. Appraisal techniques
f. Self-appraisal
g. Upward appraisal
h. Customer appraisal
i. 360 degree appraisal
j. The appraisal report
k. Interviews and counseling
l. Follow-up
m. Improving the appraisal system
n. Appraisal and reward
o. Management expertise and employee empowerment
p. Making improvements

Marketing

noreply@blogger.com (reeyz) — Tue, 18 Oct 2011 19:18:00 +0000

A – Marketing and Business Strategy

The marketing concept
The marketing environment
Marketing and corporate strategy
Marketing strategy

B – Marketing Plans, Branding and Communications

Marketing action plans
Branding
Marketing communications

C – Developments in Marketing

Consumer behaviour
Marketing not-for-profit organisations
Internal marketing
Corporate social responsibility and social marketing

A – Marketing and Business Strategy

1. The marketing concept

a. What is marketing
Marketing – process of planning and executing the concepts of pricing, promotion and distribution of ideas, goods and services in order to create exchanges that satisfy individual and organizational objectives.

Kotler – right product at the right price at the right time

b. Products, goods and services: a note on terminology
Product – something that is offered to a market

Examples:
FMCG – fast moving consumer goods like soaps and shampoo
Services – like haircut or tailor services

c. Strategic and tactical marketing
Strategic – this is the corporate strategy which identifies the products and markets the organization wishes to operate in (i.e. Fashion retailer opens a
Tactical – short-term and particular elements of marketing mix (i.e. Year-end Sale)

d. Exchanges – the role of marketing is to identify, anticipate and supply satisfaction to customers, to facilitate mutually beneficial exchanges

e. The marketing concept and marketing orientation – these are two interrelated terms.

Brassington and Pettit (2000)
Marketing concept – a philosophy of business
Marketing orientation – approach of the business

f. The marketing concept – a belief system. Can incorporate to culture. Normally refers to the customer satisfaction.

g. Marketing orientation – there are three types of other orientations that marketing orientation can relate to: production, sales and product

Production orientation – success is achieved through producing goods or services of optimum quality as cost-efficiently as possible
Sales orientation – makes the product and actively and aggressively sells it
Product orientation – focus on product development; new product features

h. The potential impact of a marketing orientation – bottom-line is that companies should focus on customer needs

i. Push VS Pull Marketing

Push marketing – traditional; pushing goods out to resellers and consumers
Pull marketing – produce a product that consumer demand will pull into retail outlets

j. Three Dimensions of Marketing (CST)

C – Culture, consumer needs
S – Strategy, select the markets it intends to sell to and the products or services it will sell
T – Tactics, 7Ps of the marketing mix

2. The marketing environment

Three levels:
Macro – all factors that can influence the organization (i.e. PESTEL factors)
Micro – factors specifically related to the organization (i.e. customer and suppliers)
Internal – factors within the organization (i.e. assets, employees and finance)

a. PESTEL Factors

P – Political, changes in gov’t policies will affect consumers’ spending power or rights
E – Economic, economic growth, exchanges rate which affects the demand for product or services
S – Social/Cultural, demography suggests the size and the purchasing power of the customers
T – Technological, new products or processes, which the customers have different attitudes towards innovation
E – Ecological, climate change or catastrophes can change the customers’ attitude towards products that will aid them
L – Legal, laws affect ways of doing business and it is the question to customers if they are willing and able to take legal action

b. SWOT Analysis
Internal appraisal: strengths and weaknesses – to shape the organization’s approach to external world
External appraisal: opportunities and threats --

3. Marketing and Corporate Strategy

a. Corporate and marketing strategy (BIOGESIC)

B – Between and among corporate and marketing strategy
I – Internal appraisal, corporate will review the effectiveness of different aspects of the organization, marketing will conduct marketing audit
O – Setting objectives, corporate will increase profit, marketing will increase market share
G – Gaps, corporate has gaps between objectives and forecast, marketing will focus on growth
E – External appraisal, corporate will review PESTEL factors that impacting on the whole organization, marketing will review the factors that affect customers, products and markets
S – Strategy, corporate will develop strategies to fill up the gap, marketing will focus on resources that will be allocated to them to be able to identify the target market, plan the product to produce and organize them.
I – Implementation, corporate will delegate this to each department, marketing will put this into action like ads space
C – Control, corporate is reviewing the results and starts planning again, marketing will review if the market share objectives have been achieved

b. The marketing plan – must be consistent with the corporate strategy (STAGES ABC)

S – Marketing Strategy, target markets, the marketing mix and marketing expenditure levels
T – Tactical marketing plan, one year time horizon
A – Situation analysis, SWOT analysis and forecasts
G – Goals and objectives, what organization is hoping to achieve
E – Executive summary, finalized the planning document
S – Strategic marketing plan, defines scope of product and market activities
A – Action plan, how strategies are to be achieved
B – Budgets, action programme
C – Controls, monitor the progress of the plan and the budget

4. Marketing strategy

Key activities (RMTP)

R – Research, initial stage on obtaining data about the customers and their needs
M – Market segmentation, group of customers with similar characteristics
T – Targeting, choose one or more targets after analyzing the attractiveness of the segment
P – Positioning, act of designing the company’s offer and image

a. Market research – gathering, recording, analyzing and reporting data and information relating to the company’s market, customers and competitors

Five Steps:
1) Defining the problem (i.e. why sales are decreasing, what are the potential demands in the market)
2) Developing hypotheses to be tested (i.e. the product is not effective?)
3) Analyze and interpret the data
4) Report the findings

Quantitative vs qualitative data
Quantitative – enables measurement (i.e. surveys)
Qualitative – not measurable but useful to get people to say what they feel and thing

Secondary vs primary
Secondary – generated by sources internal or external to the organization. It is not intended for specific research and cheaper than primary data (i.e. accounting data, customer databases, and published statistics from government)
Primary – intended for specific research (i.e. experiment, observation, focus groups)

b. Forecasting demand (CPF MISES)
C – Current Demand
P – Past-sales analysis, trends, seasonal factors
F – Future Demands
M – Market test
I – Survey of buyers’ intentions
S – Sales force opinions
E – Expert opinions
S – Sales potentials

c. Market segmentation – subdividing of a market into distinct and increasingly homogeneous subgroups of customers, where any subgroup can conceivably be selected as a target market to be met with a distinct marketing mix.

Bases of segmentation:
Simple – like geographical area, age, gender, level of income, occupation
Lifestyle – deals with person’s distinctive ways of living adopted by particular communities or subsections of society.

Four categories of lifestyle segmentation (SHUT)

S – Security and status seeking, safety and ego-defensive needs
H – Hedonistic preference, enjoying life now
U – Upwardly mobile, ambitious, more affluent lifestyle
T – Traditional and sociable, compliance and conformity to group

d. Target markets – market or segment selected for special attention by an organization
Mass or Undifferentiated – produce a single product and get as many customers as possible
Concentrated – produce an ideal product for a single segment of the market (Rolls Royce, Ferrari)
Differentiated – several products for different market segment

e. Positioning – market position refers to how customer perceive a brand or product relative to other brands or products

f. Developments in market segmentation and product positioning – refers to the evolution on how segmentation and positioning are considered in organizations (D’CASH)

D – Data Mining, interest on customer database analysis and the idea of ‘letting the data speak for itself’
C – Computer models are used
A – Awareness that consumers should be segmented
S – Soft data, focusing on the lifestyle rather than the hard or basic segmentation
H – Hybrid segmentation, sub-dividing a segment to different sub-segments

g. The Ansoff matrix – (1987) showing possible strategies for products and markets

Market penetration – existing products and markets
Market development – existing products for new markets
Product development – redesign or repositioning of existing products
Diversification – new products for new markets

B – Marketing Plans, Branding and Communications

1. Marketing action plans

a. The marketing mix (7P’s of marketing mix)

Four P’s of consumer goods:

Product
Price
Place
Promotion

Three P’s of services

People
Processes
Physical evidence

b. Product – anything that satisfies a need or want.
Organization’s point of view: what is being sold
Customers’ point of view: solution to a problem or a package of benefits

Product classifications
Consumer goods – sold directly to the person (CUSS)
C – Convenience goods (i.e. groceries)
U – Unsought goods (i.e. wardrobe organizer)
S – Shopping goods (i.e. durable items like furniture or appliances)
S – Specialty goods (i.e. jewelries)

Industrial goods – used in the production of other products (RACIS)

R – Raw materials (i.e. plastic, metal, wood)
A – Accessories (i.e. PCs)
C – Components (i.e. Intel microchip in most PCs)
I – Installations (i.e. factory assembly line)
S – Supplies (i.e. office stationery)

Product levels
Core – all products should have
Actual/basic – features offered as part of the product
Expected – attributes that the customers expect, either will disappoint or delight them
Augmented – extra benefits that differentiate it from other products
Potential – possibility to enhance or develop the product

The BCG Matrix
Question mark – a small market share in a high growth industry, which means competition, is really strong and to be successful will require substantial funds
Star – high market share in a high growth industry, which has potential of generating significant earnings, currently and in the future.
Cash Cow – high market share in a mature slow-growth market, this has high degree of consumer loyalty and will make a substantial contribution to overall profitability
Dog – low market share in a low-growth market, losing consumer support.

The product life cycle
Introduction stage – offering something new to customers
Growth stage – the volume of demand for the product increases
Shake out – weaker players in the market are shaken out by the stronger organizations
Market Maturity – Demands levels off
Decline stage – total demand declines and competitors will start to withdraw from the market

c. Place – how product reaches its customers
Channel – supermarkets, corner shops
Logistics – warehouses
Direct distribution – retailers

d. Promotion
Aims of promotion (AIDA)

A – Arouse Attention

I – Generate Interest

D – Inspire Desire

A – Initiate Action

e. Price
Three main types of influence on price setting:

Cost – most important influence on price, like cost-plus rules (cost plus profit margin)
Competition – average level of price becomes the norm including the standard price differentials between brands. Price competition may be avoided by informal agreement, in cases of cigarettes and petrol.
Demand – strong demand may lead to a high price, and a weak demand to a low price

f. Price Setting strategies

Market Penetration – sets a relatively low price for the product or service in order to stimulate growth of the market
Market Skimming – sets a high initial price for a new product in order to take advantage of those buyers who are ready to pay a much higher price for it.
Early cash recovery – aims to recover the investment in a new product or service as quickly as possible to achieve a minimum payback period.
Product line promotion – focuses on profit from the range of products which the organization produces rather than to treat each product as separate entity.
Cost-plus pricing – marking up its unit costs by a certain percentage or fixed amount
Target pricing – price that gives a specified rate of return for a given output
Price discrimination/selective pricing – different prices for the same product when it is sold in different markets
Going rate/competitive prices – keep in line with industry norm for prices
Price leadership/predatory pricing – price leader generally has a large market share. The role of the price leader is based on a track record of having initiated price moves that have been accepted by both competitors and customers.

g. Services and service marketing
Characteristics of services (as distinguished from goods) (IHI PO)

I – Intangibility, lack of substance which is involved with service delivery
H – Heterogeneity, lack of sameness or consistency. The quality of service may depend heavily on who it is that delivers the service
I – Inseparability, services cannot be separated off from the provided. Should instill values of quality, reliability and to generate a service ethic
P – Perishability, services cannot be stores. Anticipating and responding to levels of demand is key planning activity
O – Ownership, services do not result in the transfer of property.

h. The extended marketing mix (3P’s)
P – People, services are provided by members of staff who are inseparable from the service
P – Process, services involve a process, for example a haircut may involve waiting to be served, a hair wash, styling, colouring and hair dying
P – Physical evidence, as services are intangible, some physical item should be provided to give the customer evidence of ownership

2. Branding

Brand – is a name, term, sign, symbol or design intended to identify the product of a seller and to differentiate it from those of competitors.

Brand name – refers strictly to letters, words, or groups of words which can be spoken

Brand Image – distinguishes a company’s product from competing products in the eyes of the user

a. Objective of branding
Key benefit of branding is product differentiation and recognition. Products may be branded for a number of reasons (DARED ME)
D – Product differentiation helps customers to identify the goods or service and creates customer loyalty to the brand
A – Advertising, maximizes the advertising for product identification and recognition
R – Readier acceptance, by wholesalers and retailers
E – Brand extension, or stretching which other products can be introduced into the brand range to ‘piggy back’ on the articles already known to the customer
D – Price differentials, reduces the differences on prices between goods
M – Market segmentation, different brands of similar products may be developed to meet specific needs of categories of uses
E – Eases the task of personal selling, by enhancing product recognition.

b. Branding Strategies
Three broad branding strategies

Brand extension – introduction of new flavors, sizes etc to a brand, to capitalize on existing brand loyalty
Multi-branding – introduction of a number of brands that all satisfy very similar product characteristics and normally used where there is no brand loyalty
Family branding – uses the power of the brand name to assist all products in a range

c. Brand value
Three approach on valuing brand: (MIC)

M – Market approach

Based on market transactions
Relief-from –royalty

I – Income approach

Based on net present values
Calculating the overall economic benefit that will generate over its life

C – Cost approach

Based on the costs incurred to build the brand
Example are costs involved in registering trademarks and promotional activities

3. Marketing communications

a. The promotion mix – consists of the blend of promotional tools that are considered appropriate for a specific marketing campaign

b. Consumer and business to business markets
Consumer markets (business-to-consumer markets B2C) – consists of mass audiences which are cost-effectively accessible by television or national newspaper advertising
Business-to-business markets (B2B) – involve a great deal of personal selling at different levels in the organization.

c. Integrated marketing communications – represent all the elements of an organization’s marketing mix that favorably influence its customers or clients.

d. Types of marketing

i. Consumer marketing (4Ps)
ii. Service marketing (3Ps)
iii. Direct marketing
iv. Indirect
v. Guerrilla
vi. Viral
vii. Interactive
viii. Experiential
ix. E-marketing
x. Internal marketing

e. Direct marketing – the planned recording, analysis and tracking of customer behavior to develop relational marketing strategies. (RIRAS)

R – Response, getting people to respond to invitations and offers
I – Interactive, two way involving supplier and customer
R – Relationship, on-going process of communicating and selling again and again to the same customer
A – Recording and Analysis, for most cost-effective procedures
S – Strategy, part of a comprehensive plan stemming from clearly formulated objectives

Example of direct marketing is TELEMARKETING. Telemarketing is a quick, accurate and flexible tool for gathering, maintaining and helping to exploit relevant up-to-date information about customers and prospects

Characteristics of telemarketing (IT FITS)

I – Interactive
T – Targeted
F – Flexible
I – Immediate
T – Telemarketers are attending personally
S – So costly

f. Indirect marketing – marketing of products as a consequence of another activity or action. Organization doesn’t push products or services onto customers. (i.e. posting blogs on internet, ‘word of mouth’)

g. Guerilla marketing – involves taking people by surprise and creating a buzz in unexpected places. It relies more use of imagination that large sums of money.

Principles of guerilla marketing:
- Small organization
- Based on psychology rather than experience
- Based on time, energy and imagination
- Judged on profit not sales
- New relationships created
- Standard of excellence
- Number of customer referrals
- Co-operate with competitors
- Combination of marketing methods should be used
- Use of technology

h. Viral marketing – involves the use of pre-existing social networks to spread brand awareness or other marketing objectives.

i. Interactive marketing –ability to address the customer, remember what the customer says and address the customer again in a way that illustrates that we remember what the customer has told us. Example is Amazon.com

j. Experiential marketing – involves providing an experience that creates an emotional connection between a person and a brand or idea. This is an effective way of connecting with customers, as the emotional connection encourages brand loyalty

k. E-marketing – includes website, SMS e-mail, online surveys and use of social networks like Facebook and Twitter.

C – Developments in Marketing

1. Consumer behaviour

a. The customer
Different roles of customer (PUB)

P – Payer, the person who finances the purchase
U – User, receives the benefit of the product
B – Buyer, who selects a product

b. Buyer behavior – describes the activities and decision processes relating to buying
i. Consumers as buyer
ii. Organization as buyer

c. Consumer buying behavior (HCL)

H – Habitual decision making, emphasizes habit and brand loyalty
C – Cognitive paradigm, purchase as outcome of a rational decision-making process
L – Learned behavior, importance of past purchases

5 stages of consumer buying process:
1) Need/problem recognition – the customer recognizes a need or a problem to solve. There is a motive to search for a solution
2) Pre-purchase/information search – the customer searches for information they can use to base their decision on
3) Evaluation of alternatives – the customer evaluates the various options they have generated
4) The purchase decision – is made and the product or service selected based on how it meets their needs and other factors such as cost
5) Post-purchase evaluation – if dissatisfied, they will be back at the problem recognition stage. If they are satisfied, the next decision process for the product may be cut short and they may skip straight to the decision, on the basis of loyalty

d. Influences on consumer buying
Social – relate to social groupings a consumer belongs to or aspires, and trends in society which influence buying patterns
Cultural – comprises the values, attitudes and beliefs in the pattern of life adopted by people that help them integrate and communicate as member of the society
Personal – include such things as age, stage of family and life cycle, occupation, economic circumstances and lifestyle
Psychological – includes the four factors;
1) Motivation – inner state that energizes, activates or moves that directs or channels
2) Perception – people select, organize and interpret sensory stimuli into a meaningful and coherent picture
3) Learning – individual’s behavior changes as a result of their experience
4) Beliefs and attitudes – descriptive thought that a person holds about something. Attitude describes a person’s enduring favorable or unfavorable cognitive evaluations, emotional feelings, and action tendencies toward some object or idea

e. Organizations as buyers

Organizations are viewed as more RATIONAL than individuals

Business-to-Business or B2B - transactions between organizations
Business-to-Consumer or B2C - transactions involving an organization and a consumer

Organizational markets (PICO)

P- Purchase decision is usually made by consensus in an organizational setting, rather than being the responsibility of one person
I - Inelastic demand for industrial goods, which means these are not affected by price changes
C - Close relationship between buyer and seller
O - Organizational markets normally comprise fewer buyers responsible for the majority of sales

Decision Making Unit (DMU)

Webster and Wind (1972) suggested six groups within DMU (GUIDES)

G - Gatekeepers. By controlling the flow of information, may be able to stop sellers from reaching individuals within the buying center
U - Users. Initiate the buying process and help define purchase specifications
I - Influencers. Help define the specification and also provide an input into the process of evaluating the available alternatives
D - Deciders. Have the responsibility for deciding on product requirements and suppliers
E - Example of approvers are Finance Director/Manager
S - Suppliers or Buyers. Have the formal authority for the selection of suppliers and negotiating purchase terms

2. Marketing not-for-profit organizations

a. Charity and not-for-profit marketing
b. Characteristics of charity and not-for-profit marketing
c. The charity marketing mix

3. Internal marketing
a. Implementing internal marketing
b. The internal marketing mix
c. Segmenting the internal market
d. The importance of internal customer communications
e. Challenges for internal communication
f. Tools of internal communication

4. Corporate social responsibility and social marketing
a. Social responsibility, ethics and the law
b. Ethical marketing
c. Social marketing

Operations Management

noreply@blogger.com (reeyz) — Tue, 18 Oct 2011 17:29:00 +0000

A – Operations Management and the Organizations

Operations Management – the transformation of ‘inputs’ into ‘outputs’ that meet the needs of the customer.
Operations Strategy – common strategies involve what is known as the value chain and supply chain management.
Sustainability in operations management – Sustainability is a long-term programme involving a series of sustainable development

B - Quality Management

The scope of quality management
Quality management approaches
Total quality management (TQM)
Managing quality using TQM
Processes of continuous improvement
Lean production
International Organization for Standardization (ISO)
Total productive maintenance (TPM)
The TQMEX Model
Service quality

C - Managing Capacity and Inventory

Capacity management
Balancing capacity and demand
Capacity planning
Capacity control
Inventory management
Just-in-time (JIT)

A – Operations Management and the Organizations

Operations Management – the transformation of ‘inputs’ into ‘outputs’ that meet the needs of the customer.

The Operations Function – the core function includes the following: (Code: MOP)

M –Marketing and sales – identifying customer needs

O – Operations – fulfilling customer orders and requests through production of the goods or services.

P – Product and service development – designing new products and services that will meet customer needs

Mintzberg’s Operating Core -- Henry Mintzberg suggested five parts of looking at organizations. (Code: ATOMS)

A – Strategic Apex or Finance Director/Manager

T – Technostructure or Human Resource Managers

O – Operating core or Operators

M – Middle line or the Supervisors

S – Support Staff or ISS

The transformation process model – could be a physical transformation, a change in nature or form, a change in location, a change in ownership or psychological changes

Operations Strategy – common strategies involve what is known as the value chain and supply chain management.

The Value Chain – sequence of business activities by which, in the perspective of the end-user, value is added to the products or services produced by an entity.

Business activities are not the same as business functions

Primary Activities (Code: LOOMS)

L – Inbound Logistics
O – Operations
O – Outbound Logistics
M – Marketing and sales
S – After –sales services

Secondary Activities (Code: TRIP)

T – Technology development

R – Human Resource management

I – Firm Infrastructure

P – Procurement

The Value System – is the set of value chains to achieve competitive advantage

Purchasing and supply chain management – concerned with the flow of goods and services through the organization with the aim of making the firm more competitive.

Reck and Long – identified the four-phased development of purchasing within organizations. (Code: IPIS)

I - Independent

P - Passive

I - Integrative

S – Supportive

Cousins – investigate the level of strategic maturity in the purchasing function of UK/European companies. (Code: SARCASM)

S – Skills
A – And Competences
R – Portfolio of Relationships
C – Corporate and Supply Strategy
A – Cost/Benefit Analysis
S – Organization structure
M – Performance Measures

Supply chain networks – interconnecting group of organizations which relate to each other through linkages between the different processes and activities involved in producing products/services to the ultimate customer.

Demand Networks – recent evolution of supply chains. Supply chain is formed to ‘push’ the product out into the market. Demand Networks are ‘pulled’ into existence to demand signals.

Four-stage process (RACO)

R – Reacting
A – Anticipating. Six Sigma
C – Collaborating. External relationships
O – Orchestrating. Flow of information

To create competitive advantage, organizations within a demand network have to manage THREE FACTORS: 3A’S

A – Alignment – of shared incentives

A – Agility – to respond to demand quickly

A – Adaptability – to adjust the structure of the supply chain to meet demand

Supply portfolios and sourcing strategies
Single – the buyer chooses one source of supply
Multiple – the buyer chooses several sources of supply
Delegated – a supplier is given responsibility for the delivery of a complete sub-assembly. For example, rather than dealing with several suppliers a ‘first-tier’ supplier would be appointed to deliver a complete sub-assembly.
Parallel – mixing/combining the other three approaches to maximize the benefits of each.

Process Mapping – aims to identify and represent the steps and decisions involved in a process, in diagrammatic form

Types of process maps:

Basic flowchart – basic ‘birds eye’ view
Deployment flowchart – overview and indicates where or by whom actions are performed. This includes a ‘department’ or ‘unit’ dimension along the top of the chart.

Operations strategy -- concepts on the strategy formulation

O – Structure of Operations
N – New products/services

C – Capability required
R – Range and location of operations
I – Investment in Technology
B – Buyer-supplier relationships

Sustainability in operations management – Sustainability is a long-term programme involving a series of sustainable development

Efficiency – reducing waste, using less energy and recycling
Stakeholder support – reducing greenhouse gas emissions, employee cycle schemes, employee flexible working
Market edge – innovation, supply chain improvements, R&D

B – Quality Management

The scope of quality management

Quality – totality of features and characteristics of a product or service which bears on its ability to meet stated or implied needs

M – Quality Management. This is concerned with controlling activities with the aim of ensuring that products or services are fit for their purpose and meet specifications.
A – Quality Assurance. This focuses on the way a product or service is produced.
C – Quality Control. This is concerned with checking and reviewing work that has been done.
Quality management approaches

SERVQUAL – by Zeithaml, Parasuraman and Berry in 1980s; method of measuring quality in service organizations. To measure the gap between a customers preconceived expectations and the actual experience they receive
(Code: Rater)

R – Reliability. Service dependably and accurately
A – Assurance. Inspire confidence and trust in the customer
T – Tangibles. The tangible environment, like facilities, equipment and staff appearance
E – Empathy. Caring and Personal service is provided
R – Responsiveness. Willingness to help and respond to customer requests

The Balanced Scorecard – by Kaplan and Norton (1990). Quality measures should cover operational, financial and customer aspects.
(Code: I CFO)

I – Innovation and Learning

C – Customer

F – Financial

O – Operational: Internal Operations

Value of money audits – involves identifying and measuring key aspects of performance, such as money spend, inputs purchased, outputs and outcomes achieved.

Total quality management (TQM) – aims to continuously improve quality in all aspects of the organization. Customer satisfaction is key objective of TQM.

TQM is the continuous improvement in quality, productivity and effectiveness obtained by establishing management responsibility for processes as well as output.

a. Deming – decrease in process variability will increase quality and productivity

b. Ouchi (Theory Z) – devised by William Ouch in the early 1980s.

B – Building relationships
I – Interpersonal skills
G – Group interaction and decision-making
P – Participative management
A --
R – Retention of hierarchical rules and control
T -- Trust
S – Formal procedures for planning and setting objectives
c. Juran (Fitness for use) – quality should focus on the role of the customer, both internal and external.

d. Ishikawa (Quality circles) – stressed the importance of people and participation to improve quality.

e. Crosby (Quality costs) – worker participation and the need to motivate individuals to do something about quality.

f. The elements of TQM – (CODE: PRECEPT)

P – Prevention. Prevent poor quality
R – Right first time. Develop a culture that encourages workers to get their work right first time.
E – Eliminate waste. Most efficient and effective use of all its resources
C – Continuous improvement. Kaizen philosophy
E – Everyone’s concern.
P – Participation. Workers should share their views and the organization should value them
T – Teamwork and empowerment. Form team bonds to become one.

Managing quality using TQM

TQM promotes the concept of internal customer and internal supplier, which some requires SLA – Service Level Agreement. This is a statement of the standard of service and supply that will be provided to the internal customer and will cover issues such as the range of services supplied, response times, dependability and so on.

Kaizen – or the continuous improvement, looks for uninterrupted incremental change.

Principles of continuous improvement: CARNAGE

C – Changing customer needs
A – Assets are the people in the organization
R --
N – New technologies
A – Alignment on resources, measurements, rewards and incentives
G – Gradual improvement
E – Evaluation (statistical/qualitative) should be the basis of improvement

Quality of costs (Code: A PIE)

A – Appraisal/inspection Cost. Cost incurred after a product has been made or service delivered
P – Prevention Cost. Cost prior to making the product or delivering the service
I – Internal Failure Cost. Cost from inadequate quality before the transfer of the item to customer
E – External Failure Cost. Cost from inadequate quality after the transfer of the item to customer

TQM Philosophy (CODE: QUEZON)
Q – Quality that is poor and a failure
U – Unacceptable
E – Estimated seriously the failure cost
Z – Zero defects
O – Optimal quality level
N – No further challenge to management to improve quality further

Failure of TQM (CODE: RC LTD)

R – Rejection
C – Cynicism
L – Lack of management buy-in
T – Tail-off
D – Deflection

Processes of continuous improvement
Quality circles – is a team of workers from within organization which meets at intervals to discuss issues relating to the quality of the product or service produced

Benefits of Quality Circles (Code: MUSIC)

M – Morale of employees improves
U – Unity in organization is fostered as the circle includes all levels
S – Savings should materialize
I – Improvement/solutions are likely, as workers know the process involved
C – Culture of quality

Drawbacks of Quality Circles (Code: RIPE)

R – Rejected suggestions may cause resentment
I – Influence can be very wide
P – Power is hard to control
E – Eg cost, business practicalities many not be fully understood

The 5s – (lean production), there is a place for everything and everything goes in its place

Six Sigma – near perfect products and services. This is customer focused, rather than operations oriented. Looks at critical outcomes that affect customer satisfaction.

Lean production – Toyota Production System. This is the philosophy of production that aims to minimize the amount of resources used in all activities. Identify and eliminate non-value-adding activities

International Organization for Standardization (ISO)

a. ISO 9001:2000 – ISO’s current quality management system requirements (to be registered)
b. ISO 9000:2000 and ISO 9004:2000 – ISO’s quality management system guidelines
c. ISO 19011 – covers quality auditing standards
d. ISO 14001 – relates to environmental management systems

ISO 9000 certified or registered – an independent registrar has audited their processes and certified that they meet the ISO requirements

ISO 9000 compliant – met ISO’s quality system requirements, but have not been formally certified by an independent registrar. It is a self-certified.

Total productive maintenance (TPM) – the productive maintenance carried out by all employees through small group activities

Five goals of TPM (Code: TAIPE)

T – Train all staff in maintenance skills
A – Autonomous maintenance
I – Improve equipment effectiveness
P – Plan maintenance
E – Early equipment management

Benefits of TPM (Code: BUCAO)

B – Breakdowns are reduced
U – Uniform output and production consistency
C – Cost of quality and reduction in waste
A – Accuracy of production schedules is improved
O – On time delivery

The TQMEX Model – understand the relationship between quality management and other aspects of operations management.

BPR – Business Process Re-engineering is the rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance, such as cost, quality, service and speed.

Four themes of BPR (C A R P)

C – Creative use of IT
A – Ambition
R – Rules are broken and challenged
P – Process reorientation

Five phases of BPR (P I E R I)

P – Planning
I – Internal learning
E – External learning
R – Redesign
I – Implementation

Service quality – measure quality in service organizations by reference to customer expectation. This is the totality of features and characteristics of that service which bears on its ability to meet stated or implied needs.

Service quality factors (CHEN)

C – Critical factors
H – Hygiene factors
E – Enhancing factors
N – Neutral factors

C – Managing Capacity and Inventory

Capacity management

Capacity – measure of what an operation is able to produce within a specified period of time.
a. Overcapacity – resources are available for production are not fully utilized
b. Undercapacity – more production is being demanded than is able to be produced

Balancing capacity and demand

Four planning and control activities
L – Loading. This is the amount of work that is allocated to an operating unit.
S – Sequencing. The order in which different jobs will be done or different orders fulfilled.
S – Scheduling. Detailed Timetable
M – Monitoring and controlling. Work is proceeding as planned
Push control – pushing work through each stage of the process
Pull control – calling for work to be delivered from the previous process when it is needed.

Capacity planning – maximize profits and customer satisfaction

Capacity control

MRP I – (Materials requirement planning) technique for deciding the volume and timing of materials, in manufacturing conditions where there is dependent demand
MRP II – (Manufacturing Resources planning) plan for planning and monitoring all the resources of a manufacturing company: manufacturing, marketing, finance and engineering
OPT – (Optimized Production Technology) scheduling production that focuses on the known capacity constraints of the operation.
ERP – (Enterprise Resource Planning) like MRP II but uses databases from all parts of the organization.

Inventory management

Inventory control levels (MR MAR)

M – Minimum level, inventories are approaching a dangerously low level and the outages are possible
R – Reorder level, needs to replenish stocks
M – Maximum level, inventories are reaching the potentially wasteful level
A – Average inventory, inventory levels fluctuate evenly between the minimum inventory level
R – Reorder quantity, inventories reach the reorder level (EOQ)

Just-in-time (JIT) – goods and services should be produced only when they are needed

Characteristics in Operations required by JIT (FRESH)

F – Flexibility, respond immediately to customer orders
R – Reliability, not subject to hold-ups
E – Elimination of errors that brings lower costs
S – Speed, throughput should be past
H – High quality

Three Key Elements in JIT philosophy (ETC)

E – Elimination of Waste
T – The involvement of all staff in the operation
C – Continuous improvement/Kaizen

Information Systems

noreply@blogger.com (reeyz) — Sat, 01 Oct 2011 14:31:00 +0000

A – The Role of Information System

The role of information systems in organizations
Data and information
Types of information systems
Emerging trends in information systems
IT enabled transformation
IT and new forms of organization
Privacy and security

B – Systems Implementation and Business Strategy

System Implementation
Information technology and change management
Introducing the change
System evaluation
System maintenance
System outsourcing
Aligning systems with business strategy

A – The Role of Information System

1) The role of information systems in organizations

a. Recording transactions – documentation of transactions can be used as evidence in case of dispute. There may be a legal requirement to record transactions (i.e. accounting and audit purposes)

b. Decision Making – to make informed decisions

c. Planning – requires a knowledge of, available resources, possible time-scales for implementation and the likely outcome under alternative scenarios

d. Performance Measurement – comparisons against budget or plan which involves the collection of information (i.e. costs, revenues, volumes, time-scale and profitability)

e. Control - information is required to assess whether it is proceeding as expected

2) Data and information

Data – consists of raw, unprocessed facts and figures
Information – data that has been processed in a way that makes it meaningful for planning or decision making

Stages:
- Data collection
- Data evaluation
- Data analysis
- Interpretation
- Reporting

a. Internal data and information – held within the organization’s own files (APAT)

A – Accounting records
P – Personal records
A – A production data
T - Timesheets

b. External data and information (PEST)

Political – national or local politics may affect how an organization operates. Changes in legislation may put new responsibilities or liabilities on an organization
Economic – affect an organization’s finances such as availability of loans or sales levels
Social – Society’s view may put pressure on how the organization is run, like pressure to reduce environmental pollution
Technological – allow the development of new products and services which were not previously possible

Environmental Scanning – process of gathering external information from a wide range of sources

c. The qualities of information (ACCURATE)

A – Accurate, figures in a report should add up, the degree of rounding should be appropriate
C – Complete, information should include everything relevant to the decision being considered. It should be consistent
C – Cost Beneficial, it should not cost more to obtain the information that the benefit derived from its use
U – User targeted, the needs of the user are paramount
R – Relevant, all significant information that is relevant o the decision being considered should be included
A – Authoritative, the source of the information should be a reliable one
T – Timely, the information should be available when it is needed and in time for required action to be effective
E – Easy to use, information should be understandable. It should be clearly presented, not excessively long, and sent using the right medium and communication channel

3) Types of information systems

a. Information systems at different organizational levels
Information system – general concept that refers to the people, data and activities, both computer-based and manual, that effectively gather, process, store and disseminate information

b. Transactions Processing System (TPS) – performs and records routine transactions. This is used for the routine task in which data items or transactions must be process so that operations can continue. This is sometimes referred as Data Processing Systems (DPS)

c. Management Information Systems (MIS) – convert data from mainly internal sources into information. This information enables managers to make timely and effective decisions for planning, directing and controlling the activities for which they are responsible

Characteristics of MIS (RILES)

R – Relatively inflexible
I – Internal focus
L – Little analytical capability
E – Existing operations
S – Structured Decisions

d. Executive Information systems (EIS) – pools data from internal and external sources and makes information available to senior managers in an easy-to-use form, which will help to make strategic, unstructured decisions.

e. Decision Support Systems (DSS) – combine data and analytical models or data analysis tools to support semi-structured and unstructured decision making

DSS have more analytical power than other systems, enabling them to analyze and condense large volumes of data into a form that aids managers’ decision making

f. Knowledge Work Systems (KWS) – information systems that facilitate the creation and integration of new knowledge into an organization
Knowledge Workers – people whose jobs primarily involve creating new information and knowledge.
KWS help knowledge workers create new knowledge and expertise. Examples include:

Computer Aided Design
Computer Aided Manufacturing
Specialized financial software that analyses trading situations

g. Office Automation Systems (OAS) – computer systems designed to increase the productivity of data and information workers

h. Expert systems – form of DSS that allow users to benefit from expert knowledge and information.

i. Intranets and Extranets
Intranet – mini version of Internet. Organization members use networked computers to access information held on server.
Extranet – intranet that is accessible to authorized outsiders using a valid username and password.

j. Databases – collection of data organized to service many applications.
Database Management System (DBMS) – software that centralizes data and manages access to the database. It enables numerous applications to utilize the same files.

Characteristics of database system (SFC)

S – Shared. Different users are able to access the same data for their own processing applications.
F – Flexibility. The database system should provide for the needs of different users
C – Controls to preserve the integrity of the database

Advantages of database system (DWARFS)
D – Duplication. Avoidance of unnecessary duplication of data brings time and efficiency savings and reduced storage costs
W – Whole. Data is looked upon as serving the organization as a whole, not just for individual departments
A – Analyze data. The installation of a database system encourages management to analyze data, relationships between data items, and how data is used in different applications
R – Responsibility. Programmer is not responsible for the file organization
F – Flexibility. Data on file is independent of the user programs that access the data.
S – So Consistent. Because data is only held once, the possibility of departments holding conflicting on the same subject is reduced

Disadvantages of database system (uomfh)
U – Unauthorized access. There are problems of data security and data privacy. There is potential for unauthorized access to data.
O – One set of data. It is essential that the data should be accurate and free from corruption
M – Maintenance. There may be disputes over who ‘owns’ the data so has the right to decide how it is maintained
F – System Failure. Since data is held once, but its use is widespread, the impact of system failure would be greater
H – High initial development Cost. If an organization develops its own database system from scratch, initial development cost is high.

4) Emerging trends in information systems
a. Enterprise-wide systems – designed to coordinate all business functions, resources and information.

Each business areas is provided with a system that fulfills its needs, however each module shares a common database
Individual locations have their own specific data processing capability via a direct link to the central database (DDP)

b. Knowledge management systems – record and store the knowledge held within an organization.

Information held on a KMS is easily accessed and shared by employees
Primarily of benefit to knowledge based organizations, such as those involved in R&D or providing services such as legal advice

Benefits: (SPAR)

S – Easily shared
P – Valuable data is preserved
A – Duplication is avoided
R – Reduce the time they need to spend training

c. Customer relationship management systems – are software applications which specialize in providing information concerning an organization’s products, service and customers

Based on database which stores data about customers such as their order history and personal information

d. Web 2.0 and e-commerce
Web 2.0 Applications – second generation internet based services like blogs, rss feeds, wikis and youtube. Social media like Facebook and Twitter are part of this

e-Commerce – selling goods or services over the internet

5) IT enabled transformation – information technology maybe the driving force or trigger of organizational change. Even when IT is not a significant factor in the actual change, it can play an important part in the change management process. (TUM CASE)

T – Type of products or services that are made or sold
U – Source of unity and structure
M – Way the products are made
C – Enable change
A – Aid communication and co-ordination
S – Way in which services are provided
E – Way in which employees are mobilized

6) IT and new forms of organization
a. Virtual organizations

Virtual teams – groups of people who aren’t based in the same office or organization but share information and task, make joint decisions and fulfill the collaborative function of a team.
Virtual Company – collection of separate companies, each with a specific expertise, who work together, sharing their expertise to compete for bigger contracts/projects than would be possible if they worked alone
Virtual Supply Chain – supply chain that is enabled through e-business links, for example the web and extranets

b. Advantages of virtual operations (FIL)

F – Flexibility and speed of operation

I – Injection of market forces into all the linkages in the value chain

L – Low investment in assets and hence less risk involved

c. Disadvantages of virtual operations (CQRV)
C – Organizations must complement each other and form close relationships if the venture is to succeed
Q – Quality may be a problem owing to a loss of control
R – Resources may also be available to rival operations
V – Customers may recognize the virtual characteristics and this might negatively affect customer perceptions of the service or product

7) Privacy and security
a. Risk

Hackers and Eavesdroppers – attempt to gain unauthorized access to computer systems. They may attempt to damage a system or steal information.
Viruses – small piece of software which performs unauthorized actions and which replicates itself
Hoaxes - hoax virus warnings
Denial of service attack – organized campaign to bombard a site with excessive volumes of traffic at a given time, with the aim of overloading the site

b. Minimizing privacy and security risk (SAD FACE)

S – Electronic signatures
A – Authentication
D – Dial-back security

F – Firewall
A – Anti-virus software
C - Computer
E – Encryption

B – Systems Implementation and Business Strategy
1) System Implementation (IT SFC)
I – Installation – installing a mainframe computer or a large network is a major operation that is carried out by the manufacturer/supplier
T – Testing – a system must be thoroughly tested before implementation, to prevent the system ‘going live’ with faults that might prove costly

Strategy approach – should be formulated that details the approach that will be taken to testing
Test Plan – states what will be tested
Test Design – the logic and reasoning behind the design of the test should be explained
Performing tests – detailed procedures should be provided for all tests.
Documentation – it must be clear how the result of tests are to be documented
Re-testing – re-test procedure should be explained

Stages of Testing

System logic – before any programs are written, the logic devised by the systems analyst should be checked
Program testing – processing test data through all system programs
System Testing

• Unit Testing – means testing one function or part of a program to ensure it operates as intended
• Unit Integration Testing – involves testing two or more software units to ensure they work together as intended

User acceptance testing – carried out by those who will use the system to determine whether the system meets their needs.

Types of test

Realistic – involve using the system in the way it will be used in reality – actual environment, users, and types of data
Contrived - designed to present the system with unusual events to ensure these are handled correctly, for example that invalid data is rejected
Volume – present the system with large numbers of transactions to see how the system copes
Acceptance – undertaken by users to ensure the system meets user need

S – Staff training – this is essential if the system is to meet its full potential. Training should be provided to all staff that will use the system.

Training methods (ACCES)

A – ‘At desk’ or individual tuition – a trainer could work with an employee observing how they use a system and suggesting possible alternatives
C – Classroom course – the software could be used in a classroom environment, using dummy data
C – Computer-based training (CBT) – Training can be provided using CDs, DVDs over an Internet or via an interactive website
E – Exercise and case studies – regardless of how training is delivered, it is likely that material will be based around a realistic case study relevant to the user
S – Software reference material – Users may fin on-line help, built-in tutorials and reference manuals useful

Training factors (STUFF)

S – Software complexity
T – Time available
U – User skill levels
F – Facilities available
F – Factor on budget

F – File conversion – converting existing files into format suitable for the new system
Ensure accuracy of the conversion process through various controls: (COBS)

C – Control totals and reconciliation – include checking the total number of records, and the value of transactions

O – One-to-one checking between records on the old and new systems

B – Built-in data validation routines in automated conversion processes

S – Sample checking – This is used if there are too many records to check individually

C – Changeover
Four Approaches to System Changeover (BOMP)

B – Big Bang or Direct Changeover – the old system is completely replaced by the new system in one move.
Advantage:
Cheap and convenient

Disadvantage:
Risky for system or program corrections are difficult while the system has to remain operational

Used where there is: CLOC
C – Complete confidence in the new system
L – Let the old system go
O – Objection from staff will not happen because the implementation already happened
C – Cost or convenience grounds to avoid running two systems

O – Pilot Operation – involves selecting part or parts of an organization to operate the new system in parallel with the existing system

Advantage:
Cheaper and easier to control than running the whole system in parallel
It provides a greater degree of safety than a direct changeover

P – Parallel running – the old and new systems are run in parallel for a period of time. They both process current data which enables cross checking to be made.

Advantage:
Provides a degree of safety should there be problems with the new system

Disadvantage:
If there are differences between the two systems, cross-checking may be difficult or impossible

Plan on running the system should include: (LACE)
L – Limited time on parallel running
A – Any major problems, instructions on how to report and act should be prepared
C – Cross-checking procedures should be detailed
E – Errors should be known how to deal with

P – Phased or modular changeover – involves selecting a complete section of the system for a direct changeover, eg in an accounting system the payables ledger.

2) Information technology and change management
a. How change affects individuals
Physiological – both as the natural product of development, maturation and ageing, and as the result of external factors
Circumstantial – involve letting go of things, perhaps, ‘unlearning’ old knowledge, and learning new ways of doing things

Types of change experience (Torrington and Weightman) – IAGC

A – Adaptation – A changes in attitude or behavior as a result of changes by others – Uncertainty
C – Creativity – The individual instigates and controls the change process – Excitement
I – Imposition – Initiated and driven by someone else – Resistance
G – Growth – A response to opportunities – Delight

Reactions to proposed change (AIPA)

A – Acceptance – whether enthusiastic espousal, co-operation, grudging co-operation or resignation
I – Indifference – usually where the change does not directly affect the individual; apathy, lack of interest, inaction
P – Passive resistance – refusal to learn, working to rule
A – Active resistance – deliberate spoiling, go slows deliberate errors, sabotage, absenteeism or strikes

John Hunt’s responses that may not look like resistance: SIWID

S – Defensive stances
I – Pleas of ignorance
W – Withdrawal or disowning of the change
I –Display of various personal insecurities
D – Delayed judgment

b. Problems in the design stage – Insufficient user involvement when establishing requirements for the new system
Common causes of dissatisfaction CAR PUL

C – Change in requirements, resulting to change to the system
A – A lack of monitoring and control
R – Resourcing and timetabling are poor.
P – Poor or non-existent planning is recipe for disaster.
U – Unrealistic deadline
L – Lack of manager supervision and IS project consists of technicians only

c. Problems in the development process(PANCIT)

P – Programming – Insufficient time; incompatible specifications; logic is misunderstood; not adequately documented
A – Analysis – insufficient resources; lack of consultation and user interest; insufficient time spent on planning the project
N – Needed Design – insufficient user input; lack of flexibility; failure to perform organization impact analysis
C – Conversion – insufficient time and money allocated to data conversion; rush to compensate for time overruns
I – Implementation – lack of user training increase the risk of system under-utilization and rejection; system maintenance provisions are inadequate
T – Testing – insufficient time and money allocated to testing; insufficient user involvement

d. Dealing with user resistance
Lewin/Schein: Unfreeze, Move Refreeze – learning also involves re-learning – not merely learning something new but trying to unlearn what is already known.

Unfreeze (existing behaviour) =>Move (attitudinal/behavioural change) =>Refreeze(new behavior)

Kotter and Schlesinger: Six methods of dealing with resistance to change (SAME PC)

S – Support and facilitation – where the cause of resistance is anxiety and insecurity, support such as training is effective
A – Agreement and negotiation – compensating those who lose out may be appropriate in some instances
M – Manipulation and co-optation – this method involves the presentation of partial or misleading information to those resisting change or buying off the main individuals who are at the heart of the resistance
E – Explicit and implicit coercion – involves the use or threat of force to push through the change. A very last resort if parties are operating from fixed positions and are unwilling to move
P – Participation and involvement – where those affected by the change have the power to resist it, this method reduces the resistance by taking their views into account
C – Communication and education – this method is effective where the cause of the resistance is lack of information about the change.

3) Introducing the change

a. Pace, Manner and Scope
Pace – the more gradual the change, the more time is available for questions to be asked, reassurances to be given and retraining embarked upon.
Manner – the manner in which a change is put across or communicated is very important
Scope – extent of the change is important and should be reviewed.

b. Commitment, Co-ordination and Communication
Commitment – senior management must ensure adequate resources are provided to achieve change
Co-ordination – involves ensuring those involved in the process work in an efficient and effective way towards an agreed common goal. This requires planning and control.
Communication – the right people must communicate the right things at the right time and in the right way.

c. People-oriented, system-oriented, interaction
People-oriented – user-resistance is cause by factors internal to users as individuals or as a group
System-oriented – user-resistance is caused by factors inherent in the new system design, relating to ease of use and functionality
Interaction – caused by the interaction of people and the system

4) System evaluation
a. Cost-benefit review – similar to CBA but actual data can be used. This includes five headings of direct benefits, indirect benefits, development costs, implementation costs and running costs

b. Measuring system performance

Metrics – quantified measurements used to measure system performance.

c. Performance reviews – can be carried out to look at a wide range of systems functions and characteristics. (ERRORS)

E – Error rates for input data. High error rates may indicate inefficient preparation of input documents
R – Growth rates in file sizes and the number of transactions processed by the system.
R – Required staff of the system and whether they are more or less than anticipated
O – Output form the computer is being used for a good purpose
R – Running costs can be examined to discover any inefficient programs or processes
S – Security procedures are efficient

d. Post-implementation review establishes whether the objectives and targeted performance criteria have been met, and if not, why not and what should be done about it. (PETS)

P – Processing cost
E – Errors/queries
T – Throughput speed
S – Storage

5) System maintenance CPA
C – Corrective Maintenance – carried out when there is a systems failure of some kind for example a defect in processing or in an implementation procedure.
P – Perfective Maintenance – to perfect the software, or to improve it so that processing inefficiencies are eliminated and performances is enhanced
A – Adaptive Maintenance – to take account of anticipated changes in the processing environment

a. The causes of system maintenance
Errors
Poor Documentation
Changes in requirement

b. P
c. A
6) System outsourcing
7) Aligning systems with business strategy

The Global Business Environment

noreply@blogger.com (reeyz) — Fri, 30 Sep 2011 09:47:00 +0000

A – The social, political and economic context

1) The global business environment

a. Globalization – refers to the growing interdependence of countries worldwide through:
↑ trade
↑ capital flows
∞ rapid diffusion of technology

Features of Globalization (SOILED)

S – Savings or cost reduction through developments in communications and transport
O – Overseas transactions are available among individuals and groups
I – Increase importance of global economy policy relative to domestic policy
L – Local manufacturing will reduce because of available products and competitions with exports
E – Emerging markets will rise and newly industrialized nations.
D – Dependent financial and globally link markets will rise to cater the financial transactions between and among countries

Global Manufacture – A company can manufacture components for a product in a number of different countries. These companies are usually called ‘Contract Manufacturer’ or ‘Outsourced Manufacturer’.

Global Sourcing – Sub-components may be purchased from countries overseas.

b. Factors encouraging the globalization of world trade (FAIL)

F – Financial factors such as Third World debt. Example of which is Philippines having huge amount of debts with IMF. To increase the income of the country, it needs to engage investors to invest and to import/export of natural resources.
A – Alliances of countries and continent. One of the famous alliances is the European Union (EU) which encourage trade and tourism
I – International commodities are globally traded. Commodities are not physically exchanged, only the rights to ownership.
L – Legal Factors such as patents and trademarks, which encourage the development of technology and design

2) International environmental influences
a. Political and legal
Political factors are how and to what degree a government intervenes in the economy.
There are two types of risk in political factors:

Political risk – a risk that a company incurs losses due to non-market factors, which are related to government policy (trade rules, investment incentives and tax regime). Currency controls also fall under this risk.
Country risk – similar to political risk but in a specific country.

Corporate Political Activity (CPA) – refers to the involvement of companies in the political process with the aim of influencing policies towards their preferences.
Two types of CPA:

Buffering – proactive actions like warning the government about the impact of legislation while it’s being considered, in an attempt to influence the content.
Bridging – reactive actions that focus on ensuring the firm is aware of and meets required standards of behavior.

Rugman and Hodgetts summarized different aspects of political risk

Sources of Political Risk (Code: RUN CAL)

R – Religious competition and disputes
U – Social unrest and upheaval
N – Nationalism increased
C –Changing economic conditions
A – Alliances. New international alliances
L – Local business people vested interests

Groups that generate political risk (Code: GIFT PO)
G – Government and its agencies
I – International organizations like World Bank and United Nations
F – Foreign governments that have influence
T – Terrorist groups
P – Protesters like students
O – Opposition groups

Effect of political risk (Code: I’M TIRED)
I – Influence on government by non-government groups
M – Modification or cancellation of contracts
T – Taxes increased and other financial penalties
I – Indigenisation level – restriction on foreign ownership or favouring of local firms
R – Restrictions on ways of operating
E – Expropriation (seizing) of assets, with or without compensation
D – Disruption and/or damage from terrorist activity

Jennings and Wattam devised the model to weigh up political risk

Risk Management – involves reducing the probability of the risk occurring and minimizing the impact on the organization that it will cause

Minimising the Probability of RISK (Code: PDA)

P – Postponing or abandoning the project until the level of risk is reduced
D – Develop links with relevant government departments to help shape policy
A – Abandon the project

Minimising the Impack of RISK (Code: CCC)
C – Continually monitor the environment and be prepared to react quickly
C – Contingency plans
C – Country or political risk insurance should be taken out

b. Economy and economic development

Economic factors (Code: GERI)
G -- Is there growth or is the economy stagnating?
E – Exchange rate stable?
R – Rate of inflation? Government policy?
I -- Interest rate compare with other countries

Level of Economic Development
GDP – Value of goods and services produced by an economy in a given period. It refers to the market value of all final goods and services produced in a country in a given period.
Primary Sector of the economy -- involves changing natural resources into primary products. Most products from this sector are considered raw materials for other industries. Major businesses in this sector include agriculture, agribusiness, fishing, forestry and all mining and quarrying industries.
The secondary sector of the economy or industrial sector includes those economic sectors that create a finished, usable product: production and construction.

c. Social/cultural
A country’s culture consists of a number of factors such as beliefs, morals and how citizens behave.
National culture is important to businesses because it influences the perceptions and behavior of consumers as well as employees and managers.
Language is another important aspect of culture.

d. Technology
This is the key driver of global economic activity.
Impacts of Technology ( Code: PEEC)
P – Protection of intellectual property; patents, trademarks and copyright.
E – Standard education and technical infrastructure is important for advanced technology
E – ‘e’ methods for marketing communications (i.e., music downloads, broadband internet, mobility)
C – Communication is easy with overseas (i.e. email)

3) Economic context
a. Free trade vs protection
This discusses the free trade vs protectionism; economic liberalization vs economic nationalism.
In the global business environment a number of regional trading arrangements exist. There are:

Free trade areas
Custom Unions
Economic Unions

Free Trade – encourages easy movement of goods, services labour and capital between different countries. This means, no need to pay quotas, tariffs, subsidies and discriminatory taxation.
Advantages of Free Trade (Code: BEGELS)

B – Better quality goods and better quality of life
E – Exports
G – Economic growth and encourages entrepreneurship
E – Efficient production makes countries to develop and invest in resources
L – Less conflict between countries that trade and communicate with each other
S – Specialization by countries in the production of the goods and services they are best suited to producing

Arguments against Free Trade (CODE: SQUID)
S – Single product in one country tend to monopolize the supply (i.e., the oil exporting countries of the Middle East)
Q – Quite prevent the new industries to develop and become established
U – Undermine or weaken the local culture (i.e., Americanization of Europe)
I – Increases consumer expectation and encourages inefficiencies
D – Dependencies of less developed countries to other countries for some products

Protectionism – restrict trade with one or more other country to protect home country producers from overseas suppliers. This is also known as economic nationalism

Protective Trade Measures:
Quotas – restricting the quantity able to be imported
Tariffs – taxing import making them more expensive
Subsidies – helping local producers giving them an advantage over overseas competition
Campaigns – encouraging locals to buy locally produced goods
Technical barriers – implementing string quality, environmental, health and safety and packaging regulations that restrict imports

b. The move towards free trade
In the mid to late twentieth century, economic libreatlisation took place. Governments moved aways form the single minded view of looking after their own economies, towards working with others in groups for the good of all members.

The three forms of training group:
- Free trade areas
- Customs unions
- Economic unions/common markets

c. Free trade areas
Members in these arrangements agree to lower barriers to trade amongst themselves. They enable free movement of goods and services, but not always the factors of production such as materials and labour.

d. Custom unions
Provide the advantages of free trade areas and agree a common policy on tariff and non-tariff barriers to external countries. They attempt to harmonize tariffs, taxes, and duties amongst members

e. Economic unions/common markets
Members become one for economic purposes. There is free movement of the factors of production. The EU has economic union as an aim, although not all members, including the UK, necessarily see this goal as desirable.

4) Emerging economies
a. Absolute advantage and comparative advantage

Absolute advantage is Adam Smith’s theory which he proposed that each nation should specialize in producing those goods that it could produce most efficiently.
This is the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources. Adam Smith first described the principle of absolute advantage in the context of international trade, using labour as the only input.
Since absolute advantage is determined by a simple comparison of labor productivities, it is possible for a party to have no absolute advantage in anything; in that case, according to the theory of absolute advantage, no trade will occur with the other party. It can be contrasted with the concept of comparative advantage which refers to the ability to produce a particular good at a lower opportunity cost.

Comparative advantage is David Ricardo’s theory that contradicts the absolute advantage, which means that relative opportunity costs were most relevant when considering economic activities in relation to other countries.
The law of comparative advantage says that two countries (or other kinds of parties, such as individuals or firms) can both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage), it can still gain by trading with a less-efficient country, as long as they have different relative efficiencies.

b. Competitive advantage – Porter’s diamond
Competitive advantage is Michael Porter’s theory that argues that comparative advantage is too general. This suggests that some nations’ industries are more internationally countries than others.
Michael Porter identifies the four principal factors that impact on the competitiveness of organizations – the form the Porter’s diamond.
D – Demand conditions
I – Industries’ competitive success is linked to success of related industries
S – Strategy, structure and rivalry
C – Conditions

China is one of the perfect examples that apply the Porter’s diamond:

Factors conditions – China is the most populated country with 6.9 billion people. This is the same source of resource that it has that they can leverage. They have the enough skilled people, they have the available location to construct factories and they have capital from the government to be successful.
Demand conditions – Since the emerge of factories in China that manufacture different gadgets, the demand on all sorts of gadgets that you wouldn’t think of exist, are available here.
Related and supporting industries – all companies Foxconn, for example, like Hewlett-Packard, Apple, Nokia, are successful. This makes Foxconn also successful
Firm strategy, structure, rivalry – apart from being the worldwide manufacturer, China is also known for making knock-offs. This brings the rivalry among factories in China.

Factor conditions
These relate to those factors used as INPUTS in the production of goods and services.
(Code: PRICK)

P – Physical Resources like land, minerals, climate, location relative to other nations. Singapore is located in the center of Asia and the climate is moderate from not too hot and not too rainy.
R – Human Resources like skills, price, motivation, industrial relations. The skills of the people in Singapore are professionally equipped and the market for jobs are competitive.
I – Infrastructure like transport, communication, housing. The transportation in Singapore is considered one of the best, from buses to trains and even to getting taxi cabs. Communication and housing are never been outdated. These are always available to its advanced capability.
C – Capital like amounts available for investments. Singapore government has so many funds to support the inventors.
K – Knowledge like scientific and technical know-how, education institutions. Singapore has one of the best educational system in the world. They believe in producing the young and smartest citizens.

Demand conditions: the home market
The home market determines how organizations perceive, interpret and respond to buyer needs.

(N C I S S A G E)
N C I – No cultural impediments to communication
S -- Segmentations of the home market shapes an organization’s priorities
S – Sophisticated and demanding buyers at home encourage high quality standards
A – Anticipation of buyer needs
G – Growth rate
E – Early saturation of the home market encourage an organization to export

c. Influencing the diamond

d. Offshoring and outsourcing
Cost reduction is the primary reason for offshoring and outsourcing.
Offshoring is the relocation of some part of an organization’s activities to another country. The most common motivation for offshoring is to make cost savings by taking advantage of lower labor or other costs.
Example of this is the Center of Excellence that companies established to low-cost locations. This means that the scopes of job (i.e., accounting, IT support) are centralized to one area.
Challenges of Offshoring: (Code: DELETE)

D – Cultural Differences
E – Exchange rates
L – Language barrier
E – Exercising control from a distance
T – Time zones Differences
E – Example is India, as one popular offshoring country.

Outsourcing involves organization sub-contracting business activities to external providers.
Example of this is from the previous discussion on Foxconn as Global Manufacturer.
Outsourcing is appropriate for peripheral, non-core activities. If the strategic or core competencies are outsourced, this might lead to loss of competitive advantage.

Cox’s Types of competence:
Advantages of Outsourcing

P – Long-term contract encourage PLANNING for the future
C – Remove uncertainty about COST
F – Flexibility.
E – Increase in EFFECTIVENESS where the supplier deploys higher levels of expertise
E – Access to specialist knowledge and innovations in technology is made EASIER
S – Save on cost by making use of a supplier’s economies of scale

Disadvantages of Outsourcing: (Code: SLAC)
S – Service Level Agreement
L – Loss of control over quality
A – Area of threshold competence that may be difficult to reacquire
C – Competitors might have the same outsourcing services
Newly industrializing and emerging nations (NIEs ) – countries grouped together by virtue of the fact that their economies have grown significantly in recent years and they are becoming increasingly important in the world economy.
• BRIC – Brazil, Russian, India and China – when combined, they have bigger share of the world trade than the USA
• Second tier emerging nations (Emerging Nations) – Vietnam, Indonesia, Columbia and Ukraine. South Korea, Taiwan and Mexico

e. Transition economies
This applies to countries that abandoned the Soviet-type political and economic system at the end of the 20th century. Countries included that most of which have completed their transition to a market economy and become members of EU are Russian Federation, Poland, Hungary, Romania, the Czech Republic, Ukraine, Kazakhstan, the Slovak Republic, Bulgaria and Belarus.

f. Industrialization strategies
Three main strategies:
- Export of natural commodities
- Import-substitution
- Export-led industrialization
- FDI – Foreign Direct Investment, growth of the Russian economy has been stimulated by multinational companies such as Coca-Cola establishing bases in the country

5) Different types of organization
a. The public and private sectors

b. Private sector organizations
Private Sector Organizations – also called businesses, are owned and operated by private individuals or institutions.
1) Not-for-profit organizations – they seek to avoid generating a surplus of funds, but the generation of wealth for their owners is NOT THE PRIMARY PURPOSE of their existence. Primary objective is to provide a service.
Examples are:
• Co-operatives
• Charities
• Unincorporated clubs
• Societies
• Associations
2) Mutual organizations – the essence of their nature is that they are commercial operations owned by their customers, rather than having capital and associated shareholders for whom they have earn profit.

3) Profit seeking organizations -- Businesses are of two main types, distinguished by the extent to which the owners are liable for the debts of the undertaking

a. Owners have UNLIMITED LIABILITY for the debts of their businesses
b. The legal systems of most countries provide for some form of limited liability enterprise.

4) Multinational corporations (MNCs) – These organizations have the capacity to produce in more than one country, usually with a centrally located head office.

c. Public sector organizations – two main groups:
Provide public services – such as hospitals, schools, the police and armed forces
State owned industries

6) Culture and the global organization
a. Management culture
Culture embodies the common set of values: ‘the way things are done around here’.
Factors that influence the Organization Culture (Code: Oil Ash)
O – Org’s Founder
I – Industry
L – Leadership and management style
A – Area/location of office
S – Structure and system
H – History
Management Culture – part of overall organizational culture and relates to the prevailing view within management about HOW TO DO ITS JOB.

b. Managing across borders
Geert Hofstede – identified dimensions that contributed to cross-cultural differences in beliefs and values. (Code: PUMICE)

P – Power distance—unequal distribution of power
U – Uncertainty avoidance – able to tolerate ambiguity and uncertainty
M – Masculinity versus femininity – masculine ones is competitive and assertive while feminine ones are concern for others, attention to quality of life or to the environment
I – Individualism versus collectivism – do you like to work on your own or as member of a group?
C – Confucian dynamism – position influences behavior and relationships between individuals.
E – Example that applies this is McDonalds. Countries have absorbed the influences of McDonalds and have grown familiar with the nature of the brand and what it has to offer.

Trompenaars and Hamden Turner – Seven Dimensions of Culture model

N – Neutral vs emotional – emotions aren’t expressed openly
U – Universalism vs particularism – in universalistic cultures, rules are more important than personal relationships.
I – Individualism vs collectivism – Does the culture value and encourage self-orientation and decision making or group orientation and decision making?
S – Specific vs diffuse – whether people change the way they act and related to each other in specific situations or whether behavior and relationships are consistent.
A – Achievement vs ascription – is status based on achievement or on other factors such as age and years and experience?
N –
C – Context or internal vs external or low context – high context includes tradition and ritual, the environment controls behavior. Low context is controlled by individuals rather than the environements
E
S – Sequential vs Synchronic – do individuals work on one at a time or on several things at once

Ronen and Shenker – four key characteristics at national culture
G – Work goals
R – Relationships
O – Organization and managerial factors
S – Job Satistfaction

c. Management structure
Local conditions and the scale of operations will influence the organizational structure of companies operating internationally. Very large and complex companies may be organized as a HETERACHY
- Some HQs functions are diffused geographically
- Subsidiary managers have a strategic role for the corporation as a whole
- Co-ordination is achieved through corporate culture and shared value
- Alliances can be formed with other parts of the company and with other businesses, perhaps in joint ventures or consortia

d. Influences on structure and methods
Management processes and decision making typical problems:
- Poor information systems and communication
- Interpretation of information
- Meetings

e. Human resource management
Balance between local and expatriate staff must be managed. There are number of influences:

P – Promotion opportunities
E – Experience on product and company
A – Availability of technical skills such as financial management
C – Control
E – Expats demand more costs
C – Cultural factors

Expats favoured over local stuff:
1) Poor educational opportunities in the market may require the import of skilled technicians and managers
2) Business run by expats is easier to control than one run by local staff
3) Better to communicate with the corporate center
4) Expats may know more about the organization overall, which is especially important if they are fronting a sales office
Disadvantages of choosing expats:
1) They cost more
2) Culture shock – if they fail to adjust, they will poorly manage the people effectively
3) Substantial training program might be needed: basic facts and immersion training

B – Governance and regulation
1) Government intervention in business
Country’s government has a major role to play in the success or failure of it economy
a. The macroeconomic environment
b. Legal and market regulation
c. Corporate governance and social responsibility
2) Government and the macroeconomic environment
Macroeconomic environment is concerned with factors in the overall economy.
a. The balance of trade – is the difference, in financial terms between the value of imports and exports

Factors affecting the balance of trade (CAT PIE)
C – Business cycle – nations looking for export-led growth require sufficient demand in overseas markets for their products
A – Trade agreements – affect the volume of imports and exports between nations.
T – Taxes, tariffs and trade measure – making them less attractive to buy
P – Availability, price and quality of goods produced by local producers – competitively priced goods
I – Inflation – higher than its competitors, producers in that country will face higher costs which will cause the price of their products to rise
E – Exchange rates – if currency weakens against those which export to it, then the goods it imports become more expensive

b. Fiscal policy – refers to government policy on taxation and government spending. This is based on the theories of British economist, John Maynard Keynes, that government can influence macroeconomic productivity levels by increasing or decreasing tax levels and public spending
c. Monetary policy – refers to government policy on the money supply, the monetary system, interest rates, exchange rates and the availability of credit.
i. Interest rates – attempt to influence the level of expenditure in the economy and the rate of inflation. Increase on interest rates increases the price of borrowing for both companies and individuals.
ii. Exchange rates – when it falls, exports become cheaper to overseas buyers and so the nation becomes more competitive in export markets

3) Market regulation
a. Regulation and Competition policy –could involve regulating demand, supply, price, profit, quantity, entry, exit, information, technology, or any other aspect of production and consumption in the market

b. The Competition Commission – role to promote competition
c. The Restrictive Practices Court – has jurisdiction to declare that certain agreements are contrary to the public interest and to restrain parties from enforcing them
d. European Union competition policy – intended to ensure free and fair competition in the EU
e. Self-regulation - in order to try to avert the imposition of government controls
f. Cost of regulation – EUR
i. Enforcement cost – setting up and running of the regulatory agencies
ii. Regulatory capture – regulator becomes dominated and controlled by the regulated companies, such that it acts increasingly in the latter’s interests, rather than those of consumers
iii. Unintended consequences of regulation – try to limit their effectiveness
g. Deregulation – removal or weakening of any form of statutory regulation of free market activity. This allows free market forces more scope to determine the outcome.

Advantages of deregulation:
1) Improved incentives for internal/cost efficiency
2) Improved allocative efficiency
Disadvantages of deregulation:
1) Loss of economies of scale
2) Lower quality or quantity of service
3) Need to protect competition
4) Corporate governance – companies and other entities are directed and controlled
a. Stakeholders – persons or groups that have a legitimate interest in a business’s conduct and whose concerns should be addressed as a matter of principle
b. Failures of corporate governance
i. Domination by a single individual – boards dominated by a single senior executive with other board members merely acting as a rubber stamp
ii. Lack of involvement of board
iii. Lack of adequate control function
iv. Lack of supervision
v. Lack of independent scrutiny
vi. Lack of contact with shareholders
vii. Emphasis on short-term profitability
viii. Misleading accounts and information
c. Benefits of improving corporate governance
i. Risk reduction
ii. Performance
iii. External support
iv.
d. The UK Corporate Governance Code
5) Corporate social responsibility
a. Caroll and Buchholtz’s layers of corporate social responsibility (PEEL)
P – Philanthropic – desired rather than being required of business
E – Economic -
b. Corporate Citizenship
c. Corporate social responsibility in developing nations

Emerging Economies

noreply@blogger.com (reeyz) — Tue, 20 Sep 2011 23:38:00 +0000

This means the stages wherein countries develop from agriculture moves towards manufacturing, towards services and resulted to demand from people and makes the economy wealthy to supply.

Examples of Emerging countries are Brazil, Russian, India and China (B R I C)

These are the topics about emerging economies:

Absolute advantage and comparative advantage
Competitive advantage
Influencing the diamond
Offsourcing and outsourcing
Newly industrializing and emerging nations
Transition economies
Industrialised strategies

Absolute advantage is Adam Smith’s theory which he proposed that each nation should specialize in producing those goods that it could produce most efficiently.

This is the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources. Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input.

Since absolute advantage is determined by a simple comparison of labor productivities, it is possible for a party to have no absolute advantage in anything; in that case, according to the theory of absolute advantage, no trade will occur with the other party. It can be contrasted with the concept of comparative advantage which refers to the ability to produce a particular good at a lower opportunity cost.

Comparative advantage is David Ricardo’s theory that contradicts the absolute advantage, which means that relative opportunity costs were most relevant when considering economic activities in relation to other countries.

The law of comparative advantage says that two countries (or other kinds of parties, such as individuals or firms) can both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage), it can still gain by trading with a less-efficient country, as long as they have different relative efficiencies.

Competitive advantage is Michael Porter’s theory that argues that comparative advantage is too general. This suggests that some nations’ industries are more internationally countries than others.

Michael Porter identifies the four principal factors that impact on the competitiveness of organizations – the form the Porter’s diamond.

D – Demand conditions

I – Industries’ competitive success is linked to success of related industries

S – Strategy, structure and rivalry

C – Conditions

Demand conditions – Since the emerge of factories in China that manufacture different gadgets, the demand on all sorts of gadgets that you wouldn’t think of exist, are available here.

Related and supporting industries – all companies Foxconn, for example, like Hewlett-Packard, Apple, Nokia, are successful. This makes Foxconn also successful.

Firm strategy, structure, rivalry – apart from being the worldwide manufacturer, China is also known for making knock-offs. This brings the rivalry among factories in China.

Factor conditions

These relate to those factors used as INPUTS in the production of goods and services.

(Code: PRICK)

P – Physical Resources like land, minerals, climate, location relative to other nations. Singapore is located in the center of Asia and the climate is moderate from not too hot and not too rainy.

R – Human Resources like skills, price, motivation, industrial relations. The skills of the people in Singapore are professionally equipped and the market for jobs are competitive.

I – Infrastructure like transport, communication, housing. The transportation in Singapore is considered one of the best, from buses to trains and even to getting taxi cabs. Communication and housing are never been outdated. These are always available to its advanced capability.

C – Capital like amounts available for investments. Singapore government has so many funds to support the inventors.

K – Knowledge like scientific and technical know-how, education institutions. Singapore has one of the best educational system in the world. They believe in producing the young and smartest citizens.

Demand conditions: the home market

The home market determines how organizations perceive, interpret and respond to buyer needs.

(Code: N C I S S A G E)

N C I – No cultural impediments to communication

S -- Segmentations of the home market shapes an organization’s priorities

S – Sophisticated and demanding buyers at home encourage high quality standards

A – Anticipation of buyer needs

G – Growth rate

E – Early saturation of the home market encourage an organization to export

Offshoring and outsourcing

Cost reduction is the primary reason for offshoring and outsourcing.

Offshoring is the relocation of some part of an organization’s activities to another country. The most common motivation for offshoring is to make cost savings by taking advantage of lower labor or other costs.

Example of this is the Center of Excellence that companies established to low-cost locations. This means that the scopes of job (i.e., accounting, IT support) are centralized to one area.

Challenges of Offshoring: (Code: DELETE)

D – Cultural Differences

E – Exchange rates

L – Language barrier

E – Exercising control from a distance

T – Time zones Differences

E – Example is India, as one popular offshoring country.

Outsourcing involves organization sub-contracting business activities to external providers.

Example of this is from the previous discussion on Foxconn as Global Manufacturer.

Outsourcing is appropriate for peripheral, non-core activities. If the strategic or core competencies are outsourced, this might lead to loss of competitive advantage.

Cox’s Types of competence:

Advantages of Outsourcing (Code: PC FEES)

P – Long-term contract encourage PLANNING for the future

C – Remove uncertainty about COST

F – Flexibility.

E – Increase in EFFECTIVENESS where the supplier deploys higher levels of expertise

E – Access to specialist knowledge and innovations in technology is made EASIER

S – Save on cost by making use of a supplier’s economies of scale

Disadvantages of Outsourcing: (Code: SLAC)

S – Service Level Agreement

L – Loss of control over quality

A – Area of threshold competence that may be difficult to reacquire

C – Competitors might have the same outsourcing services

Newly industrializing and emerging nations (NIEs) – countries grouped together by virtue of the fact that their economies have grown significantly in recent years and they are becoming increasingly important in the world economy.

BRIC – Brazil, Russian, India and China – when combined, they have bigger share of the world trade than the USA
Second tier emerging nations (Emerging Nations) – Vietnam, Indonesia, Columbia and Ukraine. South Korea, Taiwan and Mexico

Transition Economies

This applies to countries that abandoned the Soviet-type political and economic system at the end of the 20^th century. Countries included that most of which have completed their transition to a market economy and become members of EU are Russian Federation, Poland, Hungary, Romania, the Czech Republic, Ukraine, Kazakhstan, the Slovak Republic, Bulgaria and Belarus.

Economic Context

noreply@blogger.com (reeyz) — Fri, 09 Sep 2011 03:01:00 +0000

Economic Context

This discusses the free trade vs protectionism; economic liberalization vs economic nationalism.
In the global business environment a number of regional trading arrangements exist. There are:

Free trade areas
Custom Unions
Economic Unions

Free Trade – encourages easy movement of goods, services labour and capital between different countries. This means, no need to pay quotas, tariffs, subsidies and discriminatory taxation.

Advantages of Free Trade (Code: BEGELS)
B – Better quality goods and better quality of life
A – Afford to Export
G – Economic growth and encourages entrepreneurship
E – Efficient production makes countries to develop and invest in resources
L – Less conflict between countries that trade and communicate with each other
S – Specialization by countries in the production of the goods and services they are best suited to producing

Arguments against Free Trade (CODE: SQUID)

S – Single product in one country tend to monopolize the supply (i.e., the oil exporting countries of the Middle East)

Q – Quite prevent the new industries to develop and become established

U – Undermine or weaken the local culture (i.e., Americanization of Europe)

I – Increases consumer expectation and encourages inefficiencies

D – Dependencies of less developed countries to other countries for some products

Protectionism – restrict trade with one or more other country to protect home country producers from overseas suppliers. This is also known as economic nationalism.

Protective Trade Measures:

Quotas – restricting the quantity able to be imported

Tariffs – taxing import making them more expensive

Subsidies – helping local producers giving them an advantage over overseas competition

Campaigns – encouraging locals to buy locally produced goods

Technical barriers – implementing string quality, environmental, health and safety and packaging regulations that restrict imports

International Environmental Influences

noreply@blogger.com (reeyz) — Wed, 07 Sep 2011 16:58:00 +0000

International Environmental Influences
The global business environment can be analyzed against number of factors, such as PEST (Political, Economic, socio/cultural and technological).

Political

Political factors are how and to what degree a government intervenes in the economy.
There are two types of risk in political factors:
· Political risk – a risk that a company incurs losses due to non-market factors, which are related to government policy (trade rules, investment incentives and tax regime). Currency controls also fall under this risk.
· Country risk – similar to political risk but in a specific country.

Corporate Political Activity (CPA) – refers to the involvement of companies in the political process with the aim of influencing policies towards their preferences.

Two types of CPA:
· Buffering – proactive actions like warning the government about the impact of legislation while it’s being considered, in an attempt to influence the content.
· Bridging – reactive actions that focus on ensuring the firm is aware of and meets required standards of behavior.
Rugman and Hodgetts summarized different aspects of political risk

Sources of Political Risk (Code: RUN CAL)

G – Government and its agencies
I – International organizations like World Bank and United Nations
F – Foreign governments that have influence
T – Terrorist groups
P – Protesters like students
O – Opposition groups

Effect of political risk (Code: I’M TIRED)

I – Influence on government by non-government groups
M – Modification or cancellation of contracts
T – Taxes increased and other financial penalties
I – Indigenisation level – restriction on foreign ownership or favouring of local firms
R – Restrictions on ways of operating
E – Expropriation (seizing) of assets, with or without compensation
D – Disruption and/or damage from terrorist activity

Jennings and Wattam devised the model to weigh up political risk

Risk Management – involves reducing the probability of the risk occurring and minimizing the impact on the organization that it will cause

Minimising the Probability of RISK (Code: PDA)

P – Postponing or abandoning the project until the level of risk is reduced

D – Develop links with relevant government departments to help shape policy

A – Abandon the project

Minimising the Impack of RISK (Code: CCC)

C – Continually monitor the environment and be prepared to react quickly

C – Contingency plans

C – Country or political risk insurance should be taken out

Economy and economic development

Economic factors (Code: GERI)

G – Is there growth or is the economy stagnating?

E – Exchange rate stable?

R – Rate of inflation? Government policy?

I – Interest rate compare with other countries

Level of Economic Development

GDP – Value of goods and services produced by an economy in a given period. It refers to the market value of all final goods and services produced in a country in a given period.

Primary Sector of the economy -- involves changing natural resources into primary products. Most products from this sector are considered raw materials for other industries. Major businesses in this sector include agriculture, agribusiness, fishing, forestry and all mining and quarrying industries.

The secondary sector of the economy or industrial sector includes those economic sectors that create a finished, usable product: production and construction.

Social/Cultural
A country’s culture consists of a number of factors such as beliefs, morals and how citizens behave.

National culture is important to businesses because it influences the perceptions and behavior of consumers as well as employees and managers.

Language is another important aspect of culture.

Technology
This is the key driver of global economic activity.

Impacts of Technology ( Code: PEACE)

P – Protection of intellectual property; patents, trademarks and copyright.
E – Standard education and technical infrastructure is important for advanced technology
A - Advanced Technology
C – Communication is easy with overseas (i.e. email)
E – ‘e’ methods for marketing communications (i.e., music downloads, broadband internet, mobility)

The Global Business Environment

noreply@blogger.com (reeyz) — Tue, 06 Sep 2011 17:06:00 +0000

The Global Business Environment

Globalisation – refers to the growing interdependence of countries worldwide through:
• ↑ trade
• ↑ capital flows
• ∞ rapid diffusion of technology

Features of Globalisation (Code: SOILED)

FOXCONN is one of the examples of a Global Manufacture. It is a multinational business group and world's largest maker of electronic components including printed circuit boards. Foxconn is known as a contract manufacturer of Apple, HP, Nokia, Dell, Nintendo, Microsoft and more. It has five main factories in China, Brazil, India, Europe and Mexico.

Global Sourcing – Sub-components may be purchased from countries overseas.
Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. These efficiencies include low cost skilled labor, low cost raw material and other economic factors like tax breaks and low trade tariffs.

Common examples of globally sourced products or services include:
• labor-intensive manufactured products produced using low-cost Chinese labor
• call centers staffed with low-cost English speaking workers in the Philippines and India
• IT work performed by low-cost programmers in India and Eastern Europe

Factors that encourage the globalization of world trade: (Code: FAIL)

F – Financial factors such as Third World debt. Example of which is Philippines having huge amount of debts with IMF. To increase the income of the country, it needs to engage investors to invest and to import/export of natural resources.
A – Alliances of countries and continent. One of the famous alliances is the European Union (EU) which encourage trade and tourism
I – International commodities are globally traded. Commodities are not physically exchanged, only the rights to ownership.
L – Legal Factors such as patents and trademarks, which encourage the development of technology and design

The Social, Political and Economic Context

noreply@blogger.com (reeyz) — Tue, 06 Sep 2011 16:09:00 +0000

This includes the wider environment that organizations operate it; its global economy and the nations which participate in it.

Six Topics on Social, Political and Economic Context (Code: GET ICE)

1) Global Business Environment
2) Economic Context
3) Types of Organization
4) International environmental influences
5) Culture and the global organization
6) Emerging Countries