Chapter 02 - Extra Note THE INTERNAL ENVIRONMENT

A position audit, or situational audit as it is sometimes called, is the global term used to describe an analysis of the internal environment of an organisation. It is not a single exercise, but consists of a variety of techniques which are brought together to give a total picture of the organisation and its capabilities. The nature of a position audit will depend upon the organisation, but in broad terms will include a review of the following aspects of the organisation: Resources (tangible and intangible, including finance) Operating systems Products, brands and markets The internal organisation structure andculture Results Returns to stakeholders (note stakeholders, not shareholders, as this applies to public-sector organisations as well as the private sector)

RESOURCES
A resource audit considers the organisation's resources. A complete resource audit encompasses: Human resources Physical resources Financial resources Intangibles such as trademarks, corporate image, patents, etc. Systems. Resource Efficiency and Effectiveness Efficiency is the relationship between outputs (the goods and services produced) and inputs (the resources used to produce those goods and services. Effectiveness is the measure of achievement and the extent to which objectives have been attained. Economy If something is economical we mean that it takes place at the lowest cost. If a department is over-staffed, it cannot be said to be economic. Human Resources A human resource audit will consider: The size of the workforce What skills are available Labour costs and its relationship to returns/profits Labour turnover rates Industrial relations Organisational structure how hierarchical? The size of the management team

Management styles and structure Training and staff/management development.

Physical Resources A typical audit of physical resources would include these questions: Where do materials come from and at what cost? Who are the main suppliers? What is the relationship between material costs and total cost of sales? What are wastage levels? Are there any alternative suppliers or materials? What are the organisation's fixed assets? What is their value and how old are they? To what extent are assets used? To what extent is the technology employed out of date or advanced? Such an audit might identify that assets are under-utilised, Financial Resources A financial resource audit might include: How much working capital is used? What are the debt and gearing ratios? What is the creditpolicy of the organisation? What credit is taken from suppliers? How are foreign exchange transactions dealt with? What rate of interest is achieved on spare cash? What is the level of bad debts? Lack of money is probably the most likely limiting factor to be identified by a financial resources audit, but it may also be possible that interest rates or foreign exchange rates are uncompetitive, or that the credit policy of the organisation restricts working capital. Intangibles Intangible resources include goodwill, brand image, corporate image, trademarks and patents. An audit of intangible resources might include: An identification of the value placed on intangible items, such as goodwill Are company trademarks protected? How does corporate culture affect the way people behave at work in the organisation? Such an audit might reveal that the corporate culture conflicts with its objectives or that the company's reputation is either not being exploited or is restricting development. Systems In an organisational sense, the term 'system' is used to mean 'how things are done'. A systems audit considers how well or how badly resources are used, rather than the limitations on the resources themselves. A systems audit therefore considers such factors as the interaction between resources We talk about 'production systems' to mean the equipment, and methods used within the production process;

'control systems' to talk about the methods and procedures used to control activities within an organisation; 'quality systems' to mean the methods, equipment and procedures employed to ensure quality within the organisation. Competences The concept of a 'competence' as a resource has become popular recently, and should be familiar to you as another way of describing a skill. A competence is something you can do. For an organisation, a core competence is something it can do well. Core competencies stem from a combination of experience (in producing and selling the product or service), the talents of the individuals within the organisation and how well those two factors are put together. A distinctive competence of an organisation is what it does well, or better than its competitors. It is a distinctive competence which gives an organisation its competitive edge. Distinctive competences do not necessarily have to be directly linked to the main product or service, but are something that competitors cannot, or would find it difficult, to replicate.

PRODUCTS The outputs of an organisation are its products goods and/or services which are distributed and/or delivered to customers.
Typical issues to be investigated include: The stage of the product's life cycle that it has reached The market share it holds The likely total size of the existing market and the potential for entry into new markets The marketing effort to support the product.

THE INTERNAL ORGANISATION An internal analysis has to consider structure, lines of authority and power, the systems employed, and the culture of the organisation. RESULTS Analysis of results may be seen as the feedback mechanism within the systems approach.
It feeds information into the position audit on existing performance from a very wide variety of control measures and assessments. These will include financial information in the form of ratios and other indices on such issues as profitability, investment and efficiency.

CONDUCTING AN ENVIRONMENTAL ANALYSIS

Conducting an environmental analysis is a two-stage process: Gathering data on the environment Interpreting that data in a meaningful way to provide insights on the likely implications for the organisation. The analysis and interpretation of data will focus on three particular techniques:

Forecasting, SWOT analysis and comparative analysis.

Forecasting Data collected about the environment essentially paints a picture about the past or, at best, the present.
However, organisations need information about the future so that they can plan their operations to meet the conditions which will apply then, rather than as they apply now. The major purpose of forecasting is to reduce uncertainty, and management must use the best available information and techniques, supplemented by judgment, in order to achieve the best possible forecast. However, forecasting the effect of an environmental factor or factors can be difficult, because of the relative complexity and dynamics of the environment. Forecasting techniques can be complex or simple. For many purposes, a simple technique is superior to a complex one, and a KISS approach 'keep it simple, silly' should always be tested before a complex modelling approach is tried. The key is to obtain data that is accurate enough for the purpose. You should never pay for more detailed data than is needed, nor waste time refining a forecast from, say, 50% to 40% presumed accuracy.

Forecasting Models Two types of technique. Time series techniques, such as extrapolation, exponential smoothing, trend analysis and Z charts, are arithmetically straightforward and simple to apply in many instances. The only technical problem is to select the technique that best suits the data. Causal techniques do not use time as the independent variable.

Instead they search for a visible relationship between the forecasted dependent variable and a measurable independent variable. Statistical techniques such as regression and correlation may often used for this. Scenario Building By drawing on objective techniques which analyse and interpret the environment, and supplementing them with a little imagination as to the choice and weighting of the variables, a researcher can create a series of alternative futures. The process is particularly suited to dynamic situations where there is a high degree of uncertainty. The model makes assumptions about how those uncertainties will affect the industry, predicts how the industry might react to the uncertainties; and thereby predicts the likely impact of the uncertainties.

In practice, making such models is a highly complex process. Michael Porter suggests that scenario analysis is most appropriate when used for a single industry.

Subjective Techniques Subjective forecasting techniques recognise the limitations of objective forecasting and attempt to develop effective interpretations of analysed data by the best possible people. The aim is to have the committee of experts agree upon a composite forecast that covers whatever period(s) the organisation is concerned with, usually mid-and long-term. This forecast then becomes a major advisory tool to aid management decision-taking. To achieve the best results each expert should be briefed beforehand and should produce a personal forecast that he or she will present and argue the case for. The problems of these forms of subjective analysis arise from: o The base of the forecasting, which is opinion and not fact. o Actual and opportunity costs of time and of people who may charge highly for their service o The top-down nature of the forecast. On the other hand, a number of advantages accrue: o The range of probabilities assessed is likely to produce a balanced forecast. o There is less danger of being totally wrong (or totally right, it might be said). o Organisation managers feed directly into the forecasting process. o It can be relatively quick to compile, with no ongoing commitment. o At the very least it will concentrate top management thinking into the areas of planning and forecasting.

Comparative Analysis
The value of environmental data can be significantly improved by assessing positions relative to other, comparative bases. One implication of this approach is that data needs to be collected for comparative purposes against selected bases. The main such bases of comparison are: Historical: primarily in relation to results, but also to assist in identifying trends in the external environment. Competitors: again in relation to results (as noted above), but also in relation to a range of other factors such as customer and supplier characteristics and many aspects of the internal environment, not least organisation and management structures. Industry norms: this is similar to comparison with competitors, but looks to assess performance, resources and organizational practices in relation to the general standards applying throughout an industry or sector.

Best practice: again in relation to a similar range of factors as would be considered in comparisons with competitors, but this time concentrating on what may be seen as the most successful organisations or practices. It is also possible to use comparative analysis to assess the efficiency and effectiveness of the internal environments within an organisation: it can be used to develop greater understanding of any areas of the specific external environment and the internal environment. It is a technique widely used by organisations exploring the possibilities of entering new markets, particularly in other countries.

Stakeholder Analysis
The concept of stakeholder analysis has developed relatively recently, but is proving an important means of establishing the balance among the competing interests involved. The term 'stakeholder' can be used to describe any individual or group which has an interest (not necessarily financial) in the future of the organisation. Each of the stakeholders will have different expectations of an organisation. The stakeholder approach recognises that businesses can make strategic gains from recognising stakeholder interests and responding to them through the strategic management process. Taken to its logical conclusion, accepting the legitimacy of stakeholder interests implies a wider social responsibility on organisations, particularly when the interests of the community at large are taken into consideration. The stakeholder approach is particularly relevant to non-profitmaking organisations or public or charitable bodies, where social interests may outweigh financial ones.

Chapter 03 Extra Note

The Concept of Mission
Mission has been said to answer the question: 'What business are we in? The mission of an organisation incorporates not just an identification of the products and services the organisation offers, but also sets the philosophy and culture behind the basic organisational functions. It is concerned with its Overall purpose, Scope and its boundaries, Attempts to describe the nature of the organisation The reason why it exists. It is also long-term, in that it is not concerned with a set of relatively short-term achievable targets, but rather a definition of the parameters of the organisation's activities. It is also the starting point for all the activities of the organisation. A clear mission will define the philosophy and purpose of the organisation. signpost the direction which the selection of strategic plans and control systems will take in the future. The mission can make a very real difference to the way in which an organisation operates and develops. Mission Statements In a large one the vision and organisational goals need to be formalised and communicated to all stakeholders. This is through the organisation's mission statement. Many businesses take mission very seriously and studies have shown that over 80% of companies have a formal mission statement and believe that it contributes to the organisation's effectiveness. The mission statement encapsulates the vision of what the organisation is, or intends to become. It does not need to be long (famously, Fuji Films used to have just two words: 'kill Kodak'), nor is there any standard format. The important point is that it should be: Easy to understand and remember It should make the organisation seem different from the rest It should be flexible enough to accommodate change, although mission statements rarely change frequently. Johnson and Scholes consider that the mission statement should be visionary: that is, it should be regarded as a general, long-term statement about the organisation, which may be subject to changes in detailed objectives over time without losing its overall direction. Johnson and Scholes go on to identify the following three key elements which should be addressed in a comprehensive mission statement. It should clarify the main purpose of the organisation, answering the question 'Why does the organisation exist?'

It should describe the organisation's main activities and the position it wishes to attain in its industry. Missions should state the key values of the organisation: particularly regarding attitudes towards and commitment to stakeholder groups; customers, employees, suppliers and the environment.

Producing the Corporate Mission A preferred method to write a meaningful mission statement is set out below.
Set up a project team. Carry out an attitude survey throughout the organisation, to check the validity and usefulness of the current mission statement. Ask for suggestions for improvement and/or any amendments that the staff feel are more in line with their level of operations, growth and development. Elicit information from current customers and their perceptions of the organisation. Ask for suggestions for improvement/amendments/updating. A revised mission statement can then be drafted, and sent for consultation to representatives of the workforce and a selection of customers. Further comments should be elicited.

Goal Mintzberg has made an attempt at classifying these meanings in a way which can help. Operational goals are goals expressed in a quantified form and, thus, can be measured: for example, 'to increase market share by 5%'. For the purposes of this course, we are going to use the term 'objective' to describe this. Non-operational goals are qualitative in nature and are not expressed so specifically for example, 'to improve market share'. We willuse the term 'goal' to describe this general statement of intent.

Policies All organisations have policies: some are formally laid down and others are less formal, but they represent the way in which things are done in the business.
They are overarching specifications which concern how managers should behave in certain circumstances and the ways in which rules and procedures are to be applied. They relate strongly to the culture of the organisation.

STRATEGIC AND OPERATIONAL PLANNING

Planning is the process by which we decide what we are going to do and how we are going to do it. A plan fills the gap between the current state of affairs ('where we are now') and the desired future state of affairs ('where we want to be'). First the company must decide where it wants to go, and by when, and then how to bridge the gap between the current situation and that which it wants to achieve.

Strategy Chandler has defined strategy as: 'the determination of o basic long-term goals and objectives of an enterprise, o and the adoption of courses of action o and the allocation of resources necessary o for carrying out these goals.' Planning and co-ordination are still seen as key aspects of strategy today. Hax has identified six different dimensions of strategy:

A coherent (Clear), unifying (merging) and integrative pattern of decisions for the organisation as a whole The strategy gives rise to the plans that ensure that the basic goals of the organisation are fulfilled. Many large organisations have aware clear strategies, which are set out formally. In smaller organisations, the strategy may not always be articulated or analysed, but there may be still be a common understanding of it among top management, expressed as, for example, 'the development and acquisition of new product lines'. An organisation may also have an implicit strategy, which is not set out anywhere, but can be identified from the actions which are actually taken

A means of establishing an organisation's purpose in terms of its long term goals

This approach regards strategy as shaping both the goals and objectives of the organisation and defining the major actions needed in order to achieve them.

A definition of an organisation's competitive domain Strategy must address issues both of growth, such as an extension to existing capacity and diversification into new product areas, and of divestment, such as closing production facilities.

A means of maximising competitive advantage and minimising competitive disadvantage This approach regards the key purpose of strategy as seeking to achieve long-term advantage over an organisation's main competitors.

A logical system for differentiating managerial tasks at corporate, business and functional` levels The different levels within an organisation have different responsibilities in terms of their contribution to planning and implementing strategy. The corporate level is responsible for defining the overall mission, goals and overall objectives and takes the highest-level decisions, The business level is responsible for objectives planning within departments or divisions and may take decisions on, The functional level is responsible for operational planning and implementation, such as setting and meeting production targets.

A definition of the contribution the organisation intends to make to its stakeholders In recent years, the concept of stakeholders has gained importance as an element of strategic concern due to the increasing emphasis on organisations taking account of their social responsibilities.

Tactical Plans Deriving from the objectives set by top management for the organisation as a whole are the tactical strategies and objectives for the different parts of the organisation, It is the responsibility of managers at business level, such as department heads, to draw up tactical plans which set out the major steps necessary to achieve the tactical objectives. These plans are developed by business-level managers, usually in consultation with their junior and senior managers. In doing this, managers will need to consider similar concerns as those at the corporate level in terms of the external and internal environments, albeit at an operational level. However, tactical planning differs from strategic planning in terms of scope and timescale: Tactical plans are more specific than the strategy and are likely to focus on measurable outcomes, such as increasing profitability by a particular amount each year.

Tactical planning has a shorter timescale typically one to five years and therefore less flexibility in the deployment of resources, because factors of production are less variable in the short term. The implementation of tactical plans supports the achievement of strategic plans, and in turn, the implementation of strategic plans fulfills the mission of the organisation.

Operational Plans Operational objectives are derived from the tactical objectives of the different parts of the organisation. Managers at functional level, with responsibility for particular units or sections of the organisation, draw up operational plans which set out the actions necessary to achieve operational objectives. Operational plans are frequently single-use plans. This means that they are aimed at achieving a specific objective which, once reached, is not likely to recur in the future. A single-use plan is supported by a budget, which represents the expression of the plan in monetary terms. Operational planning differs from tactical and strategic planning in terms of scope an timescale: Operational plans are highly specific and set very clear, quantifiable outcomes. Operational planning has a timescale of one year or less and therefore flexibility in the deployment of resources is correspondingly reduced. The implementation of operational plans supports the achievement of tactical plans,

Performance It is the responsibility of first-line managers to prepare plans which set out the actions necessary to achieve team and individual objectives, working in close consultation with staff to obtain their motivation and commitment. Such plans are likely to include developing the competencies of staff to provide them with the skills required for successful achievement of their objectives. The agreed objectives and plans are then fed back to their line manager for agreement. Each individual or team works to achieve their objectives through implementation of the plans. The performance of individuals and teams is monitored regularly by the manager through normal supervision arrangements. Evaluation may be by both quantitative and qualitative measures.

Feedback We have already noted that the classic model of the planning process is linear. In this model, the role of feedback is principally for evaluation and control purposes. Information in the form of performance data and activity reports is fed up to managers at each level, to enable actual performance to be compared with planned performance, so that where necessary corrective action can be taken and problems resolved. However, some organisations adopt a different approach, known as 'bottom-up' objective-setting. The difference between 'top-down' and 'bottom-up' objective-setting can therefore be seen as a difference in the importance placed within the planning process on the linear cascade of decisions down through the organisation and feedback in the opposite direction. A balance between the flow of decisions and information in both directions is essential if the organisation is to operate effectively.

Benefits of Planning
By means of planning, top management can direct and co-ordinate the efforts of the workforce towards the achievement of the organisation's goals. The process of planning can increase the commitment of employees to achieving the objectives. A formal plan clarifies expectations of staff at all levels about that the organisation is expecting of them. Setting targets for achievement and providing means of recognition when they are reached increases employees' motivation. Undertaking the planning process highlights areas of weakness that the organisation needs to address. Setting clear objectives at every level of the organisation facilitates management control, because benchmarks are then available against which progress can be measured.

OBJECTIVES
Using our definition above, objectives are quantified statements of what the organisation intends to achieve. They should focus the mission of the organisation onto specific targets which direct the activities of the organisation, and can also be used for measuring performance.

Characteristics of Objectives: Objectives should be SMART Objectives can be ether Quantitative or Qualitative

Hierarchy of Objectives Corporate objectives - are those which are associated with the overall direction of the organisation. (Profitability/ Market share/ Cash flow/ Growth/ Customer satisfaction/ Industrial relations/ Added value/ The product and/or service) Unit or divisional objectives translate the overall objectives of the organisation into objectives for specific units or divisions of the organisation, according to that division or unit's areas of responsibility or function. They are then broken down into Departmental objectives, which in turn can then be further refined into Individual or team objectives.

Conflicting Objectives
In theory, objectives should not conflict, but of course in practice they often do. Some objectives may be more important than others or may be achieved only at the expense of others. This is common where resources are restricted and some form of trade-off or compromise is required to achieve some or all of an objective. Objectives can be set for the short term or long term; and even if the overall aim is still consistent, there may well be conflict between long-term and short-term objectives.

There are four main ways of dealing with such conflicts: 'Satisficing' is the term used to describe where an organisation compromises to some extent on the degree to which an objective is met. Priority setting is where objectives are ranked in order of priority and efforts concentrated on achieving each objective in order of priority. Sequential attention, like priority setting, involves dealing with individual objectives before moving on to another. Bargaining is probably the most common form of dealing with conflicts. Individual managers will negotiate or co-operate with other managers to achieve their own objectives.

INFLUENCES ON STRATEGY AND PLANNING The strategy and plans of an organisation are determined with the intention of achieving the organisation's goals. However, there are a number of different factors both within and external to the organisation Which are interacting with the strategy and goals and may either work together with them towards the achievement of the goals or, if they are not appropriately aligned, work against them. These factors need to be considered as part of the planning process in terms of both how they may influence the determination of strategy and how strategy may influence them.

We consider three approaches to exploring these factors: Stakeholder analysis Environmental analysis The '7 Ss' framework

UNITARY AND PLURALISTIC PERSPECTIVES

We have, so far, consider planning as essentially a rational process, with at least a large degree of agreement on the environmental analysis and formulation of goals and objectives. However, organisations are rarely so focussed and we need to recognise that there will always be some amount of conflict as people express different views and opinions, and assert different solutions to situations that arise.

Unitary Perspective
The unitary perspective sees organisations as being essentially harmonious. There is co-operation between the employer and the employee, and they have a common purpose and goal that they are working towards. Key aspects of this view of the organisation are that: Teamwork is an essential component There is one single source of authority management It is expected that there will be harmony and there is no reason for conflict to occur because management and the employee are all working towards the same goals If any conflict did occur it must have been caused by something such as poor communication, a misunderstanding, an external factor that individuals have no control over or someone deliberately stirring up problems. The main weakness of this perspective is that it ignores the fact that there will be times when the employer and employees inevitably have different objectives, even if there is a common purpose in the overall goals of the organisation. The unitary perspective suggests that, if conflict does occur, it must be removed as soon as possible. Alternatively, it is "explained away" by ignoring the conflict and giving the situation a different type of label.

Pluralistic Perspective
The pluralistic perspective accepts that conflict does occur, and that it is a natural and inevitable characteristic of organisations. As it is natural and inevitable, it cannot be argued that it can be eliminated and hence it has to be accepted. Indeed, it could be argued that some level of conflict is healthy for the organisation as it can lead to debate, challenge and to change. The pluralistic perspective sees organisations as having lots of sectional groups that have different interests. Individuals are part of these sectional groups.

Management is the central body with responsibility for harnessing the differences between these sectional groups so that they work for the good of the organisation. Indeed, if we think about the structure of organisations, we can see that there is a certain amount of logic in the pluralistic perspective an organisation does consist of different functions, and those functions have different interests and purposes. A fundamental belief within the pluralistic perspective is that conflict can be resolved, often through compromise, and a solution canbe found that is acceptable and workable for everyone.

The Impact on Organisational Goals and Strategy

If we accept the unitary perspective, we can conclude that: Goals, objectives and mission will be accepted throughout the organisation because it is a harmonious team It will be relatively straightforward to push a strategy forward because of the harmonious and cooperative approach Resistance to the mission, goals, objectives or strategy is likely to be due to misunderstanding or poor communication Such resistance can be dealt with quickly by identifying the cause and eliminating it.

If we accept the pluralistic perspective we conclude the following: Different sections within the organisation will have different interests Mission, goals, objectives and strategy will be interpreted differently by different groups and functions In striving to achieve the direction set out by the goals and objectives, different groups and functions are likely to have different priorities and to use different approaches The role of management is to keep focussed on the strategy and to deal with any conflicts that occur by acknowledging the differences and trying to reach agreement, usually through compromise Conflict will occur, but it could even enhance performance and act as a driver for change