Business Management for the IB Diploma Workbook PDF

 Also available Business Management for the IB Diploma: Toolkit Workbook 9781398358409 Prepare for the new Business Management assessment model and reinforce understanding of the toolkit aspect of the course with this write-in workbook, which includes exam-style practice que...

 Also available Business Management for the IB Diploma: Toolkit Workbook 9781398358409 Prepare for the new Business Management assessment model and reinforce understanding of the toolkit aspect of the course with this write-in workbook, which includes exam-style practice questions on the tools needed for success in situational, planning and decision-making in business. For more information visit hoddereducation.com/ib-businessmanagement 350977_FM_Bus_Man_IBDP_i-056.indd Page 1 18/02/22 7:25 AM user /146/HO02478/work/indd FOR THE IB DIPLOMA PROGRAMME Business Management Malcolm Surridge Andrew Gillespie Ian Mills 350977_FM_Bus_Man_IBDP_i-056.indd Page 2 18/02/22 1:38 PM user /146/HO02478/work/indd Author acknowledgements The authors would like to thank Ian Mills for offering feedback and advice. The authors would also like to thank So-Shan Au for her support and advice and for organizing the writing process so competently. IB advisers: The Publishers would like to thank the following for their advice and support in the development of this project: Adriana Ruiz Marquez, Paul Hoang and Martin Muchena. We would like to offer special thanks to Ian Mills for writing the Assessment guidance chapter and further guidance available on www.hoddereducation. com/ib-extras and for his invaluable review and feedback during the writing process. The ‘In cooperation with IB’ logo signifies the content in this textbook has been reviewed by the IB to ensure it fully aligns with current IB curriculum and offers high-quality guidance and support for IB teaching and learning. Every effort has been made to trace all copyright holders, but if any have been inadvertently overlooked, the Publishers will be pleased to make the necessary arrangements at the first opportunity. Although every effort has been made to ensure that website addresses are correct at time of going to press, Hodder Education cannot be held responsible for the content of any website mentioned in this book. It is sometimes possible to find a relocated web page by typing in the address of the home page for a website in the URL window of your browser. Hachette UK’s policy is to use papers that are natural, renewable and recyclable products and made from wood grown in well-managed forests and other controlled sources. The logging and manufacturing processes are expected to conform to the environmental regulations of the country of origin. Orders: please contact Hachette UK Distribution, Hely Hutchinson Centre, Milton Road, Didcot, Oxfordshire, OX11 7HH. Telephone: +44 (0)1235 827827. Email: [email protected] Lines are open from 9 a.m. to 5 p.m., Monday to Friday. You can also order through our website: www.hoddereducation.com ISBN: 9781398350977 © Malcolm Surridge and Andrew Gillespie 2022 First published in 2022 by Hodder Education, An Hachette UK Company Carmelite House 50 Victoria Embankment London EC4Y 0DZ www.hoddereducation.com Impression number 10 9 8 7 6 5 4 3 2 1 Year 2026 2025 2024 2023 2022 All rights reserved. Apart from any use permitted under UK copyright law, no part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or held within any information storage and retrieval system, without permission in writing from the publisher or under licence from the Copyright Licensing Agency Limited. Further details of such licences (for reprographic reproduction) may be obtained from the Copyright Licensing Agency Limited, www.cla.co.uk Cover photo © Kalyakan - stock.adobe.com Illustrations by Aptara Inc. Typeset in ITC Berkley Oldstyle 10/14pts by Aptara Inc. Printed in Slovenia A catalogue record for this title is available from the British Library. 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 3 11/02/22 6:08 PM user /146/HO02478/work/indd Contents How to use this book............................... v The business management toolkit................. 2 Unit 1: Introduction to business management.. 57 1.1 What is a business?..................................... 58 1.2 Types of business entities................................ 71 1.3 Business objectives..................................... 84 1.4 Stakeholders.......................................... 97 1.5 Growth and evolution.................................. 107 1.6 Multinational companies (MNCs)........................... 121 Unit 2: Human resource management........... 127 2.1 Introduction to human resource management................ 128 2.2 Organizational structure................................ 144 2.3 Leadership and management............................ 162 2.4 Motivation and demotivation............................ 177 2.5 Organizational (corporate) culture (HL only)................... 213 2.6 Communication...................................... 226 2.7 Industrial/employee relations (HL only)...................... 243 Unit 3: Finance and accounts..................... 255 3.1 Introduction to finance................................. 256 3.2 Sources of finance.................................... 259 3.3 Costs and revenues................................... 275 3.4 Final accounts....................................... 283 3.5 Profitability and liquidity ratio analysis...................... 308 3.6 Debt/equity and other efficiency ratio analysis (HL only)........ 322 3.7 Cash flow.......................................... 331 3.8 Investment appraisal.................................. 348 3.9 Budgets (HL only)..................................... 362 350977_FM_Bus_Man_IBDP_i-056.indd Page 4 18/02/22 1:40 PM user /146/HO02478/work/indd Unit 4: Marketing.................................. 375 4.1 Introduction to marketing............................... 376 4.2 Marketing planning................................... 387 4.3 Sales forecasting (HL only).............................. 400 4.4 Market research....................................... 411 4.5 The seven Ps of the marketing mix........................ 424 4.6 International marketing (HL only)......................... 458 Unit 5: Operations management................. 467 5.1 Introduction to operations management.................... 468 5.2 Operations methods.................................... 474 5.3 Lean production and quality management (HL only)........... 478 5.4 Location........................................... 494 5.5 Break-even analysis................................... 505 5.6 Production planning (HL only)............................ 519 5.7 Crisis management and contingency planning (HL only)........ 534 5.8 Research and development (HL only)...................... 540 5.9 Management information systems (HL only)................. 549 Assessment guidance.............................. 560 Glossary............................................. 567 Acknowledgements............................... 577 Index................................................ 578 iv  350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 5 11/02/22 6:08 PM user /146/HO02478/work/indd How to use this book This coursebook provides complete coverage of the new IB Business Management Diploma syllabus (first teaching 2022). Differentiated content for SL and HL students is clearly identified. The ‘In cooperation with IB’ logo signifies that this coursebook has been rigorously reviewed by the IB to ensure it fully aligns with the current IB curriculum and offers high-quality guidance and support for IB teaching and learning. Other features of this book to help you to consolidate and develop your understanding of business management include: SYLLABUS CONTENT This coursebook follows the exact order of the contents of the IB Business Management Diploma syllabus. At the beginning of each chapter is a list of the content to be covered, with all subsections clearly linked to the Assessment Objectives (AO) to show the breadth and depth of teaching required. Conceptual understandings/concepts The four concepts that underpin the Business Management course (change, creativity, Key terms ethics and sustainability) are integrated into the conceptual understandings of all the ◆ Key terms definitions appear throughout the units to ensure that a conceptual thread is woven throughout the course. coursebook, in the relevant Conceptual understanding therefore enhances your overall understanding of the course, sections to provide making the subject more meaningful. This understanding assists you in developing context and to help you understand the language clear evidence of synthesis and evaluation in your responses to questions asked in the of business management. assessment. There is also a glossary of Concepts are explored in context and can be found interspersed in the chapter. all key terms at the end of the book. CASE STUDY Real-world international examples and case studies are used to bring the subject to life. Case studies form a big basis of this course. The course encourages the use of inquiries, contemporary examples and case studies at a variety of levels, from the local to the global, as well as from smaller-scale businesses to multinational ones. Throughout the coursebook, we have chosen case studies that reflect the context in which you are learning as well as case studies that allow for comparisons across contexts. Questions are included to allow you to analyse and synthesize your understanding. Inquiry This feature includes key inquiry statements to explore, presented with either context or more questions to consider. It also gets students to consider the attributes of the Learner Profile in companies and managers. How to use this book v 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 6 11/02/22 6:08 PM user /146/HO02478/work/indd Business toolkit This feature is to be used alongside the business management toolkit chapter (pp. 2–56) and places the set of situational, planning and decision-making tools in context. You should use these tools to analyse and evaluate the syllabus content. They can be applied in different disciplinary and interdisciplinary contexts. Common mistake These boxes contain advice regarding some of the common misunderstandings and typical errors made by students so that you can avoid making such mistakes. ATL Approaches to learning (ATL), including learning through inquiry, are integral to IB pedagogy. These ATL skills activities get you to think about real-world business management. Top tip! This feature includes advice relating to the content being discussed and tips to help you retain the knowledge you need. WORKED EXAMPLE These provide a step-by-step guide showing you how to answer the kind of quantitative questions that you might encounter in your studies and in the assessment. EXAM PRACTICE Exam practice questions are included to allow you to check your understanding and prepare for the assessments. The exam practice questions are in the style of exam questions so that you get practice seeing the command terms and the weight of the answers with the mark scheme. TOK Links to Theory of Knowledge (TOK) allow you to develop critical thinking skills and deepen business management understanding by bringing discussions about the subject beyond the scope of the content of the curriculum. Chapter summary At the end of each chapter, there is a summary of the key points addressed to help you develop and understand the depth of knowledge you need to acquire for the course. vi Business Management for the IB Diploma 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 7 2/17/22 1:27 PM f-0115 /146/HO02478/work/indd Review questions Review questions are also included at the end of each chapter to allow you to consolidate your learning. We have written the review questions in the style of exam practice questions (with marks) to help you build up the skills you need for the assessment too. About the authors Malcolm Surridge taught Business, Economics and Management courses in schools and colleges for 35 years. He has many years of experience as a senior examiner for Business on both academic and vocational qualifications. Malcolm has written numerous bestselling coursebooks for use in schools and colleges covering a broad range of qualifications in Business and Economics. When he is not working, Malcolm likes to be outside and spends a lot of time hillwalking and gardening. Andrew Gillespie is Vice Principal at a leading independent school in the UK as well as a highly experienced senior examiner. He is also a government subject expert in Business. Andrew has written numerous bestselling coursebooks in Business and Economics which are used in schools around the world and at university. He has been a teacher at various levels for many years and maintains a fascination with the study of, and writing about, business and management. Adviser and reader Ian Mills is Assistant Principal and teacher of IB Business Management and IGCSE Global Perspectives at Leipzig International School, Germany. He has been teaching the IB Business Management course for 10 years and is also active in roles as Examinations Team Leader and Training Material Developer for IGCSE Cambridge Global Perspectives. Ian wrote the Assessment guidance chapter for this book and also the further guidance available on www.hoddereducation.com/ib-extras How to use this book vii 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 2 11/02/22 6:08 PM user /146/HO02478/work/indd The business management toolkit The business management (BM) toolkit is a set of situational, planning and decision-making tools. You can use these tools throughout the course to analyse and evaluate the syllabus content. They provide a very valuable set of models and frameworks to analyse different topics. These business tools can be applied in different disciplinary and interdisciplinary contexts. They help managers analyse and make decisions and so they also help you to do the same when considering business decisions. Business toolkit Throughout the book and in each chapter, you will find references to the toolkit feature, where we place the tools in context to content so that you can see them in action and to show how they are integrated into the course and in every unit. However, don’t think that these are the only place where these tools can be applied – there are plenty of other opportunities to apply these throughout the course and you should be actively looking for these because they add a very valuable depth of analysis. In this chapter we will consider all the key tools in the toolkit. These tools can be classified as situational, planning and decision-making. It is important to note that these tools may have overlapping applications and therefore, in some cases, one tool could apply in more than one classification. l Situational tools: These assist businesses in assessing aspects of their internal and external environments. Some examples from the business management guide include a SWOT analysis and STEEPLE analysis. Situational tools help managers answer the question ‘where are we now?’ l Decision-making tools: These assist businesses to consider various factors before deciding on a particular venture. Some examples from the business management guide include the Boston Consulting Group (BCG) matrix and Ansoff matrix. Decision making tools help managers decide “What to do next?” l Planning tools: These are tools to assist businesses in project preparation and implementation. Some examples from the business management guide include critical path analysis and Gantt charts. These help managers to organize resources to complete a project on time. ATL 0.1 As you come across each tool during the course, reflect on its value, purpose and limitations, and consider the other circumstances in which it might be used too. As we have outlined above, in some cases one tool could apply in more than one classification/application. Discuss in pairs or small groups and be prepared to present your thoughts to your classmates. 2 Business Management for the IB Diploma 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 3 11/02/22 6:08 PM user /146/HO02478/work/indd There are tools for both SL and HL, as well as HL-only tools. By the end of this chapter, you should be able to analyse and evaluate and apply the following tools: Table 0.1 The business management toolkit Tools Relevant to Classification SWOT analysis (page 14) Unit 1: Introduction to business management Situational tool Unit 2: Human resource management Unit 3: Finance and accounts Unit 4: Marketing Unit 5: Operations management Ansoff matrix (page 20) Unit 1: Introduction to business management Decision-making tool Unit 4: Marketing STEEPLE analysis (page 6) Unit 1: Introduction to business management Situational tool Unit 2: Human resource management Unit 4: Marketing BCG matrix (page 10) Unit 3: Finance and accounts Situational tool Unit 4: Marketing Decision-making tool Business plan (page 45) Unit 1: Introduction to business management Planning tool Unit 2: Human resource management Unit 3: Finance and accounts Unit 4: Marketing Unit 5: Operations management Decision trees (page 24) Unit 1: Introduction to business management Decision-making tool Unit 5: Operations management Descriptive statistics (page 35) Unit 2: Human resource management Decision-making tool Unit 3: Finance and accounts Unit 4: Marketing Unit 5: Operations management Circular business models Unit 1: Introduction to business management Decision-making tool (page 22) Unit 5: Operations management Force field analysis (HL only) Unit 2: Human resource management Situational tool (page 28) Unit 5: Operations management Decision-making tool Gantt charts (HL only) Unit 4: Marketing Planning tool (page 54) Unit 5: Operations management Hofstede’s cultural dimensions Unit 2: Human resource management Situational tool (HL only) (page 17) Unit 4: Marketing Unit 5: Operations management Porter’s generic strategies (HL Unit 1: Introduction to business management Decision-making tool only) (page 29) Unit 4: Marketing Contribution (HL only) Unit 3: Finance and accounts Decision-making tool (page 31) Unit 4: Marketing Unit 5: Operations management Critical path analysis (HL only) Unit 4: Marketing Planning tool (page 47) Unit 5: Operations management Simple linear regression Unit 1: Introduction to business management Decision-making tool (HL only) (page 41) Unit 4: Marketing Unit 5: Operations management The numbers in the brackets in headings on the following pages indicate which units these tools are highlighted in. The business management toolkit 3 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 4 11/02/22 6:08 PM user /146/HO02478/work/indd General advice on the tools in the toolkit When considering any of these tools it is important to consider the following factors: Where is the data being used from? It is always useful to know the source of data so you can assess its reliability. You may well have been warned of the dangers of Wikipedia, for example. While it can be a wonderful source of information, it is not always reliable. Some of the supposed ‘information’ there may not be true and using it to make decisions can be risky. The same is true of data on social media or blogs – how sure are you that this is actually correct? Even data from governments can be questioned at times; while usually reliable it can depend on the government! By comparison, data in academic journals will usually have been subjected to rigorous testing and challenge and should be more reliable. When examining any information presented to you, question where it is from. Managers may be very keen to promote their own projects, for example, and this can mean the data is overly optimistic. Also, you should be willing to consider what is not there – has data been deliberately not included because it does not match the narrative the person presenting the data wants to give? The context of data is absolutely critical. Numbers alone tell us very little until we know what is going on behind them. For example, if we are told the value of a share fell by two per cent, we cannot say much about this until we know what it had been before, what it was expected to do, what shares generally in the industry were doing, whether this happened over a few minutes or a year, what it was expected to do next, and so on. We need to be willing to challenge what we are presented with. Often, considering the trend over time and comparing changes with others in the industry is useful to help benchmark the significance of a change. There is a danger that we collect too much data. The desire to keep gathering data – perhaps to reduce risk – can lead to decisions being delayed for too long and opportunities being missed. ‘Paralysis by analysis’ describes how managers can become so focused on having all the data they need to make the ‘right decision’ that the decision never happens. Managers often have to make decisions based on what they know and accept they don’t know everything! Analysing the data. It is important for managers to have the right information ready at the time they need to make decisions. This is why management information systems (MIS) can be so valuable. However, having the data does not mean managers necessarily make the right choices as a result. We all tend to look at things through a perceptual filter. We will have assumptions built into the way we think; we will often have views of what we are expecting to find before we start looking at the data and this can mean that we interpret it to fit our own narrative. Two of us can look at the same data and draw very different conclusions. Just look at Figure 0.1 – do you see a young woman, an old woman or both? People can look at the same picture/data and see different things. Even if we do draw out the right conclusion, we still have to put our decisions into effect. We may well identify that the right strategy is to enter an overseas market but someone then has to make this happen. Many plans go wrong not because of the analysis but because of the implementation. Having the tools we are going to look at is, therefore, very helpful but what also matters is how these tools are used. 4 Business Management for the IB Diploma 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 5 11/02/22 6:08 PM user /146/HO02478/work/indd Assess the data. Part of analysing the data involves assessing its relative importance. It is relatively easy to produce a long list of external factors that could affect a business, but which ones are relevant to the specific business being considered and which ones are most important? There is not time to consider every possible factor or plan for every possible situation; managers need to focus on the key issues (and so do you when analysing case studies). The world changes. These tools will be based on information that, hopefully, is correct at the time. Decisions will be made and implemented and these may take time to come into effect, by which time the business environment has changed. What seemed appropriate in February 2020, such as an airline’s decision to expand its fleet of planes, may have seemed Figure 0.1 My Wife and completely inappropriate once the pandemic hit countries around the world. My Mother-in-Law by William Ely Hill Many of these tools need revisiting (to keep them in good working order) otherwise the answers they seem to provide at one point may become out of date very quickly. Plans need to be reviewed and updated. However good the data, however effective the analysis and the planning, when the plan starts to come into effect something will probably go wrong! A well-known military saying is that “no plan survives the first contact with the enemy”. Once the plan begins to come into effect, competitors or stakeholders may react in unexpected ways and other factors may unexpectedly change. Plans, therefore, need to be reviewed and updated. Good planning will allow for and be able to compensate for change. Having a plan in the first place allows managers to identify when things are not going as expected, work out the consequences and identify the best way to respond. Even if plans have to be adapted, this does not reduce the value of planning. Another famous saying is “Luck = Opportunity + Planning”. What may look like luck is usually the result of effective planning! As can be seen from the points made above, management is not a perfect science. The tools in the toolkit can certainly help reduce risk and help managers make better decisions and implement them more effectively – and this is why managers use them. However, unfortunately for managers, they don’t guarantee that the right decision is made or that it remains the right decision by the time it comes about. There is always an element of risk. What managers need to do is manage the risk, mitigate it where they can and balance the risks they take against the likely rewards. Situational tools Situational tools assist businesses in assessing their internal and external aspects. These tools help managers understand where the business is at the moment and what the external environment is like. This allows manager to consider where the business is compared to where it wants to be and what the options are. They can then decide how best to get to where they want to be. If you are travelling around the world and want to plan the next stage of your journey, the first thing you need know is where are you at the moment and what choices exist. The business management toolkit 5 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 6 11/02/22 6:08 PM user /146/HO02478/work/indd STEEPLE analysis (1, 2 and 4) STEEPLE analysis is a way of analysing the external macro environment of a business. The ◆ STEEPLE analysis macro environment refers to external factors that are beyond the control of the business examines factors in the itself. STEEPLE analysis examines Social, Technological, Economic, Environmental, Political, external macro environment Legal and Ethical factors and identifies the opportunities and threats that might exist for a of a business that are largely beyond its control. business. (See Table 0.2.) ◆ The macro When undertaking a STEEPLE analysis, businesses will need to identify: environment refers to factors largely outside the which factors are most relevant under each heading – this will vary from business to business. control of the business, For example, changes in the average family size may be more significant for a housebuilder such as the economy and than a light bulb producer; changes in the exchange rate may be more significant for a legal changes. A business business that exports than one that doesn’t. cannot easily influence these on its own. how important each factor is. There are clearly many factors in the external environment – a business cannot anticipate and plan for all of them. Managers must decide which are more relevant and most significant. The exact way that businesses undertake a STEEPLE analysis will vary but in some cases businesses will rate the different factors in terms of how significant they are (see ATL). The results of a STEEPLE analysis will vary from business to business. For some, the economic growth of a country will be vitally important; for others, what the government is doing may be more significant. Furthermore, if a business operates in many different countries or has different business divisions, it may need to undertake a number of STEEPLE analyses because conditions will vary. There may be more factors under one heading than another; it is possible there may be no factors under some headings. It all depends on the business and its particular circumstances. Top tip! It is essential that managers select the most appropriate factors for their specific business; you need to do the same if you are asked to apply this technique. Select the factors that are more relevant. Some changes, such as an ageing population, will happen gradually; others, such as economic change, can be very rapid. This means that a STEEPLE analysis will need to be reviewed regularly as the external environment changes. Social Ethical Technological STEEPLE factors Legal Economic Political Environmental Figure 0.2 STEEPLE analysis 6 Business Management for the IB Diploma 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 7 11/02/22 6:08 PM user /146/HO02478/work/indd Table 0.2 STEEPLE analysis STEEPLE factor Explanation Example Social factors These are factors linked to the population size Ageing populations in many countries such as Japan are an and structure. example of social change. Opportunity: this is creating new markets such as fitness programmes for the elderly and care homes. Threat: with people living longer, the costs of pensions that have been promised to employees is increasing. Technological factors These factors refer to changes in what is The growth of online retailing and cashless payments is due to produced or how it is produced through technological change. innovation. Opportunity: moving retailing online enables a business to access more customers all over the world 24 hours a day. Threat: if rivals move more quickly online and you are committed to renting high-cost city centre outlets, this could be a threat. Economic factors These are factors such as national income The fall in national incomes caused by the global pandemic in (GDP), inflation, interest rate and exchange 2020 and 2021 is an example of economic change. rates. Opportunity: this may have created an opportunity for low-cost operators being able to attract more price-sensitive customers. Threat: lower incomes may reduce demand for many products. Environmental These factors refer to issues linked to the Greater concern over climate change. factors natural environment such as global warming. Opportunity: for environmentally friendly businesses such as Concerns over such changes have put Tesla to gain sales. pressure on many businesses from customers, Threat: to businesses whose products are not environmentally government, employees and investors to friendly, e.g. oil producers or diesel engine manufacturers. consider the environmental impact of their behaviours. Political factors These factors are linked to government policy. A government may join or leave a trading area. This will affect trading opportunities for businesses and the level of international competition. Opportunity: leaving the European Union may mean the British government supports and subsidises British businesses more actively. Threat: leaving the European Union may make it more difficult and expensive for British producers to sell to EU countries. Legal factors Laws may be local, national or international. A law requiring food products to have less sugar in them. Laws can affect many areas of business such Opportunity: for healthier food products to promote their as what they can sell, how they can promote benefits. their products, how they label their products, Threat: to sugar producers who may experience a loss of the terms and conditions under which staff are demand. employed and how they compete. Ethical factors These factors refer to aspects of business Criticism of social media providers for not acting quickly enough behaviour which may be regarded as right to moderate postings. or wrong. Businesses will face ethical issues Opportunity: for a social media business that can be seen to be almost every time they make a decision. What active in this area. is right or wrong may depend on perspective. Threat: changes in legislation to increase the burden on social A decision to pay suppliers promptly to help media providers to monitor content. their cash flow may be regarded as the right thing to do by some; however, it may be regarded as the wrong thing to do by some investors. Similarly, a decision by a large successful business not to exploit loopholes in the law to pay very little tax may be seen by some as the right thing to do but not by some managers who want to make the most profit possible. The business management toolkit 7 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 8 11/02/22 6:08 PM user /146/HO02478/work/indd Evaluating a STEEPLE analysis By undertaking a STEEPLE analysis, a business can identify the key factors in its external environment. From this, it can consider the possible changes in these in the future and from this identify relevant opportunities and threats which can be used in a SWOT analysis. The model is a simple one to understand but very useful in terms of helping managers to categorize factors and organize their analysis. Undertaking STEEPLE analysis is a valuable activity that helps identify key issues in a business’s macro-external environment which then allows it to identify future opportunities and threats. These findings can feed into SWOT analysis which can then lead to a strategy being selected. STEEPLE analysis is, therefore, an important part of strategic planning. However, there are some factors which are important to consider when using this type of analysis: Its value depends on whether relevant factors are identified. If an emerging trend in a market is missed, this won’t later inform planning. It is important that managers scan their environment effectively to identify relevant factors. Not all factors will be anticipated. For example, there may be a sudden environmental change, such as an earthquake, that was not anticipated; equally, the financial crash of 2008 and the pandemic of 2020–21 were not anticipated by many businesses. Managers need to assess the relative significance of any future change. This may not be easy to do. Something which appears relatively insignificant, such as a political change in a country, may prove to bring about major opportunities or threats. Conditions are continually changing and, therefore, ideally STEEPLE analysis will occur regularly. A plan which made sense given the opportunities or threats identified at one time may prove unsuccessful if conditions have changed and the strategy has not adapted. The external environment will vary from country to country and even from region to region. The relevant factors will also vary for different divisions of a business. This means that in reality there may need to be several different STEEPLE analyses for different parts of the business. Managers will need to decide on the relevant scope of any STEEPLE analysis. ATL 0.2 Here is a STEEPLE example for a firm in the UK retail industry, as of November 2020. External factors Importance to the to consider Factors for my business business Social Consumer trends/ Cultural diversity and preferences by Medium, ongoing. tastes, fashions region or country. Consumer buying Our clothing range may not cater to High; more research habits all ages and sizes of people. required. Lifestyle factors The demographic with the most Career attitudes disposable income sits within the 40–65-year-old demographic. Work–life balance Investment may be required in Population market research to determine a demographics move towards a more inclusive approach. In some regions local demographic High; stores are labour markets do not want to work not sustainable if in retail for minimum/living wage. understaffed. 8 Business Management for the IB Diploma 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 9 11/02/22 6:08 PM user /146/HO02478/work/indd External factors Importance to the to consider Factors for my business business Technological Automation E-commerce side of our business is High; need to develop Innovation underdeveloped and overshadowed online intelligence. by in-store buying. Disruptive technologies Is our technology fit for purpose High; trend for now and for the future? A customers to compare Social networking preference for online shopping is a online before they buy Robotics popular trend by increasingly older in person. Artificial populations – not just 20–40-year- intelligence olds. How appealing is our online presence? Security Website ease of use for customers? Medium; longer-term Smartphone apps for ordering goods? strategy. Data storage confidentiality and Low; compliance with consumer rights. GDPR regulations in place since May 2018. Need to improve technology for High; explore internal analytics and buying intelligence. capability. Rise in cybercrime: risk to data High; this could render protection and operational stability. our software inoperable. Economic Exchange rates Exchange rate conversions remain Medium Globalization volatile, affecting negotiations with suppliers. Economic growth/ decline Uncertainty prevails in the UK Medium business markets and investors due to Inflation the UK leaving the European Union. Interest rates COVID-19 pandemic has added to Medium Cost of living poor market performance and greater Labour costs dependence on online shopping. Consumer Consumer spending habit changes High spending habits put pressure on certain goods while others are in decline. Manufacturing sites in the UK Medium are costly to run – consideration was being given to setting this up elsewhere globally. With the decision to leave the EU, this factor was put on hold. Environmental Environmental The rise in environmentally Medium restrictions conscious shoppers. imposed by Supply-chain disruptions as PPE High; more research in-country garments are the main focus. required. governments Supply chain management Political Government The decision by the UK to leave the Medium policy EU has left the pound weaker and Political stability with an uncertainty about future trade restrictions in Europe. Profit Tax industry margins are bound to be affected regulations by this move. Global trade Many stores are in city centre High agreements and/ locations; past and potential terrorism or restrictions threats have affected tourism and footfall in shopping malls. Government-imposed lockdowns Medium restricting in-person shopping. Consumer protection rights. Low The business management toolkit 9 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 10 11/02/22 6:08 PM user /146/HO02478/work/indd External factors Importance to the to consider Factors for my business business Legal Employment law Wage rates and national minimum Common law wage increases yearly. Local labour law Concerns over family-friendly implications as most of these were Health and safety brought in by the EU. regulations Peak trading periods require contractual flexibility. Gig economy – implications of employment status. Compliance with the Modern Slavery Act, particularly important for retail. Introduction of workplace pensions. Ethical Suppliers’ Concerns over treatment of Medium treatment of employees in cotton-growing employees regions. Tax avoidance Growing criticism of tax-avoidance Medium Ethical sourcing measures. Ethical sourcing has pushed the Low, but keep an eye price up of our goods. However, on customer loyalty. customer relationships have improved since we introduced and publicized our ethical sourcing policy and CSR intentions. But two of our competitors still out-rank us in producing environmentally friendly products. Source: Adapted from www.cipd.co.uk/Images/PESTLE-example-for- retail-industry-2021_tcm18-27108.pdf Working in small groups, consider: Why is the STEEPLE analysis dated? Why does it matter that it says it is UK retailers? Would this STEEPLE analysis be relevant for all UK retailers? How might this STEEPLE analysis be useful to a UK retailer? Be prepared to share your findings with the rest of your class. Boston Consulting Group (BCG) matrix (3 and 4) The Boston Consulting Group (BCG) matrix is a method of product portfolio analysis that ◆ Boston Consulting examines the products of a business in terms of their market share and the growth of the market Group (BCG) matrix, in which it is operating. It highlights the current situation of the business in terms of its products also called product portfolio analysis (and, therefore, is also part of situational analysis). This allows managers to then decide on what (PPA), examines the strategy is needed for the future and develop a suitable plan. market position of a firm’s products in terms of their Most firms have more than one product; some have hundreds. For example, at the time of market share and the writing, Unilever owns a huge number of brands, including Ben & Jerry’s, Cif, Domestos, Lipton, growth of the market in Magnum, Marmite, Omo, Surf, Timotei and Wall’s, to name but a few. The range of products and which it is operating. services a firm has is known as its product portfolio. As part of its planning process, a business will examine the position of these products in their markets. This is known as product portfolio analysis (PPA). Whereas the product life cycle monitors the sales of one product over time, product portfolio analysis takes an overview of all of the firm’s products to assess their current position in terms of market share and market growth. This allows managers to assess whether the business has an appropriate portfolio or whether, for example, they should be investing in new product development or they should cease production of some products. 10 Business Management for the IB Diploma 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 11 11/02/22 6:08 PM user /146/HO02478/work/indd One of the most famous models of portfolio analysis was developed by the management consultancy Boston Consulting Group and is known as the Boston matrix. This model analyses the position of a firm’s products in terms of their market share and the growth of the markets they operate in. Stars Question marks High Market growth (%) Cash cows Dogs Low High Market share (%) Low Figure 0.3 The Boston matrix Types of product in the Boston matrix Using the Boston matrix, a firm’s products can be classified according to their market share and the growth of the market in which they operate. Question marks (or ‘problem children’): These are products that have a small market share of a fast-growing market. These products may go on to be very successful but, equally, they may fail. They are quite vulnerable and their future is uncertain (hence the name). There is a high degree of risk associated with these products because you cannot be sure they will succeed. They need protecting by the firm and they require extensive marketing. Most new products are question marks because their future is so uncertain, although there are exceptions when a product takes off very quickly. In terms of the product life cycle, these products may be in the introduction stage. Stars: These products enjoy a large share of a market that is growing rapidly. They are highly successful products for the business; however, they are usually expensive in terms of marketing. Money must be spent to ensure they retain their position in a growing market. For example, they may need to be promoted heavily to maintain customer awareness and to increase distribution in the market. In terms of the product life cycle, these products are in the growth phase. Cash cows: Products that have a high market share but are selling in a slow-growing market. In some cases, this type of product will be the market leader in a mature market. Although the market may not be growing very fast, this may be because it has grown in the past, leaving little room for further expansion. For example, the market for washing machines in the UK is quite big but is not actually growing very fast; most households have a washing machine so sales are focused on replacement purchases. Given the size of the washing machine market, a brand with a high market share, such as Hoover or Hotpoint, will have sales worth millions of pounds. By comparison, the market for electric cars and organic food is still relatively small but has potential for fast growth. A cash cow already has a large market share, so much of the promotional work will have been done already. The product is likely to have a good distribution system and people will be aware that the product exists. The firm is used to producing the product in relatively large The business management toolkit 11 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 12 11/02/22 6:08 PM user /146/HO02478/work/indd volumes and so the cost per unit should be fairly low. As a result, a cash cow is likely to bring in high levels of cash for the firm. This can be used to finance other products. The cash cow can be ‘milked’ for its cash to finance other products that need more support. In terms of the product life cycle, these products are likely to be in the maturity phase. Dogs: These products have a low market share and are selling in a slow-growing market. A firm may want to get rid of these products unless it thinks it can improve its sales. However, dogs can sometimes be revived through extension strategies. Lucozade used to be seen as a drink to help sick people get better, until it was very successfully repositioned as a sports and energy drink. In terms of the product life cycle, these products are likely to be in the decline phase. Table 0.3 Features of the products in a Boston matrix Stars Question marks High market growth High market growth High market share Low market share May be cash neutral; cash coming in from sales Requires cash to develop and promote but being used to keep sales growing Typical strategy: build sales Typical strategy: hold Cash cows Dogs Low market growth Low market growth High market share Low market share Generates cash Unlikely to generate much cash Typical strategy: milk Typical strategy: sell off or shut down production The products for a business are shown within these four quadrants, as shown in Table 0.3. Typically, a circle is drawn for each one. Each circle in the Boston matrix represents one particular good or service. The size of the circle illustrates the turnover of the product – the bigger the circle, the higher the turnover. ATL 0.3 High Market growth (%) Low High Low Market share (%) Figure 0.4 Boston matrix for a business Analyse the potential implications for a business of this Boston matrix. Work in small groups and be prepared to share your findings. 12 Business Management for the IB Diploma 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 13 11/02/22 6:08 PM user /146/HO02478/work/indd The impact of product portfolio analysis on decisions The Boston matrix provides a snapshot of the position of all of a firm’s products at a particular moment in time, whereas the product life cycle focuses on just one product. This enables managers to see whether or not they have a balanced portfolio – that is, an appropriate mix of products. The Boston matrix can help a business to be more effective by providing an overview so that the manager can take appropriate actions. For example: If a business has too many dogs, it may have insufficient new products to keep it going in the future. As a result, it may want to invest in new products. If a business has lots of cash cows, it is generating relatively high levels of cash but, again, needs to think about the future: cash cows tend to be dominant products in markets that have already grown. A business may want and need to be involved in newer markets as well, and it should, therefore, look to develop some star products. If a firm has too many question marks, it may be quite vulnerable, as question marks need protective marketing to maintain and grow their position in the market, and this may drain a firm’s resources. With an appropriate mix of products, the cash cows can be used to finance the development of question marks and turn them into stars. This way, the firm uses money from established markets to enter new markets and so protect its future. Portfolio analysis, therefore, provides a good basis for effective marketing planning: Dog products may be sold off or production and sales halted. However, if the dog products cover their costs, a business may keep them even if they are not especially profitable. A business may also decide to invest to revive them. Star products may be invested in to maintain their position. Cash cows may be ‘milked’ to provide funds. Question marks may be protected. For example, a business may invest heavily in promotion to boost brand awareness and sales. Stars Question marks High Market growth Cash cows Dogs Low High Low Market share (%) Figure 0.5 The Boston matrix (2) Common mistake The market growth for cash cow products may be slow but this does not mean sales are not high. In fact, the bigger the market, the harder it can be to grow fast. For example, if a market is worth $20,000 and grows to $30,000, this is 50 per cent growth. Meanwhile, a market may grow from $2,000,000 to $2,500,000, which is only 25 per cent growth but is far more sales in absolute terms. The business management toolkit 13 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 14 11/02/22 6:08 PM user /146/HO02478/work/indd Evaluating the Boston matrix (product portfolio analysis) The Boston matrix is useful because it provides a clear visual overview of the business as a whole. It is easy and quick to see if, for example, the business seems overly reliant on dogs or cash cows. It will immediately highlight if the business has no question marks or stars, which may raise questions about the future of the business. However, as with all tools, managers need to interpret the data correctly and make the right decisions and this needs further analysis and context. It may be right to either drop a dog or modify and relaunch it. It may be worth investing in a question mark to help it develop or it may be that the potential returns do not actually justify this. Decisions also need to be made in the context of the business – a firm that wants fast growth may look to have more question marks and stars than one that is happier with slower growth and, therefore, is happier with a portfolio of cash cows. It is also important to look ahead; what may be a fast-growing market today may be about to slow up in the future. A slow growth market today may suddenly grow at a rapid rate – think of the prevalence and growth of face masks in 2020 and 2021, during the pandemic. SWOT analysis (1, 2, 3, 4 and 5) A SWOT analysis considers the internal and external environments of a business. SWOT analysis ◆ SWOT analysis is the basis for strategic planning. It helps managers understand the current position of the business considers the internal and and the future changes that may occur. This helps managers decide on the plan required, given external environments of a business. the nature of the business and the opportunities and threats that exist, to achieve the business objectives. It is a very common business tool and you will use it many times in your future career. A traditional SWOT analysis would take the context of STEEPLE to analyse how certain factors may impact. It is often conducted with a STEEPLE analysis. ‘S’ and ‘W’ stand for strengths and weaknesses. These are internal features of a business at the present time. Strengths may include: a high level of cash funds Top tip! a strong brand name The list of strengths a good distribution network and weaknesses will highly skilled staff be specific to each business. You need a low level of defects or returned goods. to understand the Weaknesses might include: specific business you high levels of borrowing are analysing to find its strengths and a lack of new products being developed weaknesses. There is high staff turnover no set number for each cash flow problems. and there do not need to be equal numbers Managers will consider the potential strengths and weaknesses in each of the functional areas of of strengths and the business, for example marketing, finance and operations; however, this does not mean there weaknesses. are necessarily strengths and weaknesses in all of these areas. 14 Business Management for the IB Diploma 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 15 11/02/22 6:08 PM user /146/HO02478/work/indd ‘O’ and ‘T’ stand for opportunities and threats. They refer to external events that might happen in the future. Threats are future events that might damage the business and opportunities are events that might benefit the business. Opportunities might include: entering new markets overseas an alliance with a competitor to develop new technology moving more of the business online taking over a rival. Threats might include: future legislation that would increase wage costs new competitors entering the market a takeover by a competitor. When considering what opportunities and threats exist, a manager may consider STEEPLE factors (see page 6). This helps categorize the different external factors that exist, namely Social, Technological, Economic, Environmental, Political, Legal and Ethical. Managers will also consider factors in the competitive environment, such as competitors and the supply chain. In each of these areas, they will consider what future opportunities or threats may occur. There may or may not be an opportunity or threat under any one heading; equally, there may be several – it depends on the business and its market conditions. Managers will try to identify the strengths, weaknesses, opportunities and threats that are relevant to their business. They will then rank them in order of their significance – what is the biggest and most damaging threat, for example? It is important when undertaking a SWOT analysis that the business does not just end up with a long list of factors; it needs to weigh up their relative importance to decide which are most important in relation to its future planning. For example, a business may not be able to exploit every opportunity or protect itself against every threat so managers will need to decide what to prioritise. Being able to make the right judgements and prioritise is a key aspect of management. The process of undertaking a SWOT analysis involves discussion and, in itself, is useful to get managers sharing ideas and perspectives. Managers are likely to consult internally to assess the strengths and weaknesses and this helps ensure they have a good understanding of the current position of the business. Managers may use market research and get expert advice as well as using their own judgement to assess opportunities and threats. Developing the outcome of a SWOT analysis into a strategy Once a SWOT analysis has been undertaken, managers should have a clearer view of what the business is good at, what its weaknesses are, what it could be doing and what it must protect itself against. From this, they can develop a strategy (or series of strategies) which may seek to: build on their strengths to exploit their opportunities; for example, by using the brand to launch more products reduce or remove their weaknesses; for example, by reducing borrowing protect themselves against threats; for example, by taking over a competitor who is threatening to take more market share exploit the opportunities that exist. The business management toolkit 15 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 16 11/02/22 6:08 PM user /146/HO02478/work/indd Evaluating SWOT analysis A SWOT analysis is a very good structure to help understand where you are and what positive and negative changes might occur in the future. It is simple to use and the four categories help structure your thinking. It is a tool that is frequently used by managers to organize their analysis. It is also easy to present to others as it is quickly understood. However, what matters is that the right strengths, weaknesses, opportunities and threats are identified. The value of SWOT depends on what information is put into this framework and how it is then used to make decisions. If you miss an opportunity, then your strategy will fail to exploit this. If you miss a threat, you will not plan for it. Some factors may not be there because managers miss them; some may be because managers simply did not know. How many businesses would have had a pandemic on their list of threats in January 2020? Some issues may have too much or too little importance because of the bias of managers. When considering the strengths and weaknesses of a business, for example, the manager of each function is likely to think their area is a strength simply because it is their area! Managers will need to be logical and rational when undertaking the analysis. You should always consider how the data was gathered, who gathered it and whether it is likely to have identified the key issues. What also matters is the quality of the managers and how they interpret the information in front of them. Do they, for example, prioritise the right threats to protect the business against? Do they rightly identify how the given strengths could be used to develop a strategy that is appropriate for the opportunities that exist? Remember that SWOT analysis examines the current situation and the future changes. It does not in itself develop a strategy; that comes next. To select the strategy, managers will use some of the other tools in the toolkit, such as the Ansoff matrix. They will then have to ensure the strategy is implemented correctly – and this is not always easy; to do this they may use some of the planning tools in the toolkit. It is also important to remember that the business environment – both internal and external – changes rapidly. A SWOT analysis is not a one-off exercise. Given that the internal and external environment is constantly changing, it should be continually reviewed and strategies adjusted accordingly. For example, a strategy of growth may be appropriate in a booming economy, but in a recession it may be necessary to focus on survival. ATL 0.4 The following is a SWOT analysis for a major pharmaceutical company called Glaxo SmithKline Beecham (GSK): Strengths Weaknesses High level of expertise and focus on research Risk created because some successful products and development leading to successful product have ended their patent protection, enabling development others to launch their versions High levels of liquidity (i.e. ability to pay short- term liabilities) reducing financial risk Opportunities Threats Positive outlook for industry as a whole, e.g. with Growing competition from unbranded products ageing populations reducing sales and prices Mergers and acquisitions Healthcare reforms and price controls reducing Future drug approvals profit margins Changes to patent law removing some protection for products Discuss the possible significance for GSK’s strategic planning of the SWOT analysis above. 16 Business Management for the IB Diploma 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 17 11/02/22 6:08 PM user /146/HO02478/work/indd Hofstede’s cultural dimensions (HL only) (2, 4 and 5) Geert Hofstede’s cultural dimensions are based on his research of employees at IBM to see how ◆ Hofstede’s cultural cultures may differ around the world within the same organization. dimensions measure His studies have identified a number of areas in which national cultures appear to differ, including: different aspects of national cultures such individualism vs collectivism as short-termism and power distance individualism. short-termism vs long-termism masculinity vs femininity indulgence vs restraint uncertainty avoidance. This work is important as businesses are increasingly operating Short-termism Masculinity internationally and employing an international workforce. It vs vs long-termism femininity is important therefore for managers to understand the cultural dimension of its employees. This is because it will affect what Power Uncertainty motivates them, how they behave, what they value and how they distance avoidance make decisions. It is particularly important when people from different regions are working together within the organization Individualism Hofstede’s Indulgence vs national vs or when different parts of the business in different parts of the cultures collectivism restraint world are working together. If people are not culturally aware and understand the different approaches of others, then they Figure 0.6 Hofstede’s national cultures may wrongly regard a particular action or behaviour as rude or inappropriate without understanding the context. The culture clashes that can occur if managers do not plan and adapt for them can be seen in mergers such as Daimler Chrysler, where the German and US managers had completely different ways of working and making decisions. This led to poor decision-making, arguments and mistakes and the merger was a disaster. Individualism vs collectivism Some societies value the individual; others value the team player. Imagine a football team with a striker who is a bit greedy but highly talented and a defender who is less ‘flash’ in the way he plays but very good at passing the ball to others; which of these players should be the most valued by the manager? Similarly, in business, is the individual star salesperson praised and celebrated (encouraging others to push themselves forward) even if they win sales at the expense of their colleagues, or is more value placed on the sales team that works best as a whole? The extent to which people are individualist or collectivist will affect their behaviour at work – are you trying to help others or prove that you are better than them? This matters because employees from one region who are used to being praised for being individualistic may find themselves criticized and overlooked for promotion in another region; not surprisingly, they may be confused if this difference in approach has not been discussed and if people have not discussed how best they could work together. Power distance Is the society in which you are based one where there is a clear sense of rank and status? For example, in the family, are the elders valued and the younger members expected to respect them? Or is it a more fluid society where respect has to be earned according to what you actually do rather than who you are? The greater the power distance in society, the more there is a hierarchy and the greater the difference between young and old or managers and employees. The business management toolkit 17 350977_FM_Bus_Man_IBDP_Sample_i-056.indd Page 18 11/02/22 6:08 PM user /146/HO02478/work/indd In a business, the degree of power distance will influence everything from how meetings are run to how decisions are made. For example, are ‘juniors’ expected and allowed to challenge the views of their superiors or are they expected to ‘do as they are told’ until they have been there enough years and have a job title that is senior enough to allow them to contribute? In Japan, for example, it is still the case to some extent that you are expected to adopt a different form of the language when talking to someone superior to you. This could be your boss or simply a student in the year above you. This reflects a society where seniority matters – for example, promotion depends on the number of years of service rather than who is ‘best’ at the job. This is a very hierarchical society that rewards loyalty, status, seniority and age. The positive side of this is that it avoids fighting and unproductive competition, but it will not appeal to those who want to rise quickly within an organization. The USA by comparison has a lower power distance. There is less respect for someone just because they have worked for the business for longer or are more senior in the hierarchy. In this society, people are encouraged more to challenge ideas even if they are put forward by their seniors. Differences in the power distance dimension again mean people will think and act in different ways; this can cause culture clashes and make it difficult for people from very dissimilar regions to work together effectively unless such differences are recognized and appreciated. Short-termism vs long-termism Different societies seem to have different approaches to time. In some countries, individuals tend to plan for only a few years ahead; in other countries, people seem to plan many years ahead. This may be linked to factors in society such as the political system. For example, in the UK, the government is only in power for five years at most before a re-election and, therefore, the planning horizon for any government tends to be relatively short-term; there is not much incentive to plan for the long term if you will not be in power then. This might influence the way everyone thinks in the UK. In other societies, governments may assume they are going to be in power for far longer. This might encourage more long-term thinking throughout society. In business, this will impact on investment decisions. Some managers may look three years ahead while others are willing to take longer-term risks. This matters because it will affect decisions within businesses. Some managers with a short-term perspective may only be interested in projects that generate a return in a few years; others may be willing to invest in a project that will not generate returns for a long time. Businesses need to be clear about the grounds on which they will consider projects. Similar