Fundamentals of Business Administration - Lecture Notes PDF

FUNDAMENTALS OF BUSINESS ADMINISTRATION LECTURE 1: INTRODUCTION TO THE COURSE A N D DEFINING MANAGEMENT Bachelor of Science in Business and Economics University of Rome “Tor Vergata”...

FUNDAMENTALS OF BUSINESS ADMINISTRATION LECTURE 1: INTRODUCTION TO THE COURSE A N D DEFINING MANAGEMENT Bachelor of Science in Business and Economics University of Rome “Tor Vergata” Prof. Fabio Monteduro [email protected] FABIO MONTEDURO 1 INTRODUCTION TO THE COURSE FABIO MONTEDURO 2 OUTLINE I.– Presentation of BA course instructors and participants II.– Course goals, concept, contents and structure III.– Administrative information IV.– Evaluation procedures FABIO MONTEDURO 3  I – PRESENTATION OF BA COURSE INSTRUCTORS AND PARTICIPANTS LET US GET ACQUAINTED! Teaching assistant Your teachers Fabio Monteduro Gianluca Onorati PhD Candidate in Professor of Management Management [email protected] [email protected] FABIO MONTEDURO I – PRESENTATION OF BA COURSE INSTRUCTORS AND PARTICIPANTS LET US GET ACQUAINTED! Introduce yourselves Please tell us…. ¡ The 5 W’s ¡ Who are you ? ¡ What is your preferred name in class? ¡ Where do you came from? ¡ What is your high school background, and ¡ Why are you attending this course? ¡ Please define your expectations FABIO MONTEDURO 5 II – COURSE GOALS, CONCEPT, CONTENTS AND STRUCTURE COURSE GOALS Upon completion of the course the student will: ¡ know and understand the basic concepts of the administration of a business, the characteristics of management processes and management functions ¡ be able to apply knowledge and to draw original conclusions (critical thinking), ¡ improve his/her communication skills, using an appropriate language during the presentation of management issues. ¡ enhance his/her learning ability as well as time management capacity FABIO MONTEDURO 6 II – COURSE GOALS, CONCEPT, CONTENTS AND STRUCTURE COURSE CONTENTS COURSE CONTENT This course combines a comprehensive and classic framework with a deeper treatment of contemporary management topics. It is an essential introduction to the administration of a business, covering topics such as performance and management of business operations, decision making as well as the efficient organization of people and other resources. Practical applications of the concepts will be given with examples, exercises, and case studies arising from the real-life context. FABIO MONTEDURO 7  II – COURSE GOALS, CONCEPT, CONTENTS AND STRUCTURE COURSE CONTENTS Module 1 (from 16/09 – to 23/10/24) Module 2 (from 04/11 – to 04/12/24) Defining Management Leadership The different types of organisations Organizational structure and the organisational cultures Introduction to Cost Accounting Globalization and national cultures Introduction to Financial Accounting Strategy and planning The dark side of business FABIO MONTEDURO 8 II – COURSE GOALS, CONCEPT, CONTENTS AND STRUCTURE COURSE SCHEDULE Both In site and Online Classes are held on: Monday (form 11.15 AM to 12.45 PM) 11 Frontal Lessons Tuesday (from 11.00 AM to 13.00 PM) 11 Classroom activities Wednesday (form 11.00 AM to 13.00 PM) Each hour includes a 15-minute break. FABIO MONTEDURO 9 II – COURSE GOALS, CONCEPT, CONTENTS AND STRUCTURE COURSE CONCEPT - A FIFTY-FIFTY APPROACH 50% 50% ¡ Me ¡ You ¡ Lectures ¡ Classroom ¡ Theory activities ¡ Practice FABIO MONTEDURO 10 II – COURSE GOALS, CONCEPT, CONTENTS AND STRUCTURE THERE ARE TWO SIDES TO EVERY COIN! My approach: ¡ No unnecessary sophistication ¡ In some ways, the hardest course you will ¡ Repetition ever take. ¡ Documentation (PowerPoints, textbook, ¡ Not because it is difficult, but because: ¡ A lot of new concepts teaching materials) ¡ These concepts become more clear in ¡ Don’t expect you to know something I later courses don’t cover in class. ¡ Learning management is like trying to ¡ Do expect you to be able to extend herd cats. No one great place to start. your knowledge on your own. ¡ A lot of, “You will learn more about that ¡ Encourage participation. later.” ¡ No surprise tests (but a periodic ¡ A lot of, “Good question, but there is no assessment!) short answer right now.” FABIO MONTEDURO 11 III – ADMINISTRATIVE INFORMATION DOCUMENTATION – VALUABLE RESOURCES 1) The Textbook I liked it for the following reasons: ¡ It balances classic theories with contemporary developments, ¡ It guides the reader from the basic concepts to some of the broader challenges of management, ¡ Each chapter supports the students from start to finish: ¡ Opening cases from practice ¡ Critical thinking boxes ¡ End of chapter activities for individual and class- based use Don’t learn by rote! FABIO MONTEDURO 12 III – ADMINISTRATIVE INFORMATION DOCUMENTATION – VALUABLE RESOURCES 2)The course’s webpage https://economia.uniroma2.it/ba/business-administration-economics/corso/lezioni/863/ Here you will find: ¡ Program ¡ PowerPoint presentations ¡ Lecture notes and other teaching FABIO MONTEDURO materials 13 III – ADMINISTRATIVE INFORMATION DOCUMENTATION – VALUABLE RESOURCES 2)Microsoft Teams link FABIO MONTEDURO 14  III – ADMINISTRATIVE INFORMATION OFFICE HOURS and TEAMS MEETINGS Our office is located in the Building B, I^floor, corridor B1 room 6. Fabio Monteduro Monday from 13.00 to 14.00 Wednesday from 13:00 to 14:00 To make it easier for us to help you please send an e-mail a few days before, specifying time and reason of the meeting. FABIO MONTEDURO 15 IV – EVALUATION PROCEDURES GRADING SCALE ¡ Failing grades between 0 and 17 ¡ Passing grades: between 18 (sufficient) to 30 (excellent). FABIO MONTEDURO 16 IV – EVALUATION PROCEDURES ASSESSMENT CRITERIA (FOR ATTENDING STUDENTS) At the end of the fist module there will be the mid-term exam (of FoBA course). It is provisionally scheduled on October 28th 2024 (11.00 – 13.00). This test covers the topics presented during the lessons in module 1. FABIO MONTEDURO 17 IV – EVALUATION PROCEDURES ASSESSMENT CRITERIA (FOR ATTENDING STUDENTS) Also at the end of the second module there will be the examination (final) (of FoBA course). It is scheduled on December 16th (14.30 – 16.30). The examination covers the topics presented during the lessons in module 2 for those who have passed/taken the midterm test, and the entire course (mod 1 + 2) for those who have not passed / taken the informal intermediate test FABIO MONTEDURO 18  IV – EVALUATION PROCEDURES H O W CLASSROOM ACTIVITIES WILL BE EVALUATED? There will be two rounds, one for each module. At the end of the first round, the winners (top three groups) will be notified. Each member of the winning groups will be rewarded with 3 or 2 additional grades. The members of remaining groups will be rewarded with 1 additional grade. These grades will be added to the grades obtained in the mid-term exam. Important: in order to be awarded in the aforesaid terms, it is necessary that you have taken part in at least 70% of activities in class (no free-riders). if a person has been present only one or two times to the classroom activities, he or she does not get any additional grade. FABIO MONTEDURO 19 IV – EVALUATION PROCEDURES ASSESSMENT CRITERIA (FOR ATTENDING STUDENTS) Module 1 mid-term exam (0-30) + Extra points for class activites (1-3) = Tot score M1 Module 2 End-of-course exam (0-30) + Extra points for class activities (1-3) = Tot score M2 Final score FABIO MONTEDURO Average M1 and M2 20 DEFINING MANAGEMENT FABIO MONTEDURO 21 BASIC DEFINITION OF MANAGEMENT “Someone who uses resources in an efficient and effective way so that the end product is worth more than the initial input” Inputs Transformation Outputs value x value x + y Emphasises Transformation role FABIO MONTEDURO 22  UNDERSTANDING KEY TERMS Effectiveness: the degree to which goals are doing the right thing. The capacity to satisfy the needs of customers Efficiency: using the fewest inputs (people, materials, technology) to generate a given output Value creation: the organization’s ability to attain its goal by using the resources in an efficient way Organization: a social entity that is goal directed and deliberately structured FABIO MONTEDURO 23 UNDERSTANDING KEY TERMS transformation Inputs Outputs value x value x + y price x quantity price x quantity Costs Revenues Revenues – Costs = profits 26 FABIO MONTEDURO  TYPE OF TRANSFORMATIONS Manufacturing: Physical form of objects and chemicals by bending, cutting, heating, assembling Transport: Position to more valuable location by lorry journeys, post, pipelines, couriers etc Storage: Holding until more valuable time by warehousing, depots, data- stores Education: Adding student knowledge and skills by lectures, seminars, books, assignments, exams etc FABIO MONTEDURO 25  DEFINITION OF MANAGEMENT FOCUSING ON PEOPLE “Getting things done by other people” Mary Parker -Follett “Someone who gets things done with the aid of other people” Rosemary Stewart Managers (they manage other people) Operatives (they work directly on raw materials or directly provide personal services) Specialists (workers who uses their skills and knowledge to enable other people to do some activities; for example financial analysts). FABIO MONTEDURO 26 FULL DEFINITION OF MANAGEMENT “getting other people to transform resources so that the results add value to the organisation in terms of reaching its goals” FABIO MONTEDURO 27  PROCESSES & FUNCTIONS ¡Processes are activities undertaken by most managers in the actual transformations e.g. planning, organising, staffing ¡Functions are the ways managers are grouped in an organisation to achieve specialised activities – often require specialist skills e.g. marketing, operations, HRM FABIO MONTEDURO 28 VARIETIES OF MANAGER In the textbook: chap. 1- sect.1.2 FABIO MONTEDURO 29 LEVELS OF MANAGEMENT According to their level in the organisation, managers are divided into : First-line managers; Middle managers; Senior managers. FABIO MONTEDURO 30 FIRST-LINE MANAGERS Also called junior or first level managers; Narrow range of responsibility, they are of responsible for the day-to-day activities operatives, clear objectives; Make sure operatives achieve targets, and listen carefully to the concerns of the people they manage. FABIO MONTEDURO 31  MIDDLE MANAGERS Also called department heads; Largely responsible for liaison and co-ordination, they transmit information up and down the hierarchy and across the various functions inside the organization; Numbers reduced drastically in recent years. Why? FABIO MONTEDURO 32  SENIOR MANAGERS often called top managers, directors, chief officers; Responsible for the whole organisation; Need to be sensitive to outside factors and ‘politics’; Strategy is the major responsibility, they have to develop a vision for the organisation and then they need to communicate it effectively to other people. FABIO MONTEDURO 33 SENIOR MANAGERS http://youtu.be/P7FqLZ8tiGE FABIO MONTEDURO 34 SKILLS & ABILITIES NEEDED BY MANAGERS In the textbook: chap. 1- sect.1.3 FABIO MONTEDURO 35 Katz's three broad skills 1.Conceptual skills: the ability to view situations broadly, solve the problem and think analytically; 2.Interpersonal skills: the ability to work effectively with other people and teams within the organisation, it is necessary to listen carefully other people and have a good communication skill; 3.Technical skills: consist of specialised knowledge of an industry or a process. They can involve engineering, scientific, financial or legal knowledge, and are obtained through formal education and are developed by formal training. FABIO MONTEDURO 36  COMPOSITION OF SKILLS ¡ Differs by Management Level (Katz) Strategic & Political Skills Interpersonal Skills Technical Skills First Line managers Middle managers Senior managers FABIO MONTEDURO 37  1. Brevity 2. Variety Nature of Managerial 3. Fragmentation Work Preference for Live Action Henry Mintzberg FABIO MONTEDURO 38  1. Interpersonal Roles Figurehead Leader Liaison 2. Information Roles Monitor MANAGERIAL ROLES Disseminator Spokesperson (A LA MINTZBERG) 3. Decision Roles Entrepreneur Disturbance handler Resource Allocator Negotiator FABIO MONTEDURO 39  Interpersonal roles Figurehead: basic managerial role, it is obliged to perform a cerimonial duties such as welcoming guests or presenting retirement presents. Leader: induce people to do things, they must inform, motivate and guide subordinates to perform activities that contribute to the organisation's goal. Liason: their role in vertical communication is demonstrated in most organisation charts, but it is also very important their role in horizontal communication. FABIO MONTEDURO 40  Informational roles Monitor: seek information about the performance of the area of responsibility. Disseminator: information has been collected and it must be transmitted to subordinates for action. Spokeperson: is similar to the previous role, but the first directs information internally, the second directs information outside the organisation to keep the general public informed. FABIO MONTEDURO 41  Decisional roles Entrepreneur: stems from a manager's ability to authorise action. Disturbance handler: takes action to get progress back on track, they usually have a sudden onset and managers usually give them priority. Resource allocator: this power gives a manager ultimate control without the necessity of being involved in the detail preparatory work. Negotiator: a manager who is always involved in a major negotiation with external organisations. FABIO MONTEDURO 42  1 Communication 97% 2. Self – Management 75% MANAGEMENT COMPETENCIES 3. Organisational Ability 68% 4. Influencing Skills 67% 5 Teamwork 60% MIKE BRISTOW RESEARCH ON 6O UK ORGANISATIONS 6 Interpersonal Skills 58% 7 Analytical Skills 58% FABIO MONTEDURO 43 FUNDAMENTALS OF BUSINESS ADMINISTRATION LECTURE 2: THE DIFFERENT TYPES OF ORGANIZATIONS AND THE ORGANISATIONAL CULTURES Bachelor of Science in Business and Economics University of Rome “Tor Vergata” Prof. Fabio Monteduro [email protected] FABIO MONTEDURO 1 …IN THE LAST LESSON ¡ Defining management ¡ Varieties of managers ¡ Skills & abilities needed by managers In the textbook: chap. 1- sect. 1.2; sect. 1.3. FABIO MONTEDURO 2  …IN THE LAST LESSON ¡ (Robert L. Katz) Strategic & Political Skills Interpersonal Skills Technical Skills First Line managers Middle managers Senior managers FABIO MONTEDURO 3 HOW DO MANAGERS WORK? 1. Brevity Nature of Managerial Work 2. Variety Henry Mintzberg 3. Fragmentation Preference for Live Action FABIO MONTEDURO 4 WHAT ROLES DO MANAGERS PLAY WITHIN AN ORGANIZATION? to be symbol of the unit (ex. ceremonial duties, legal Figurehead documents) Interpersonal Roles to induce people to act according the organizational (relationship with other Leader goals - motivation people) Liaison to link the unit with other units - horizontal communicat. Monitor to collect and processing performance data Information Roles (getting, processing and Disseminator to transmit info to subordinates – inside vert. comm. passing information) Spokesperson to transmit info outside the unit – outside vert. comm. Entrepreneur to promote innovation Disturbance handler to back on track the unit (unforeseen, accident) Decision Roles (make decisions) Resource Allocator To make decisions about people and resource allocation to negotiation with external organizations (commercial FABIO MONTEDURO Negotiator contracts) 5 WHAT DO MANAGERS DO? Management processes: activities performed by all managers FABIO MONTEDURO 6 WHAT DO MANAGERS DO? FABIO MONTEDURO 7 TODAY’S LESSON ¡ The different types of organizations ¡ Organizational cultures In the textbook: chap. 2- sect. 2.1; sect. 2.2. FABIO MONTEDURO 8 TYPES OF ORGANIZATIONS In the textbook: chap. 2- sect. 2.1 FABIO MONTEDURO 9 ORGANISATIONS IN WHICH MANAGERS’ WORK CAN BE DIVIDED INTO 3 GROUPS 1. Commercial/Business Organisations 2. Non-profit Organisations 3. Public sector Organisations FABIO MONTEDURO 10 BUSINESS – NONPROFIT- PUBLIC ORGANIZATIONS COMMON ELEMENTS … 1. They are all organizations! An organization is a group of individuals who collaborate to achieve common goals Managers perform similar processes (planning, organizing, leading, controlling) FABIO MONTEDURO 11 BUSINESS – NONPROFIT- PUBLIC ORGANIZATIONS COMMON ELEMENTS … 2. They all perform a production function! Outputs Inputs transformation (products: goods (resources) or services) FABIO MONTEDURO 12 BUSINESS – NONPROFIT- PUBLIC ORGANIZATIONS COMMON ELEMENTS … 3. They all must create “value” – to be efficient and effective Outputs Inputs transformation (products: goods (resources) or services) Value of outputs Value of outputs FABIO MONTEDURO + 13  BUSINESS – NONPROFIT- PUBLIC ORGANIZATIONS ….DIFFERENCES Different environment – different criteria to measure value creation Business organizations Non-Business organizations Market environment Non-market environment Market prices No market prices Financial measures Costs Different performance measures Revenues FABIO MONTEDURO Profits 14  DIFFERENT TYPES OF BUSINESS ORGANISATIONS 1. Sole Proprietorship Sole trader Owner-manager Owners Managers 2. Partnership Limited Liability Company 3. Corporation Employees Public companies (large) Holding companies Multinational corporations FABIO MONTEDURO 15  DIFFERENT TYPES OF BUSINESS ORGANISATIONS 1. Sole Proprietorship Sole trader: the same person is the The sole proprietorship is the simplest owner, the manager and the only employee business form under which one can operate a business. Owner Manager Just one owner! The sole proprietorship is not a legal entity separate from the owner. Employee(s) The owner is personally responsible for Owner-manager: the same person is organization’s debts (unlimited liability) the owner and he manager but there are different employees FABIO MONTEDURO 16  DIFFERENT TYPES OF BUSINESS ORGANISATIONS 2. Partnership At least two persons (but eventually more) are engaged in the business Owners Managers More than one owner! (co-owners) All owners are subject to unlimited personal Employees liability for the debts, losses, and liabilities of the business (except in the cases of limited limited liability company: hybrid business form. It offers protection liability companies). to its owners for company debts Individual partners bear responsibility for the and liabilities. actions of other partners. FABIO MONTEDURO 17  DIFFERENT TYPES OF BUSINESS ORGANISATIONS 3. corporation from the Latin ‘corpus’, which means body. Owners Managers A corporation is a ‘legal person’ in the eyes of the law, it is separate and distinct from its owners, Usually, corporations are owned by shareholders Employees whose liability is limited to their investment Shareholders do not typically actively manage a corporation; shareholders instead elect or appoint shareholder or stockholder is an a board of directors to control the corporation in individual or institution (including a corporation) that legally owns one or a fiduciary capacity. more shares of stock in a public or private corporation FABIO MONTEDURO 18  DIFFERENT TYPES OF BUSINESS ORGANISATIONS 3. Corporation Holding company (or Holding corp.) : a corporation which owns stock in another corporation. Owners Managers Public company (or publ. corporation): a corporation whose ownership is dispersed among the general public Employees in many shares of stock which are freely traded on financial markets. Multinational corporation: a corporation operating in several countries but managed from one (home) shareholder or stockholder is an individual or institution (including a country. Generally, it derives at least 25% of its corporation) that legally owns one or revenue from operations outside of its home country more shares of stock in a public or private corporation FABIO MONTEDURO 19 ORGANIZATIONAL CULTURE In the textbook: chap. 2- sect. 2.1 FABIO MONTEDURO 20 DEFINITION OF CULTURE “collective values, beliefs and principles of organizational members" “The pattern of basic assumptions a group has invented, developed and taught to new members as the correct way to perceive, think and feel in relation to problems.” ¡ Cultures have tangible and intangible components; ¡ Cultures help to integrate people into an organisation, help the communication and the performance efficiency. FABIO MONTEDURO 21  COMPONENTS OF CULTURE Tangible components Physical layout (buildings) Dress Logos, trademarks Mark Zuckerberg Furniture, equipment Jamie Dimon Intangible components Shared values Shared knowledge Shared experience of past events and people FABIO MONTEDURO https://www.youtube.com/watch?v=cGEb-q5JMU0 22 HOW DO CULTURES ARISE? ¡ Primarily due to the personality and style of the founder – perpetuated by: ¡ Attracting certain people that hold similar values; Apple ¡ Selecting those who adhere to culture; ¡ Attrition of those who do not fit into the culture. FABIO MONTEDURO 23  Organisational Culture View No 4: Cameron & Quinn 2006 COMPETING VALUES My preferred view is the Cameron & Quinn’s cultures (competing framework) Cameron & Quinn identified TWO dimensions 1. Stability & control vs Flexibility & discretion 2. Internal focus & integration vs External focus & differentiation They then developed a 2 x 2 matrix FABIO MONTEDURO 24 CAMERON & QUINN’S 4 ORGANISATIONAL CULTURES Flexibility & Discretion CY CL RA AN C O H D A Internal orientation External orientation & Integration Y CH M & Differentiation R AR RA KE IE T H Stability & Control FABIO MONTEDURO 25 CAMERON & QUINN’S 4 ORGANISATIONAL CULTURES Flexibility & Discretion nClan culture or collaborative culture. Internal orientation External orientation Ø It gives the feeling of a family firm, & Integration & Differentiation Ø it achieve goals by consensus and agreement, by involving all the Stability & Control people in decision-making. Ø The most important values are loyalty and cohesion. Ø Generally the structure is flat and there is a diffused authority. FABIO MONTEDURO 26 CAMERON & QUINN’S 4 ORGANISATIONAL CULTURES Flexibility & Discretion nHierarchy culture or control culture. Ø It tends to be seen in large and Internal orientation bureaucratic organisations or & Integration External orientation & Differentiation manufacturing organisations Ø There are a large number of management Stability & Control levels. Ø Large use standard operating procedures to produce a large number of similar products Ø Compliance with procedures is a key aspect FABIO MONTEDURO 27 CAMERON & QUINN’S 4 ORGANISATIONAL CULTURES Flexibility & Discretion nAdhocracy culture or creative culture Internal orientation External orientation Ø It is based on creativity and & Integration & Differentiation innovation Ø It could be found in industries such Stability & Control as aerospace, IT, the media, advertising ect. Ø Managers tends to respond to urgent problems rather than planning to avoid them. Ø flexible organizational structure FABIO MONTEDURO 28 CAMERON & QUINN’S 4 ORGANISATIONAL CULTURES Flexibility & Discretion nMarket culture or competitive culture Ø it is focused on the external market. Internal orientation External orientation Ø relations with suppliers, customers are & Integration & Differentiation fundamental. In this case, however, the culture is not pure but it is a mix of Stability & Control different types of cultures. Ø they have clearly defined organizational charts, rules to follow (especially quality standards) FABIO MONTEDURO 29  IMPORTANCE OF ORGANISATIONAL CULTURE Organisational cultures are relevant : Managers need to understand the culture of their firm: they have to use the right skills inside the company in the right way. Develop culture that suits business and its environment: for example in a firm that use a cost strategy, managers should encourage control culture rather than adhocracy. FABIO MONTEDURO 30  FUNDAMENTALS OF BUSINESS ADMINISTRATION LECTURE 3: GLOBALIZATION AND NATIONAL CULTURES Bachelor of Science in Business and Economics University of Rome “Tor Vergata” Prof. Fabio Monteduro [email protected] FABIO MONTEDURO 1 …IN THE LAST LESSON  Types of organizations  Organizational cultures In the textbook: chap. 2- sect. 2.1; sect. 2.2. FABIO MONTEDURO 2 NATIONAL CULTURES In the textbook: chap. 2- sect. 2.3 FABIO MONTEDURO 3  GEERT HOFSTEDE ◼Was first in field therefore very influential; ◼Surveyed cultures at IBM in 72 Countries; ◼Organisational culture held constant hence differences would be mainly national differences; ◼Results in book “Culture’s Consequences” (1980); ◼www.geert-hofstede.com ◼https://www.hofstede-insights.com/country-comparison/ ◼https://www.youtube.com/watch?v=wdh40kgyYOY&list=PLC6BZO C5E8KGXSgOH7lWjPBIrM7GOLV1K FABIO MONTEDURO 4 WHAT “NATIONAL CULTURE” IS?  National culture arises from a common identity;  History has a strong influence on the development of national culture;  The religion has a strong influence on national cultures;  Geographical characteristic may influence determines certain aspects of culture. FABIO MONTEDURO 5 WHAT “NATIONAL CULTURE” IS? Hofstede:  “Culture is the collective programming of the mind distinguishing the members of one group from others”;  National culture depends on some “cultural dimensions”. FABIO MONTEDURO 6 HOFSTEDE’S DIMENSIONS 1. Power – Distance (PD) 2. Individualism (IDV) 3. Motivation towards Achievement and Success (MAS) 4. Uncertainty Avoidance (UA) FABIO MONTEDURO 7 1ST CULTURAL DIMENSION: POWER – DISTANCE (PD)  This dimension expresses the degree to which the less powerful members of a society accept and expect that power is distributed unequally.  The fundamental issue here is how a society handles inequalities among people. FABIO MONTEDURO 8 1ST CULTURAL DIMENSION: POWER – DISTANCE (PD) Denmark 18 Sweden 31  In societies with low power Germany 35 distance, people strive to United Kingdom 35 equalise the distribution of power Australia 36 and demand justification for USA 40 inequalities of power. Italy 50 Japan 54  People in societies with an high France 68 power distance accept a India 77 hierarchical order in which Bangladesh 80 everybody has a place and which China 80 needs no further justification. Nigeria FABIO MONTEDURO 80 9 2 ND CULTURAL DIMENSION: INDIVIDUALISM (IDV):  Individualism can be defined as a preference for independence and self-reliance. It is the opposite of collectivism. FABIO MONTEDURO 10  2ND CULTURAL DIMENSION: INDIVIDUALISM (IDV): USA 91 Australia 90  individualist societies emphasizes the United Kingdom 89 accomplishments of a person rather Italy 76 than a group. Denmark 74  In collectivist societies the group is of Sweden 71 paramount importance.. And individual France 71 is expected to be loyal to the group Germany 67 and not advance his or her personal India 48 interests at the expenses of the group. Japan 46 To operate outside of the interest of the Nigeria 30 group is considered shameful. Bangladesh 20 FABIO MONTEDURO 11 3 TH CULTURAL DIMENSION: MOTIVATION TOWARDS ACHIEVEMENT AND SUCCESS (MAS):  Motivation towards Achievement and Success (MAS) can be defined as the extent to which people are assertive, ambitious, competitive and wanting to accumulate wealth and possessions. FABIO MONTEDURO 12 3 TH CULTURAL DIMENSION: MASCULINITY (MAS): Japan 95 Italy 70  An high level of this dimension Germany 66 represents a preference in society for United Kingdom 66 achievement, heroism, assertiveness China 66 and material rewards for success. USA 62 Society at large is more competitive. Australia 61 Nigeria 60  A low grade stands for a preference for India 56 cooperation, modesty, caring for the Bangladesh 55 weak and quality of life. Society at France 43 large is more consensus-oriented. Denmark 16 Sweden FABIO MONTEDURO 5 13 4 TH CULTURAL DIMENSION: UNCERTAINTY AVOIDANCE (UA):  The uncertainty avoidance dimension expresses the degree to which the members of a society feel uncomfortable with uncertainty and ambiguity.  The fundamental issue here is how a society deals with the fact that the future can never be known: should we try to control the future or just let it happen? FABIO MONTEDURO 14 4 TH CULTURAL DIMENSION: UNCERTAINTY AVOIDANCE (UA): Japan 92 France 86 Italy 75 Countries exhibiting strong UA Germany 65 maintain rigid codes of belief and Bangladesh 60 behavior and are intolerant of Nigeria 55 Australia 51 unorthodox behavior and ideas. USA 46 India 40 United Kingdom 35 China 30 Weak UA societies maintain a more Sweden 29 Denmark 23 relaxed attitude in which practice counts more than principles.  WHY ARE CULTURAL DIMENSIONS IMPORTANT?  Hofstede argues that understanding cultural dimensions could help communication between cultures and countries.  Understanding and respect of cultural norms can promote successful international diplomacy as well as international business.  Diametrical cultural norms can cause a lot of problems if each individual group doesn't accept the others. FABIO MONTEDURO 16 THE GLOBAL CONTEXT AND GLOBALIZATION In the textbook: chap. 2- sect. 2.4 FABIO MONTEDURO 17 GLOBALIZATION IS A FASHIONABLE WORD… FABIO MONTEDURO 18 GLOBALIZATION: GOOD OR EVIL? FABIO MONTEDURO 19  DEFINITIONS OF GLOBALISATION 1. Globalization can be defined as the accelerated interdependence of economic and business activities across national boundaries. 2. Globalisation is the process by which the world is becoming increasingly interconnected as a result of the evolution of worldwide systems of transport and communications. 3. Globalization is a worldwide drive towards a global economic system dominated by supranational corporate trade and banking institutions that are not accountable to democratic process or national government. FABIO MONTEDURO 20 WHAT DOES GLOBALIZATION MEAN TO YOU?  Hands up those of you who think that globalization means more choice in products? FABIO MONTEDURO 21 WHAT DOES GLOBALIZATION MEAN TO YOU?  Yes is the right answer. FABIO MONTEDURO 22 WHAT DOES GLOBALIZATION MEAN TO YOU?  No is also the right answer. 23 FABIO MONTEDURO WHAT DOES GLOBALIZATION MEAN TO YOU?  hands up those of you who think that globalization means lower prices of products? FABIO MONTEDURO 24 WHAT DOES GLOBALIZATION MEAN TO YOU?  Yes is the right answer. FABIO MONTEDURO 25 WHAT DOES GLOBALIZATION MEAN TO YOU?  No is also the right answer. FABIO MONTEDURO 26 WHAT DOES GLOBALIZATION MEAN TO ME ◼Globalization is a fact not a goal. ◼It is not positive or negative in itself, but…. ◼It has some reasons and it has some impacts. ◼I will focus only on the economic/managerial issues (other perspectives –political, legal, sociological issues - are important but outside the scope of this course). FABIO MONTEDURO 27 REASONS FOR GLOBALISATION – MACRO LEVEL It is more efficient for countries to produce products or services where they have an advantage and to buy other products from other countries:  e.g. Saudi Arabia should produce oil and import lamb meat;  e.g. Australia should produce a lamb meat and import oil. FABIO MONTEDURO 28  REASONS FOR GLOBALISATION – MACRO LEVEL Portugal England  In 1817, David Ricardo has explained Wine 50 hours to 150 hours to produce a produce a the theory of comparative advantage unit unit with a famous example. Cloth 75 hours to 100 hours to  Two countries (Portugal and England), produce a produce a two goods. unit unit  Portugal, in absolute terms, is a more efficient country.  However, the relative costs of producing 125 hours to 250 hours to those two goods differ between the produce produce 1 unit of Prod. A 1 unit of Prod. A countries. and 1 of Prod. B and 1 of Prod. B FABIO MONTEDURO 29  REASONS FOR GLOBALISATION – MACRO LEVEL No globalization Portugal England Wine 50 hours to produce a 150 hours to produce a In absence of trade unit unit Cloth 75 hours to 100 hours to Global production: 2 units of produce a produce a unit unit prod. A and 2 units of prod. B Global costs: 375 hours 125 hours to 250 hours to produce produce 1 unit of Prod. A 1 unit of Prod. A and 1 of Prod. B and 1 of Prod. B FABIO MONTEDURO 30  REASONS FOR GLOBALISATION – MACRO LEVEL Portugal England Wine 50 hours to 150 hours to In presence of international produce a produce a unit unit free trade Cloth 75 hours to 100 hours to produce a produce a Global production: 2,5 units of unit unit prod. A (0,5 more) and 2,5 units of prod. B (0,5 more) 125 hours all 250 hours all invested in Prod. A invested in Prod. B 125/50= 2,5units 250/100= 2,5 Global costs: 375 hours FABIO MONTEDURO 31  REASONS FOR GLOBALISATION – MACRO LEVEL No trade - No globalization Free trade - globalization Portugal England Portugal England Wine 50 hours to 150 hours to Wine 50 hours to 150 hours to produce a produce a produce a produce a unit unit unit unit Cloth 75 hours to 100 hours to Cloth 75 hours to 100 hours to produce a produce a produce a produce a unit unit unit unit 125 hours to 250 hours to 2,5 units prod A 2,5 units prod B produce produce 1 unit of prod A 1 unit of cloth 1 unit of Prod. A 1 unit of Prod. A and 1 of Prod. B and 1 of Prod. B 1,5 prod A 1,5 prod B FABIO MONTEDURO 1 prod B 1 prod A 32 GLOBALISATION AT THE ORGANIZATION LEVEL: THE INTERNATIONAL BUSINESS  International business refers to business activities that involve the transfer of resources, goods, services, knowledge, skills, or information across national boundaries.  The firm is the primary economic agent facilitating and gaining (or suffering) from globalization.  Firm activities and exchanges that involve the crossing of national boundaries are called international transactions. FABIO MONTEDURO 33 TYPES OF INTERNATIONAL TRANSACTIONS International trade International investment 1. Importing 5. Direct Investment 2. Exporting 6. Joint Ventures 3. Outsourcing 7. Multinational Firms 4. Licensing (Franchising) FABIO MONTEDURO 34  IMPORTING  Importing refers to buy goods and services produced across a national border. The party bringing in the good is called an importer.  Companies import goods/services that are not available in the local market or that, even if available, the foreign market produces at a cheaper price and better quality.  In international trade, the importation of goods are regulated by trade agreements, and the involved jurisdictions can limit import quotas or may impose a tariff (tax) on the goods. FABIO MONTEDURO 35  EXPORTING ◼Exporting refers to selling goods and services produced in the home country to other markets. ◼Exporting requires significantly lower level of investment and risks than other modes of international expansions (such as for example direct investments). ◼The lower risk of export typically results in a lower rate of return on sales (profitability) than possible through other modes of international business. FABIO MONTEDURO 36 EXPORTING Making the export decision Once a company determines it has exportable products, it must still consider other factors, such as the following: 1. What does the company want to gain from exporting? 2. Is exporting consistent with other company goals? 3. What demands will exporting place on the company's key resources - management and personnel, production capacity, and finance - and how will these demands be met? 4. Are the expected benefits worth the costs, or would company resources be better used for developing new domestic business? FABIO MONTEDURO 37 OUTSOURCING  Outsourcing is the contracting of business processes to external firms, usually in developing countries where labor costs are cheaper.  This practice has increased in prevalence due to better technology and improvements in the educational standards of the countries to which jobs are outsourced. FABIO MONTEDURO 38  LICENSING  Licensing is a business agreement involving two companies: one gives the other, in exchange for payment, rights or resources (patents, copyrights, technology, managerial skills) or other factors necessary to manufacture the good.  Example: Lego batman  Advantages:  the ability to reach new markets that may be closed by trade restrictions  the ability to expand without too much risk or capital investment. It offers a relatively easy method for global expansion  Disadvantages:  risk of an incompetent foreign partner firm  lower returns compared to other modes of international expansion. FABIO MONTEDURO 39 DIRECT INVESTMENT  A Foreign direct investment (FDI) is a controlling ownership in a business enterprise in one country by an entity based in another country.  A foreign direct investment can occur through different methods. Some relevant are:  Joint venture;  Acquisitions. FABIO MONTEDURO 40 JOINT VENTURES  Joint business ventures involve two parties contributing their own equity and resources to develop a new project. The enterprise, revenues, expenses and assets are shared by the involved parties.  Since money is involved in a joint venture, it is necessary to have a strategic plan in place.  As the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project as well as the resulting profits.  Joint ventures have medium risk and medium returns. FABIO MONTEDURO 41  ACQUISITIONS  Acquisitions involve buying an existing organization in another country.  Acquisitions provide very speed and full control over resources in another country.  Acquisitions have high risk (often fail) and high returns. FABIO MONTEDURO 42  MULTINATIONAL FIRMS  Multinational corporations operate in multiple countries. A relevant part of organizational sales are derived outside their county of origin (at least 25%)  MNCs have considerable power and may negotiate business or trade policies with success.  Example:  Nestlè (over 98% of its sales is generated outside its country of origin (Switzerland);  Philips (over 94% of its sales is generated outside its country of origin (Netherlands). Transnational companies FABIO MONTEDURO 43  THE STAGES OF GLOBAL EXPANSION + Risks/ Multinational company returns Acquisitions Joint ventures Licencing - Export Import - Global expansion + FABIO MONTEDURO 44 ORGANIZATIONAL IMPLICATIONS OF GLOBALIZATION  Choose the correct form of presence: import/export, licensing, franchising, joint ventures, ecc.  Be familiar with national cultures.  Use the organization’s networks of contacts. FABIO MONTEDURO 45 FUNDAMENTALS OF BUSINESS ADMINISTRATION LECTURE 4: STRATEGY AND PLANNING I Bachelor of Science in Business and Economics University of Rome “Tor Vergata” Prof. Fabio Monteduro [email protected] FABIO MONTEDURO 1 STRATEGY AND PLANNING In the textbook: chap. 4- sect. 4.1; 4.2; 4.3 chap. 14 – sect. 14.4 + chap. 20 -pp. 500-502 FABIO MONTEDURO 2 WHAT IS STRATEGY FABIO MONTEDURO 3 WHAT IS A STRATEGY? ¡ Strategy deals with getting a position of advantage over competitors, exploiting emerging possibilities. ¡ Strategy entails: ¡ Setting goals; ¡ Determine actions to achieve the goals; ¡ Finding resources to perform the actions. ¡ Strategy deals with future actions (uncertainty). FABIO MONTEDURO 4 STRATEGIC MANAGEMENT – STRATEGIC PLANNING ¡ Strategy is a process (series of actions) which involves the formulation and implementation of organizational goals. ¡ This process can be interpreted as fully rational, formalized, sequential. This is strategic planning. ¡ By contrast, the process can be interpreted as only partially rational, not formalized, iterative. This is strategic management. ¡ They are just different way to interpret the same process (strategy). FABIO MONTEDURO 5 AN EXAMPLE ¡ A company may want to expand its current operations into new markets or countries. ¡ To develop the strategy: ¡ Firm must first obtain information on new markets; ¡ Then it should consider its real capacities. ¡ At the end of this analysis, the company ¡ May decide to abandon the idea because it is not sustainable. ¡ May formulate specific goals, that can be described in a plan (for example: how to enter the market and differentiate from competitors' products). ¡ Now, it is time to implement the strategy, which involves decisions regarding how the organization's resources (i.e., people, process and IT systems) will be aligned and mobilized towards the goals. FABIO MONTEDURO 6  STRATEGY–RELEVANT STEPS 1. Scan the environment: diagnosis of the inside and outside environment and competitive situation. 2. Set strategy: define a guiding policy on what the organization intends to accomplish (strategic goals), and key initiatives or action plans for achieving the guiding policy 3. Implement strategy: detail how the objectives are to be achieved. Implementing a strategy involves organizing, resourcing, and changing the organization (i.e. creating new units) FABIO MONTEDURO 7 SCAN THE ENVIRONMENT Michael Porter wrote in 1980 a guideline about the formulation of a competitive strategy that it includes four key elements: ¡ Company strengths and weaknesses; ¡ Personal values of the key implementers (i.e., management); ¡ Industry opportunities and threats; ¡ Broader societal expectations. The first two elements are related to the internal environment, while the latter two relate to factors external to the company. FABIO MONTEDURO 8  SCAN THE ENVIRONMENT: TOOLS ¡ Firms can use a lot of analytical tools and techniques in their strategic plans. ¡ These were developed by companies and management consulting firms to help provide a framework for strategic planning. ¡ The two easiest are: ¡ PEST analysis, which covers the remote external environment elements such as Political, Economic, Social and Technological (PESTLE adds legal/regulatory and ecological/environmental); ¡ SWOT analysis, which addresses internal Strengths and Weaknesses and the external Opportunities and Threats; FABIO MONTEDURO 9  PEST ANALYSIS: KEY ELEMENTS ¡ The basic PEST analysis includes four factors (Political, Economic, Social and Technological) 1. Political factors: regard how the government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. They may also include goods and services which the government wants to provide or be provided and those that it does not want to be provided. Furthermore, governments have great influence on the health, education, and infrastructure of a nation. FABIO MONTEDURO 10  Political factors to consider ¡ When is the country's next local, state, or national election? How could this change government or regional policy? ¡ Who are the most likely contenders for power? What are their views on business policy, and on other policies that affect your organization? ¡ Depending on the country, how well developed are property rights and the rule of law, and how widespread are corruption and organized crime? How are these situations likely to change, and how is this likely to affect you? ¡ Could any pending legislation or taxation changes affect your business, either positively or negatively? ¡ How will business regulation, along with any planned changes to it, affect your business? ¡ And is there a trend towards regulation or deregulation? ¡ How does government approach corporate policy, corporate social responsibility, environmental issues, and customer protection legislation? What impact does this have, and is it likely to change? ¡ What is the likely timescale of proposed legislative changes? ¡ Are there any other political factors that are likely to change? FABIO MONTEDURO 11  PEST ANALYSIS: KEY ELEMENTS 2. Economic factors: include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy. FABIO MONTEDURO 12  Economic factors to consider How stable is the current economy? Is it growing, stagnating, or declining? Are key exchange rates stable, or do they tend to vary significantly? Are customers' levels of disposable income rising or falling? How is this likely to change in the next few years? What is the unemployment rate? Will it be easy to build a skilled workforce? Or will it be expensive to hire skilled labor? Do consumers and businesses have easy access to credit? If not, how will this affect your organization? How is globalization affecting the economic environment? Are there any other economic factors that you should consider? FABIO MONTEDURO 13  PEST ANALYSIS: KEY ELEMENTS 3. Social factors: include the cultural aspects like health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers). FABIO MONTEDURO 14  Socio-cultural factors to consider What is the population's growth rate and age profile? How is this likely to change? Are generational shifts in attitude likely to affect what you're doing? What are your society's levels of health, education, and social mobility? How are these changing, and what impact does this have? What employment patterns, job market trends, and attitudes toward work can you observe? Are these different for different age groups? What social attitudes and social taboos could affect your business? Have there been recent socio-cultural changes that might affect this? How do religious beliefs and lifestyle choices affect the population? Are any other socio-cultural factors likely to drive change for your business? FABIO MONTEDURO 15  PEST ANALYSIS: KEY ELEMENTS 4.Technological factors: include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation. FABIO MONTEDURO 16  Technological factors to consider Are there any new technologies that you could be using? Are there any new technologies on the horizon that could radically affect your work or your industry? Do any of your competitors have access to new technologies that could redefine their products? In which areas do governments and educational institutions focus their research? Is there anything you can do to take advantage of this? How have infrastructure changes affected work patterns (for example, levels of remote working)? Are there existing technological hubs that you could work with or learn from? Are there any other technological factors that you should consider? FABIO MONTEDURO 17  PEST ANALYSIS: HOW IT WORKS 1. Collecting 2. Classifying 3. Assigning 4. Evaluating information information weights elements FABIO MONTEDURO 18  PEST ANALYSIS: HOW IT WORKS 1. Collecting 2. Classifying 3. Assigning 4. Evaluating Figure 2: Recent internet use by age group, 2011 and 2018, UK information information weights elements Different sources Statistical bulletin Internet users, UK: 2018 Not in the right order Internet use in the UK annual estimates by age, sex, disability and geographical location. Too little information Contact: Cecil Prescott [email protected] +44 (0)1633 456767 Release date: 31 May 2018 Next release: 23 May 2019 Too much information 1. Main points Table of contents (overload) 2. Things you need to know about this release 3. Generation gap narrowing in recent internet use 4. Men are more likely to use the internet than women 5. Older adults are less likely to use the internet 6. Recent internet use by disabled adults increases across all ages Example: in the country X, 90% of 7. Northern Ireland shows the largest increase in recent internet use 8. Quality and methodology the population uses the Internet FABIO MONTEDURO 19  PEST ANALYSIS: HOW IT WORKS 1. Collecting 2. Classifying 3. Assigning 4. Evaluating information information weights elements the outcome of the Brexit negotiations causes political uncertainty GDP was estimated to Political Approximately 87% of have increased by 1.7% Economic U.K. consumers have between 2016 and 2017 Social bought at least one In UK 90% of the population uses the Internet product online in the last Technological 12 months In UK 90% of the population uses the FABIO MONTEDURO Internet 20 PEST ANALYSIS: HOW IT WORKS 1. Collecting 2. Classifying 3. Assigning 4. Evaluating information information weights elements Other possible options. weights In the example I assigned the outcome of the Brexit negotiations causes the same weights to all Political 0,25 political uncertainty variables. But other GDP was estimated to have increased by 1.7% solutions are possible.You Economic 0,25 have to choose the weights between 2016 and 2017 (before carrying out the Social Approximately 87% of U.K. consumers have 0,25 bought at least one product online in the last 12 evaluation) and motivate months your choice. Technological In UK 90% of the population uses the Internet 0,25 Tot. 1 or 100% FABIO MONTEDURO 21  PEST ANALYSIS: HOW IT WORKS 1. Collecting 2. Classifying 3. Assigning 4. Evaluating information information weights elements weights rating Weighted rating Rate each single Political the outcome of the Brexit negotiations causes 0,25 2 0,5 factors (you can use political uncertainty a rating scale from 1 Economic GDP was estimated to have increased by 1.7% 0,25 3 0,75 (low) to 5 (high). between 2016 and 2017 Than, multiply the Social Approximately 87% of U.K. consumers have 0,25 4 1 weight by the rating bought at least one product online in the last 12 weighed. months Now add up the Technological In UK 90% of the population uses the Internet 0,25 4 1 weighed ratings and get a final rating. FABIO MONTEDURO Total 3,25 22  PEST ANALYSIS: HOW IT WORKS Carry out the PEST analysis for every scenario you want to analyse and compare the results. You can choose the best option For example you can compare, using the PEST analysis, two countries where a company wants to expand and select the best option. Country A Country B weights rating Weighted weights rating Weighte rating d rating Political brexit 0,25 2 0,5 Political political instability 0,25 2 0,5 Economic GDP growth 1,7% 0,25 3 0,75 Economic GDP growth 1,5% 0,25 2 0,5 Social On line shopping 87% 0,25 4 1 Social On line 0,25 2 0,5 shopping 53% Technological Internet use 0,25 4 0,5 90% Technological Internet use 70% 0,25 3 0,75 Total 3,25 Total 2,25 23 FABIO MONTEDURO  SWOT ANALYSIS: KEY ELEMENTS ¡ A SWOT analysis or matrix is a planning method used to evaluate the environment (both inside and outside) through strengths, weaknesses, opportunities and threats involved in a project or in a organization. ¡ A SWOT analysis can be carried out for products, countries, industries, organizations or people. 24 FABIO MONTEDURO  SWOT ANALYSIS: KEY ELEMENTS Strengths: characteristics of the organization that give it an advantage over others (organization or countries). Weaknesses: characteristics that place the the organization at a disadvantage relative to others Opportunities: external elements that the the organization could exploit to its advantage Threats: external elements in the environment that could cause trouble for the the organization FABIO MONTEDURO 25 SWOT ANALYSIS: HOW IT WORKS 1. Collecting 2. Classifying 3. Evaluating information information elements 26 FABIO MONTEDURO  SWOT ANALYSIS: HOW IT WORKS 1. Collecting 2. Classifying 3. Evaluating information information elements Different sources Not in the right order Too little information Too much information (overload) Example: the department of Foreign Affairs issued a statement saying that there might be a riot The company X has a strong network of contacts in the country A FABIO MONTEDURO 27  SWOT ANALYSIS: HOW IT WORKS 1. Collecting 2. Classifying 3. Evaluating information information elements Example: the company X wants to expand its production in the country A. 1. the department of Foreign Affairs issued a statement saying that there might be a riot 2. The company X has a strong network of contacts in the country A FABIO MONTEDURO 28  SWOT ANALYSIS: HOW IT WORKS 1. Collecting 2. Classifying 3. Evaluating information information elements Carry out the SWOT analysis for every scenario you want to analyse; You should consider whether the scenario is profitable and the goal are attainable, given the SWOTs. You may also choose the best option, comparing different scenario. Scenario 1: expand in Country A Scenario 2: expand in Country B Good networks Good networks Political instability Political stability FABIO MONTEDURO 29  SWOT ANALYSIS: HOW IT WORKS 1. Collecting 2. Classifying 3. Evaluating information information elements The comparison of the alternatives can be difficult when there are conflicting elements (such as in the example) In these situations, you can evaluate each scenario individually. It possible to have two good solution or none. In any case, any solution must be properly motivated. Scenario 1: expand in Country A Scenario 2: expand in Country B Good networks No networks Political instability Political stability 30 FABIO MONTEDURO  Vision, mission and values 1. Scan the environment: diagnosis of the inside and outside environment and competitive situation. 2. Set strategy: define a guiding policy on what the organization intends to accomplish (strategic goals), and key initiatives or action plans for achieving the guiding policy. 3. Implement strategy: detail how the objectives are to be achieved. Implementing a strategy involves organizing, resourcing, and changing the organization (i.e. creating new units). FABIO MONTEDURO 31 STRATEGY FORMULATION After the evaluation of the environment, firms: 1. must consider to review the current mission, vision and values. 2. And then they must decide the appropriate strategy. FABIO MONTEDURO 32 HOW CAN ASPIRATIONS BE EXPRESSED? People and organizations express an aspiration: ¡ by articulating a mission; ¡ by formulating a vision; ¡ through their values. FABIO MONTEDURO 33 MISSION: SOME EXAMPLE To build the best product, cause no Make political writing into an art. unnecessary harm, and use business George Orwell to inspire and implement solutions to the environmental crisis. A mission statement defines the purpose of a company or organization, it is the reason for the organisation's existence. FABIO MONTEDURO 34 VISION: SOME EXAMPLE I will build a motor car for the great I have a dream that my four children will multitude...it will be so low in price that no man one day live in a nation where they will not making good wages will be unable to own one be judged by the color of their skin but by and to enjoy with his family the blessing of the content of their character. hours of pleasure in God’s great open Martin Luther King spaces...When I’m through, everyone will be able to afford one and everyone will have one Henry Ford A vision describes what the future will look like when the organization has achieved its mission, or part of it. A vision, then, is a picture of an intended future. FABIO MONTEDURO 35 VALUES: SOME EXAMPLE I disapprove of what you say, but We have the words ‘Done is I will defend to the death your better than perfect’ painted on right to say it. our walls... Voltaire Mark Zuckerberg Values reflect an organization’s culture. They specify what is important to the organization. They describe the behaviours that are rewarded. FABIO MONTEDURO 36  THE EMPHASIS OF ASPIRATIONS: MOTIVATION VS STRATEGY n Organizational aspirations (mission, vision, values) must be both motivating and strategic. n Aspirations can be considered “strategic”, if they reflect some of the high- level choices the organization has made about how to compete. If an aspiration does not contain any information about how the organization chooses to compete, we will say it is not strategic. n Aspirations can be considered “motivating”, if they can influence the way people think or behave. If an aspiration does not contain any call to pursue a particular course of action, we will say it is not motivating. FABIO MONTEDURO 37  IN SUMMARY Criteria for evaluating organizational aspirations Campbell and Yeung’s framework organizational aspiration n According to Campbell and Yeung should Personal and be both motivating and strategic. fairly-defined well-defined aligned n The motivational dimension appeals to employees’ “hearts,”–their personal MOTIVATIONAL aspirations. n The strategic dimension appeals to aspiration not aligned (HEART) employees’ “heads.” organizational Personal and poorly-defined fairly-defined Moreover, organizational aspiration have to be internally coherent. This means that mission, vision and values of a given company must Aspirations specify no Aspirations specify sufficient be consistent and mutually reinforcing. choices about how compete choices about how compete STRATEGIC 38 FABIO MONTEDURO (HEAD) FUNDAMENTALS OF BUSINESS ADMINISTRATION LECTURE 5: STRATEGY AND PLANNING II Bachelor of Science in Business and Economics AY 2022-2023 University of Rome “Tor Vergata” Prof. Fabio Monteduro [email protected] FABIO MONTEDURO 1 STRATEGY FORMULATION Once an organization: ¡ has defined its aspirations (mission, vision and values) and ¡ has carried out an analysis of the environment (PEST, SWOT analysis). There are all the elements necessary to formulate strategy. FABIO MONTEDURO 2 STRATEGY FORMULATION The formulation of strategies consists of three steps: 1. Identifying a rich range of strategic alternatives 2. Doing an evaluation of advantages and disadvantages of these alternatives 3. Decide on the best alternative (the one that gives more benefits to the organization). FABIO MONTEDURO 3 WHICH STRATEGIC ALTERNATIVES ARE THERE? ¡ Levels of the organization. ¡ Corporate level ¡ Business level (strategic business units) FABIO MONTEDURO 4 LEVELS OF STRATEGIES 1. Corporate Strategies ¡ They deal with the overall organization 2. Competitive Strategies ¡ They are strategies that can be implemented at the business unit level to create a competitive advantage against rivals. FABIO MONTEDURO 5 CORPORATE STRATEGIES FABIO MONTEDURO 6 CORPORATE STRATEGIES ¡ In this aspect of strategy, we are concerned with broad decisions about the total organization's scope and direction. ¡ Basically, we have to consider: growth or directional strategy; portfolio strategy. FABIO MONTEDURO 7  vertical integration concentration horizontal growth. Growth strategy concentric diversification CORPORATE diversification STRATEGIES Conglomerate Diversification portfolio BCG strategy CORPORATE STRATEGIES: 1. GROWTH STRATEGIES ¡ Growth objectives can range from aggressive growth through retrenchment. ¡ Therefore, the company must decide whether to grow, remain stable or become smaller. ¡ If a company decides to grow, it must evaluate two basic options: a. To grow by focusing on a single industry or sector (this is called concentration), b. To grow diversifying their activities in different industries or sectors (diversification). FABIO MONTEDURO 9  vertical integration concentration horizontal growth. Growth strategy concentric diversification CORPORATE diversification STRATEGIES Conglomerate Diversification portfolio BCG strategy  KEY TERMS ¡ Please note that we introduced two relatively new concepts: growth and industry or sector ¡ Most companies measure their growth in terms of: ¡ profit (growth means increasing the difference between revenues and costs); ¡ sales (growth means increasing the amount of products sold in the market); ¡ number of employees (growth means increasing employment); ¡ physical expansion (growth means opening new plants, facilities or factories); ¡ increased market share (is given by the ratio between sales of a given company in relation to the total sales of all the companies that sell the same type of product). FABIO MONTEDURO 11 KEY TERMS ¡ Industry refers to a group of companies that are related in terms of their primary business activities. ¡ Industries can be grouped into larger categories called sectors. ¡ For example, the financial sector can be broken down into industries such as banks, insurance, etc. FABIO MONTEDURO 12 CORPORATE STRATEGIES: 1. GROWTH STRATEGIES (CONCENTRATION – VERTICAL INTEGRATION) A company can grow by focusing on a single industry or sector (concentration). A first concentration strategy is vertical integration ¡ This means taking over functions backward of forward in the supply chain ¡ What does supply chain mean? FABIO MONTEDURO 13  vertical integration concentration horizontal growth. Growth strategy concentric diversification CORPORATE diversification STRATEGIES Conglomerate Diversification portfolio BCG strategy KEY TERMS Resourc Supply chain (or industry value etc.) ents, compon , materials es (raw Suppl chain) iers ¡ Every company must buy resources from some suppliers and, once the Producti product has been made, it must find s processe ve Com distributors to get the product to pany customers. ¡ Suppliers, producers and distributors delivery are autonomous companies, but rs custome to products of Distr they are connected as a “chain”. The chan ibuti nels on supply chain in fact. FABIO MONTEDURO  KEY TERMS Resourc ents) compon l (chemica es Supply chain: an example BASF Consider a customer walking into a Wal-Mart store to purchase a laundry detergent (for Deterge example a Procter & Gamble’s product). What is uring) manufact (product nt the supply chain of this product? Proct gamb and er le ¡ The BASF company is the supplier of the chemical components; Retailer ¡ The Procter and Gamble is the manufacturer; rs) custome to products of (delivery ¡ Wal-Mart is the