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Codes of ethics and mission statements

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Read on

The Economist articles referred to above appeared as a Schools Briefs series weekly from 18 October to 6 December, 1997.

The Financial Times produced a series, The Global Company', 1 October to 7 November, 1997; also in ten parts, 'Mastering Global Business', 1998. These can be found on the FT archive at www.ft.com.

Zygmunt Bauman: Globalization, Polity, 1998. For social and cultural issues.

Michael J. Marquardt: The Global Advantage: How World Class Organisations Improve Performance Through Globalization, Gulf Publishing, 1998. For a corporate view.

John Gray: False Dawn: Delusions of Global Capital, Granta Books, 1998. For a view of the potential downsides.

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2. Brands

For the consumer-in-the-street, brands,along with advertising,are the most visible parts of marketing. For the skeptical small business, marketing is sales with a college education and, of course, marketing is an important part of the business school curriculum.

Marketing courses usually begin with the credo of the marketing orientation,the idea that success and profitability are attained through identification and satisfaction of customer needs.The market orientation implies that marketing is not just a set of activities, but an attitude that should permeate the entire company. In this view, marketing is not just about a company selling what it makes, but about knowing what it should make in the first place.

However, even in large companies that describe themselves as customer-oriented,most employees probably regard marketing as the preserve of the marketing department. Here, the head of marketing may be in charge of a team of brand managers or product managers,each responsible for promoting the company's products in one country or group of countries. The actual activity of getting sales outletsto order products may be dealt with by the sales department and its sales force.

But this way of organising things is changing. Some companies are now organising product teams around individual products, carrying out all activities, from research and developmentright through to selling, with information from the team's direct contact with the marketplace feeding back into research and development. This corresponds more closely to the integrated market orientation preached in business schools.

Marketing can be approached in terms of the classic four Ps - product, price, place, promotion:selling the right product, at the right price, through the right channels, with the right support and communication. These are the components of the marketing mix.

What is the company's product range?What are its top-end or upmarket(AmE upscale), mid-range and bottom-end or downmarket(AmE downscale) products? Does it have an entry-level product for people buying the type of product for the first time? Are new products often launched?What are some of the features of buying behaviour?

What are the different customer groups or segments? How are products positionedin relation to competitors' products? Who are the important competitors in the market, the key players?

What is the company's policy on pricing: how does it set its prices? What is the mark-upfor distributors? What sort of profit marginsare there for the company? Are there discounts to distributors and consumers? Are there price warsbetween competitors?

How are products distributed to reach the outlets?Who is involved in the distribution channels?What is the relationship between wholesalers, distributors, resellersand/or retailers?What are the relationships between them? Who has the upper hand?

How are products promoted? Is there a sales force?If so, how is it organised? Is there advertisingand/or direct mail?Who carries it out? Is packagingimportant? Who designs it?

These questions relate mainly to consumer marketing.They obviously need to be adapted for other companies, products and services. Bear in mind that most business takes place between companies: marketing in this context is industrial or business-to-business marketing.

Read on

PhilipKotler: Marketing Management: Analysis, Planning and Control, Prentice Hall, 1996, now in its 9th edition.A market leader among marketing textbooks.

J H Davidson:Even More Offensive Marketing, Penguin, 1997. Very good, among other things, on what characterises people in apparently non-marketing functions in market-oriented companies.

Rocket Marketing, Economist Books/Hamish Hamilton, 1993. Concise definitions of key terms.

Theodore Levitt:Marketing Myopia, Harvard Business Review, Jul-Aug 1960. A seminal text still often reprinted and quoted for its examples of industries that failed to identify and respond to changes in customer needs.

Nicolas Ind: The corporate Brand, Macmillan, 1997

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3. Travel

The most visible part of business travel is the airline industry. Everyone who travels, and these days that means almost everybody, has opinions about it. These opinions are often robust, perhaps because there is such a gap between the sophistication promised in airline advertisements and the reality of crowded terminals, endless waiting, limited legroom and inedible food served at unlikely times of day (or night).

People use cars as status symbols; governments use airlines in the same way. Every government wants one, and the national flag carrieris a visible sign of international status. But managing them is often in the hands of people who got their jobs through political patronage, they have no long-term business strategy, and many of them lose money.

Governments, negotiating with others in bilateral agreements,also have the power to decide who is allowed to fly where, when and how often, and can allocate take-off and landing slotsat airports: the number and timing of these slots is a key factor in an airline's profitability.

This is still largely the picture in Europe, despite the partial or total privatisationof some airlines, part of the process ofderegulationand liberalisationdriven by the competition laws of the European Union. (A similar process took place in the United States nearly 30 years ago. Since then, many airlines have been founded and gone bankrupt, or both, and there is debate about the role of deregulation in this). In Europe, deregulation means that airlines have the right to sabotage,picking up passengers in a second country and flying them to another place in that country or to a third country.

Another result of deregulation in Europe is no frills airlinesoffering basic in-flight service and selling tickets direct by phone, avoiding travel agents and the need to give them commission.Larger airlines are increasingly worried about these upstarts, as they are used not only by people who might have used low cost charter flightsbut also by cost conscious businesspeople who are fed up with paying full 'economy' fares on the usual scheduled airlines.Some of these airlines, such as BA, are trying to get in on the act by running no-frills operations themselves.

Airlines have very high fixed costs:with all the ground infrastructurerequired, it costs as much to fly a plane full as three-quarters empty, and the main aim is to get as many passengers on seats as possible, paying as much as possible to maximise the revenues or yieldfrom each flight.

This has led to the growth of alliances,such as the one between BA and American Airlines, or looser forms of cooperation such as cost sharing,where the same number is shown on your ticket for the second part of a two-flight journey, giving you the impression when you book that you will be on the same airline for the whole trip. Cooperation means that airlines can feed passengers into each other's hubsfor onward journeys and costs of marketing and logistics are not duplicated. The logic of this is that for intercontinental travel there may eventually be half a dozen global airlines, in the same way that there are half a dozen global computer companies, but while governments continue to bail out their national airlines 'one more time', this process will be long drawn out.

Read on

The Economist is particularly good on the airline industry. For the most recent information check their website at www.economist.co.uk

There are also regular surveys on the airline industry in the Financial Times. Their website is at www.ft.com

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4. Advertising

Whether or not you agree with Marshall McLuhan that advertising is the greatest art form of the 20th century, it is a big part of modern culture. Shared references feed into it and it in turn feeds into daily life: advertising catchphrases turn up in TV comedy sketches and everyday conversation. And we become 'ironic' about advertising, perhaps to show that we think we are able to resist it.

TV advertising is the most glamorous, but the other mediaare not to be ignored: radio, cinema, and the press, while hoardings(Br E) and billboards(AmE) are a characteristic part of the urban landscape. All these will be around for some time, despite Internet advertisingand its promises of online shopping.While there are still shops there will be point-of-sale displaysdesigned, among other things, to prevent last minute changes of mind about what brand to buy.

Advertising can be continued by other means with sponsorshipof particular events, or product placement in films, where the product's makers negotiate for their products to appear and be used by the film's characters. A related phenomenon is product endorsement,where a celebrity is used in advertising a particular product. This can be dangerous if, for whatever reason, the celebrity falls from favour.

Some very creative minds come up with seductive combinations of sound, image and words, but tests show that we often don't remember the brand being advertised. Quantifying the effect of advertising is very difficult and there has been a backlash against it in favour of other, supposedly more targeted,forms of communication. This usually means direct marketing,otherwise known as direct mail,but as those living in apartments who receive mailshotsfor gardening products know, the targeting can still be ludicrously imprecise.

Advertising agenciesmay offer to run direct mail campaigns, but what they are best at is creating traditional advertising campaigns.When a client becomes dissatisfied and the agency loses the accountthis is major news in the advertising industry and means a big loss of revenue (and self-esteem) for the agency.

Until recently, agencies took 15% of the advertiser's budget, and what they did not spend on advertising (designing ads and media buying:buying time on TV and space in the press for the ads to be run) they spent on 'free' services in pack design, corporate identity(a unified look in all of a company's communication, from its advertising to its letterhead, perhaps with the use of a logo), market research,and even strategic advice. These ancillary activities are below-the-lineactivities. Today, most of these are undertaken by specialist organisations, leaving agencies to concentrate on their core activity, creating advertisements.

Despite all these activities and all this expenditure, the ultimate in advertising is word of mouth:mends and colleagues are often our most reliable sources of information. This form of advertising is usually free. All the advertiser can do is hope that it is positive.

Read on

David Ogilvy: Confessions of an Advertising Man, National Textbook Company, originally published in 1963 and'still the best book on advertising ever written' according to one agency head. Written by a co-founder of the agency Ogilvy and Mather, it recounts the heyday of Madison Avenue, the centre of the US advertising industry.

DavidOgilvy: Ogilvy on Advertising, Prion Books, 1995

Winston Fletcher: Advertising, Advertising, Profile Books, 1999

For a moreacademic approach:

Rajeev Batra, John Myers, David Aaker: Advertising Management, Prentice Hall, 1996

Philip Jones: The Advertising Business, Sage Publications, 1999

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5. Employment

Personnel is the Cinderella of company departments. Production managers manage production, sales heads head up their sales teams, but personnel directors do not, strictly speaking, direct personnel.

They act more as facilitators for other departments: they deal with recruitmentin conjunction with department managers, they administer payment systemsin tandem with accounts, they are perhaps present at performance appraisal reviewswhen employees discuss with their managers how they are doing, they may be responsible for providing training, in industrial relationsthey are involved in complaints and disputes procedures,and they often have to break the news when people are dismissed.

Companies like to say that people are their most valuable asset, and personnel management has in many organisations been renamed human resources managementto reflect this.

HRM specialists may be involved in:

introducing more 'scientific' selection procedures:for example the use of tests to see what people are really like and what they are good at, rather than just depending on how they come across in interviews.

-implementing policies ofempowerment,where employees and managers are given authority to make decisions previously made at higher levels.

-actions to eliminate racialand sexual discrimination in hiringand promotionand to fight harassmentin the workplace: bullying and sexual harassment.

-incentive schemesto increase motivationthrough remuneration systemsdesigned to reward performance.

But their services may also be required when organisations downsizeand delayer,eliminating levels of management to produce a lean or flatorganisation, trying to maintain the morale of those that stay and arranging severance packagesfor employees who are made redundant,sometimes offering outplacementservices, for example putting them in touch with potential employers and advising them on training possibilities. (These packages are not to be confused with the compensation packagesof top managers: their basic salary and other benefits.)

Professional people who are made redundant may be able to make a living as freelancers,or in modern parlance, portfolio workers,working for a number of clients. They hope to be on the receiving end when companies outsourceactivities, perhaps ones that were previously done in-house.

This is all part offlexibility,the idea that people should be ready to change jobs more often, be prepared to work part-time and so on. The message is that the era oflifetime employmentis over and that people should acquire and develop skills to maintain their employability.

Read on

W Cascio:Managing Human Resources, McGraw Hill, 1995

For more speculative writing on what motivates people in the era of downsizing and globalisation, see Charles Handys later books, such as:

The Empty Raincoat, Hutchinson, 1995

The Hungry Spirit, Hutchinson, 1997

 

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6. Trade

International trade takes place within the framework of agreements worked out by countries in the World Trade Organisation (WTO), formerly known as the General Agreement on Tariffs and Trade (GATT). Over the last 50 years trade barriers have been coming down and free trade, open borders and deregulation now form the ideal for almost all nations, even if the situation is far from one of complete laisser-faire, with no government intervention. Protectionism is no longer the order of the day in most places; even if same developing countries argue that protectionist measures are the way to get their economies going, they avoid using the term.

Trade negotiations are well-known for their epic eleventh-hour negotiating sessions, where individual nations argue for what they see as their specific interests. Countries argue for protection of their strategic industries, ones they consider vital to future prosperity such as the electronics industry in the developed world. A less developed country beginning car assembly might want to protect it as an infant industry. European farmers argue for their subsidies, where governments guarantee farmers a higher price thanthey would normally get, making it hard for developing nations to compete in agricultural products. The French argue for cultural protection, pointing out the uniqueness of their film industry and winning restrictions, or quotas, on the number of Hollywood products that Europe imports.

Countries accuse each other of dumping, where exported goods are sold at less than in the home market, or for less than they cost to produce, usually in order to gain market share in the export market. The offending country may reply that it has a comparative advantage in producing these goods (the ability to produce them cheaper than anyone else) and that they are not selling at below cost.

Of course, there are trading blocks with no trade barriers at all such as the single market of the European Union. The North American Free Trade Organisation, or NAFTA (the US, Canada and Mexico) is also eliminating its tariff walls and customs duties. Their equivalents in Asia and Latin America are ASEAN and MERCOSUR.

One major concern in international trade between smaller companies is payment. The exporter wants to be sure about getting paid and the importer wants to be sure of getting the goods. A common solution is the letter of credit mentioned in the unit, where a bank guarantees payment to the exporter's bank once it receives the related shipping documents, including the clean bills of lading, showing the goods have been shipped without damage or other problems. Shipping terms like CIF, or Carriage insurance freight, where the exporter pays for insurance of goods while they are being transported, are part of the standard: Incoterms defined by the International Chamber of Commerce. These terms are used in standard contracts that form the basis, with adaptations, for most international trade contracts.

Read on

Peter Briggs: Principles of International Trade and Payments, Blackwell Paperback, 1994

Joanne Gowa: Allies, Adversaries, and International Trade, Princeton University Press, 1995

The Financial Times Exporter Surveys appear in the paper every two or three months and are valuable sources of information.

The international Chamber of Commerce has very good documentation on international trade. Some of it is very pedagogical in approach, with typical trade transactions explained in cartoon form, and easily adaptable for language teaching. It is based at 38 Cours Albert 1er, 75008 Paris and a website at www.iccwbo.org

Government-sponsored export credit guarantee organisations play a big role in assisting exporting and assuring they will be paid. In the United States, the Ex-lm Bank is extremely important. Its website is: www.exim.gov

7. Innovation

Traditionally, a company's new ideas and products come from its research and development (R&D) department. The initial idea for a car will be turned into a series of prototypesand tested. In software development, the final 'prototype' is the beta version,which is beta-tested.Pharmaceuticals go through a series of trials.

Different industries have different lead-times, the time between conceptionand product launch;a new drug might take 10 or 15 years to develop. In consumer goods, market research will be a key part of the development process, with focus groups:small groups representing cross-sections of consumers talking about their reactions to proposed designs, and wider consumer surveys.Services also offer enormous potential for innovation; think of telephone banking, and now e-commerce:selling over the Internet.

The launch of a new product might involve a national, international or global rollout.A well-oiled public relations machine will have prepared the way for the new product by getting the required media coverage,where the terms leading edgeand state of the artwill perhaps appear. Any teething problemswill hopefully be ironed out during development rather than after the launch. The ultimate nightmare is when a company has to recallproducts because of design defects.The coverage this might get is the least welcome imaginable.

How do you develop innovation and creativityin large, bureaucratic companies? Company leaders talk about corporate venturingand intrapreneurship,where employees are encouraged to develop entrepreneurialactivities within the organisation. Companies may set up skunk works,outside the usual structures, to work on innovations. Development of the PC at IBM is the most famous example of this.

Innovations are perhaps more easily developed by entrepreneursin start-upcompanies, but here the problem is finance: how to get the venture capitalto develop the product, manufacture it on an industrial scaleand market it

Read on

Tom Peters: The Circle of Innovation, Coronet, 1999. The bestselling co-author of In Search of Excellence .

Joe Tidd, John Bessant, Keith Pavitt: Managing Innovation, Wiley, 1997

James M. Utterback: Mastering the Dynamics of Innovation, Harvard Business School Press, 1996

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8. Organisation

Businesses come in many guises, from the lonely-sounding self-employed person and sole trader, through the SME (the small or medium-sized enterprise) to the multinational with its hierarchy and tens of thousands of employees. But the questions about what motivates people in work are basically the same everywhere. The first question that self-employed people get asked is how they find the self-discipline to work alone and motivate themselves, with no one telling them what to do. Companies are also looking for this: job advertisements often talk about the need for recruits to be self-starters. Organisations want to attract the right people and find ways of motivating them to be ever more productive and creative.

The current buzzword is flexibility. This has a number of related meanings. One type of flexibility has existed for some time in the form of flexi time or flextime, where people can choose when they work within certain limits. Then there is the flexible working of the British Airways office in the main course unit, with some of its staff hot-desking, particularly those who are homeworking, teleworking or telecommuting and only need to come into the office occasionally.

A third type of flexibility is where employees are recruited on short contracts to work on specific projects, maybe part-time. Perhaps the organisation only has a core staff, and outsourcesor contracts out work from outside as and when required. Some management experts say that this is the future, with self-employment as the norm, and portfolio workers who have a number of different clients.

For the moment, most company employees still go to what is recognizably a job in a building that is recognizably an office, even if it is open plan with some flexibility. How long this will go on is an interesting question. The tradition of managers who like to see their subordinates working (or pretending to) has a lot of mileage in it yet, with some countries and industries evolving more quickly than others for all sorts of cultural and practical reasons.


Read on


DS Pugh and DJ Hickson: Writers on Organizations, 5th edition, Penguin, 1996. A good round-up of academic writing on what makes organisations tick.

Charles Handy: Understanding Organizations, 4th edition, Penguin, 1993

Again, Handy's more speculative writing on present and future developments can be recommended; in addition to the books in the Read on Section Employment, there is: The Age of Unreason, Hutchinson, 1995; and Waiting for the Mountain to Move, Hutchinson, 1995

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9. Money

Money makes the world go round, they say. Perhaps it is even truer that the world makes money go round, especiallyin an era of globalisation when capital can flow freely to and from almost everywhere. Money is always lookingfor places where it will be most profitable and earn the greatest return on investment.

As anindividual, you can put your money on depositin a bank, and as long as the bank doesn't fail and the economy keeps functioning, you will get interest. Your money is lent out to people, businesses and government who need it to finance their own projects, and the bank will make its money on the difference between what it pays out in interest on deposits and what it gets in interest from its loans.

If you want to live more dangerously you could buy some bonds,and as long as the organisation or country you've invested in by lending it money doesn't default,you will get your interest payments, and later your bonds will eventually be repaid. To live even more dangerously, buy some sharesand share in theprofitability of your chosen company. In good times, the dividendswill be more than what you would get from bonds, and the shares themselves will increase in value, giving you a capital gainif you sell them.But if the company runs into trouble and goes bankrupt,you will be among the last to be paid back, and you may get only part of what you put in, or you may lose all your money.

This illustrates the trade-off between risk and return.The higher the risk of your investment not being repaid, the more you will want it to pay back in return on investment. Venture capitalistswill invest in many different start-ups,knowing that most will fail, but that a few will do reasonably well and one or two will, with luck, hit the jackpot, paying back all the money they lost on unprofitable projects and much more.

From the point of view of investors,the world's financial markets exist in order to channel money to profitableinvestment activities and projects. From the point of view of borrowerssuch as companies and governments, financial centres exist so that they can find capital on the best terms.

Mostinvestors are not private individuals but institutions like banks, insurance companies, mutual funds (unit trustsin the UK) and pension fundswho may, of course, be investing the money of private individuals indirectly. The markets they invest in include the money and currency markets, stock marketsfor shares (also known as equities), commodities marketsfor anything from gold to pork bellies (used for making bacon), and property(buildings and land).

There are also markets for futuresin currencies, equities, bonds and commodities: a future is a fixed-pricecontract to buy a certain amount of something for delivery at a fixed future date.

There are markets for optionsin currencies, equities, and bonds. Here, an investor buys the right to buy or sell a certain amount of these things at a certain price and particular date in the future. This is a form of betting on how prices will move.

Some of these markets, like stock markets,are based in particular buildings, some with trading floors,but most trading is now screen and telephone based. Others, like bond and currency markets, are Virtual inthe sense that selling and trading takes place by phone and computer between the premises of issuers, brokers and traders.(A broker is an intermediary between an issuer ofsecuritiessuch as bonds, a seller of a property, etc., and potential investors who buy the securities. But with Big Bang deregulation, many brokers of securities are also traders, having their own supplies of securities to sell, and make money on trading or dealing, hence the term securities house.)

Central bankslike the Bank of England and the European Central Bank are crucial for financial centers because they set basic interest rates(the 'price of money'), and control money supply(the amount of moneycirculating in an economy). Both of these controls have an enormous effect on the economy as a whole, and on the financial markets, even if the link of cause-and-effect between the fundamentalsof the real economy and the financial markets is not always clear.


Read on


Longman Dictionary of Business English, new edition, 1999. Explains financial terms in clear language. MichkaelBrett:How to Read the Financial Pages, Century Business, 4th edition, 1995

MichkaelLewis: Liar's Poker, Coronet, 1989. A brilliantly readable and funny account of bond trading in the 8os.

Bannock and William Manser: International Dictionary of Finance, Economist Books/Hutchinson, 1999. Verycomprehensive.

Pocket Finance, Economist Books/Hamish Hamilton, 1994

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10. Ethics

Bribery and corruption

Whether persuading key officials to give authorisation to set up in business, grant government contracts, or just let your goods through customs, the alternatives for the word bribeare many and varied: kickback, sweetener, backhander, baksheeshand the greasing of palms.The law courts, if it gets that far, will refer more prosaically to illicit paymentsand defendants in such cases may just talk about commissions.If payments go to a slush fundto finance a political party, this form of corruptionmay be referred to as sleaze,especially by journalists.

Price fixing

When the strain of competing gets too much, competitors may go for the easier option of price fixing,so that each can maintain a reasonable profit margin. Competitors who do this form a cartel.This is an area where outsiders may only find out what is going on if one of the managers involved contacts the authorities. Someone doing this is a whistleblower.

The corporation as good citizen

All businesses increasingly want to be perceived as good citizens.Different types of business face different ethical issues:

•Financial institutions try to prevent insider tradingby erecting notional barriers called Chinese walls between different departments (for example, to prevent someone in share trading from discovering from the mergers department that a particular company is involved in merger talks and that its share price will soon rise).

• Companies selling personal finance promise to ensure that clients are sold appropriate products for their needs, and thus avoid misselling.

• Manufacturers claim that their products are green or environmentally friendlyin all stages of their production, use and disposal.

• Cosmetics companies say that their products are not tested on animals.

• Clothing companies claim to trade fairlyand that their products are not made in sweatshopspaying subsistence wagesand using child labour.

The treatment of employees

Perceptions that a company's behaviour is ethicalwill also be increased if it has a policy of equal opportunities,or in the US, an affirmative action program,to ensure that people are recruited and promoted on the basis of meritand not discriminated againston the grounds of race or gender. (Women who get promoted so far and no further complain of the glass ceiling.)There may also be established complaints procedures,and specific policies on issues such as bullying and sexual harassment.

Codes of ethics and mission statements

A company's internal code of ethicscontains its ethical credo and may cover any of the issues mentioned above. Some of these issues may also be contained in its mission statement.And there may even be an ethics ombudsman to check that they are put into practice and deal with complaints when they are not.

Read on

Norman P. Barry: Business Ethics, Purdue University Press, 1999

BenCohen, Jerry Greenfield: Ben and Jerry's Double Dip Capitalism: Lead With Your Values and Make Money Too, Simon and Schuster, 1999. The famously ethical ice cream makers talk about ethics in practice.

John Hendry, Tom Sorell: Business Ethics, Butterworth-Heinemann, 1994

Martin Parker: Ethics and Organizations, Sage, 1998

Joanne B. Ciulla, James MacGregor Burns: Ethics, the Heart of Leadership, Praeger, 1998

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11. Change in organisations

Recentyears have seen massive restructuring.Companies downsized and delayered,getting rid of levels: - middle-management in order to become leaner, flatter,supposedly more efficient organisations. Often the reasoning was that computer networks allow top managers instant access to information that was previously gathered and transmitted upwards by middle managers, whose other main function was to communicate executives' key messages downwards to the workforce, and in this they were accused of diluting or confusing the messages, or worse. With fewer organisational layers, top managers say they can communicate more directly with front-lineemployees, the people who actually produce the goods or services, and deal with customers. With less direct supervision, employees have often been encouraged to make more decisions for themselves in a process of empowerment.

Another trend was re-engineering,the idea that an organisation should not change incrementally,but should start again from scratch with no preconceptions about how things should be done, not just in manufacturing but in all the processes that contribute to what an organisation does, hence business process re-engineering, or BPR.

The human side of this, again, was that there would probably be redundancies.The people remaining would probably feel demoralised, wondering when the next wave of change was going to come and whether it would be their turn to be thrown out.

There has been a reaction to downsizing and BPR and a realisation that an organisation's most precious asset may well be its people, and above all what they know. A company's accumulated knowledge and experience is part of company cultureand is increasingly seen as a key to success. Many now believe that this collective knowledge and accumulated years of experience is something to cultivate and develop. Some companies have appointed a chief knowledge officerwho creates systems to make thisknowledge available to the company as a whole in a process of knowledge capitalisation.

Change and the outside world

Today's trendsetters become tomorrow's old fogeys. This is most visible to the person-in-the-street in retail organisations. Corporate history is littered with the names of companies that failed to anticipate social trends: the perception 'old-fashioned' is hard to throw off.

Now everybody is focusing (or should be) on how the Internet is going to change the way they do business. How, for example, will it affect traditional retailing? Will the Saturday morning drive to the supermarket begin to lose its appeal? How will it affect what in five or ten years, will be 'traditional' telephone banking? However, it is not enough for the technology to exist. There are complex social processes involved in the way it is exploited and the way it then evolves.

Read on


Michael Hammer and James Champy: Re-engineering the Corporation, Nicholas Brealey, 1995. The key work on one of the big management movements of the nineties.

Michael Hammer: Beyond Re-engineering, HarperCollins, 1998

John P Kotter: Leading Change, Harvard University Press, 1996 .

David Hussey: How to Be Better at Managing Change, Kogan Page, 1998

PeterDrucker: Managing in a Time of Great Change, Butterworth-Heinemann, 1997

James Champy, Nitin Nohria: Fast Forward: The Best Ideas on Managing Business Change, Harvard University Press, 1996. A selection of articles from the Harvard Business Review by academics and businesspeople.

Robert Heller: Managing Change, Dorling Kindersley, 1998

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12. Strategy

Strategies, whether military or corporate, are two-a-penny unless formulated in terms of resource allocation. Every organisation exploits particular resources,or assets- physical, technological and human - to achieve its goals.

In many industries, however, these assets are so specialised and have taken so long to develop that it is hard, if not impossible, to duplicate them. A company might have the 'strategy' of entering the market for, say, aircraft engines and becoming a world leader. But even one with massive resources at its disposal would find it impossible to enter a field dominated by Rolls Royce, Pratt and Whitney, and a few other key players. A profitable industry is attractive,but in some cases wishing to enter it may just be wishful thinking, and in practice there are no new entrantsbecause the barriers to entryare so high. The rules of the game were established years ago, and will remain pretty much the same until something new comes along to upset them, like a new technology,which other companies may be better equipped to develop.

In brand-new industries, the rules of the game have not yet emerged. The traditional scenario is for a new industry with high growth to have a large number of competitors in the beginning: barriers to entry are equally low for start-ups(brand new companies), and for established companies also wanting to participate, perhaps by setting up a new subsidiary or business unit.The start-ups have the potential benefit of doing things in new ways. They don't inherit a culturefrom another industry that may not be suitable for the new one, and that may even be a handicap to competing successfully.

After a time, leaders emerge who are able to spread their costs over a higher level of sales, and who are thus more profitable. As growth in the new market slows, smaller competitors with higher costs drop out or are bought by the larger companies in a process of consolidation or shakeout,leaving elite with the resources to dominate the industry, which is now mature.

That is why emerging industriesare so attractive. Companies want to get in before the rules of the game become fixed, and be able to influence how they are fixed. Think of Internet commerce. Amazon books was a new start-upand grew not only internally by increasing its own sales but by acquiringother start-ups. Within three years of its foundation, Amazon came to dominate bookselling on the Internet.

A profitable company may buy firms in unrelated industries,including emerging industries, perhaps hoping that some of their acquisitions will turn out to be leaders in their fields and become money-spinners. But it may just end up as a conglomerateof more or less profitable companies, and some unprofitable ones.

Corporate history is full of examples of takeoversand mergersthat did not produce the results that were promised. Even a company buying another in its own industry in the same country faces problems in making the acquisitionwork. The problems in acquiring a company in a different industry or in another culture are enormous. This may not be the best use of resources.

Recently the trend for groupshas been towards selling non-core assets,using the proceeds to invest in core activitiesand concentrate, or focus,on them. This is sometimes referred to as sticking to your knitting. The mission statementsin the main course unit are attempts by companies to say what their knitting actually is. Shareholdersnaturally want the highest possible return on capital.The job of every company is to allocate that capital in the most judicious way. They should invest in the most profitable activities or products for which they have appropriate resources, or for which they can realistically acquire or develop the resources.

These are the big strategic questions. Which activities are the ones to stay in, invest in and develop? Which are the new ones to get into? Which are the ones to get out of? Answering them is not easy: multi-billion dollar mistakes are easy to make.

 

Read on


Michael E Porter: Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, 1998

Michael E. Porter: Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1998

T. Irene Sanders: Strategic Thinking and the New Science: Planning in the Midst of Chaos, Complexity, and Change, Free Press, 1998

Gerry Johnson, Kevan Scholes: Exploring Corporate


Strategy, Prentice Hall Europe, 1998 Kenichi Ohmae: The Mind of the Stra


tegist: The Art of Japanese Business, McGraw Hill, 1991 Stuart Slatter, David Lovett: Corporate Turnaround, Penguin, 1999

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13. Cultures

As the world gets smaller, we need to learn more about each other's values, beliefs, habits and expectations. Culture is, in the famous phrase, the way we do things around here. The 'here' in question may be a country, a region, a social class, a company, a university. Clearly, we each live in a set of cultures and subcultures thatinterlock in complex ways, and, to make a generalisation, one of the most dangerous things is to generalise about them. Stereotypesare, of course, to be handled with caution. The stereotype may represent the middle of a range of differing behaviours, it may be at one extreme, or it may just not be true. And there may be more variety in behaviour within a culture than between one culture and another.

Neighbouring countries or regions, or two companies in the same industry, tend to see themselves as very different to each other, but that difference is hard for the outsider to grasp at first glance. A few years working in one of the two places will make it seem more apparent, as one gets 'involved' in one of the cultures.

Here, in no particular order, are some cross-cultural issues,areas where there are variations in behaviour across different cultures, and some examples of the ways they relate to the business world:

• Religion: is it expected of people or a matter of individual choice? Does it play a role in business life?

• Roles of men and women: are women often found at the highest levels of business and society?

• Hierarchy: what is the distance between managers and the people who work for them?

• Levels of formality in language and behaviour: is there an elaborate system of levels of deference in addressing different people?

• Conversation: settings (formal and informal meetings, social situations, etc.), turn-taking, proximity, body language, contact, etc.

• Dress for different settings and occasions: is the business suit essential?

• The relation of work to private life: are spouses expected to attend certain types of company event? Do business people invite colleagues and contacts to their houses, or is everything done in the office and restaurant?

• Time: timescale of the activity/organisation, planning, punctuality, the working day/week/year, meals, recreation, holidays, etc. Do meetings start on time? Is the summer break sacrosanct?

These are all interesting areas for discussion, bearing in mind that we are not judging whether other ways of doing things are right or wrong, but that we should be aware of the differences, and not see our own culture as the 'normal' one.

Read on

Fons Trompenaars, Charles Hampden Turner: Riding the Waves of Culture, Nicholas Brealey, 1997

Fons Trompenaars: Managing Across Cultures, Century Arrow, 1993

Geert Hofstede: Cultures and Organizations: Software of the Mind, HarperCollins, 1994

Geert Hofstede: Culture's Consequences, Sage, 1984

Susan Schneider and Jean-Louis Barsoux: Managing Across Cultures, Prentice-Hall, 1998

Elisabeth Marx: Breaking Through the Culture Shock, Nicholas Brealey, 1998

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14. Leadership

Some organisations aretheir leaders. Bill Gates is Microsoft. Anita Roddick embodies Body Shop. Richard Branson pilots Virgin. Entrepreneurs and founders of their organisations, they are perceived to have visionary leadership qualities. They are often asked to pronounce on the issues of the day. They are leaders not only of their companies but of public opinion.

The mercurial leadership that is characteristic of many entrepreneurs means that they might found and then sell a series of start-ups, not guiding them to the next more 'mature' stage themselves. In the trio above we have examples of leaders who have made that transition and gone beyond.

Companies become large by being successful, but they also become bureaucratic and conservative. It's a cliche that in successful companies, change is a precondition of continued success, and the people who can lead that change are key. Formulating strategy is a question of making choices (often described as 'difficult'), of deciding to do x rather than y, with resources that are by definition limited. The people who can make the right choices about how to use those resources are highly rewarded. (The people who make the wrong choices are also highly rewarded with generous severance packages, but that's another story.)

Failing companies require yet another kind of leadership: the type of leader who can turn them round and this third species of leader may not be suited to managing other types of change, preferring to move on to another company in crisis.

Companies are increasingly thinking about how to nurture their leaders. In the US, corporate governance, the way that a company is run at the highest level, has become a key issue with shareholders. They have rejected the previous cosy arrangements, where directors appointed people they knew to the board and now demand much greater scrutiny over who is chosen and how.

This is part of the process of recognition that companies are led by teams ofkey managers. The qualities of a chief executive cannot be seen in isolation. There must be the right chemistry between the chief executive and other top people, and they must have the right mix of complementary skills.

Even so, picking the successor to the current CEO (Chief Executive Officer) is an extremely sensitive task. Will it be someone from within the company, perhaps someone groomed to take over by the current boss? Or do you use headhunters (specialised, highly paid recruiters) to track down someone, perhaps from a completely different industry, and bring them in to shake up the existing order? If your new CEO leaves after six months in the job, perhaps after what the papers describe as 'irreconcilable differences', or as a boardroom battle, the company and perceptions of it will suffer, and so, probably, will its share price. By the time you find another one, two or three years may have been lost, an eternity in strategic

Read on

Harvard Business Review on Leadership, Harvard Business School Press, 1998. A selection of articles. John P. Kotter: What Leaders Really Do, Harvard Business School Press, 1999Thomas Cleary: Ways of Warriors, Codes of Kings: Lessons in Leadership from the Chinese Classics, Shambhala, 1999. Good if you like historical angles on today's issues.

Max Depree: Leadership Is an Art, Dell, 1990

Noel M Tichy with Eli Cohen: The Leadership Engine: How Winning Companies Build Leaders at Every Level, Harper Business, 1997

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15. Competition

Competition between companies can be tough, aggressive, even ferocious or cut-throat. Firms may accuse each other of using unfair methodssuch as dumping,where a competitor(usually foreign) sells products for less than what they cost to produce, or at less than the price charged in the home market.Firms dump in order to build market shareand recoup their losses later when, having established themselves to benefit from economies of scale(producing in larger quantities so that the cost of each unit goes down), they are able to charge market priceswith a healthy profit marginon each unit sold.

Competition can also be gentlemanly or even cosy, so cosy that companies may be accused of forming a cartelto agree on prices in a price fixingarrangement. They may then be investigated by a government department that looks into unfair trading practices.

Competitors may also enter into other perfectly legitimate forms of cooperation, such as joint venturesfor specific projects. They may even talk about strategic alliances.But like mergers, these can go awry and lead to recrimination between the erstwhile partners.

The Course Book unit looks at market leaders, market challengers, market followers, and market nichers.(Nichers can also be referred to as nichists.) It also looks at Michael Porter's model containing:

cost-leaders,who are low-cost producerswith a broad scopeand cost advantage,appealing to many industry segments(many groups of buyers with different needs)

differentiators,who appeal to buyers who are looking for particular product attributes(characteristics) and positionthemselves as the most able to meet those needs

focussers,who concentrate on one particular segment and try to find competitive advantageby satisfying the needs of buyers in that segment better than anyone else. Focussers are, in effect, nichers.

These are the available choices, according to Porter, that a commercial organisation has if it wants to compete effectively, and not get 'stuck in the middle'.

Read on

Michael Porter is the key reference here.

Michael E. Porter: Competitive Advantage of Nations, Free Press, 1998, on what makes countries successful in specific industries.

Michael E. Porter: On Competition, Harvard Business School Press, 1998. A collection of his articles. Gary Hamel, C. K. Prahalad: Competing for the Future, Harvard Business School Press, 1996 John Kay: Foundations of Corporate Success, Oxford Paperbacks, 1995

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16. Quality

Quality is theelimination of variation, or, to put it another way, conformity to specification.Things should turn out as they were designed and intended to be.

Total quality managementor TQMwas a watchword of the 1980s. This often involved employee, with quality circles of workers encouraged to suggest ways of making things in better ways. It was associated with an influx of other Japanese ideas, such as the kanbansystem of just-in-time manufacturingor lean manufacturing,where parts are only made and supplied when they are needed : inventories (stocks)of parts and the need to finance and store them are eliminated. A related objective is that of zero defects,where things are made right first time,eliminating the need for inspection and reworking. All this is part of kaizen: striving for continuous improvement.

TQM gave a.way in the 1990s to business process re-engineering or BPR,when companies were told by their consultants not just to tinker in a piecemeal way with how goods or services are produced but to abolish everything and to start again from scratch. The concept of leanness was now also applied to reducing the number of management layers, and a lot of middle managers lost their jobs. (See the Business Briefs on Employment; Organisation; and Change)

It was also in the nineties that benchmarkingemerged: the idea that a firm should see which company performed a particular task best, and model their performance on this best practice.

It is undeniable that things are better made today than 20 years ago, and even small manufacturing companies apply for the certificationof the International Organization for Standardizationwith ISO 9000to reassure their customers. The equivalent standards in the accreditationof services are ISO 9001 and ISO 9002.Here, the ultimate goal of elimination of variation is even harder to attain, as the variations to be eliminated are largely those of human behaviour. The organisations that manage it are even moreadmirable than their manufacturing colleagues.

Read on

Rafael Aguayo: Dr. Deming: The American Who Taught the Japanese About Quality, Simon & Schuster;Books. 1991

Mary Walton, W. Edwards Deming: The Deming Management Method, Mercury Business Books, 1992 Andrea Gabon: The Man Who Discovered Quality: How W. Edwards Deming Brought the Quality Revolution to America - The Stories of Ford, Xerox, and GM, Penguin, 1992

Joel E. Ross: Total Quality Management, Kogan Page, 1994

Crosby: Quality Is Still Free: Making Quality Certain in Uncertain Times, McGraw-Hill, 1996

Tom Peters, Robert H. Waterman: In Search of Excellence, HarperCollins, 1995. Still interesting, even though many of the companies held up as paragons of excellence have had their travails since it was first published in the early 1980s

 

 


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