What makes a business?

We define the factors that determine the nature of competition within industries in so many ways, the size of an organisation, the aggression of marketing, the on-going price war and the list in never ending.

A brilliant Michael Porter has stated the 5 most relevant factors that determine the nature of competition within an industry.


What this mean?
To simplify this boring diagram, Porter states that the balance of power within an industry depends on.

1. Power of Suppliers
2. Power of Buyers
3. Competition
4. Threat of Substitutions
5. Threat of New Entries

 Lets look at some companies
                                                       

Supplier such as Oil companies eg. ExxonMobile have a large market share in the oil industries. Oil as we all know is a scarce resource with high demand and very few major suppliers. 
There isn't really an alternative to oil. This gives the oil giants muscle to dictate and control prices.
Companies that rely heavily on oil to function are often loyal customers and usually particular about the quality of refined oil.

Applying Porters concept to ExxonMobile, it is safe to say that they have great bargaining power due to reputation and quality assurance. There are cheaper suppliers compared to ExxonMobile, however, they remain strong because of their long standing reputation of quality product and services.

Competition however is very aggressive with other major oil companies such as BP and Shell. The price war has been on ever since Oil was known to man ( figure of speech).

Threats such as substitutions to oil are almost insignificant. Not many cars run on electricity, airlines wouldn't use gas or stored energy to fly their planes and these are the two main industries that oil giants get their main source of revenue from.

To start an oil company would mean many years of investment in infrastructure, manpower, expertise and a whole lot more, as such the threat of new entrants hardly applies to the oil industry.


Now lets look at an industry that is more familiar to everyone.

SHOPPING!

One of the most lucrative industries with endless possibilities and evolutions taking the world by storm as every year goes by.

                                                
TOPSHOP is one of the well known names in the fashion industry.
People love their designs of apparels and accessories.
You can bet that competition is INTENSE. Although TOPSHOP is one of the biggest names internationally. Rivalry is everywhere.



 

These brands have one thing in common, target audience.
TOPSHOP, Zara and H&M, some of the more popular choices among teenagers and young adults.

In such a high demand industry, buyers have little to no bargaining power. These organisations have countless customers and products are high on demand. You will never be able to bargain for a discount unless willingly offered in the forms of promotions and sales. This translates to supplier having great bargaining power.

Although prices are competitive and fashion brands often hover around the same price ranges according to tiers.
There are different tiers in the fashion industries but the competitive edge is steered more towards design and quality since prices are almost on par.

I would group TOPSHOP, Zara, H&M and the other equivalent fashion brands as tier 3 out of 5 in terms of price and quality.

With 5 being Chanel and Hermes etc. and 1 being thrift shops.

Threats of new entrants are vague but do happen sometimes should powerful investors decide to step in.

Substitutes for clothes might seem unrealistic, it is only appropriate they everyone needs to dress.
However, a substitute for an original product would be an imitation. You pay less than 30% of the original price for an item that looks almost similar to the real thing.

Porters 5 forces model now becomes clearer and is easier to understand after some examples isn't it?

Business Entry 3 (Taylorism)

Scientific management, a set of methodical theory of the relationship between labour and tasks in order to increase productivity by redeveloping a work process. Taylor the man behind Taylorism has stated 4 principles to achieve efficiency.

1. Analysing workers' work patterns, developing a scientific approach for each task to abolish the less efficient previous method. Removing the "Old rule of thumb"

2. Putting into written rules and standard operating procedures of the new methods developed.

3. Delegating the right task to the right worker whom posses skills and abilities that suit the task, ensuring that they perform the tasks according to the documented rules and operating procedures.

4. Establish an acceptable level of performance for each task and develop a reward system for individuals that exceed expectations.

Taylor's principles are mostly used in the production line today.
MacDonalds is one large organisation that employs the principles behind Taylorism.
Service staff behind the counters are told to perform set tasks following systematic and documented procedures. For example, to make french fries, simply place frozen fries into metal mesh and dip into oil for a minute, remove and toss in metal container, sprinkle salt evenly. I observed this pattern every time I visit an outlet and it never seems to change at all.

MacDonalds adopts a "Total Compensation" principle which covers benefits such as:

• Medical
• Dental
• Profit Sharing
• Vacation
• Sabbatical Program
• Employee and dependent life insurance
• Incentive Pay
• Recognition Programs

Source : http://www.aboutmcdonalds.com/mcd/corporate_careers/benefits.html

Incentive pay is given to workers whom exceed expectations such as doing over-time.
Recognition programs give due credit and recognition to the employees of the month. This spurs every employee to vie for their picture to be on the "Top employee of the month" frame in restaurants.

Entry 2 Organisational Structures

The importance of organisation structure.
The structure of every business organisation is varied based on factors such as who is in charge, what their role is and who to turn to when in need of advice.

Organisations are structured based on their size, culture, activities, history and objectives.

Google, on the surface adopts a tall hierarchy structure despite the use of the a standard corporate organisation, Google has developed a corporate culture based on giving employees based on giving employees substantial leeway to develop new ideas without excessive oversight.

So what does that make Google? They have managed to incorporate both tall and flat organisational structures into one which is unique to the way the company functions.

According to tibbr
(http://www.tibbr.com/blog/topics/enterprise-social-network-topics/why-are-leading-organizations-turning-to-a-flatter-organizational-hierarchy/?goback=.gde_3977473_member_99926731)

The author suggests that Google has indeed adopted a flat organisational structure.


A clear and concise video that I came across while doing my own research helped me recap what was being taught in Vishs' lecture and Robs' tutorials.

http://www.youtube.com/watch?v=R-m8grawp1k

We were taught the difference between a centralised and decentralised structure.
Organisations that adopt a centralised structure such as 'Burger Kings' tend to control and make all decisions at the very top of the hierarchy, this is to keep both product and services consistent throughout  their branches worldwide.

Global organisations such as 'Burger Kings', 'Pizza Hut' and 'MacDonalds' tend to adopt a centralised structure to protect their interest.

Here are some advantages and disadvantages of a centralised structure.

Advantages	Disadvantages
Easier to implement common policies and practices for the business as a whole	More bureaucratic – often extra layers in the hierarchy
Prevents other parts of the business from becoming too independent	Local or junior managers are likely to much closer to customer needs
Easier to co-ordinate and control from the centre – e.g. with budgets	Lack of authority down the hierarchy may reduce manager motivation
Economies of scale and overhead savings easier to achieve	Customer service does not benefit from flexibility and speed in local decision-making
Greater use of specialisation
Quicker decision-making (usually) – easier to show strong leadership

This table was taken from Jim Riley's article and it REINFORCES the points that I learnt in both lectures and tutorials.
Jim was a director at Thomson Travel Group Plc and a Corporate Finance and Strategy specialist at PwC. Jim is graduate Economist, a Fellow of the ICAEW and has a MBA (Distinction) from Bradford Management School.

A decentralised structure would often be found in organisations such as your supermarket chains; Tesco and Saintsburys. 

Each supermarket has a store manager who can make certain decisions concerning areas like staffing, sales promotions. The store manager is responsible to a regional or area manager. Hotel chains are particularly keen on using decentralised structures so that local hotel managers are empowered to make on-the-spot decisions to handle customer problems or complaints.

The advantages and disadvantages of a decentralised organisations are:

Advantages	Disadvantages
Decisions are made closer to the customer	Decision-making is not necessarily “strategic”
Better able to respond to local circumstances	More difficult to ensure consistent practices and policies (customers might prefer consistency from location to location)
Improved level of customer service	May be some diseconomies of scale – e.g. duplication of roles
Consistent with aiming for a flatter hierarchy	Who provides strong leadership when needed (e.g. in a crisis)?
Good way of training and developing junior management	Harder to achieve tight financial control – risk of cost-overruns
Should improve staff motivation

This table was taken from Jim Riley's article and it REINFORCES the points that I learnt in both lectures and tutorials.
Jim was a director at Thomson Travel Group Plc and a Corporate Finance and Strategy specialist at PwC. Jim is graduate Economist, a Fellow of the ICAEW and has a MBA (Distinction) from Bradford Management School.

Reading articles and cross-referencing them to my books and lecture/tutorial notes has since increased my knowledge and understanding on business studies(Management).

I find it useful whenever I come across sources that support the information that has been taught to me.

Organisations and mangment

In Vishs' lecture and Robs' tutorials, I have learnt and inferred and self studied many new elements of  organisations, organisation structures and management.
Organisations have been around since the start of civilisation. Organisation structure is what that keeps the organisation alive, even animals and insects such as wolves and ants have a form a structured orgaisation.

Fayol, a man credited as the inventor of management states that there are 6 managerial activities in an organisations.

1.Forecasting- predicting what might happen in the future

2.Planning- making a course of action

3.Organizing- allocating tasks to separate departments, units, individuals

4.Commanding- providing direction

5.Coordinating- making sure tasks are being carried out and people are working together

6.Controlling- monitoring progress

A structured organisation is essential to achieve objectives, while objectives could differ greatly from one organisation to another based on the nature of business. Organisations have developed ways of organising, delegating and recognising strength in their employees so that everyone's effort is channel productivty, directed towards achieving the right objectives.

As consumers, organisations both big and small have impacted our lives one way or another. Buying a frying pan from 'John Lewis', manufactured by 'Tefal', we have now experienced service from 'John Lewis' and product quality from 'Tefal'.

Industrial revolution, brought about by factors from past and present, including changes in technology, global competition, taxes, regulation, countries that are shifting from a commuist state of law to a more liberal democratic society, along with open participation in international trade.

In every business you will find that there are some features common to every organisation. Features such as different roles include, interpersonal, decisional, and informational.
An Informational would often be the likes of an informational disseminator, a spokesperson and monitor. An Interpersonal job role is someone like a figurehead, liason officer and leader, someone who is firm and impartial. The Decisional roles are like entrepreneurs, disturbance handlers, resource allocators and negotiators.

In an oraganisation, social arrangements is another aspect in which activities such as job coordination, allocation and supervision are directed to achieve the organisations' objectives.It is usually how people view the organisation from the outside. For example, the team leader delegates tasks to his subordinates and makes the subgroups/division of labour, they will produce better results as they are completeing task(s) based on their skill and work experience.

An organisations' structure will directly impact the performance of the organization.
The basic features of an organization structure are spans of control and levels of decentralization.
A change in structure would mean a change in both and in turn affecting the overall organisations' performance.




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