Ultimate Guide - Business and Management (IB)

Business Organization and Environment (IB)

1. Introduction to Business Management

The Role of Businesses in Combining Resources to Create Goods and Services

Business - an organization engaged in commercial, industrial, or professional activities that can be a for-profit or a non-profit. Profit-making organizations persuade customers through effective marketing to purchase their products or services at a higher price than it costs to produce them.

Goal: To meet the needs and wants of consumers by combining human, physical, and financial resources to create goods and services.

Features of a business

• A decision-making organization.

• Made up of groups of workers, managers, directors, and stakeholders.

• Exists in association with customers, suppliers, competitors, the environment, local, national, and other governments.

• Uses factors of production.

• Produces and sells goods/services.

• Normally profit-making.

Business Activity

Aim: To generate outputs and add value, by selling the outputs for more than the costs of the inputs.

• When producing an output, the business uses resources, often known as inputs. Inputs are land, labor, capital, and enterprise (or entrepreneurship). Collectively these are called the four factors of production.

• An output of either a good or service is produced.

• Business functions (processes) include administration, production, marketing, and finance. In larger organizations, these functions are carried out by specialist departments.

• Businesses are affected by external activity, such as social changes, government policies, and external shocks (e.g. sudden oil price change).

Inputs: Factors of production

• Land (physical resources) – any natural resource, e.g., raw materials.

• Labor – services given by employees. A labor-intensive business has a high proportion of labor compared to other inputs because labor is cheap.

• Capital – money, or assets used for production, e.g., buildings, plants, and equipment. A capital-intensive business depends more on capital than other factors of production; because labor is relatively expensive.

• Enterprise – that ‘spark’ or idea provided by the entrepreneur, and the planning that combines the other three factors of production.

Production

• Capital intensive - processes use a large proportion of land or machinery relative to other inputs, especially labor.

• Labor-intensive - processes use a large proportion of labor relative to other inputs, especially in relation to land or machinery

Outputs: Goods and Services

• Goods (visible or tangible items) - are items that can be seen and touched, e.g., shoes.

• Services (invisible or intangible items) - are items that cannot be seen or touched but have visible results, e.g., hairdressers’ services. Customers pay for the skill and experience shown by the person delivering the service.

Goods

Purchasers vs. Consumers

• Purchasers of products = customers

• Enjoyers of products = consumers.

When marketing a product, a firm must decide whether the customer or consumer is most influential in the purchasing decision.

Services

Services can be:

• Personal

• Commercial (business)

There are often overlaps between the two, e.g., banks offer financial services to both individual and business customers.

Business Functions and Their Roles

Sectors of business activity

Chain of production - the stages in the production of a particular product.

• Value is added at every stage, so they can be sold for more than the cost of the raw materials.

Business organizations operate in one or more of the following sectors:

• 
  Primary-sector activities tend to dominate in less economically developed countries (LEDCs).

• Tertiary and quaternary-sector activities tend to dominate in more economically developed countries (MEDCs).

• Secondary-sector activities tend to dominate in newly industrializing or emerging economies (NICs).

The Nature of Business Activity in Each Sector and Sectoral Change

Sectoral change - is the trend for the percentage of a workforce in agriculture to decline over time, and for the secondary and then tertiary sectors to become increasingly important as economies develop. Developing countries are characterized by subsistence primary production and low levels of income. As they develop, they industrialize, with manufacturing becoming dominant. This has the following effects:

• urbanization

• capital-intensive industries

• increases in GDP/living standards

• increasing employment

As development continues, there is a move towards tertiary-sector activity, with the following effects:

• higher incomes and increasing consumption of luxury goods

• increasing specialization

• increasing demand for personal services

• growth of technology and communication

Types of business growth

Horizontal growth refers to a business acquiring or merging with another business engaged in more or less the same activity.

Vertical growth refers to acquiring other businesses involved in earlier or later stages of the chain of production or by beginning operations in an earlier stage through internal growth.

• Backwards vertical integration - the activity of the business acquired is earlier in the chain.

• Forward vertical integration - the activity of the business acquired is later in the chain.

2. Types of Business Entities

Distinction Between the Private and Public Sectors

Private sector - organizations owned, controlled, and managed by private individuals to make a profit, e.g., Microsoft.

Public sector - organizations owned, controlled, and managed by the government to provide essential goods and services for the general public, e.g., a national health service.

Privatization - moving firms from public ownership to private ownership.

Features of For-Profit Organization Types

The common feature of all of these types of businesses is that one of their aims is to generate profit.

• Profits = total revenues - total costs

Legal Structure

• Most organizations operating in the private sector aim to make profits. The choice of legal structure determines how a business is financed, managed, and organized, and its growth prospects. When a firm is set up, it chooses between unincorporated or incorporated status, which affects the liability of the owners for business debts.

Unincorporated organizations

• In these organizations, the owner is ‘one and the same as the business itself’. An unincorporated business has unlimited liability. The owner is legally responsible for all debts of the business and his or her possessions, such as a house, can be seized to pay outstanding debts. Unlimited liability, difficulties in raising finance, and taxation issues may encourage businesses to incorporate.

There are two types of unincorporated organizations: sole traders and partnerships.

Sole traders (sole proprietors) - businesses owned and run by one individual with no legal distinction between the owner and the business.

Advantages:

• Cheap and easy to set up with few legal formalities.

• All income/profit belongs to the owner.

• Quick decision-making, as only one person makes decisions.

• Being ‘your own boss’ is motivating.

• Privacy and confidentiality as public accounts are not required.

• Flexibility and the ability to offer a personal service.

Disadvantages:

• Unlimited liability – risks personal assets.

• Limited sources of finance because of the high risk of failure. Lenders usually demand security for loans, e.g., the owner’s house.

• The owner is responsible for all business functions.

• High risks – few economies of scale and higher costs.

• Workload and stress – the owner cannot rely on others for support.

• Lack of legal continuity – the business ends if the owner retires or dies.

Partnerships - these are owned by two or more people. The maximum number of partners varies from country to country. The ownership, profit, and liabilities are shared between partners. Like sole traders, partnerships cannot sell shares to other people, restricting the raising of capital for expansion.

Advantages:

• Greater financial strength than sole proprietorship, as there are more investors.

• Owners receive a share of all the profits.

• Decision-making is shared between partners who may be specialists, allowing the division of labor.

• No responsibility to shareholders.

• Privacy and confidentiality as public accounts are not required.

Disadvantages:

• More complicated to set up than a sole tradership, requiring a legal agreement (Deed of Partnership).

• Unlimited liability – partners risk personal assets.

• Limited sources of finance compared to companies.

• Decision-making can be slower than sole proprietorship, as more owners are involved.

• Possible disagreements between partners.

• Few economies of scale and vulnerable to competition from larger businesses.

• Lack of legal continuity – if one partner dies or leaves, the partnership ends.

• Partners are responsible for all losses, ‘wholly or severally’. If only one partner has assets, this partner is responsible for all debts.

3. Organizational Objectives

Organizations need objectives because they:

• provide a sense of direction

• underpin strategic and tactical activities

• provide a means of measuring performance

• motivate stakeholders

• develop teamwork.

Vision and Mission Statement

In practice, the vision statement and the mission statement may overlap or one may be a part of the other. However, there are differences:

• A mission statement is more specific to what the enterprise can achieve.

• The vision statement describes why it is important to achieve the organization’s mission by defining its purpose, social aims, or broader goals, such as health improvements.

The mission statement

• A business is not defined by its name, statutes, or articles of incorporation. It is defined by the business mission. Only a clear definition of the missions and purpose of the organization makes possible clear and realistic business objectives. - Peter Drucker

• Mission statements define an organization’s purpose and primary objectives, stating ‘who we are and what we do’. They act as a whole philosophy for the firm. They may not have quantifiable targets but aim to inform customers, employees, and other stakeholders about the firm’s objectives. The mission statement should:

  • be a concise statement of where the business is now and show its future direction

  • provide a statement of what the business wants to achieve in the long term, as well as now

  • allow the business to develop specific goals and objectives to achieve its aims

  • provide inspiration to stakeholders.

Management by objectives

The term ‘management by objectives’, popularized by the management theorist Peter Drucker, refers to the process of management and employees agreeing on objectives for the organization. Objectives set in this way need to be SMART or SMARTER.

SMART objectives

• S = Specific, clear, and easily defined.

• M = Measurable and quantifiable targets and tasks.

• A = Achievable using existing resources, so objectives should be realistic.

• R = Relevant and must not conflict with other objectives.

• T = Time-bound (within a specified period) allowing measurement.

SMARTER objectives

A business can make objectives SMARTER by ensuring it can:

• Extend the target to account for new circumstances and/or make them Exciting.

• Reward the achievement of objectives and/or Record the results.

Ethics vary from country to country, culture to culture, and individual to individual. Even within a firm, there will be a range of opinions about what is right and wrong. A business may act legally but in a manner that many consider unethical, e.g. selling weapons.

SWOT ANALYSIS

SWOT analysis - is an internal audit of where a business is at present and how it is affected by its external environment.

• S = Strengths – what the firm does well and its advantages.

• W = Weaknesses – what the firm does not do well.

• O = Opportunities – changes in external conditions that allow the firm to develop markets, expand, and make more profits.

• T = Threats – external factors that may prevent the firm from achieving its aims (constraints and barriers).

• A SWOT analysis supports effective strategic planning, based on an examination of a firm’s capabilities and its external environment.

• The strengths and weaknesses are a summary of the present position of the product, decision, or organization

• The opportunities and threats represent future positive or negative concerns for the business.

Functions of Swot Analysis

• provides a picture of the firm’s market position

• is a good training tool

• develops a better understanding of the firm’s service level, product range, and brands

• forces the firm to examine its business and consider the present and future competition

• examines external influences and future changes

• encourages an assessment of strategic opportunities.

4. Stakeholders

Stakeholders - a range of individuals and groups, as well as other firms and public organizations, have an interest in the survival and operation of a business. These are called stakeholders, as they have a stake, investment, or interest in the firm’s success. Normally, this stake is financial.‌

Stakeholders can be separated into internal and external stakeholders.​

5. The external environment

• Activities and events outside a firm affect its operations and choices.

• Although the firm is unable to control the external environment, it will seek to forecast and prepare for change. The external environment provides both opportunities and threats.

• Organizations need to understand the wider ‘macroeconomic’ environments in which they operate, so they can maximize the opportunities and minimize the threats.

STEEPLE analysis of the external environment

Classifying the external environment

Marketers use acronyms as a shorthand classification of the external environment.

• PEST: Political, Economic, Social and Technological

• PESTLE: Political, Economic, Social, Technological, Legal and Environmental

• STEEPLE: Social, Technological, Economic, Environmental, Political, Legal and Ethical

STEEPLE factors

6. Growth and evolution

Economies of scale

• As a business grows, it becomes more efficient, cutting its average cost of production (unit cost).

• Larger firms may enjoy lower costs than smaller competitors, creating larger profit margins and allowing lower prices.

• Total costs = fixed cost + variable cost

• Average cost = total cost / quantity produced

• Fixed costs are costs that do not change as production changes.

• Variable costs are costs that vary as production changes.

• Average costs are total cost per unit.

Internal economies of scale

Costs fall as the firm grows in size. These efficiencies benefit the individual firm.

External economies of scale - benefit the industry as a whole as it grows.

Diseconomies of scale - as a business becomes larger, it becomes less efficient, leading to a higher average cost of production (unit cost).

Internal diseconomies of scale

• Coordination problems arise as increasing delegation slows decision-making.

• Larger firms have many layers of hierarchy, resulting in delayed communications.

• Motivation may fall as junior employees feel disengaged from decision-makers.

• Monitoring productivity and quality in big corporations is difficult and potentially costly.

External diseconomies of scale

As an industry grows, the demand for labor increases. If skilled labor is in short supply, wages, and salaries rise, increasing the costs for individual firms.

The merits of small versus large organizations

Advantages of being a small business

• greater focus on investments where they want, creating higher return on investment

• greater sense of exclusiveness

• greater motivation to the employees because they feel like they matter to the business

• competitive advantage through more personalized service

• less competition when involved in a niche market

Advantages of being a big business

• economies of scale

• brand loyalty and higher status

• market leader status and increased market share

• access to greater funds

• a better chance of longer-term survival.

The difference between internal and external growth

Internal (organic) growth

Organic (natural) growth - is where a firm grows using its own resources to increase sales and profits.

Organic growth is achieved by:‌

• improving products and services

• better marketing

• investment in research and development

• improving workforce training

• expanding the number of offices, factories, and outlets

Internal growth is relatively inexpensive because the firm can use retained profits rather than external loans.

Methods of external (inorganic) growth

External (inorganic) growth - is where growth in an organization's operations arises from mergers or takeovers, rather than from an increase in the firm’s own business activity.

Major types of external growth include:

• mergers and acquisitions (M&As)

• joint ventures

• strategic alliances

• franchising

Mergers and acquisitions (M&As) - the joining of two firms is known as an integration.

• In a merger, two firms agree to become partners in a larger business.

• An acquisition (or takeover) is when one firm buys another, either with its approval (voluntary takeover) or without its approval (hostile takeover).

• One firm is dominant and becomes the owner. The taken-over firm faces redundancies, cost-cutting, or closures of branches.

The reasons for mergers and acquisitions include:

• cost economies through rationalization

• greater market share

• reducing business risk

• better control of distribution channels

• complementary activities

Firms operate in one of the following sectors:

• primary sector – farming, mining, etc.

• secondary sector – manufacturing

• tertiary sector – services

• quaternary sector – high technology

Mergers and acquisitions can be horizontal or vertical.

Horizontal mergers (horizontal integration)

• Firms in the same industry and in the same sector merge, e.g. a merger between two car manufacturers such as Daimler-Benz and Chrysler to form DaimlerChrysler.

Vertical mergers (vertical integration)

• Firms in different sectors merge, e.g., the Walt Disney Company and ABC to create Walt Disney Television. This type of merger may be forward or backward:

  • Vertical forward integration is when a firm merges with another further up the production chain, e.g., a brewery takes over a chain of bars, often to secure a retail outlet.

  • Vertical backward integration is when a firm merges with another further down the production chain, e.g., a wine producer takes over a vineyard, to ensure supply.

If a firm controls the whole distribution channel, it is totally vertically integrated, e.g., Shell owns oil rigs, oil tankers and pipes, refineries, and petrol stations.

Conglomerate mergers

Conglomerate mergers involve the integration of firms in different businesses and/or sectors with a range of activities. The main motive is diversification and spreading risk. Most conglomerates are multinationals operating in more than one country, e.g., Sahara India Pariwar is an Indian conglomerate with business interests in finance, media and entertainment, retail, manufacturing, and information technology.

Outcomes of mergers and acquisitions

The results of mergers and acquisitions are often disappointing because of:

• culture clashes

• increased bureaucracy and loss of control

• internal competition

• lack of experience in another industry

• negative publicity as employees are made redundant

Joint ventures

Joint ventures - involve an agreement between two or more organizations to undertake a particular business activity for a limited period of time. The contractual agreement creates a new business division with a separate legal entity, allowing the participants to grow while maintaining their own individual identities and brands. The organizations share profits or losses and the investment.

Strategic alliances - are collaborative agreements between two or more firms to pursue a set of agreed goals and to commit resources to achieve these. The firms remain completely independent, and the alliance ends when the goals are achieved.

Advantages and disadvantages of joint ventures and strategic alliances

Advantages

• Competition may be reduced as firms cooperate.

• A synergy is created where the combined skills, resources, and experience of the businesses exceed those of the two businesses acting independently.

• By partnering with a local firm, there are fewer logistical problems entering a new and/or overseas market, lowering distribution costs.

• Mergers or takeovers are expensive and difficult to reverse.

• They enable a firm to move into a new product or market much faster.

Disadvantages

• Profits are shared.

• Communication and control issues caused by different cultures, languages, and management styles.

• Conflict and disagreements between the partner organizations.

Franchising

• A franchise is an agreement where a business (franchisor) sells rights to another business or individual (franchisee), allowing them to use the brand name, logo, trademark, and products/services of the franchisor in return for a fixed fee and/or a percentage of the annual sales turnover (royalty).

• This model is less risky and costly than setting up a new business.

Advantages and disadvantages for the franchisee

Advantages and disadvantages for the franchisor

The impact of globalization

• Increased competition – large foreign businesses can force domestic producers to become more efficient as the domestic consumer has more choice.

• Greater brand awareness - domestic producers have to compete with big brand names and so need to create their own unique selling point (USP).

• Skills transfer - foreign businesses, no matter how big, must use some local knowledge.

• Closer collaboration - domestic producers can create new business opportunities.

The impact of MNCs on the host countries

• Multinational companies provide developing countries with finances and infrastructure for economic and social development, but may exploit limited resources.

7. Organizational planning tools

The fishbone (cause and effect) diagram or Ishikawa diagram

• A visual tool developed to support decision-making.

• By identifying the causes of a certain event, problems can be overcome or avoided.

• The diagram resembles the skeleton of a fish, with a main bone running horizontally, and several smaller bones coming off it.

Advantages and disadvantages of using a fishbone diagram

Decision tree

• Decision trees present options and probabilities diagrammatically

• Reflects the fact that firms frequently have to make decisions in circumstances of doubt and uncertainty.

• A decision tree is constructed working from left to right, but all calculations are made from right to left.

Force field analysis

Proponent: German psychologist Kurt Lewin

Premise: People’s behavior is affected by forces in their surrounding environment or ‘field’.

• Successful firms need to adapt to changes in the environment.

Forces Involved

• Driving forces - promote change

• Restraining forces - hinder change.

  • Restraining forces, act to oppose driving forces.

  • To move towards a desired change, the firm develops a strategy to minimize the restraining forces and/or maximize the driving forces.

  • These form the basis of change management.

Force Field Analysis Diagram

Performing the Analysis

It is common for the strength of the force to be represented by:

• Length of the arrow: the longer the arrow, the stronger the force

• Weight attached to the arrow: usually between 1 and 5

Functions

• examining the balance between driving and restraining forces by totaling the weights for each

• identifying the individuals or groups affected by a change

• identifying supporters and opponents of the change

• Managers examine each of the forces to establish strategies to reduce restraining factors and strengthen driving forces.

Human Resource Management (IB)

Introduction to Human Resource Management

Human Resource Management (HRM) refers to the strategic approach that businesses take to manage their employees effectively. It focuses on recruiting, developing, and retaining the right talent to meet business objectives while ensuring employee satisfaction and productivity.

Role of HR in a Business

HR plays a crucial role in managing an organization's most valuable asset—its employees. The key responsibilities of HR include:

• Recruitment & Selection: Identifying, attracting, and hiring the right talent for the company.

• Training & Development: Providing employees with the necessary skills and knowledge to perform effectively.

• Performance Management: Evaluating employee performance and providing feedback to improve productivity.

• Compensation & Benefits: Designing competitive salary structures and benefits to retain talent.

• Employee Relations: Ensuring a positive work environment, resolving conflicts, and maintaining motivation.

• Legal Compliance: Adhering to labor laws and regulations to avoid legal issues.

• Succession Planning: Preparing for future leadership changes by developing internal talent.

In modern businesses, HR is not just an administrative function but a strategic partner that helps achieve long-term business goals.

Workforce Planning

Workforce planning is the process of analyzing and forecasting an organization's future workforce needs to ensure it has the right number of employees with the rightskills.

Training

Training helps employees develop the skills and knowledge needed to perform their jobs effectively. It is essential for both new and existing employees to enhance productivity, improve job satisfaction, and reduce turnover.

• On-the-Job Training: Employees learn while working under supervision. Examples include job shadowing, mentoring, and apprenticeships.

  • Advantages: Practical, cost-effective, and allows immediate application of skills.

  • Disadvantages: Can be disruptive, may not be structured, and depends on the trainer’s expertise.

• Off-the-Job Training: Employees learn outside their regular work environment through workshops, courses, or simulations.

  • Advantages: Provides structured learning, access to expert trainers, and exposure to new ideas.

  • Disadvantages: Expensive, time-consuming, and may not be directly applicable to the job.

• Cognitive Training: Focuses on developing problem-solving, decision-making, and critical thinking skills. This is useful for managerial and leadership roles.

• Behavioral Training: Aims to improve interpersonal skills, teamwork, leadership, and customer service through activities like role-playing and group discussions.

Providing continuous training ensures that employees stay updated with industry trends and maintain high performance.

Cultural Differences in HRM (Hofstede’s Cultural Dimensions)

Dutch researcher Geert Hofstede developed a framework to understand cultural differences in workplaces. His Cultural Dimensions Theory helps businesses adapt their HRM strategies when working with international teams.

1. Power Distance (High vs. Low)

   • High power distance cultures (e.g., China, India) accept hierarchical structures, where employees respect authority and expect clear instructions from leaders.

   • Low power distance cultures (e.g., Denmark, Sweden) prefer flat organizations with open communication and employee participation in decision-making.

2. Individualism vs. Collectivism

   • Individualistic cultures (e.g., USA, UK) value personal achievements and independence. Employees expect rewards based on individual performance.

   • Collectivist cultures (e.g., Japan, Mexico) emphasize teamwork and group success over individual recognition.

3. Masculinity vs. Femininity

   • Masculine cultures (e.g., Japan, Germany) prioritize competition, ambition, and material success.

   • Feminine cultures (e.g., Norway, Sweden) focus on cooperation, work-life balance, and social well-being.

4. Uncertainty Avoidance (High vs. Low)

   • High uncertainty avoidance cultures (e.g., France, Greece) prefer structured rules, job security, and clear guidelines.

   • Low uncertainty avoidance cultures (e.g., Singapore, UK) embrace flexibility, innovation, and risk-taking.

5. Long-Term vs. Short-Term Orientation

   • Long-term oriented cultures (e.g., China, South Korea) value persistence, future planning, and long-term rewards.

   • Short-term oriented cultures (e.g., USA, Nigeria) focus on immediate results, traditions, and quick decision-making.

6. Indulgence vs. Restraint

   • Indulgent cultures (e.g., USA, Brazil) encourage personal enjoyment, freedom, and leisure.

   • Restrained cultures (e.g., Russia, China) prioritize discipline, duty, and social norms over personal desires.

HR managers must consider these cultural dimensions when developing policies, managing teams, and expanding into international markets.

Crisis and Contingency Planning in HRM

Crisis and contingency planning in Human Resource Management (HRM) refers to the strategies businesses use to prepare for and respond to unexpected disruptions. These disruptions can include economic downturns, employee strikes, pandemics, natural disasters, cybersecurity threats, or leadership changes. Proper planning helps organizations maintain stability, protect employees, and ensure business continuity.

Succession Planning

Succession planning is the process of identifying and developing employees to fill key leadership positions in case of retirements, resignations, or sudden departures. It ensures business continuity by preparing capable individuals to take over critical roles.

• Identifying Key Positions: HR must assess which roles are vital to business operations and require a succession plan.

• Developing Future Leaders: Companies invest in leadership training and mentorship programs to groom employees for senior roles.

• Creating Talent Pipelines: HR ensures that potential successors are identified early and given opportunities to develop skills and gain experience.

• Reducing Business Disruptions: A well-structured succession plan prevents chaos when leaders leave unexpectedly and helps maintain company stability.

Proactive succession planning helps organizations remain resilient and competitive, ensuring smooth leadership transitions.

HR Contingency Planning

HR contingency planning involves preparing for various risks that could disrupt workforce operations. It ensures that businesses can respond effectively to emergencies and continue functioning with minimal impact.

• Disaster Recovery Plans: Companies must prepare for natural disasters, cyberattacks, or data breaches by securing employee records, ensuring payroll continuity, and setting up alternative work arrangements.

• Flexible Work Arrangements: HR can implement hybrid or remote work policies to ensure business continuity during unexpected disruptions.

• Employee Support Systems: Providing mental health resources, financial assistance, and job security measures during crises helps maintain employee well-being.

• Legal and Compliance Measures: HR must ensure that all emergency actions, such as layoffs or policy changes, comply with labor laws to avoid legal risks.

By having a solid contingency plan, companies can protect their employees, maintain operations, and recover quickly from unexpected events.

Accounts and Finance (IB)

Introduction

Purpose of Business Activity

• Satisfying Needs and Wants: Businesses exist to provide goods and services that satisfy the needs and wants of consumers. Needs are essential for survival (e.g., food, shelter), while wants are desires for non-essential items (e.g., luxury cars, entertainment).

• Creating Value: Businesses create value by transforming inputs (resources) into outputs (products or services) that customers are willing to pay for. This process involves adding utility (form, time, place, and possession) to the products or services.

Factors of Production

• Land: Natural resources used in the production of goods and services (e.g., minerals, forests, water).

• Labor: Human effort, including physical and intellectual, used in the production process.

• Capital: Man-made resources used to produce other goods and services (e.g., machinery, buildings, tools).

• Entrepreneurship: The ability to bring together the other factors of production, take risks, and innovate to create new products or services.

Goods vs. Services

• Goods: Tangible products that can be physically touched and stored (e.g., cars, clothing, electronics).

• Services: Intangible products that cannot be touched or stored and are consumed at the point of delivery (e.g., healthcare, education, banking).

• Innovation: Developing new products or improving existing ones to meet consumer demands and stand out in the market.

• Efficiency: Streamlining operations to reduce costs and increase productivity.

• Customer Service: Enhancing the customer experience to build loyalty and repeat business.

Types of organisations

Private Sector Organizations

These organizations are owned and operated by private individuals or groups and aim to make a profit.

• Sole Traders:

  • Ownership: Owned and operated by one person.

  • Advantages: Easy to set up, full control by the owner, all profits go to the owner.

  • Disadvantages: Unlimited liability, difficult to raise capital, heavy workload.

• Partnerships:

  • Ownership: Owned by two or more individuals who share profits and responsibilities.

  • Advantages: More capital available, shared decision-making, shared responsibilities.

  • Disadvantages: Unlimited liability, potential for conflicts, profit sharing.

• Private Limited Companies (Ltd):

  • Ownership: Owned by shareholders with shares not available to the public.

  • Advantages: Limited liability, separate legal entity, easier to raise capital.

  • Disadvantages: More regulatory requirements, limited ability to sell shares, profit sharing.

• Public Limited Companies (PLC):

  • Ownership: Owned by shareholders with shares traded on the stock exchange.

  • Advantages: Limited liability, easier to raise large amounts of capital, separate legal entity.

  • Disadvantages: Complex regulatory requirements, potential for loss of control, profit sharing.

Public Sector Organizations

These organizations are owned and operated by the government and aim to provide services to the public rather than making a profit.

• Government Departments:

  • Provide essential services such as healthcare, education, and defense.

  • Funded by taxpayer money and focus on public welfare.

• Public Corporations:

  • Operate in specific industries such as utilities, transportation, and broadcasting.

  • Aim to provide services efficiently and are often funded by the government.

Non-Profit Organizations

These organizations aim to serve a social, environmental, or cultural purpose rather than making a profit.

• Charities:

  • Purpose: To support specific causes such as poverty alleviation, healthcare, education, and animal welfare.

  • Funding: Rely on donations, grants, and fundraising activities.

  • Advantages: Tax exemptions, public trust and support, focus on social good.

  • Disadvantages: Dependence on donations, limited funding, regulatory requirements.

• Non-Governmental Organizations (NGOs):

  • Purpose: To address social, environmental, or political issues on a local, national, or international level.

  • Funding: Donations, grants, and sometimes government funding.

  • Advantages: Flexibility in operations, ability to address specific issues, public support.

  • Disadvantages: Funding challenges, potential for political pressure, accountability.

Cooperatives

These organizations are owned and operated by a group of individuals for their mutual benefit.

• Consumer Cooperatives:

  • Owned by customers who buy goods and services at lower prices.

  • Focus on providing quality products and services to members.

• Worker Cooperatives:

  • Owned and operated by employees who share in decision-making and profits.

  • Aim to provide fair wages and working conditions.

• Producer Cooperatives:

  • Owned by producers (e.g., farmers) who collaborate to process and market their products.

  • Aim to achieve better prices and market access for members.

Marketing (IB)

1. The Role of Marketing

Definition of Marketing

Marketing – the management process responsible for identifying, anticipating, and satisfying customer requirements profitably.

• As customers, our needs and wants evolve with economic circumstances and our stage of life. Marketing is about creating loyalty to the company, product, and brand.

  • Firms may persuade us to buy a product once through clever marketing, but if the buying process or the product is unsatisfactory, we may never buy the product again, nor recommend it.

  • Firms only succeed by getting us to buy and buy again. This is repeat purchasing behavior.

• Marketing is both a function of an organization and a business philosophy, stressing the achievement of business goals through customer satisfaction.

  • The complex range of activities that define marketing are applicable to all firms, large or small, new or established, and even applies to non-profit making organizations.

• Marketing is the process of identifying a target market, defining what that target market needs and/or wants, and organizing the firm to meet those needs and wants.

• Firms try to predict customer demand patterns, so better definitions of marketing focus on the satisfaction of customer needs.

Marketing vs. Advertising vs. Selling

• ​Marketing is not interchangeable with advertising.

  • Advertising is just one element of marketing.

• Marketing is not interchangeable with selling.

  • Selling emphasizes the needs of the seller, whereas marketing focuses on the needs of the buyer.

• The marketing of the business extends outside of the workplace

Types of Marketing

Markets are increasingly fragmented, with various social exchanges facilitated by technologies such as the Internet (e-commerce):

• B2B (business-to-business): commercial transactions between businesses.

• B2C (business-to-consumer): the marketing of products and services by businesses to a consumer market that is not business-related.

• C2C (consumer-to-consumer): any informational or financial transactions between consumers, usually mediated through a business site such as eBay.

• B2G (business-to-government): often called public-sector marketing.

Marketing Planning

Marketing and its relationship with other business functions

• Marketing is not only much broader than selling but also not a specialized activity at all.

  • It encompasses the entire business.

  • It is the whole business seen from the point of view of the final result, that is, from the customer's point of view.

  • Concern and responsibility for marketing must therefore permeate all areas of the enterprise.

• Marketing is a business philosophy and cannot be the sole responsibility of the marketing department.

• Marketing thinking must permeate the entire organization.

• Developing an effective marketing plan requires close links with other functional areas.

Marketing and operations management/production

The marketing department works closely with the production department to ensure that:

• Adequate research and development are planned to satisfy current and future customer needs.

• The item can be manufactured to the quality and design desired by the consumer.

• The volume of orders generated by marketing can be met within the time schedule.

• Marketers wish to get products to market as soon as possible to ensure competitive advantage, whereas production wants to evaluate products fully to ensure low defect rates and meet legal requirements.

2. Products and Goods

Product – also known as a good, is a tangible (visible) item that can be seen, touched, felt, heard, and smelled. When purchased, ownership of the product moves from the seller to the buyer.

Types of products

Consumer goods - are sold to the general public.

Categories of Consumer Goods

• Convenience items – consumers search for the nearest shop for staples like milk, emergency items like plasters and impulse buys like sweets.

• Shopping/comparison goods – consumers compare prices and features before purchase

• Specialty goods – unique or special goods.

• Consumer durables – bought by households and used many times, e.g., TVs.

• Consumer non-durables – goods consumed in use

• Industrial/capital goods are sold business to business (B2B) - and used in the production of other goods.

3. Services

Features of a service

• Intangibility (or invisible item) – purchasers buy skills and experience that cannot be seen or touched

• Inseparability – the service cannot be separated from the person or the seller providing it.

• Heterogeneity – difficult to achieve standardization of service, as quality differs with the person supplying it,

• Perishability – services cannot be stored.

• Ownership – ownership does not move from the supplier of a service to the purchaser.

Types of service

Personal services - are sold to the general public.

Commercial services - are sold to other businesses.

Goods vs. Services

• There are few ‘pure’ products or ‘pure’ services.

• Pure – refers to basic commodities that remain totally intangible

• Most products contain service elements.

• When choosing a new car, customers consider after-sales service, credit terms, and image.

• The service element provides the ‘value added’ that differentiates one product from its competitors.

• Most services have tangible elements.

4. The marketing mix for services

Four P’s

1. Product

2. Price

3. Place (or distribution)

4. Promotion

• The marketing mix was developed for manufactured products, not services, and some vital ingredients are missing from the mix for a service, especially in the not-for-profit sector.

• In recent years, the Four Ps have been extended to include three service elements: people, physical evidence, and process.

People

• People are the most important element of any service experience.

• Operational staff in service organizations may perform and sell a service.

5. Market Orientation vs. Product Orientation

• The concept of a specialist marketing function was developed to sell fast-moving consumer goods (FMCGs) such as food and clothing.

• The success of marketing in creating a competitive advantage encouraged firms to adopt marketing techniques for other products and services.

Product Orientation

Product orientation - is a management approach that emphasizes the quality of the product rather than the needs and wants of the target market.

• ​A product orientation is the belief that if the firm makes a good product, it will sell.

• Firms concentrate on selling what they have already produced rather than on the customer.

• Product orientation, established at the end of the 19th century, reflected the fact that production was by small firms and, as a consequence, demand > supply.

Selling orientation

• 
  Selling orientation – prevalent in the 1960s and 1970s, was built on the belief that a good salesperson could sell any product.

• It resulted in the unethical ‘hard sell’, forcing governments to pass consumer protection laws. For the first time in some markets, particularly FMCGs, supply > demand.

Market/customer orientation

​Market orientation - is a management approach where firms seek to identify and quantify customer requirements and plan their production accordingly.

• The market or consumer orientation is based on the principle that ‘the customer is king’ and that success is achieved through customer and brand loyalty and ‘repeat purchase.’

• The process is outward looking like customer requirements are established through market research before the firms produce.

• This approach, developed in the 1980s, reflected the fact that customers had considerable choice as supply > demand in almost all markets.

Choosing an Approach

• The approach adopted is determined by the nature of the product, market, and firm.

  • Traditional firms may have corporate cultures encouraging product orientation, keeping costs low, and emphasizing efficiency.

  • However, increased competition forces even these firms to be more market-orientated.

6. Commercial Marketing vs. Social Marketing

Marketing - is the social process by which individuals and groups obtain what they need and want through creating and exchanging products and values with others.

Social marketing (or societal orientation)

• Developed in the 1970s

• Kotler and Zaltman realized that commercial marketing principles used to sell products could be used to ‘sell’ ideas, attitudes, and behaviors.

• Premise: increasing environmental awareness grew out of an increasing concern about consumerism, pandering to wasteful and undesirable needs of the consumer.

​Social marketing - seeks to influence social behaviors, not to benefit the marketer but to benefit the target audience and society in general.

Societal marketing - a concept to determine the needs, wants, and interests of target markets and deliver satisfaction better than competitors while preserving or enhancing the consumer’s and society’s well-being.

7. Characteristics Of the Market In Which An Organization Operates.

Three Main Measures of Market Size

• Volume of sales - measures the amount of goods sold by quantity.

• Value of sales (revenue) - is the amount customers spend on goods sold, expressed in a currency.

• Volume of Customers

Market growth

Market growth - is the percentage change in sales of a product or service over a certain period. It is a factor considered when evaluating the performance of a particular product in a market.​

​Market share

Market share - is the percentage of all the sales in a particular market held by one brand or company, measured by volume (units sold) or by value (revenue generated).

​The importance of market share and market leadership

Increasing market share produces:

• greater economies of scale

• more market influence and power

• the ability to charge lower prices

• lower costs and higher profit margins

The important factor in computing relative market share is not the exact number associated with the sales volume. Your position relative to the competition is more important.

Market concentration

Market concentration - is the extent to which a relatively small number of firms account for a relatively large percentage of the market.

• Concentration ratios are measures of the total output produced in an industry by a given number of firms.

The Most Common Concentration Ratios

• CR4:CR4​ - measures the combined output of the four largest firms in the industry.

• CR8:CR8​ - measures the combined output of the eight largest firms in the industry.

The marketing objectives of for-profit organizations and non-profit organizations (NPOs)

For-Profit vs. Non-Profit

• Profit or surplus may, in reality, be remarkably similar.

• Firms in the private sector seek to maximize profits, whereas charities aim to maximize funds for their clients.

• Profit-making firms may support good causes to promote a socially responsible image.

• Not-for-profit organizations raise awareness of the causes they represent more than they raise awareness of the organization itself, often using political lobbying.

8. Innovation, ethical considerations, and cultural differences

Ethical considerations

• Ethical principles extend across cultures and nationalities.

• What is acceptable in one country may not be in another, so firms must be sensitive to the beliefs, values, and lifestyles.

Cultural differences

• The export of cultural values affects the aspirations of local populations, with the ‘new generations’ demanding economic, cultural, and social reform.

Considerations for multinationals

Cultural and ethical issues extend into employment practices. Ethical and policy considerations for multinationals acting in international markets must be asked:

• Do we understand the societies and cultures in which we operate?

• Do we offer local staff similar terms and conditions to those offered in other regions?

• Are we aware of the norms and values of local communities?

• Do our operations harm the local and/or national community?

• Are we regarded as a foreign or a ‘local’ firm?

​9. Sales Forecasting

Trends and Extrapolation

• When you look at sales figures for a business, there may be underlying patterns of growth or decline – referred to as a trend.

Extrapolated trend

• The graph shows inconsistent sales figures over a period.

• However, it is possible to produce a ‘line of best fit’ called a trend line, which forecasts improving sales in the future.

• This trend is established using moving averages to smooth out variations in data.

Benefits of sales forecasting

• Plan future production levels allowing more efficient use of resources

• Improve cash flow and working capital by calculating cash flow needs

• Improve stock control using the sales forecasts

• Drive marketing campaigns, including distribution and promotion

• Underpin the budgeting process: sales drive budgets

• Identify significant trends and use to adapt its product portfolio

• Identify the influence of economic cycles on demand patterns

The benefits and limitations of sales forecasting

Benefits of Sales Forecasting

• improve financial plans to improve liquidity

• supports operational planning, ensuring supply matches demand

• more efficient workforce planning and stock holding

• supports the planning of marketing campaigns

Limitations of Sales Forecasting

• Results are only as good as the data used to produce the forecasts

• it ignores qualitative factors and other the external environment changes

10. E-Commerce

Features of e-commerce

Electronic commerce (e-commerce) - is the buying and selling of products or services over electronic systems, such as the Internet and other computer networks. It also includes electronic funds transfer.

• E-commerce allows firms to operate 24 hours a day.

Changing technology, e-commerce, and the marketing mix

• Product: e-commerce allows firms to offer a wider range of products and provide more information on specifications with greater customization opportunities.

• Price: lower overheads reduce the prices of goods. Customers compare prices using search engines and price comparison sites.

• Promotion: e-commerce supports innovative promotion, e.g. purchase suggestions based on search behavior.

• Place: e-commerce reduces the number of intermediaries in the supply chain, and increases opportunities to find suitable products and services.

Types of e-commerce

Business-to-business (B2B)

• involves businesses selling to other businesses, e.g. retailers ordering stock from suppliers.

Functions of B2B:

• attract, develop, retain, and cultivate customer relationships

• streamline supply, manufacturing, and purchasing to deliver the right products and services to customers quickly and cost-effectively

• capture, analyze, and share customer information

Business-to-consumer (B2C)

• means businesses selling goods directly to consumers, e.g. ordering goods and services directly from Amazon.

Consumer-to-consumer (C2C)

• Consumer-to-consumer transactions are between one consumer and another, characterized by the growth of electronic marketplaces, peer-to-peer sites, and online auctions such as eBay.

11. Market Research

Market research - is ‘the systematic and objective collection of forms of information that allows trends in market behavior to be identified and predicted.’

• It is the process by which firms find market information, note its relevance, and decide how to act upon it.

Market research methods and techniques

Primary market research

Primary research - is the gathering of new or ‘first-hand’ data specifically tailored to provide information on the firm’s own products, customers, and markets.

• Data is collected by fieldwork such as questionnaires, observation, and surveys. It is expensive, but also relevant, accurate, and up-to-date.

• Primary data can be collected from internal or external sources.

Secondary market research

Secondary research (desk research) - is the assembly, collation, and analysis of existing or ‘second-hand’ marketing data.

• This process is cheaper than primary research, but the data may be less relevant as it was not collected for the firm's specific needs and may be outdated.

The following summarizes the advantages and disadvantages of primary and secondary data:

Primary research methods and techniques

• surveys

• interviews

• focus groups

• observations

12. International Marketing

International marketing - is carried out to satisfy different buying patterns, demographics, and market segments in overseas markets.

International Marketing vs. Global Marketing

• Global marketing employs a uniform approach to the marketing of goods in overseas markets, rather than adapting marketing to local conditions.

Methods of entry into international markets

• Direct exporting – the firm makes the products at home and sends them to the country of consumption, potentially losing control of the marketing process.

• Franchising – a firm sells the right to a franchisee to trade under its name and logo requiring the franchisee to maintain the quality and reputation of its brand.

• Licensing – a local firm buys the right to produce the goods of a multinational company.

• Joint venture – two or more companies join together to fulfill a particular contract, sharing the risks.

• Direct investment – a firm produces and distributes products in an overseas market.

• Mergers and takeovers – a firm buys a business operating in the country in which it wants to sell.

• E-commerce –a method to access global markets.

Opportunities and threats of entering international markets

Opportunities

• Increased profitability – larger markets result in increases in sales and profitability, because of greater economies of scale, lower sourcing costs and possible higher prices.

• Diversification/spreading of risk – a fall in economic activity in one market may be mitigated by shifting production to other growing markets.

• Increased brand exposure and recognition – global brand recognition increases its value, making it easier for the firm to introduce new products and services.

• Legal differences – cheaper and easier production; not all countries apply the same legal and safety standards.

• Market saturation – firms can boost sales and prolong product life cycles by selling overseas.

Threats

• Social factors: differences in social conditions, religion, and culture affect consumers’ perceptions and buying behavior, and demographic changes impact on products demanded.

• Technological factors: the growth of the Web has increased international competition.

• Economic factors: the purchasing power of global populations vary, affecting the products demanded and supporting marketing.

• Ethical factors: firms adopt ethical approaches to promoting and selling products that may harm local populations and their way of life.

• Political factors: governments may impose restrictions on marketing to local populations.

• Legal factors: marketers must be aware of laws governing acceptable marketing and selling techniques.

• Environmental factors: marketing must avoid detrimental effects on the environment.

The strategic and operational implications of international marketing

• Globalization and growing internet access increased the interdependency and interconnections of countries and the firms that operate within them.

Managing stakeholder expectations

• The complexities of international marketing mean MNCs have more stakeholders with differing expectations and, therefore, potential for conflict.

• The firm’s ability to manage conflicts influences its international marketing success.

Cultural differences in international marketing

• Culturally bound products: religious taboos or differences may make certain products unsellable in certain countries e.g. pig products.

• Status relationships: in many Asian cultures, status is very important and language reflects this, with different words used to express similar ideas.

• Advertising: some cultures dislike aggression and others prefer symbols to language. Humor is very culturally specific.

• Packaging: colors have associations with death, sickness, or national pride.

• Language: translation may be difficult if suitable words are unavailable in other languages.

  • Whether local populations perceive MNCs as ‘foreign’ or ‘local’ influences purchasing decisions.

The influence of globalization on international marketing

• increasing competition as markets are deregulated

• changing consumer tastes and preferences as local populations absorb ideas and values imported from abroad through global media

• opportunities for marketing economies of scale

13. The Four Ps (product, price, promotion, place)

The Product Life Cycle

• Products, like human beings, are conceived and born.

• As time passes, products move through infancy, grow, and reach maturity, and, like humans, they will eventually decline and die. Like humans, death may happen at any stage.

Unlike a human:‌

• a product’s life is measured in terms of sales and products may be reborn

• the speed at which a product moves through its life cycle varies

The five stages

Stage 1: Development.

• The research and development (R & D) department develops the product and the marketing department conducts extensive market research.‌ New product development (NPD) follows a pattern:‌

1. Idea generation – ideas come from brainstorming, market research, various departments, and customers and employees.

2. Screening – products are assessed according to marketing, production, and strategic factors, with many ideas dropped at this stage.

3. Concept testing – market research or focus groups are used to assess the reaction.

4. Market/business analysis – the marketing department forecasts market potential, costs, sales, profit, and return on investment.

5. Product development – products not excluded by screening go forward. Costs at this stage are high. A prototype is produced and focus groups provide feedback.

6. Test marketing – products are tested in a small geographical area, selected because it has the characteristics of the target market. Feedback is analyzed and adjustments are made before the full launch.

7. Product launch/commercialization – launching into the intended market is costly, and requires careful planning. Sales are analyzed to see if the product will earn profit.

Stage 2: Introduction.

• The product is launched into the test market(s).‌

  • Significant promotion is required, so marketing costs are high.

  • Informative advertising tells potential consumers of the product’s benefits.

  • There are few economies of scale.

  • The price can be high if the product has a first-mover advantage.

  • Prices are set lower if there are existing competitors to allow the firm to gain market share. This is known as penetration pricing.

‌Stage 3: Growth. ‌

• Persuasive advertising tells customers why the product is better than its competitors to establish brand loyalty.

  • Sales growth.

  • Penetration pricing is used to gain market share.

  • Costs fall as the firm achieves economies of scale.

  • Sales revenues increase and profits rise.

‌Stage 4: Maturity and saturation

Maturity

• Growth slows, but the firm has a significant market share.

• High sales and low unit cost lead to high profit margins.

• Positive cash flows are used to fund new product development.

• New competitors enter the market in response to high profitability and customers become price sensitive.

• Competitive pricing is used to maintain market share.

• Advertising is used to remind customers of the product’s benefits.

Saturation

• Sales fall as more competitors enter the market and compete on price.

• Prices fall with competitive pricing to maintain market share.

• Extension strategies are employed, e.g. redesigned packaging.

‌Stage 5: Decline

• ‌Sales and profits decline.

• Low-cost rivals gain market share.

• Cost cutting is inevitable, e.g. the firm reduces human resources, sales outlets, and investment.

• Promotion cut.

• Further extension strategies are used, e.g. prices are reduced.

• Product eliminated.

​

The relationship between the product life cycle and the marketing mix

Extension strategies

• Firms use extension strategies to prolong product life cycles and delay decline.

Extension strategies prolong the life of a product:

• modifying the product

• promoting more heavily

• developing complementary products

• finding new uses

• lowering price

• more effective distribution

The relationship between the product life cycle, investment, profit, and cash flow

• The cash flow from a product changes through its life cycle.

• Introduction and growth stages

  • High development and promotional costs result in a negative cash flow.

• Maturity and saturation stage

  • As a product moves into maturity, cash flow becomes positive. Economies of scale cause falls in unit costs and profits increase rapidly.

  • As a product becomes mature, competition increases and demand becomes more price elastic. Falling price reduces profit margins.

• Decline stage

  • Sales fall and cash flow declines, possibly leading to losses.

Boston Consulting Group (BCG) matrix

• A company may have products at various stages of its life cycle, illustrated by a Boston matrix (BCG matrix).

• The market share of a product is plotted on the horizontal axis with market growth on the vertical axis.

• Products within a firm’s product mix are classified into four categories used to support a firm’s marketing strategy.

• Question mark/problem child: small market share, high market growth. New products are potentially successful but require considerable financial support. They may become stars or fail and become dogs.

• Star: high share of a fast-growing market. Still requires considerable investment, but profit rises substantially.

• Cash cow: high market share but little market growth. Sales revenues are high and costs low. Cash flow ‘milked’ to provide funds for new product development.

• Dog: both low market share and little prospect of growth. Extension strategies are employed or the firm drops the product.

Four Basic Strategies of BCG

• Sow: investment in R&D and marketing to launch the product, raise awareness, and develop distribution channels.

• Nurture: investment to turn problem children into stars, increasing promotion and developing new distribution channels and markets.

• Harvest: funds from sales of cash cows used to finance other products and improve cash flows.

• Plough (divest): liquidate the product or sell it to another business.

14. Branding (Product)

Brand - is a name, sign, or symbol used to identify items or services of the seller(s) and to differentiate them from competitors’ products.

Global brands - are recognized throughout the world.

• Firms employ a unified approach to support the brand and its development, using consistent packaging, color, fonts, and logos.

Functions

• identify them quickly

• relate to the firm and feel good about its product

• Trust the firm by providing reliable, good-quality products

Brand awareness

• Familiarity with a brand allows businesses to reach a wider audience.

• Brand extension occurs when the firm produces new products under the same brand umbrella.

15. Price and pricing strategies

Different Pricing Techniques

• Cost-plus pricing – the price is set by adding an agreed level of profit to average cost. This ensures a certain amount of profit per unit sold but ignores competitors’ prices.

• Contribution pricing – the price covers variable costs and makes a contribution to fixed costs.

• Price discrimination – different prices are charged to different customers for the same product in different market segments. To work, the markets must be kept separate.

Options in Pricing Strategy

• Skimming pricing – a high price is set to earn a high level of profit. This works if a product contains new technology and there are few direct rivals. Customers associate the price with a high quality but it may reduce sales.

• Penetration pricing – a deliberately low price is set to gain market share when established brands already exist. Customers may regard a low price as being associated with poor quality.

• Price leader – a dominant firm with a significant share of the market sets the price and other, smaller firms follow.

• Predator or destroyer pricing – a firm deliberately sets a low price, possibly beneath the average cost of production, to force rivals out of the market. This strategy may breach competition rules.

16. Promotion

• Build brand image, awareness, and recognition.

• Inform customers about new and improved products, their functions, and prices.

• Persuade customers to make a purchase and/or switch brand loyalty.

• Remind customers of the firm products to retain loyalty or renew purchasing its established products.

• Attract attention to the ‘family’ of products offered by the business and build corporate image.

• Promotion is NOT simply advertising. It’s all the various ways in which consumers are made aware of the goods and services offered by a firm.

Above-the-line promotion (ATL) - advertising

Above-the-line promotion - is the paid-for promotion that is carried out through independent mass media that allows a firm to access a wide audience.

• These include radio, television, newspapers, and the Web.

• e firm passes control of promotion to specialist external organizations.

Advertising - is directed at a mass audience to generate customer loyalty and repeat purchasing, allowing the firm to produce or buy in bulk and enjoy economies of scale.

• Advertising is a media message paid for by a sponsor.

For advertising to be effective, it should:

• reach the desired target audience

• be appealing to the target market

• generate more sales revenue than it costs the firm

• Internet users pass on marketing messages to other sites or users, creating exponential growth in the message’s visibility.

• Viral marketing may take the form of video clips, games, images, text messages, email messages, web pages, search engines, and other social media to spread the message.

• However, viral messages are not always consciously engineered; as they multiply, evolve, and mutate, they may not reflect the strategic intentions of the firm’s marketing plan.

Advantages and disadvantages of technology in promotional activities

Advantages

• Speed – the message reaches the target audience quicker than via traditional media.

• Availability – the web is available 24/7.

• Wide reach – firms can access a global audience with little cost.

• Cost-effective – e-commerce is cheaper than traditional promotion.

Disadvantages

• Lack of control – firms have little control over the transmission of marketing messages between users and consumers.

• Access – not all consumers have access to the internet.

• Attention spans – the internet is crammed with messages, many of them conflicting. Users of the internet tend to spend little time on web pages.

• E-commerce sites and payment gateways offer opportunities for hackers.

18. Place

The importance of place in the marketing mix

• Place is one element of the marketing mix, more accurately described as ‘distribution’.

• Physical Distribution Management - an active process often carried out by specialist logistics companies using computer-controlled distribution to maximize cost-effectiveness.

  • The path from producer to consumer normally involves more than one organization

  • Though new technologies have shortened the distribution chain and encouraged firms to sell directly to the consumer, reducing costs and lowering prices.

Operations Management (IB)

1. Operations Management

Operations Management Defined 

• Stevenson (2018) defines operations management as the management of systems or
  processes that create goods and/or provide services.

• Operations management is concerned with designing products and services and managing processes and supply chains. 

• It describes the acquisition, development, and utilization of the resources that firms require to produce and deliver the goods and services that their customers want, and covers strategic and tactical activities and decisions.

Scope

• Strategic decisions about the size and location of factories and appropriate supply chains.

• Tactical decisions about factory design, project management, and equipment selection.

• Operational decisions about production scheduling and quality control.

Operations activities apply in all three economic sectors

• the primary sector, e.g. extracting raw materials

• secondary sector, e.g. manufacturing, construction, and processing

• the tertiary sector, e.g. service provision

Operations management and its relationship with other business functions 

Production - is concerned with converting inputs, such as raw materials, into finished products to meet the customers’ needs and wants. 

• Production will add value, allowing firms to charge a higher price for the finished product than they paid in terms of costs.

Effects of Production on Business Functions

• Marketing: the marketing department generates demand and liaises with operations to ensure this quantity can be produced.

• Finance: production generates revenue, but it also creates costs that must be paid. Many firms fail because they run out of cash during production.

• Human resources management (HRM): the HRM department must guarantee the number of skilled staff required to produce the goods demanded, through appropriate recruiting and training.

2. Producing Goods And Services

Goods vs. Services

The manufacturing-service continuum

• According to Krajewski, et al. (2016)., manufacturing processes convert materials into
  products, whereas service processes tend to produce intangible, perishable outputs.

• Oftentimes, companies reside somewhere in between the two ends of the manufacturing-service continuum. 

Operations management and economic sustainability 

Consisting of three pillars, sustainable development seeks economic, social, and environmental sustainability.

• Economic sustainability: the aim of the sustainable economic model is the fair distribution and efficient allocation of resources.

• Social sustainability: this aspect supports initiatives like peace, social justice, reducing poverty, and other movements that promote social equity.

• Environmental sustainability: this aspect supports initiatives like renewable energy, sustainable agriculture and fishing, organic farming, tree planting, recycling, and better waste management.

3. Operations as a Transformation Process

• According to Russell & Taylor (2011), operations are often defined as a transformation process. 

  • Requirements and feedback from customers are used to adjust the many factors involved in the transformation process, which may in turn alter inputs. 

  • In operations management, we try to ensure that the transformation process is performed efficiently and that the output is of greater value than the sum of the inputs. 

• The role of operations is to create value. 

  • The transformation process can be viewed as a series of activities along a value chain extending from supplier to customer. 

  • Value chain – a series of activities from supplier to customer that add value to a product orservice.

4. Current challenges in operations management

Challenges in Operations Management

1. Globalization 

   • Example: The device you are holding right now is likely designed in
     a country different from where it was manufactured.

2. Supply-chain partnering

   • Example: The launch of eKadiwa, a Dept. of Agriculture-led digital platform in the Philippines, helped connect farmers, merchants, and consumers during the pandemic.

3. Sustainability 

   • Example: Adidas X Parley shoes recycled from ocean plastic.

4. Rapid product development 

   • Example: Nike’s development of medical PPEs during
     the pandemic

5. Mass customization 

   • Example: Nike by You custom shoes

6. Lean operations 

   • Example: Toyota production system

Steps in analyzing operations management challenges

• Identify challenges in the system.

• Analyze the challenges of the system.

• Generate solutions for the challenges.

• Recommend a solution for the challenges.

• Adopt the recommended solution.

• Maintain the recommended solution.

• Re-evaluate the solution.

5. Competitiveness and Strategy

Competitiveness - is how effectively a company meets the wants and needs of customers relative to others that offer similar goods or services.

• If you are a business owner, you could also think of it as your ability to be the “first pick” of your customers over your competition.

6. Mission and Vision Statement

• According to Stevenson (2018), an organization’s vision is its reason for existence.

• On the other hand, the mission statement states the purpose of the organization.

Goals, Strategies, and Tactics

• Goals – provide details and scope of the mission

• Strategies – plans for achieving organizational goals. The three basic organizational strategies are:

  • Low-cost

  • Responsiveness

  • Differentiation from other competitors

• Tactics – methods and actions taken to accomplish the strategies.

Organizational strategies and corresponding operations strategies

• Depending on the strategy of an organization, operations within that organization would have to align themselves accordingly to ensure success amid a competitive business landscape. 

• The organizational strategy defines the overall direction that an entire organization should take. 

• On the other hand, operational strategy is much narrower in scope and deals with all
  the operations-related activities of the organization.

Effects of Decision Areas on the Aspects of the Firm

7. Productivity

Productivity – a measure of the effective use of resources, expressed as the ratio of output and input. 

• Business leaders are concerned with productivity as it relates to strategies and thus, competitiveness.

• Especially useful for businesses that use low-cost as a strategy

Types of Productivity Measures

• Partial

• Multi-factor

• Total

Productivity Growth 

8. Product & Service Design

Product Design

• Ideas for new products or improvements to existing products can come from various sources such as:

  • A company’s R&D department

  • Customer complaints or suggestions

  • Marketing research

  • Suppliers

  • Salespersons in the field

  • Factory workers

  • New technological developments

  • Competitors

9. Capacity Planning

Capacity - is the maximum output rate of a process or a system. 

• Managers are responsible for ensuring that the firm can meet current and future demand. 

• Adjusting to decrease capacity or to overcome capacity shortfalls is an important job of managers. 

Key Questions in Capacity Planning

• What kind of capacity is needed?

• How much is needed to match demand?

• When is it needed?

Types of Capacity

• Design capacity - the maximum output rate or service capacity an operation or facility is designed for. 

• Effective capacity - is the design capacity minus allowances such as personal time, equipment maintenance, delays, and changing the product mix.

Measures of Capacity 

Efficiency Rate

Utilization Rate

Steps in the capacity planning process

Stevenson (2018) offers a generic list of the capacity planning process. The actual steps involved vary depending on the business and the industry:

• Estimate future capacity requirements.

• Evaluate existing capacity and facilities and identify gaps.

• Identify alternatives.

• Conduct a financial analysis of each alternative

• Assess key qualitative issues of each alternative.

• Select the alternative that will bring the best long-term outcome.

• Implement the selected alternative.

• Monitor results

10. Process Selection

Process selection — deciding on the way the production of goods or services will be organized

• Has major implications for capacity planning, layout of facilities, equipment, and design of work systems.

• Always done when new products or services are being planned
  Sometimes done because of:

  • Technological changes in products or equipment

  • Competitive pressures

Characteristics of Process Selection

1. Process selection is based on process strategy

2. Process selection is demand-driven

Questions for an Operations Manager

• How much variety in products/services will the system need to handle?

• What degree of equipment flexibility will be needed?

• What is the expected volume of output?

Capital & Process

Capital intensity — the mix of equipment and labor that will be used by the
organization

Process flexibility — the degree to which the system can be adjusted to changes in
process requirements. Some examples of such changes are:

• Changes in product and service design

• Changes in volume processed

• Changes in technology

Process Types

• Job Shop

  • Used when a low volume of high-variety goods or services will be needed.

  • Work includes small jobs, each with somewhat different requirements.

  • High skill level of workers

• Batch

  • Used when a moderate volume of goods or services is desired with a moderate variety in products/services.

  • Equipment need not be as flexible.

  • Lower skill level of workers than job shop

• Repetitive

  • Used when higher volumes of more standardized goods/services are needed.

  • Only needs slight flexibility of equipment.

  • Low skill level of workers a.k.a., assembly

• Continuous

  • Used when a very high volume of non-discrete, highly standardized output is desired.

  • Almost no variety in output; thus, no need for equipment flexibility

  • Workers’ skill requirements range from low to high, depending on the expertise needed and system complexity.

• Project

  • Used for non-routine work, with a unique set of objectives to be accomplished in a limited time frame.

  • Equipment flexibility and worker skills range from low to high.