MB 0036 / MH 0045 Strategic Management and Business Policy Contents Unit 1 Introduction to the Concept of Strategic Management and Business Issues – Basic Investment Strategy 1 Unit 2 Planning a New Business Venture: Tackling and Planning Business Priorities 35 Unit 3 Harnessing Complexity – Creativity in Business and a Favourable Investment Strategy 78 Unit 4 Business Continuity Plan 92 Unit 5 Small Businesses – Big Obstacles 133 Unit 6 Decision Support Systems 159 Unit 7 Licensing and Enforcing Intellectual Property Rights 204 Unit 8 Corporate Social Responsibility 256 Reference 293 Edition: Fall 2007 BKID – B0854 9 th April 2008
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MB 0036 / MH 0045Strategic Management and Business Policy
Contents
Unit 1Introduction to the Concept of Strategic Management and Business Issues – Basic Investment Strategy 1
Unit 2
Planning a New Business Venture: Tackling and Planning Business Priorities 35
Unit 3Harnessing Complexity – Creativity in Business and a Favourable Investment Strategy 78
Unit 4Business Continuity Plan 92
Unit 5Small Businesses – Big Obstacles 133
Unit 6Decision Support Systems 159
Unit 7Licensing and Enforcing Intellectual Property Rights 204
Unit 8Corporate Social Responsibility 256
Reference 293
Edition: Fall 2007
BKID – B0854 9th April 2008
Brig. (Dr). R. S. Grewal VSM (Retd.)Pro Vice ChancellorSikkim Manipal University of Health, Medical & Technological Sciences
Board of StudiesMr. Rajen PadukoneMember – Academic Senate, Sikkim Manipal University
Ms. Vimala Parthasarathy Prof. K. V. VaramballyHOD DirectorConvener Manipal Institute of ManagementDepartment of Management & Commerce ManipalDirectorate of Distance EducationSikkim Manipal UniversityProf. Raj Dorai Mr. JagadeeshIndustry Consultant and Assistant ProfessorVisiting Faculty, IBA, IFIM and BIM, Department of Management &Bangalore Commerce, Directorate of Distance
Education, Sikkim Manipal University
Mr. Umesh Maiya Mr. R. Ravindra RaoAssistant Professor Senior FacultyDepartment of Management & Commerce Manipal Institute of Management Directorate of Distance Education ManipalSikkim Manipal University
Content Preparation TeamContent Writing and Compilation Language EditingProf. Raj Dorai Mr. Shridhar BhatIndustry Consultant and Former Faculty, MUL Visiting Faculty, IBA, IFIM and BIM, Manipal – 576 104Bangalore
Format EditingMr. Umesh MaiyaAssistant ProfessorDept. of Management & CommerceSikkim Manipal University of HealthMedical & Technological Sciences (SMU)Manipal – 576 104
Edition: Fall 2007
This book is a distance education module comprising of collection of learning material for our students.All rights reserved. No part of this work may be reproduced in any form by any means without permission in writing from Sikkim Manipal University of Health, Medical and Technological Sciences, Gangtok, Sikkim.Printed and Published on behalf of Sikkim Manipal University of Health, Medical and Technological Sciences, Gangtok, Sikkim by Mr. Rajkumar Mascreen, GM, Manipal Universal Learning Pvt. Ltd., Manipal – 576 104. Printed at Manipal Press Limited, Manipal.
A strategy is an operational tool to achieve the goals, and thus, the
corporate mission. Strategies are very much useful in organisations for
guiding, planning and control. To win over in a given complex situation, the
organisations, even trans-nationals, adopt strategies. Strategy formulation
and implementation is the crux of the strategic management process.
Formulation, together with its implementation, constitutes an integral part of
the management activity.
A well-written plan will serve as a guide through the start up phase of the
business. A business plan is a detailed description of how an organization
intends to produce, market and sell a product or service. It can also
establish benchmarks to measure the performance of your business venture
in comparison with expectations and industry standards.
The main function of an enterprise is to create value through producing
goods and services that society demands, thereby generating profit for its
owners and shareholders as well as welfare for society, particularly through
an ongoing process of job creation. However, new social and market
pressures are gradually leading to a change in the values and in the horizon
of business activity.
Intellectual property rights can be very valuable commercial rights for
inventors, creators and researchers. It is important to enforce your
intellectual property rights to protect the value of your intellectual property
rights.
All these aspects are of great significance from the point of view of the
establishment, progress and maintenance of standards of an organization.
This courseware has been carefully designed to incorporate these details
along with other necessary ingredients.
SUBJECT INTRODUCTION
This book comprises 8 units:
Unit 1: Introduction to the Concept of Strategic Management and
Business Issues – Basic Investment Strategy
Deals with the purpose of strategy, strategy formulation and implementation
as well as evaluation and control of strategy.
Unit 2: Planning a New Business Venture: Tackling and Planning
Business Priorities
Deals with the concept of business plan and explains how to create one’s
own business plan and the steps involved in developing sales projections.
Unit 3: Harnessing Complexity – Creativity in Business and a
Favourable Investment Strategy
Throws light on Complex Systems Behaviour and the concept of Creativity.
Unit 4: Business Continuity Plan
Deals with the purpose of Business Continuity Plan and the way of
developing, implementing and maintaining the Business Continuity Plan.
Unit 5: Small Businesses – Big Obstacles
Explains what Small Business Administration (SBA) is; Throws light on
different phases of a new business; Explains the functions of the Chief
Financial Officer in an organization.
Unit 6: Decision Support Systems
Deals with the levels of reporting and flows of data; Also explains the effects
of using a Decision System.
Unit 7: Licensing and Enforcing Intellectual Property Rights
Deals with the options for exploiting Intellectual Property rights,
commercialisation mechanisms and the provisions for enforcement of
Intellectual Property rights.
Unit 8: Corporate Social Responsibility
Deals with the meaning of Corporate Social Responsibility and its global
dimension.
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Unit 1 Introduction to the Concept ofStrategic Management and Business
Issues – Basic Investment Strategy
Structure:
1.1 Introduction
Objectives
1.2 Purpose of Strategy
1.3 Translating Corporate Vision into Action-A Case Study
1.4 Strategies to Improve Sales
Self Assessment Questions I
1.5 Strategy Formulation & Implementation
1.5.1 Stages in Strategy Formulation and Implementation
1.5.2 Generic Strategy Alternatives
1.5.3 Strategic Alliances
1.5.4 Considering Strategy Variations
1.5.5 Selection of the Best Alternative
1.5.6 Strategic Choice
1.5.7 Allocation of Resources and Development of Organisational
Structure
Self Assessment Questions II
1.6 Formulation of Policies, Plans, Programmes and Administration
1.7 Implementation: Evaluation and Control of Strategy
Self Assessment Questions III
1.8 Summary
1.9 Terminal Questions
1.10 Answers to SAQs and TQs
1.1 Introduction
The term ‘strategy’ is drawn from the armed forces. It is a strategic plan that
interlocks all aspects of the corporate mission designed to overpower the
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enemy or the competitor. An appropriate strategy is considered to be
essential to face adverse situations such as cut-throat competition.
Strategy may imply general or specific programmes of action outlining how
the resources are deployed to attain goals in a given set of conditions. If
these conditions change, the strategy also changes. Strategies give
direction for the achievement of objectives necessary through the
deployment of resources.
In this unit, we would attempt to understand the meaning and purpose of
strategy, its formulation, implementation and evaluation.
Objectives:
After studying this unit, you will be able to:
Explain the meaning and purposes of a strategy.
Explain the key elements of basic investment strategy.
Mention the key strategy initiatives within a firm.
List the stages involved in strategy formulation and implementation.
Explain different forms of strategic alliances.
Explain the importance of evaluation in the strategic management
process.
1.2 Purpose of Strategy
A strategy is an operational tool to achieve the goals, and thus, the
corporate mission. Strategies do not attempt to outline exactly how the
enterprise is to accomplish its objectives. A company may view downsizing
as a strategy in a competitive market to render cost-effective services. Thus,
strategy provides a framework to guide thinking and action. Strategies are
very much useful in organisations for guiding, planning and control.
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Mass Market as the Focus of Corporate Strategy
Today, corporate strategy is to identify and focus on the largest potential
and concentrate business there. It is realised, of late, that the largest
potential lies in the mass market, which is the largest source of volume
though with marginal profits.
HLL launched the WHEEL brand to cater to the requirements of large
customers (hitherto uncovered by its popular products Surf, Surf
Excel etc.) at affordable prices.
Britannia was earlier addressing the needs of upper income
segments of the market. Having realised that the price-conscious
market was much larger, the company launched the Tiger brand.
Translating Corporate Vision into Action
The vision of Cadbury, the market leader of the 90’s, was translated into
different operational and marketing strategies – such as downsizing or
providing more value for money.
Strategy is a way of life both at the macro as well as micro levels for
everyone, whether it is a nation or a company. To win over in a given
complex situation, the organisations, even trans-nationals adopt strategies.
They make changes, if necessary, even to their global strategies. An
individual company may formulate its own strategy to bring out the desired
results. The eventual success of the organisation depends upon strategy
formulation and implementation.
The recently initiated moves such as globalisation, privatisation and
liberalisation are strategies to attain a globally competitive economy.
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Corporate Strategies
Articulate the vision of the company.
Involve staff in the vision.
Be a good motivator.
Focus on human resources by having the right people with the right
thinking in the right jobs.
Empower the staff to take risks and be innovative.
Programmes
Programmes refer to the logical sequence of operations to be performed in
a given project or job. Programmes tell you “what to do “. A programme is
based on a set of goals, policies, procedures, rules and task assignments.
They are used to carry out a given course of action.
Normally, the size of each programme is assessed in terms of resources
and duration. If a programme takes larger resources and time, it is
considered major, but supported by a number of minor and supporting
programmes. If a programme requires a logical sequence of activities, it
would require special attention of a manager.
Co-ordination and timing of supporting programmes need a detailed
analysis. Failure of any part of this network of supportive programmes
means delays, higher costs and loss of revenue.
1.3 Translating Corporate Vision into Action – A Case Study
Case Study: BHEL
Vision: “A world class, innovative, competitive and profitable engineering
enterprise providing total business solutions. “
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How do we translate this into action?
Mission – What the company wants to achieve:
To:
Deal with products and services with specific focussed engineering
applications close to their Core Competence.
Become an international player.
Be innovative.
Be profitable.
Provide total business solutions to ensure customer satisfaction.
Goals – To achieve the above mission
To understand the status of technology in engineering and
management.
To actively implement in-house and external R&D to develop innovative
products and services.
To emerge as the most competitive player in terms of price and quality.
Objectives – To achieve the above goals
To upgrade innovative R&D skills among technical human resource.
To outsource R&D services to close the gap.
To ensure that employees are committed.
To make key personnel more conscious of time, quality and cost.
To develop reliable and resourceful network of customers.
To optimise utilisation of resources, both financial as well as non-
financial, material, as well as human.
Strategies – To achieve the above objectives
To promote a joint venture with a strategic partner, preferably a leading
multi-national.
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To work for ISO 9000 certification, to streamline the operating systems
in design, manufacturing, installation, testing and service.
To provide a continuous learning atmosphere for the technical and non-
technical staff at all levels.
To network with leading international software vendors and transport
companies of global standards.
To ensure quick recovery of receivables, offer incentives for early
payment and initiate a system of debt factoring if necessary to take
protection against bad debts.
To maintain an optimum staff strength and recruit only if and when
necessary.
To select people based on aptitude and attitude.
To make the organisation flat and lean to enhance the degree of
competitiveness.
Policies – To control strategies
To follow structured recruitment procedures.
To make training a compulsory element of employees’ growth strategy.
To sell to a buyer only if he is not a significant contributor to debt levels.
To encourage R&D and research paper presentations by employees.
To make all maintenance staff live within factory premises.
Programmes – For implementation of objectives
To work for ISO 9000 certification.
To conduct orientation programmes for all staff at all levels to
communicate goals of such certification.
To develop and encourage cross-function teams combining employees,
customers and suppliers.
To conduct job analysis, to identify job description and work out job
specifications.
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To use such data during recruitment.
To schedule meetings with CEOs of major players in finance, supply and
transportation and initiate measures for strategic alliance.
To conduct collection drive programmes for early recovery of
outstandings.
To empower key personnel to negotiate early and favourable settlement
of pending accounts, considering the best interests of the organisation.
To organise cleanliness and safety weeks.
The above list outlines some of the key issues at every stage of action
illustrating how:
The mission springs out from vision statements
Goals from the mission
Objectives from goals
Strategies from objectives
And programmes from objectives
1.4 Strategies to Improve Sales
There are three alternatives to improve the sales performance of a business
unit, to fill the gap between actual sales and targeted sales:
a) Intensive growth
b) Integrative growth
c) Diversification growth
a) Intensive Growth:
It refers to the process of identifying opportunities to achieve further growth
within the company’s current businesses. To achieve intensive growth, the
management should first evaluate the available opportunities to improve the
performance of its existing current businesses.
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It may find three options:
To penetrate into existing markets
To develop new markets
To develop new products
At times, it may be possible to gain more market share with the current
products in their current markets through a market penetration strategy. For
instance, SONY introduced TV sets with Trinitron picture tubes into the
market in 1996 priced at a premium of Rs.10,000 and above over the
market through a niche market capture strategy. They gradually lowered the
prices to market levels. However, it also simultaneously launched higher-
end products (high-technology products) to maintain its global image as a
technology leader. By lowering the prices of TVs with Trinitron picture tubes,
the company could successfully penetrate into the markets to add new
customers to its customer base.
Market Development Strategy is to explore the possibility to find or develop
new markets for its current products (from the northern region to the eastern
region etc.). Most multinational companies have been entering Indian
markets with this strategy, to develop markets globally. However, care
should be taken to ensure that these new markets are not low density or
saturated markets, which could lead to price pressures.
Product Development Strategy involves consideration of new products of
potential interest to its current markets (e.g. Gramaphone Records to
Musical Productions to CDs)– as part of a Diversification strategy.
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Study the following example to understand what Product Development
Strategy is.
MICROSOFT’s New Strategy
It is called PC-plus. It has three elements:
a) Providing computer power to the most commonly used devices such
as cell phone, personal computer, toaster oven, dishwasher,
refrigerator, washing machines and so on.
b) Developing software to allow these devices to communicate.
c) Investing heavily to help build wireless and high-speed internet
access throughout the world to link it all together.
Microsoft envisions a home where everyday appliances and electronics
are smart. According to Bill Gates, ‘In the near future, PC-based
networks will help us control many of our domestic matters with devices
that cost no more than $ 100 each ‘.
It is also said at Microsoft that VCRs can be programmed via e-mail,
laundry washers can be designed to send an instant message to the
home computer when the load is done and refrigerators can be made to
send an e-mail when there’s no more milk. Microsoft plans to give these
appliances ‘brains‘ and provide them the means to talk to each other
through their Windows CE Operating System.
b) Integrative Growth:
It refers to the process of identifying opportunities to develop or acquire
businesses that are related to the company’s current businesses. More
often, the business processes have to be integrated for linear growth in the
profits. The corporate plan may be designed to undertake backward,
forward or horizontal integration within the industry.
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If a company operating in music systems takes over the manufacturing
business of its plastic material supplier, it would be able to gain more control
over the market or generate more profit. (Backward Integration)
Alternatively, if this company acquires some of its most profitably operating
intermediaries such as wholesalers or retailers, it is forward integration. If
the company legally takes over or acquires the business of any of its leading
competitors, it is called horizontal integration (however, if this competitor is
weak, it might be counter-productive due to dilution of brand image).
c) Diversification Growth:
It refers to the process of identifying opportunities to develop or acquire
businesses that are not related to the company’s current businesses. This
makes sense when such opportunities outside the present businesses are
identified with attractive returns and that industry has business strengths to
be successful. In most cases, this is planned with new products that have
technological or marketing synergies with existing businesses to cater to a
different group of customers (Concentric Diversification).
A printing press might shift over to offset printing with computerised content
generation to appeal to higher-end customers and also add new application
areas ( Horizontal Diversification ) – or even sell stationery.
Alternatively, the company might choose new businesses that have nothing
to do with the current technology, products or markets (Conglomerate
Diversification).
The classic examples for this would be engineering and textile firms setting
up software development centres or Call Centres with new service clients.
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Situation Analysis
Sales Improvement Strategies:
a) A supplier of computer stationery invests in a computer stationery
manufacturing unit.
b) A vendor supplying engine boxes to Maruti decides to supply the
same with modifications to Hyundai.
c) A company dealing in computer floppies plans to set up a Software
Technology Park.
Downsizing Older Businesses – as part of Operating Plans
It is necessary to reduce the scale of operations of an unprofitable business
to ensure that the resources are optimally utilised. A weak business requires
higher degree of managerial attention. The management should focus on
the company’s growth opportunities, not fritter away energy and resources
trying to revive tired and old businesses.
Self Assessment Questions I
State whether the following statements are True or False:
1. A strategy is an operational tool to achieve the goals, and thus, the
corporate mission.
2. Strategies attempt to outline exactly how the enterprise is to accomplish
its objectives.
3. The recently initiated moves such as globalisation, privatisation and
liberalisation are strategies to attain a globally competitive economy.
4. A programme is based on a set of goals, policies, procedures, rules and
task assignments.
5. ‘Product Development Strategy’ is to explore the possibility to find or
develop new markets for its current products.
6. ‘Market Development Strategy’ involves consideration of new products
of potential interest to its current markets.
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1.5 Strategy Formulation and Implementation
It is the crux of the strategic management process. Strategy refers to the
course of action desired to achieve the objectives of the enterprise.
Formulation, together with its implementation, constitutes an integral part of
the management activity. Managers use strategies for different purposes
such as to overcome competition, to increase sales, to increase production,
to motivate the employees to provide their best, and so on. Implementation
of a strategy is a crucial task as the formulation of it. There may be a lot of
resistance during the implementation process. It is necessary for the
manager to be very tactful to involve the members of his group in the
formulation of strategy to facilitate the implementation process.
1.5.1 Stages in Strategy Formulation and Implementation
a) Identification of mission and objectives
b) Environment scanning
c) Generic strategy alternatives
d) Strategy variations
e) Strategic choice
f) Allocation of resources and formulation of organisational structure
g) Formulation of plans, policies, programmes and administration
h) Evaluation and control
1.5.2 Generic Strategy Alternatives
They refer to the strategy alternatives in broader terms. After the nature of
the business of the firm is defined, the next task is to focus on the type of
strategic alternative, in general, the firm should pursue. The strategist seeks
to identify the right alternative through questions such as:
1. Should we get out of this business entirely?
2. Should we try to expand?
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There are four strategy alternatives available to a firm or business:
a) To expand
b) To wind up or retrench
c) To stabilize, and
d) To continue its operations pertaining to its products, markets or
functions.
a) Expansion strategy can be adopted in the case of highly competitive and
volatile industries, particularly, if they are in the introduction stage of
product / service life cycle.
b) Stability strategy is a better choice when the firm is doing well, the
environment is relatively less volatile, and the product / service has
reached the stability or maturity stage of the life cycle.
c) Retrenchment strategy is the obvious choice when the firm is not doing
well in terms of sales and revenue and finds greater returns elsewhere,
or the product / service is in the finishing stage of the product life cycle.
d) Combination strategy is not a new strategy as it combines the other
strategies. However, it is to be noted that it is better to evolve individual
strategies and combine them rather than trying to evolve a complex
combination strategy which could be cumbersome with loss of precious
business time. It is best-suited to multiple SBU firms in times of
economic transition and also when changes occur in the product /
service life cycle. If a firm realises that some of its main product lines
have outlived their lives, it may not be profitable to continue investment
in the same product or SBU. The firm may choose to withdraw its
resources from this area (or SBU) (Retrenchment strategy) and follow an
Expansion strategy in a new product area. Combination strategy is best
suited when the firm finds that its product-wise performance is uneven,
or all or most of its products differ in their future potential.
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Generic Strategy Alternatives
Expand Retrench Stabilise Combination
Business definition
Pace Business definition
Pace Business definition
Pace Definition or Pace
Products Add new products
Find new ones
Drop old pro-ducts
De-crease product develop-ment
maintain Make package changes, quality improve-ments
Drop old while adding new products
Markets Find new territories
Pene-trate markets
Drop distribution chan-nels
Reduce market share
maintain Protect market shares, focus on market niches
Drop old customers while finding new customers
Func-tions
Forward, vertical integra-tion
Increase capacity
Be-come cap-tive com-pany
De-crease process R&D
maintain Improve produc-tion efficiency
Increase capacity and improve efficiency
Table 1.1: Generic Strategy Alternatives
Sometimes, a combination of a few or all of these strategies may be
necessary. Any change must be contemplated considering what is to be
done (Business definition) and the speed (Pace) with which it is to be done.
Each of these alternatives has to be evaluated on its merits.
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Figure 1.1: Strategy Formulation and Implementation
Enterprise Strategists Mission & objectives
General Environment
Industry and International Environment
Internal Factors
Generic Strategy Alternatives
Strategy Variations
Strategic Choice
Allocate Resources & Develop Organisational plans
Formulation of Plans, Policies, Programmes &Administration
Evaluation & Control
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Examples of Strategic Alternatives:
If the firm wants to grow substantially in terms of size, expansion is
the obvious alternative. But in this process, other objectives may take
a back-seat, at least in the short run.
In case of recession, retrenchment is the most preferred strategy,
involving dropping of unviable products, reduction in non-performing
assets, withdrawal from the markets, and reduces the scale of
activity. In the process, the overhead costs are purposefully reduced
to ensure that the expenditure continues to be productive. These
efforts will ultimately enhance the profitability.
At times, the company may realise more money by liquidating its
operations than by continuing. In such a case, to achieve the goal of
improving cash value, the strategy is to sell a part of its assets,
realise the sale proceeds, and invest the same profitably elsewhere.
If an entrepreneur wants to maintain control over a business, stability
strategy may be a better strategy.
Goal of improving cash value
Most timber depots in sprawling open places, located in the outskirts
of the city for decades, have been making more money by selling a
part of their open land than by doing timber business.
In view of the substantial growth in the real estate in the city outskirts,
most of them could sell their surplus land (main roadside) to
construction firms for phenomenal sums.
In this process, they could successfully create capital assets with a
tremendously appreciated value. Further analysis showed that they
earned more on these capital assets than in the timber business.
However, since the values are further appreciating, can we offer a
better strategy.
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A strategy is a means to an end. If an organisation wants to perform better
in the long run, it has to select an appropriate strategy and pursue it
vigorously. In this process, it might face certain hardships. Also, it has to
make necessary changes in its strategy. A change in strategy should not be
construed as a sign of failure.
1.5.3 Strategic Alliances
Strategic alliances constitute another viable alternative. Companies can
develop alliances with the members of the strategic group and perform more
effectively. These alliances may take any of the following forms:
a) Product and/or service alliance: Two or more companies may get
together to synergise their operations, seeking alliance for their products
and/or services. The product or service alliance may take any of the
following forms:
A manufacturing company may grant license to another company to
produce its products. The necessary market and product support,
including technical know-how, is provided as part of the alliance. Coca-
cola initially provided such support to Thums Up.
Two companies may jointly market their products which are
complementary in nature. Chocolate companies more often tie up with
toy companies. TV Channels tie-up with Cricket boards to telecast entire
series of cricket matches live.
Two companies, who come together in such an alliance, may produce a
new product altogether. Sony Music created a retail corner for itself in
the ice-cream parlours of Baskin-Robbins.
b) Promotional alliance: Two or more companies may come together to
promote their products and services. A company may agree to carry out
a promotion campaign during a given period for the products and/or
services of another company. The Cricket Board may permit Coke’s
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products to be displayed during the cricket matches for a period of one
year.
c) Logistic alliance: Here the focus is on developing or extending logistics
support. One company extends logistics support for another company’s
products and services. For example, the outlets of Pizza Hut, Kolkata
entered into a logistic alliance with TDK Logistics Ltd., Hyderabad, to
outsource the requirements of these outlets from more than 30 vendors
all over India – for instance, meat and eggs from Hyderabad etc.
d) Pricing collaborations: Companies may join together for special pricing
collaborations. It is customary to find that hardware and software
companies in information technology sector offer each other price
discounts. Companies should be very careful in selecting strategic
partners. The strategy should be to select such a partner who has
complementary strengths and who can offset the present weaknesses.
The acid test of an alliance is greater sales at lesser cost. It is a common
practice to develop organisational structures or modify them, if
necessary, to support the alliances and make them successful.
Logistic Alliance
Pizza Hut restaurants do not stock more than three days of their
inventory.
The standard for distribution centres or warehouses is a stringent 14
days, to minimise the costs and optimise quality control. This involves
round-the-clock monitoring of pick-ups and truck movements.
Most of the items are perishable and the company’s standards cover
the entire delivery schedules.
For in-city delivery, the truck is monitored from the time it leaves the
distribution centre till it reaches the restaurant. Not just that – the time
taken in offloading is noted too.
The restaurant gives a strict 30 minutes window in which time the
delivery is to be completed.
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1.5.4 Considering Strategy Variations
There can be a number of variations of the generic strategy alternatives. For
instance, if the strategy is to expand, then the alternatives are internal
expansion or external expansion.
Internal expansion can be achieved through any of the following
approaches:
Penetrate existing markets
Add new markets
Add new products, and so on
Similarly, external expansion can be achieved through mergers or
acquisitions. In most IT Companies, subsidiaries are created to develop at
the earliest upstream capabilities in the IT value-chain. Once these
subsidiaries gain the required capabilities in terms of consultancy, system
integration, product design and application, development and maintenance,
and others, they are merged into a major player. Merger has thus been one
of the strategies to benchmark the company in terms of performance
globally.
If the strategy is to attain stability, then the alternatives could be internal
stability or external stability. In some cases, both may be required. External
stability can be attained by maintaining market share.
Internal stability of a firm can be achieved through:
a) Seeking production and marketing efficiencies, and
b) Redefining the existing organisational structure.
Strategy variations can attain the following forms:
Internal or external
Related or unrelated
Horizontal or vertical
Active or passive
Each of these variations has different strategic alternatives considering the
major goals of the organisation. For instance, internal strategy variation may
be expansion, stability, retrenchment, or combinations. If expansion is
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decided upon, the alternatives could be to penetrate existing markets, add
new products, or add new markets, and so on. Strategy variation is a global
phenomenon. When the firm finds that it is not possible to fill a gap in the
market with the existing strategy, it considers a change in the focus of the
strategy. An example would be how multinationals Indianised their global
strategies to woo their customers in Indian markets.
Possible Strategy variations
Expansion Stability Retrenchment Combination
Internal Penetrate existing markets; add new products; add new products
Seek production and marketing efficiencies; reorganise
Reduce costs; reduce assets; drop products; drop markets; drop functions
Sub-contracting
External Acquisitions; mergers
Maintain market share
Disinvest SBUs; liquidations; bankruptcies
Cross-licensing, joint ventures
Related Seek synergy from new products, markets or functions
Improve products
Eliminate related products, markets or functions
Unrelated Conglomerate diversification in products, markets or functions
Eliminate unrelated products, markets or functions
Horizontal Add complementary products or markets
Eliminate complementary products or markets
Vertical Add new functions Reduce functions
Active Innovative entrepreneurial moves
Grow to sell out
Passive Imitator in R&D products
Reactive defence of position
Table 1.2: Possible strategy variations
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Innovative practices
HDFC introduced a high degree of innovation in its activities relating
to customer friendliness, technology adaptation (by computerising
operations), slashing loan processing time and so on.
British Airways provided creative interactive video services on the
new Boeing 777s for passengers to report to Customer Relations
Depts. In-flight, order duty-free goods, get the latest news on
business, fashion, etc.
Changing trends in strategies: Global setting to Indian setting
A keen insight into the strategies adopted by multi-national
companies dealing in products such as automobiles, beverages,
leather products, and so on, reveals the following shift from global
strategies to Indianised strategies:
Indianising positioning of products, i.e., positioning and advertising
products in the Indian context, instead of maintaining a uniform brand
image all over the world.
Advertisements and brands are designed to appeal to Indian
aspirations.
For instance LG named one of its TVs as Sampoorna.
Developing exclusive products rather than selling the same products
globally. For instance, a made-for-India refrigerator is designed to
serve just three basic purposes: chill drinking water, keep cooked
food fresh and withstand long power cuts ( ELECTROLUX )
Coca-cola has redesigned its distributor-crates and trucks to suit
Indian roads.
Widening appeal to all segments of customers rather than focussing
on select segments of the market ( REEBOK ).
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Operating through multi-brand stores rather than own distribution
system.
Entering market through small cars rather than with high-priced cars
(HYUNDAI ).
Undertaking manufacturing with locally made products rather than
with imports ( HYUNDAI ).
Using local film and sports personalities for advertising of premium
brands ( OMEGA )
Offering free hand on investments to local managers, considering
market size, rather than controlling country budgets ( PEPSI ).
Agreeing to enter the market at any cost, sacrificing own terms, with
scale of operations remaining a major attraction ( PEPSI ).
Operating through local managers through more decentralisation,
rather than deputing managers from the head office ( PEPSI ).
Appointing an Indian CEO in place of an expatriate ( CARRIER
AIRCON )
1.5.5 Selection of the Best Alternative
The best alternative is one that can improve overall performance. Its
selection depends upon:
Particular configuration of objectives
Environmental threat and opportunity profile
Strategic advantage profile
The generic strategy itself
If a company has a higher growth as its objective, it is better to expand from
a base of proven or time-tested competence (e.g. cost leadership or market
leadership) and organise the departments to provide new opportunities
while taking moderate risks.
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Every company must tailor an appropriate strategy for achieving its goals.
The most generic types to initiate strategic thinking, as suggested by
Michael Porter, are ( a ) Overall cost leadership, ( b ) Differentiation and ( c )
Focus.
a) Overall cost leadership – The company is said to achieve OCL when it
offers its products or services at the lowest price ( due to its lowest cost )
among competitors, thus maintaining the largest market share.
Companies which pursue this strategy have to sharply focus on cost-
effective strategies in all the areas pertaining to engineering, purchases,
manufacturing and physical distribution. Any breakdown could cost the
company very badly. A standby arrangement is vital. Mergers and take-
overs reflect the common route for companies to optimise their
resources and costs. HLL emerged stronger with the acquisition of
Brook Bond.
b) Differentiation – The company should be capable of demonstrating a
superior performance through its products and services. This should
benefit a large number of customers in saving their resources in terms of
time and money. Hero Honda could design its motorcycle differently to
offer higher mileage. This resulted in savings to the user. The strategy is
to differentiate the products and services sharply through quality in a
market dumped with stocks. A photocopying company can demonstrate
its excellence by minimising defects per thousand prints. Constant
adaptation to changing technology and large-scale initiatives in R&D
would provide a shot in the arm for the company. INFOSYS and WIPRO
are some examples which have made a niche in the software industry
through differentiation.
c) Focus – The company may concentrate on a narrow market segment
and obtain full market information about it. It may pursue either overall
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cost leadership or differentiation strategy within that target segment.
Such companies which pursue the same strategy to the same target
market, are called a strategic group of companies. If they relentlessly
pursue their strategies, they are bound to succeed, leading to
benchmarking of strategies. The danger here is that others can copy in
the name of benchmarks. This can be avoided by performing similar
activities in an innovative and swift way, which the competitors cannot
catch up with. There are certain issues which cannot be copied in the
short run.
1.5.6 Strategic Choice
It involves the decision to select from among alternatives, the best strategy
which effectively contributes to the business objectives. The spade work
before making a strategic choice consists of:
Identifying the few viable alternative courses of action.
Considering the parameters for selection of best alternative.
Evaluating each alternative on its own merits and in relation to other
alternatives.
Making the final choice.
Keeping the next best alternative as stand by ( to take care of
contingencies )
The following are the questions in terms of which environmental and internal
conditions are analysed:
What are the main business objectives?
Does the selected strategy contribute to these objectives?
What is the business definition – is it product-based, market-based or
function-based?
Will it be achieved in the future?
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These questions help us to examine the performance gap between the
expected and the ideal outcomes in relation to the alternatives under
consideration. If the gap is narrow or negligible, the stability strategy is the
best strategy, since it focuses on “ doing in the best way what we can do “.
Most international airlines lease out operations such as reservation,
maintenance, ground halting work, and others to professional agencies to
improve their overall performance in general and increase the pace of its
own activities in particular. The focus will be on better implementation
initiating certain pace changes internally. If the gap is large and significant,
the probable alternatives are either to expand or to withdraw from unrelated
areas. Mergers, acquisitions, disinvestments are some of the measures that
initiate changes in the pace of growth.
The decision-maker considers different choices closest to the present
strategy. In the process, he identifies the most preferred strategy. Some of
the parameters that help him in this process are:
Is it politically acceptable or not?
What is the degree of risk involved?
To what extent is the enterprise dependent on external factors?
Such an evaluation leads to the choice of an appropriate strategy, and at
this point, it appears to the decision-maker that the gap between the
expected and the ideal outcomes is closed. Relying excessively on one
corporate plan with one or two variations, more often, may not be adequate.
Hence, it is desirable to keep a contingency plan ready as standby.
Strategy formulation and implementation
NOKIA studies closely each of the subsets of its customer segments. It
carefully assesses what appeals to each of them most. After identifying
their purchasing power, it chooses the appropriate technology and then
formulates the strategy.
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When MOTOROLA could not take off with seven varieties of cell phones,
NOKIA struck gold with just two plain models. The secret of success was
that the products were changed or adapted to local conditions. In other
words, the products and services were more Indianised to ensure
survival in the Indian markets. NOKIA could successfully formulate its
strategy around its different customer segments, varying appeals and
affordable technology.
TAPARIA, CEO of Rajashree Cements followed a value enhancement
strategy to capture the market dominated by 43 grade, where ACC and
L&T were market leaders. He noticed that nobody thought of the market-
positioning slot for superior grade 53, which, despite high price, leads to
overall savings due to less consumption. He expected that a shift from 43
to 53 grade would require convincing, for which channel support and its
participation in communication were essential.
To popularise grade 53, Taparia launched the Shoppe concept by
associating with ” weak and small channel “ members. The Shoppe
concept empowered them with the services of a civil/structural engineer
at Rajashree’s cost for any type of consultation with the customers
visiting the shoppe.
The neat and clean environment of the cement outlets attracted the
customers who were otherwise used to the dirty and dusty environment
of cement outlets. The customers were assured of the availability and
reliability of the quality products. The customer could avail the services of
a civil engineer and also sit in an air-conditioned chamber of the Shoppe
and watch a video film on grade 53.
The quality of documentation (invoices, challans) was improved to create
confidence in the customer. The success of the Shoppe concept was
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evident from a rise in demand from 5000 tonnes per month to 45,000
TpM in Pune alone. Even established giants like ACC and LandT had to
follow his footsteps by introducing grade 53 and also developing their
own exclusive outlets like “ACC ki duniya” and “LandT station”.
Since strategic choice is a managerial ( business ) decision, care should be
taken that it is not affected by bias, intuition or politics. These constraints, if
allowed to prevail, will limit the choice. Progressive companies hold formal
meetings involving all or most of their managers at the top level while
choosing strategy and to record the criteria used. More often, a company
may not have total freedom in choosing the strategy as it is dependent for its
survival on one or more of the following: owners, competitors, suppliers, the
Government and the community. The strategic choice is also affected by
relative volatility of the market sector wherein the firm chooses to operate. If
the sector is more volatile, it needs a flexible and strategic response to be
more effective.
Strategic choice and its effectiveness is often restricted by various factors
such as the strategies earlier followed, the attitudes of the managers to risk
(most of the managers are averse to risk) and lobby for power (some
managers wish to be close to the boss to garner influence) in the
organisation, internal and external alliances, and so on. However, overall
commitment to the chosen strategy is extremely important.
1.5.7 Allocation of Resources and Development of Organisational
Structure
The process of strategy implementation calls for an integrated set of choices
and activities. These include allocating resources, organising, assigning
appropriate authority to the key managers, setting policies and developing
procedures.
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It is necessary to establish an operative system to reinforce, control and
evaluate a strategy.
A good strategy with effective implementation has a higher probability of
success. There source allocation decisions, such as, which department is
sanctioned how much of money and resources, in the name of the budget,
and so on – set the operative strategy of the firm.
Budgets are formulated after a series of negotiations across different levels
in the organisation. Budgets may be of different types: corporate budgets,
capital budgets, departmental budgets, sales budgets, expense budgets,
and others.
An effective co-ordination and efficient division of labour requires an
appropriate organisational structure. The best structure is one, which fits
into the organisational environment. Also its internal characteristics should
give rise to an effective strategy.
Appropriate changes in the organisation structure may be initiated to ensure
strategic implementation of the proposed strategy. Effective strategic
management practices suggest that organisation structure should also
change if the strategy changes or if the organisation experiences any
bottlenecks in this regard
Self Assessment Questions II
1. After the nature of the business of the firm is defined, the next task is to
focus on ––––––––––––––––– .
2. –––––––––– can be adopted in the case of highly competitive and
volatile industries.
3. –––––––––– is a better choice when the firm is doing well, the
environment is relatively less volatile, and the product / service has
reached the stability or maturity stage of the life cycle.
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4. –––––––––––– is the obvious choice when the firm is not doing well in
terms of sales and revenue and finds greater returns elsewhere, or the
product / service is in the finishing stage of the product life cycle.
5. In case of recession, ––––––––––––––– is the most preferred strategy.
1.6 Formulation of Policies, Plans, Programmes and
Administration
The resources allocated are said to be well-utilised only when they are well-
monitored. For this purpose, it is essential:
To develop policies and plans.
To assign and reassign leaders the tasks and decisions to support the
chosen strategy.
To provide a conducive environment in the organisation through proper
administration to achieve the given objectives directly and indirectly.
The implementation of plans and policies is designed in accordance with the
strategy chosen. The firm creates plans and policies to guide managerial
performance, and these make the chosen strategies work. The corporate
success lies ultimately in the ability to convert corporate strategy into plans
and policies that are compatible and workable.
The implementation of the strategy becomes easy when the organization:
Plans for career development of its personnel at all levels.
Applies organisational development concepts in its normal functioning.
(Organisational development aims at enhancing organisational
effectiveness by applying diagnostic and problem solving skills through
behavioral approach )
Ensures that the strategist is capable, experienced and versatile enough
to match the strategy demands.
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It is always prudent to develop minimal plans, policies and programmes in
all the functional areas such as marketing, production, R&D, Finance, HRD
and others. If the company wants to retain its staff, the following
programmes may be helpful:
Focus on periodic appraisal through an objective and participative
performance appraisal system.
Measure employee satisfaction levels regularly and respond promptly by
launching corrective measures to any signs of employee dissatisfaction
or frustration.
Institutionalise the career counseling function and fill the vacancies that
arise by promoting the qualified candidates.
Do not depend on one single employee or group at any level in the
organisation. Create multiple responsibilities on the well-chosen group of
managers at different levels.
Ensure that the functional heads and the CEO are involved in this
process.
Recognise those variations, which are bound to exist across
organisational levels and functions, and formulate specific retention
strategies to suit them.
Detailed support programmes must be developed to support the given
strategies.
1.7 Implementation: Evaluation and Control of Strategy
Evaluation is the last phase of the strategic management process. It is at
this stage that the success of the programmes can be assessed. There
should be a built-in mechanism to examine the deviations and initiate
corrections as and when required. This assures that the chosen strategies
will be implemented properly.
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The control process requires identifying a set of parameters for evaluating
and measuring the performance at the individual level and also at the
department level. The performance has to be evaluated to identify
deviations and take corrective action. The control and evaluation take place
not only at the SBU level but also at the corporate level. This process may
involve the participation of all the executives at all levels. Corrective actions
are required wherever the evaluation reveals deviations between the actual
performance and the projected one, over a given period of time. Timely
measurement of performance and feedback determines the effectiveness of
the implementation of the strategy.
The parameters should be, as a part of the checklist, evolved to check the
nature of objectives, environmental assumptions, internal organisation,
resources, attitudes to risk, timing of decisions and actions, feasibility, and
organisational commitment. Managers may consider, in the order of priority,
the changes in parameters, implementation, strategy, and finally, the
objectives themselves, if performance levels are lower than expected.
The evaluation system, thus, provides a feedback to the entire strategic
management process. Such a follow up calls for good objectives and
performance standards, effective rewards, and accurate and complete
feedback. Managers should have total access to every type of information
they look for so that they can focus on objective-oriented performance. Thus
MIS and MBO can be useful tools for managers. But as with any system,
effective application requires hard work on the part of staff at different levels.
A strategy can well be implemented if staff is efficient, have a shared vision,
and a developed work culture and value system. It is the management’s
responsibility to ensure a conducive environment that fosters the effective
implementation of strategies.
For want of committed workforce, most organisations fail at this stage.
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Self Assessment Questions III
1. In ––––––––– two or more companies may come together to promote
their products and services.
2. In ––––––––– the focus is on developing or extending logistics support.
3. External expansion can be achieved through –––––––––––––––– .
4. External stability can be attained by maintaining ––––––––––––– .
5. The most generic types to initiate strategic thinking, as suggested
by Michael Porter, are Overall cost leadership, Differentiation and
––––––––––––.
6. Organisational development aims at enhancing organisational
effectiveness by applying diagnostic and problem solving skills through
–––––––––––––––– .
7. –––––––––––––––– is the last phase of the strategic management
process.
1.8 Summary
A strategy is an operational tool to achieve the goals, and thus, the
corporate mission.
To win over in a given complex situation, the organisations, even trans-
nationals adopt strategies.
The recently initiated moves such as globalisation, privatisation and
liberalisation are strategies to attain a globally competitive economy.
There are three alternatives to improve the sales performance of a
business unit, to fill the gap between actual sales and targeted sales:
Intensive growth
Integrative growth
Diversification growth
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Strategy formulation and implementation is the crux of the strategic
management process. Formulation, together with its implementation,
constitutes an integral part of the management activity.
Companies can develop alliances with the members of the strategic
group and perform more effectively. These alliances may take any of the
following forms:
Product and/or service alliance
Promotional alliance
Logistic alliance
Pricing collaborations
Strategic Choice involves the decision to select from among alternatives,
the best strategy which effectively contributes to the business objectives.
The process of strategy implementation calls for an integrated set of
choices and activities. These include allocating resources, organising,
assigning appropriate authority to the key managers, setting policies and
developing procedures.
Evaluation is the last phase of the strategic management process. It is at
this stage that the success of the programmes can be assessed.
1.9 Terminal Questions
1. What is a ‘strategy’? Explain the purpose of a strategy.
2. Explain the three alternatives to improve the sales performance of a
business unit.
3. List the stages involved in strategy formulation and implementation.
4. Explain the four strategy alternatives available to a firm.
5. Explain different forms of strategic alliances.
6. Examine the role of evaluation in the strategic management process.
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1.10 Answers to SAQs and TQs
SAQs I
1. True
2. False
3. True
4. True
5. False
6. False
SAQs II
1. The type of strategic alternative
2. Expansion strategy
3. Stability strategy
4. Retrenchment strategy
5. Retrenchment
SAQs III
1. Promotional alliance
2. Logistic alliance
3. Mergers or acquisitions
4. Market share
5. Focus
6. Behavioural approach
7. Evaluation
Answers to TQs:
1. Refer to 1.2
2. Refer to 1.4
3. Refer to 1.5
4. Refer to 1.5
5. Refer to 1.5
6. Refer to 1.7
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Unit 2 Planning a New Business Venture:Tackling and Planning Business Priorities
Structure:
2.1 Introduction
Objectives
2.2 What is a business plan?
2.3 Creating One’s Own Business Plan
2.3.1 Executive Summary
2.3.2 Company and Product Description
2.3.3 Market Description
2.3.4 Equipment and Materials
2.3.5 Operations
2.3.6 Management and Ownership
2.3.7 Financial Information and Start-Up Timeline
2.3.8 Risks and Their Mitigation
Self Assessment Questions I
2.4 Next Steps: Steps for Developing Sales Projections
2.4.1 The Business Priorities
2.4.2 Approach
2.4.3 Implementation
2.4.4 Developing the Recording Network
2.4.5 Co-ordination and Promotion
2.5 The Work Programme
2.5.1 Developing the network
2.5.2 Local Data Sources
Self Assessment Questions II
2.6 Summary
2.7 Terminal Questions
2.8 Answers to SAQs and TQs
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2.1 Introduction
A business plan is a detailed description of how an organization intends to
produce, market and sell a product or service. Whether the business is
housing, commercial or some other enterprise, a good business plan
describes to others and to your own board of directors, management and
staff the details of how you intend to operate and expand your business.
A solid business plan describes who you are, what you do, how you will do
it, your capacity to do it, what financial resources are necessary to carry it
out, and how you intend to secure those resources. A well-written plan will
serve as a guide through the start-up phase of the business. It can also
establish benchmarks to measure the performance of your business venture
in comparison with expectations and industry standards. And most
important, a good business plan will help to attract necessary financing by
demonstrating the feasibility of your venture and the level of thought and
professionalism you bring to the task.
Objectives:
After studying this unit, you will be able to:
Explain what a business plan is.
Give examples of goals one may seek to achieve through the creation of
a new business venture.
Explain various sections of a business plan.
Explain the steps for developing sales projections.
2.2 What is a Business Plan?
A good business plan will help attract necessary financing by demonstrating
the feasibility of your venture and the level of thought and professionalism
you bring to the task.
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The first step in planning a new business venture is to establish goals that
you seek to achieve with the business. You can establish these goals in a
number of ways, but an inclusive and ordered process like an organizational
strategic planning session or a comprehensive neighborhood planning
process may be best. The board of directors of your organization should
review and approve the goals, because these goals will influence the
direction of the organization and require the allocation of valuable staff and
financial resources. Your goals will serve as a filter to screen a wide range
of possible business opportunities. If you fail to establish clear goals early in
the process, your organization may spend substantial time and resources
pursuing potential business ventures that may be financially viable but do
not serve the mission of your organization in other important ways. A liquor
store on the corner may be a clear money-maker; however, it may not be
the retail to assist your community desires.
The following are examples of goals you may seek to achieve through the
creation of a new business venture:
Revenue Generation – Your organization may hope to create a business
that will generate sufficient net income or profit to finance other programs,
activities or services provided by your organization.
Employment Creation – A new business venture may create job
opportunities for community residents or the constituency served by your
organization.
Neighborhood Development Strategy – A new business venture might
serve as an anchor to a deteriorating neighborhood commercial area, attract
additional businesses to the area and fill a gap in existing retail services.
You may need to find a use for a vacant commercial property that blights a
strategic area of your neighborhood. Or your business might focus on the
rehabilitation of dilapidated single family homes in the community.
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Whenever possible, goals should have quantifiable outcomes such as “to
generate a minimum of $50,000 of net income or profit within three years”;
“to employ at least 15 community residents within two years in new
permanent jobs at a livable wage”; “to occupy and support a minimum of
10,000 square feet of neighborhood commercial space”; or “to rehabilitate
50 single-family houses over three years.” Clearly defined and quantifiable
goals provide objective measurements to screen potential business
opportunities. They also establish clear criteria to evaluate the success of
the business venture.
Establish Goals
Once you have identified goals for a new business venture, the next step in
the business planning process is to identify and select the right business.
Many organizations may find themselves starting at this point in the process.
Business opportunities may have been dropped at your doorstep. Perhaps
an entrepreneurial member of the board of directors or a community
resident has approached your organization with an idea for a new business,
or a neighborhood business has closed or moved out of the area, taking
jobs and leaving a vacant facility behind. Even if this is the case, we
recommend that you take a step back and set goals. Failing to do so could
result in a waste of valuable time and resources pursuing an idea that may
seem feasible, but fails to accomplish important goals or to meet the mission
of your organization.
Depending on the goals you have set, you might take several approaches to
identify potential business opportunities.
Local Market Study: Whether your goal is to revitalize or fill space in a
neighborhood commercial district or to rehabilitate vacant housing stock,
you should conduct a local market study. A good market study will measure
the level of existing goods and services provided in the area, and assess the
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capacity of the area to support existing and additional commercial or home-
ownership activity. This assessment is based on the shopping and traffic
patterns of the area and the demographic and socio-economic
characteristics of the community. A bad or insufficient market study could
encourage your organization to pursue a business destined to fail, with
potentially disastrous results for the organization as a whole. Through a
market study you will be able to identify gaps in existing products and
services and unsatisfied demand for additional or expanded products and
services. If your organization does not have staff capacity to conduct a
market study, you might hire a consultant or solicit the assistance of
business administration students from a local college or university.
Conducting a solid and thorough market study up front will provide essential
information for your final business plan.
Analysis of Local and Regional Industry Trends: Another method of
investigating potential business opportunities is to research local and
regional business and industry trends. You may be able to identify which
business or industrial sectors are growing or declining in your city,
metropolitan area or region. The regional or metropolitan area planning
agency for your area is a good source of data on industry trends.
Internal Capacity: The board, staff or membership of your organization may
possess knowledge and skills in a particular business sector or industry.
Your organization may wish to draw upon this internal expertise in selecting
potential business opportunities.
Internal Purchasing Needs / Collaborative Procurement: Perhaps, your
organization frequently purchases a particular service or product. If nearby
affiliate organizations also use this service or product, this may present a
business opportunity. Examples of such products or services include
printing or copying services, travel services, transportation services,
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property management services, office supplies, catering services, and other
products. You will still need to conduct a complete market study to
determine the demand for this product or service beyond your internal
needs or the needs of your partners or affiliates.
Identify Business Opportunities
Buying an Existing Business: Rather than starting a new business, you
may wish to consider purchasing an existing business. Perhaps a local retail
or small light manufacturing business that has been an anchor to the local
retail area or a much-needed source of jobs in the neighborhood is for sale.
Its closure would mean the loss of jobs and services for your neighborhood.
Your organization might consider purchasing and taking over the enterprise
instead of starting a new business. If you decide to pursue this option, you
still need to go through the steps of creating a business plan. However,
before moving ahead, these are just a few important areas to research in
assessing the business you plan to purchase:
Be sure to conduct a thorough review of the financial statements for the past
three to five years to determine the current fiscal status and recent financial
trends, the validity of the accounts receivable and the status of the accounts
payable. Are all the required licenses and permits in place and can they be
transferred to a new owner?
Also look at the quality of key employees who, because of their expertise,
may need to remain with the business.
You will also need to assess the customer or client base and determine
whether its members will remain loyal to the business after it changes
hands.
Another area to evaluate is the perception or image of the business. Inspect
the facilities and talk to suppliers, customers and other businesses in the
area to learn more about the reputation of the business.
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At this early stage of your planning process, be sure to consult an attorney
experienced in corporation law. As a non-profit corporation, engaging in
income-generating activities not related to your mission may affect your tax-
exempt status. You may also wish to protect your organization from any
liability issues connected with the proposed business activity. After you have
decided on a particular business activity, have a qualified attorney advise
you on the proper corporate structure for your new venture. In addition to
qualified legal counsel, seek the expertise of an experienced professional in
that particular industry. He or she will bring valuable knowledge and insights
regarding the industry that will prove extremely useful during the business
planning process.
Advisory
You have decided on a business opportunity that meets the goals of your
organization. Now you are ready to test the feasibility of the venture and to
present your business concept to the world. A solid business plan will clearly
explain the business concept, describe the market for your product or
service, attract investment, and establish operating goals and guidelines.
The first step in writing your business plan is to identify your target
audience. Will this be an internal plan the board will use to assess the
feasibility and appropriateness of the business? Or will this plan be
distributed to a larger external audience such as funding sources,
commercial lenders or the community to gain financial backing and political
support for the proposed venture? The content and emphasis of the plan will
shift according to the audience.
You will also need to decide who will conduct the necessary research and
write the plan. The following table lists the advantages and disadvantages of
several options for getting the work done. You might consider a combination
of the options.
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Advantages Disadvantages
Board or May have important skills May have limited time
and insights regarding and availability.
business planning or industry.
May not have the expertise.
Greater sense of ownership
of plan details.
Free
Staff Will be responsible for May not have the time.
implementation of the plan.
May detract from ongoing
tasks and workload.
Has knowledge of the
organization and good May not have the planning
expertise. skills.
No additional cost.
Consultant Expected to devote full time May not know
and attention to the product. organization’s capacities.
Has necessary skills and No ownership of plan.
knowledge of business
planning and the industry. No involvement
in implementation.
Plan will be well written. High cost.
Volunteers Free May not be completed
in a timely manner.
May bring skills, knowledge
and expertise. Limited involvement
in implementation.
2.3 Creating One’s Own Business Plan
It is also important to establish a timeline for completing the plan. A
business plan can be completed by one staff member working full time in as
little as a week, although a thorough market analysis will add several days
at least. A committee will probably need much more time. Combinations of
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staff, volunteers, consultants and a board committee may lengthen or
shorten the process depending on skill level, available time, experience with
planning and research, and the group’s facilitation needs. Now that you
have decided who will put together your business plan and have set a
timeline for its completion, you are ready to begin assembling the elements
of the plan. Your business plan should contain the following sections:
Executive summary
Company and product description
Market description
Operations
Management and ownership
Financial information and timeline
Risks and their mitigation
A solid business plan will clearly explain the business concept, describe the
market for your product or service, attract investment, and establish
operating goals and guidelines.
2.3.1 Executive Summary
In this section of your business plan, provide a description of your company,
the industry you will be competing in, and the product or service you plan to
offer.
Sell your concept! The executive summary may be the first and only section
of your business plan that most of your audience will read. Tell the audience
why the business is a great idea. Some readers will look at this section to
determine whether or not they want to learn more about a business. Other
readers will look to the executive summary as a sample of the quality and
professionalism of the overall plan. The executive summary should be no
more than one to three pages long and should answer the following
questions:
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Who are you? (describe your organization)
What are you planning? (describe the service or product)
Why are you planning it? (discuss the demand and market for the
service or product)
How will you operate your business?
When will you be in operation? (overview of timeline)
What is your expected net profit? (discuss your projected sales and
costs)
Although the executive summary is the first part of your business plan, you
should write it after you have written the other sections of the plan in order
to include the most important points of each section.
2.3.2 Company and Product Description
In describing your company be sure to include what type of business you
are planning (homeownership development, wholesale, retail, manufacturing
or service) and the legal structure (corporation or partnership). You should
discuss why you are creating this new venture, referencing the goals you set
at the beginning of the business planning process. Also include a
description of your non-profit organization, the role it has played in
developing this new venture and the on-going role, if any, it will play in
operations. Give the reader a brief overview of the industry, describing
historic and current growth trends.
Whenever possible, provide documentation or references supporting your
trend analysis such as articles from business-oriented newspapers and
magazines, research journals or other publications. Include these
references in the attachments of your business plan.
Product or Service
After describing your company and its industry context, describe the
products or services you plan to provide. Focus on what distinguishes your
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product or service from the rest of the market. Discuss what will attract
consumers to your product or service. Provide as much detail as necessary
to inform the reader about the particular characteristics of your product that
distinguish it from its competition – many nonprofits, for example, expect to
produce higher-quality housing than otherwise exists in the area. Mention
any distinctive elements in the manufacture of the product, such as being
“hand-made by a particular people from a specific area.” If you are providing
a service, explain the steps you will take to provide a service that is better
than your competition.
Price
Provide a realistic estimate of the price for your product or service, and
discuss the rationale behind that price. An unrealistic price estimate may
undermine the credibility of your plan and raise concerns that your product
or service may not be of sufficient quality or that you will not be able to
maintain profitability in the long run. Describe where this price positions you
in the marketplace: at the high end, low end or in the middle of the existing
range of prices for a similar product or service.
In other sections of the plan you will discuss the target market for your
product or service and also provide additional details on how the price of
your product fits into the overall financial projections for the enterprise.
Place
Describe the location where you will produce or distribute your product or
provide your service. Discuss the advantages of the location, such as its
accessibility, surrounding amenities and other characteristics that may
enhance your business.
Depending on your anticipated customer base, accessibility to your location
via public transportation could affect the marketability of your product or
service.
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Customers
In this section of your business plan, you will describe the customer base or
market for your product or service. In addition to providing a detailed
description of your customer base, you will also need to describe your
competition (other local developers or nearby businesses providing a similar
service to your potential customer base).
Who will purchase your product or use your service? How large is your
customer base? Define the characteristics of your target market in terms of
its:
Demographics – Measures of age, gender, race, religion and family
size.
Geography – Measures based on location.
Socioeconomic Status – Measures based on individual or household
annual income.
Provide statistical data to describe the size of your target market. Sources
for this information may include recent data from the Bureau of Statistics,
state or local census data, or information gathered by your organization,
such as membership lists, neighborhood surveys and group or individual
interviews. Be sure to list the sources for your data, as this will further
validate your market assumptions. Include any relevant information
regarding the growth potential for your target market if your business is
expected to rely on growth. Cite any research forecasting population
increases in your target market or other trends and factors that may
increase the demand for your product or service.
Competition
Discuss how people identified in your target market currently meet their
need for your product or service. What other businesses exist in your area
that are similar to your proposed venture? For example, for a housing
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business, what are the local markets for purchase and rental? How much
are people currently paying for similar products or services? Briefly describe
what differentiates your proposed venture from these existing businesses
and discuss why you are entering this market.
Sales Projections
Present an estimate of how many people you expect will purchase your
product or service. Your estimate should be based on the size of your
market, the characteristics of your customers and the share of the market
you will gain over your competition. Project how many units you will sell at a
specified price over several years. The initial year should be broken down in
monthly or quarterly increments. Account for initial presentation and market
penetration of your product and any seasonal variations in sales, if
appropriate.
2.3.3 Market Description
In this section, you will describe how you plan to operate the business. You
will present information on how you plan to create your product or provide
your service, describe the staff required to operate and manage the
business, discuss the equipment and materials necessary, and define the
site or facility requirements, if any. A key component of the operation of your
business will be your sales and marketing strategy, so you must describe
how you will inform your target market about your product or service and
how you will convince customers to purchase it.
Production Description
Describe the steps for creating your product, from the raw material or initial
stage to the finished product, packaged and ready for distribution and sale.
If you plan to provide a service, describe the process of service deliver
(such as the initial interview, for instance, if you are offering consulting
services), assessment, research and design, and final presentation. Provide
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a description of any sub-contractors or external services you plan to use in
the production process. The reader of the plan may be unfamiliar with the
industry, so avoid using industry jargon to describe the production process.
Staffing
Describe the staff required to operate your business: discuss how many
people you will need; describe the tasks they will carry out; and the skills
they will need. Prepare a chart outlining the salaries and benefits you will
provide to your workforce. Provide information on how you will recruit staff
and provide initial and ongoing training of employees.
2.3.4 Equipment and Materials
To manufacture your product or provide your service, what type of
equipment will you need? Describe any machinery and vehicles necessary
in the production, packaging and distribution of your product, including any
office equipment such as computers, copiers, furniture, fixtures and
telephone systems. Also discuss the types of materials you will use in the
production process and describe the source and cost of those materials.
Facility
Describe the type of facility in which you will house your business. Indicate
the amount of building space you will need for production and
administration. Also discuss any building features required for the
production process such as high ceilings, specialized ventilation and heating
systems, sanitized laboratory space or vehicular accessibility. If you have
already identified a location and a facility that meets your requirements,
describe its features. Even if you are planning to provide a service instead of
manufacturing a product, you need to demonstrate that you will have
adequate space for administrative functions and other activities related to
the service you plan to provide .
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Market Description
Describe your strategy for locating your target market, informing or
educating customers about your product or service and convincing them to
purchase it. Provide details on the methods you will use to advertise your
product, such as print media (advertisements in newspapers, magazines or
trade journals), electronic media (television, radio and the Internet), direct
mail, telemarketing, individual sales agents or representatives, or other
approaches. Discuss the product’s or service’s features you plan to
emphasize to gain the attention of your target market. Also detail how you
will distribute and sell your product or service. Will you use sales agents or
existing retail outlets, or directly distribute your product through a delivery
service such as United Parcel Service, Federal Express or independent
trucking company?
2.3.5 Operations
In this section of your business plan, describe the senior managers
responsible for overseeing the start-up and operation of your business, their
background and their responsibilities in the business. Be sure to highlight
your management team’s experience in managing the production, marketing
and administration of similar businesses or within the selected industry and
attach the resumes of each member to the plan. Be sure to provide a
complete job description of any vacancies in your management team.
Describe the responsibilities, the skills, the background required and the
steps you plan to take to fill that key position.
Ownership
What is its relationship to your existing organization? Who is on the board of
directors / board of advisors of the new business and what are their
backgrounds and areas of expertise? Potential investors or lenders will be
interested in the ownership stake of the board of directors and also in what
portion of the company’s equity is available. Success is often due to one’s
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contacts, so fully describe your business relationships with attorneys,
accountants and advertising or public relations agencies, and any industry-
specific services such as suppliers and distributors.
2.3.6 Management and Ownership
In this section you will describe the financial feasibility of your planned
venture and provide several financial reports and statements to document
why your business will be a viable enterprise and a sound investment. At a
minimum, you should provide a brief descriptive narrative for each of the
following financial statements and include a copy in the attachments to your
plan:
Start-up budget
Cash flow projection
Income statement
Balance sheet
In preparing these statements, you may want to seek the advice of a
certified public accountant (CPA).
Start-up Budget
Describe the initial expenses you will incur to get your business up and
running. Some items you might include in your start-up budget research and
product design and development expenses, legal incorporation and
licensing expenses, facility purchase or rental, equipment and vehicle
purchase or rental, and initial material or supply purchase. You can use
Worksheet B as a sample format for preparing your start-up budget.
Cash Flow Projection
This statement presents a month-to-month schedule of the estimated cash
inflows and outflows of your business for the first year. This schedule should
indicate how much money your business will have or need and when you
will need it. You should describe your sources of income and capital,
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detailing your projected sales revenue and indicating your own or investor
equity contribution, lenders, investors and other sources of capital. Itemize
your projected expenses, distinguishing between the cost of goods sold
(materials, supplies, production labor), overhead expenses (rent, utilities,
insurance, maintenance, interest, insurance, administrative costs and
salaries, legal and accounting services, marketing, taxes, fees and other
ongoing operating expenses) and capital expenditures (land and buildings,
equipment, furniture, vehicles, and building repair or renovation expenses).
In preparing this statement, account for a gradual increase in sales from
initial product introduction and any expected seasonal fluctuations in
revenue projections.
Income Statement
Prepare a multiyear (three- to five - year) statement of projected revenue,
expenses, capital expenditures and cost of goods sold. If you make
assumptions about the growth of your business, provide supporting
documentation such as growth patterns of similar companies or studies that
forecast an industry-wide growth rate. This statement should indicate to the
reader the potential of your business to generate cash and its profitability
over time. For an existing business, also submit an income statement for at
least three prior consecutive years. Lenders may look at this statement to
determine whether your business can support the additional debt you are
requesting.
Balance Sheet
A start-up business probably will not have any assets or liabilities at the time
you are drafting the business plan. Provide a copy of the balance sheet of
the business’s sponsoring organization or individual. Describe in your
narrative any assets that will be allocated to the start-up of the business.
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2.3.7 Financial Information and Start up Timeline
Capital Requirements
Describe the amount and type of financing you are seeking for your
business. Are you looking for debt from a lender or equity from an investor?
Refer to your start up budget and cash flow statement presented earlier.
Discuss how and when you will draw on these funds and how they will affect
the bottom line. Also describe any commitments or investments that you
may have already secured.
If you are seeking investors, such as venture capitalists, describe what they
will receive in return for their capital. What is the repayment period and the
expected return on investment? Also discuss the nature of their ownership
share and how it may change with future investments. Equity investors are
looking for rates of return higher than rates offered by banks or other
business lenders. The level of risk in your business and industry will help to
determine the actual market rate, as will the availability of equity dollars.
Check with other businesses (although not direct competitors) to see what
return on investment their investors demanded. Be prepared to negotiate.
And make sure you research the investment market carefully; several
socially minded investment pools exist and more are in development. or
lenders, describe the type of financing you are seeking:
Seed Capital – Short-term financing to cover start-up costs.
Fixed Asset Financing – Longer-term financing for property, building
improvements, equipment or vehicles. The asset being purchased is
usually pledged as security for the loan.
Working Capital – Short-term financing to cover operating expenses
and to bridge gaps in cash flow.
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Initial Start-up Timeline
Provide a timeline of tasks and events necessary to get your business
operational. Be sure to describe the current stage you are in and what steps
you have taken to date. Include deadlines for task completion. Set realistic
deadlines according to your capacity to complete these tasks. The following
is a list of some of the steps you may wish to include:
Filing legal incorporation documents
Identifying and securing suitable space
Designing and developing the product
Obtaining required licenses or permits
Securing necessary financing
Leasing or purchasing equipment
Hiring key staff
Hiring and training of production or support staff
Purchasing materials and production supplies
Beginning marketing activities
Opening
Although it is impossible to know exactly what will go wrong in starting and
running your business, thinking about different challenges will strengthen
your plan. Potential problems could include:
Insufficient public subsidy available to new home owners or residents
The competition drops its prices
Not enough customers
Production costs exceed estimates
Difficulty in finding qualified employees
Environmental or governmental changes such as tax increases,
additional regulations or population changes
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For each potential problem, discuss its likelihood and describe possible
solutions or actions you might undertake to mitigate the problem.
2.3.8 Risks and their Mitigation
Although it is impossible to know exactly what will go wrong in starting and
running your business, thinking about different challenges will strengthen
your plan.
After you have completed all of the elements of your business plan, you
should focus its presentation. A well-organized plan will assist you in
communicating the most important elements of your business plan to the
reader, and a persuasive plan will help you to convince the reader to invest
in your business.
Executive Summary
As mentioned earlier, this section should be written last. However, if you
have already written the executive summary, review it to make sure it
embodies the following characteristics. Because it is the first and possibly
the only section of the plan that many readers may see, the executive
summary should provide an overview of the plan and entice the reader to
read the whole plan or to agree to meet with you. The executive summary
should be no more than three pages and should briefly describe the most
important elements of the plan. Review the Executive Summary section of
this manual for more tips on this critical introduction to your business.
Self Assessment Questions I
State whether the following statements are True or False:
1. Clearly defined and quantifiable goals provide objective measurements
to screen potential business opportunities.
2. Through a market study one will be able to identify gaps in existing
products and services and unsatisfied demand for additional or
expanded products and services.
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3. Socioeconomic measures of customer base are concerned with age,
gender, race, religion and family size.
4. Demographic measures of customer base are based on individual or
household annual income.
2.4 Next Steps: Steps for Developing Sales Projections
Your business plan is not just a funding tool, but also a blueprint for how
your business should operate. The following are steps for developing sales
projections.
Step I:
Estimate
For each product or service, estimate the number of people who are likely to
buy and when they will buy it. You can get this information from asking your
likely customers about their possible use of your business, or you can base
your estimates on your knowledge of the market.
Step 2:
Use a Calendar
Estimate your sales and number of customers served during one week.
Using the totals for a week, make projections for each month. For the first
few months, keep in mind that business will start off slowly before people
become more aware of your business. Use will most likely increase as
people learn about your products and services. Seasonal variations may
affect your business as well. You will use these numbers to project your
equipment, supply and staffing needs, as well as income.
Cost Account Heads:
Organizational Start up Costs
Product Design/Development
Research & Development
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Legal/Licensing Expenses
Property & Facilities
Land/Building Purchase
Initial Lease Deposit
Building Repairs/Improvements
Equipment/Machinery
Production-related
Administrative/Office Equip.
Materials & Supplies
Personnel
Key Employees
Contract Labour/Temps
Training Expenses
Marketing Expenses
Advertisements
Brochures/Literature/Other
Insurance Premiums
Distributor Contracts
Contingency (5%)
Expenses:
Costs of Goods Sold
Materials/Supplies
Labor
Rent
Utilities
Insurance
Admin. Exp. (PT Sec.)
Legal & Accounting
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Marketing
Equipment Maintenance/Supplies
Facility Maintenance
Fees/Miscellaneous
Debt / Equity Investment:
Equipment Loan
Building Rehabilitation Loan
Grants
Owner Equity
Expenses
Cost of Goods Sold
Wages & Benefits
Materials
Supplies
Overhead Expenses:
Rent
Utilities
Building Maintenance/Security
Marketing
Accounting
Legal
Administrative Expense
Interest Expense
Depreciation
The Business Priorities are based upon six top-level objectives; these are:
To make Business data available both to decision-makers and as much
as possible available in the public domain;
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To ensure all holders of Business information are able to participate.
To ensure that the data available through the NETWORK are of known
quality;
To ensure that the NETWORK Gateway gives access to data on
Location and species used to inform decisions affecting Business at
local, regional, national and international levels;
To promote knowledge, use and awareness of the NETWORK;
To enhance the skills base and expertise needed to support and
develop the NETWORK.
i) The objectives have cross-cutting themes which are:
A. Infrastructure development
B. Data standards and tools
C. Capacity building
D. Working with the wider public
E. Co-ordination and promotion
i) In addition, the partners will contribute to the overall realisation of the
objectives through work that they initiate on their own account, but which
does not necessarily fall under the focussed objectives for the Network.
ii) A series of assumptions have been made in formulating the Business
Priorities and their associated work programme. These are:
It is assumed that the present way of working, i.e. a lead partner
approach for each project will be retained;
The plan is not intended to represent all the work that could be
undertaken;
It is anticipated that other work towards the principal aim of adding
content and providing a fully functional gateway will be adopted by
the NETWORK as part of its programme, but this work would have to
be prioritised against this core activity and separately resourced;
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To give additional focus to the challenging nature of the task that the
NETWORK is setting itself, a series of principle drivers have been
recognised. The drivers are:
Processes – This driver relates to facilitated targeted action on the
ground through providing knowledge of resource location, extent, pattern
of distribution, data quality and gaps. It also has the potential for
engaging more partners in the NETWORK;
Environmental Impact Assessment (EIA) and Strategic Environmental
Assessment – This driver is concerned with providing ready access to
data on location, extent, pattern and quality of Business.
Data contributor engagement – This driver is concerned with accessing
sources of data for the NETWORK enabling the assessment of actions
and continual improvement in the targeting of actions from the two
previous drivers;
Operational use – This relates to the use of the NETWORK within the
day to day business of agencies as a source of data relevant to local
reporting or casework;
Generic enhancement – This driver encompasses capacity building and
Recording Schemes and other contributing organisations and user
groups, in order to ensure the continued and enhanced supply and use
of information.
These lead naturally to three broad areas of work:
Developing the recording network;
Enhancing the Internet Gateway in terms of its functionality and the data
it accesses;
Ensuring that the benefits already secured through the earlier work are
maintained.
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The plan also acknowledges the need to co-ordinate activity between the
members of the NETWORK and their partners, and to communicate the
progress and successes of the work programme.
The annex to the Business Priorities describes a recommended work plan
built upon the Business Priorities which contains criteria for the selection
of objectives, milestones against which they might be judged and
recommendations for projects.
Following the publication of Business Priorities, the Network will hold a
series of meeting, seminars and conferences to arrive at a common view of
priorities.
2.4.1 The Business Priorities
Globalised enterprises of today work with an Internet Gateway giving access
to millions of records, with published principles, tools, standards and
guidance that can be applied to Business data including their collection,
collation and mobilisation. The time has now come to extend these
successful prototypes into a fully functional operating system.
The Business Priorities are based on a reaffirmation of the joint vision of
the Promoters of the Network.
Vision:
The vision of the Network is:
To enable people to find out about the enterprise priorities so that they
can better appreciate, understand and conserve;
To ensure that the Network will provide the most accessible, reliable and
comprehensive source of Business information, whether locally,
regionally or nationally, to which people can turn;
To help individuals and organisations of all kinds to contribute data and
to participate in the Network so that the information is the best available,
keeping pace with changes in wildlife.
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The Promoters of the Network will:
Promote the recording and validation of Business information by
establishing minimum and acceptable standards of quality assurance;
Promote the establishment and maintenance of up-to-date and
authoritative checklists of all the departments together with agreed
standards for describing their locations;
Establish standards for the most effective and accessible forms of data
storage and promote the establishment and increased effectiveness of a
network of data custodians, and local records centres operating to
agreed minimum and acceptable standards of quality control for data
storage, access and exchange;
Aim, in principle, to provide free access to all information available
through the Network;
Establish standards and procedures for making information available
through the Network and to safeguard the intellectual property rights
(IPR) of those who originally made and hold that information;
Ensure that access to sensitive information is controlled reducing the
risk of irreparable loss or damage to organisms or Locations;
Encourage the intelligent interpretation of Business information and
make both the data and their interpretation available in an accessible
form as metadata for use in educational establishments of all kinds, or
by other users.
In the execution of these tasks, the Promoters shall assign such priorities as
seem most expedient to them in order to establish the Network as rapidly
and effectively as possible and, thereafter, to maintain it in accordance with
the vision of the Network.
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Role of the Network:
Roles in respect of the Network:
As guardian and promoter of the vision of a national network linking the
recorders of Business information to the users of the information;
As a participant within the Network; this largely, but not entirely, relates
to its ‘ownership’ of the Gateway and the underpinning standards of the
Network;
As a facilitator through bringing together partners who undertake work
to develop aspects of the Network, or organising meetings at which
issues can be discussed and resolved;
Although some aspects of the Network’s functioning are within the realm
of others, for example obtaining data and managing them, nevertheless,
the Promoters could and should act as an advisor on procedures and
protocols that might make this element of the Network more robust e.g.
by providing model licences.
Member organisations and other stakeholders will also take forward the
NETWORK’s development as part of their own remits in addition to those
elements for which the Trust is directly responsible.
2.4.2 Approach
The Strategic Review of the NETWORK is designed to move the
development programme of the NETWORK on from its initial ‘proof of
concept’ phase. This early work included:
The identification of barriers to access with the subsequent evolution of
exchange principles, technical standards such as the use of XML and
the development of a species dictionary to enable searching based on
all known synonyms;
Testing both the practicality and utility of mobilising Business data using
an Internet gateway;
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Addressing some data capture and management issues including the
development of an NETWORK data model;
Addressing issues related to the collection and collation of data by the
voluntary sector through testing and documenting the setting up and
development of Local Records Centres (LRCs), and working directly with
National Societies and Recording Schemes.
The next phase of the Network’s development builds upon this programme
and will concentrate on expanding and enhancing the Network, and on
adding content provided by an increasing assemblage of contributors in
response to user needs. Other aspects of the programme including further
development of Gateway functionality will be subservient to the need to
deliver a service based on the mobilisation of data in response to the
articulated needs of users.
2.4.3 Implementation
Scope
This section translates the aspirational targets of the previous section into a
credible and realisable work programme for the development of a functional
NETWORK based on product related targets. Broadly the work programme
can be organised into three mutually compatible elements that are required
to develop a functioning network offering universal access to Business
information. The elements differ in the degree of influence the Trust may
have upon their advancement or on the priority that might be placed upon
them if resourcing is a significant constraint.
The members have collective ownership of the Internet Gateway and,
therefore, are able to influence directly both the scope and speed of its
development. Many of the Trust’s members are using their Intranet
capability to deliver information to operational staff: the NETWORK Gateway
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is seen as an integral part of this service, which tends to raise the priority
members place upon the development of this service by the Trust.
The activities also have a general public benefit that is as yet
underdeveloped. Easy access to Business information has obvious uses in
education both formal and informal. These benefits will become more
apparent as the range of data available increases; nevertheless, it is
possible to develop exemplars of these types of use linked to messages
related to the principle drivers.
Assumptions
Presumptions have not been made as to which member or members of the
Network might adopt parts of the plan, nor have costs been assigned to
particular outputs as all these variables will depend on which partner(s) take
forward the individual elements of the plan. Nevertheless, the work
programme presents a set of benchmarks for the development of the core
elements of the NETWORK over the next three years. The milestones
assigned to the recommended actions are generic in nature and eventually
will be reflected in the individual projects developed to realise the work
programme. In developing the work programme the following assumptions
have been made:
It is assumed that the present way of working, i.e. a lead partner
approach for each project will be retained;
The plan is not intended to represent all the work that could be
undertaken;
It is anticipated that other work toward the principal aim of adding
content and providing a fully functional gateway will be adopted by the
Network as part of its programme, but this work would have to be
prioritised against this core activity and separately resourced;
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2.4.4 Developing the Recording Network
The sustainable development of the NETWORK is inevitably predicated
upon the continuing activity of the voluntary recorders and the organisational
mechanisms that support them. The continued development of the Network
will depend on partner organisations having the capacity to respond to the
new challenges and opportunities arising from the evolving NETWORK. The
Network will also have to assist in ensuring that recording skills are not lost,
and if possible that they should be enhanced. Furthermore, the present
recorder population must be sustained by encouraging others to participate
and ensuring that the required training and support is available. It should
also be made easier to lodge records locally for use by all. In part, this will
have to involve an outreach programme designed to make the general
population aware of biological records, recording, and the role of the
NETWORK and the part they might play in its development. It will also entail
the promotion of a national system of nodes that facilitates biological
recording and access to records of known documented quality.
Gateway
The principal target for the development of the Internet Gateway is the
addition of content. The addition of content has hitherto been largely
serendipitous; dependent upon availability, format, quality etc. but with little
attention to the articulated needs of users. Broadly the requirement is to
gain access to geospatially-referenced species and Location data in
response to the principal drivers identified above, but there will also be a
need to react to new opportunities. To meet these changing needs, a set of
criteria are required against which new opportunities can be assessed.
Securing the Benefits
The proof of concept programme has already provided ‘gains’ through the
development of principles, standards, guidance, the development of an
Internet Gateway delivering access to over 10 million species records and a
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species dictionary as an aid to searching. These benefits will be secured
through a programme of revision, updating and maintenance designed to
incorporate new data, meet new technical standards and the evolving needs
of the Network.
2.4.5 Co-ordination and Promotion
Co-ordination
Once established, the Business Priorities will be reviewed and updated
annually. This will require some modification of the present structure and
working practices of the NETWORK.
The plan is dependent upon co-ordination of the NETWORK work
programme. Overall direction and co-ordination shall continue to remain the
responsibility of the Promoters. Partners will continue to fund the co-
ordination and steering of the plan through their financial support of the
Secretariat of the Network but additional funds will be required as both the
work programme and Network grow.
The Secretariat of the Network will ensure co-ordination and revision of the
Business Priorities through servicing of committees and groups as
required. It will prepare annually a summarised assessment subsequent to
the meetings of the review/steering committees and scrutiny of their reports.
Once approved by the PROMOTERS, the annual summary will be made
available to all members of NETWORK.
The core functions of the Secretariat are:
To support the Promoters and Chairman;
To ensure adherence to jointly agreed objectives;
To resolve conflicting priorities;
To ensure integration across work themes and to identify gaps;
To lead in the promotion of the NETWORK;
To review progress and forward planning;
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To raise awareness of the NETWORK with other initiatives /users and to
act as a channel for liaison;
To liaise with funders;
To seek and secure extra funding for the development of the network;
To ensure continuing support of the Network by members;
To ensure the maintenance of NETWORK core functions;
To maintain the accounts.
Communication
The need to communicate effectively underlies the whole work programme.
There is a need to communicate with and between projects, to communicate
between partners in the NETWORK, with funders and, above all, with those
outwith the NETWORK to encourage them to use the service and participate
in it. Each project has a need to communicate either to enhance its
understanding of issues or to make others aware of its successes. This
might be achieved by the development of examples of operational use, or
special interfaces with the NETWORK.
The Secretariat has a special responsibility for communication, which it will
discharge through the use of newsletters, its web site and by organising
special events such as conferences.
Resourcing Strategy
‘In the absence of any external funding being attracted, the members would
need to redefine their immediate objectives and plan to implement all or part
of the Business Priorities using their own resources. This would
doubtlessly require a scaling down of the plan and difficult internal funding
decisions.
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2.5 The Work Programme
This section builds upon the previous sections to develop the framework of
an actual work programme to carry forward the vision. Possible projects
within this programme are presented in the form of a standardised
framework that identifies in the first instance a series of selection criteria to
be applied to specific projects. It is not intended that all NETWORK badged
projects should meet all the criteria, but that they might provide a method for
deciding upon the priority of projects competing for a finite resource.
Milestones are also suggested that will give a framework against which
specific project progress can be judged. The milestones are not intended to
provide a timeline for projects as it is often the case that different aspects of
a project progress concurrently or that failure to achieve a specific output
does not prevent a project from progressing. A recommended list of specific
projects is also presented for discussion.
It is the nature of the NETWORK development process and resourcing that
not all of the suggested projects may be picked up by lead partners and that
others of a similar nature may emerge that fit more closely the internal
agendas of Trust partners. Nevertheless, the work plan presented in this
document gives a basis upon which the NETWORK as a whole can evolve
to meet the Trust’s principle.
2.5.1 Developing the Network
The capacity of partner organisations in the NETWORK to contribute data
on an ongoing basis is identified above as a key work area. This will
include their internal capacity to carry on the work of gathering relevant
data; their capacity to manage those data; and in particular their capacity to
continue to make their data available through the NETWORK Gateway.
For the purposes of this plan, these supplier organisations are broken down
into three main groups:
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Local data-gathering institutions and professionally run organisations
(e.g. local records centres);
Voluntary recording schemes;
Business organisations.
The role of the Network in delivering this work is seen as one of ‘facilitator’,
but its role in relation to each principal group will be different.
2.5.2 Local Data Sources
The following selection criteria will be applied:
Active local source of managed local data;
Requirement defined by relevant Network partners’ strategic
publications.
The following milestones will be used to assess progress:
1. Local partnership in place including representation from Network
member organisations where possible;
2. Adequate resourcing in place;
3. Business Plan developed that indicates intention to become active
member of NETWORK sharing data with others;
4. Catalogue of data holdings;
5. Active data quality management;
6. Access policy in place that conforms to NETWORK principles;
7. Accessing and delivering data through the NETWORK;
8. Providing service to users;
9. Actively working with local recorders and other local data managers
to encourage and support all aspects of local recording and promote
the efficient management and supply of data.
Recording schemes:
The following selection criteria will be applied:
Subject covered of high/moderate priority for policy etc.;
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Some current data potentially available for early mobilisation;
Data management skills sufficiently well developed to enable early
engagement;
Volunteer base sufficiently organised and/or motivated to take part;
Organisation open to/ready for further development;
Potential for partnership working with other organisations/schemes.
The following milestones will be used to assess progress:
1. Enhanced capacity of voluntary organisation through development of
their own business plan;
2. Catalogue of data holdings and development of metadata
documentation;
3. Mobilisation of data;
4. Engagement with membership to facilitate maintenance and use of
available data;
5. Achievement of basic generic funding for prioritised data backlog
computerisation;
6. Increased public access to data
Data Access:
Species:
The following selection criteria will be applied:
Relevance to the key drivers;
Priority operational need;
Existing quality datasets;
Existing activity including good geographical coverage;
Building on existing initiatives;
Datasets ‘at risk’ of being lost;
Proxy species – relate to other Location/species;
Quick wins.
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Suggested milestones for the addition of data:
1. Rapid access to all relevant quality datasets from ‘all’ sources in a
transparent and neutral way;
2. Completed analysis of data e.g. coverage, duplication, strengths etc.;
3. Completed advocacy and application across sectors;
4. Capacity building amongst recorders where required;
5. Revision of delivery methods;
6. Partnership forming and development to ensure update of data and
addressing any significant gaps;
7. Update/gap filling.
Location data:
The following selection criteria would be applied:
Mapped datasets preferably available as polygons or methods that
enable them to be produced;
Accessibility;
Relevance to key drivers;
Threat;
Motivation of candidate partners where already have comprehensive
inventory in existence;
Comprehensive inventory;
Capable of cross validation with species datasets (see above);
Fit into broad Location classification;
NETWORK ability to report using boundary systems of users;
Quick Wins.
Suggested milestones for the addition of Location inventory data
1. Thematic partnership with identified champion in place;
2. Completed analysis of data available resulting in methodology and
standards for cost effective integration;
3. Feasibility of method tested;
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4. Revision of delivery methods;
5. Collation (regionally based) that integrates the regional and national
sources;
6. Update/gap filling.
Regional Projects (phased NETWORK growth)
The following selection criteria would be applied:
Measured increase of new local providers;
New challenges for the National Business Network;
Activity in each country;
Different socio-economic ‘regions’/culture.
The following milestones will be used to assess progress:
1. Develop a partnership of national organisations with regional
representatives;
2. Identify key local data requirements;
3. Identify the relevant datasets to meet the requirements and analyse for
duplication, gaps, etc.;
4. If required, address the shortfalls in data collection, collation, and
mobilisation by whatever local or national mechanisms is most (cost)
effective;
5. Contribute to thematic projects;
6. Apply species and Location datasets available through the NETWORK
with the local datasets to enhance local decision making;
7. Options for revision of the delivery mechanism.
Maintaining the network (All Themes):
The following selection criteria would be applied:
New technical opportunity;
Improvement in service provision allied to principle drivers;
Enhancement of participation.
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The following milestones will be used to assess progress:
1. Scoping study completed;
2. Development completed;
3. Testing completed;
4. Transfer to active system.
Recommended further technical development:
Development of search engine;
Introduce system/server redundancy to meet higher service standards;
Phase in dispersed network architecture;
Roll out data management skills to partners;
Roll out necessary IT skills to NETWORK partners;
Roll out use related skills to partners;
Development of searching at higher taxonomic levels;
Enhanced casework/local data screening.
Project Management:
Each theme will be taken forward by a project or series of projects
dependent upon its complexity. Co-ordination and management will be
achieved for each theme by working groups of active contributors or
funders.
The membership of each working group shall normally not exceed six
members together with an independent chairman who shall not actively
participate in the group’s projects. Members shall be confined to those
who are either involved in and fund, at least in part, the working group’s
approved projects or contribute in other ways to the group’s approved
projects.
Each working group shall determine its own modus operandi, which
shall be reported to and approval sought from the PROMOTERS.
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The duties of each working group shall be to plan, promote and
participate in the projects proposed by the group, approved by the
reviewing group within its relevant theme, and the Promoters.
Annually they shall submit:
A report on the progress of the projects carried out during the year
together with an indication of how far they have met the approved plan
A proposed work schedule for future work to include projects with
milestones and details of funding available as required to the relevant
annual review group for comment, discussion and forwarding to the
Promoters for their consideration.
Theme Review:
Each theme will be reviewed annually and its report considered at a
specific meeting.
Duties in respect to this review shall be:
To receive a report from its working group(s) on the progress of the
previous year’s theme work programme
To receive a proposed work schedule for future work to include
projects with milestones and details of funding available
To identify gaps and decide how these might be filled
All members of the working group under review may attend the review
meeting together with such individuals as have a direct or related
interest in the theme. Each review shall be convened by the Programme
Director and shall always include one Trustee.
Promoters’ Approval
In the light of due discussion of both the proposals and their subsequent
reviews the review group shall forward these reports to the Promoters as
a draft summary plan prepared by the secretariat for their consideration,
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ratification and if need be resolution. It will be a requirement that the
Promoters approve any formal plans or review recommendations.
Promoters may require further discussion with the chairman of any
working group, but once Promoters have approved the summary plan,
working groups will be free to go ahead with their proposals. Their first
task will be to set immediate (1-year) targets that work toward the
aspirational targets.
The summary business plan will be made available to all members of
NETWORK.
To accommodate this procedure, it will be necessary to devote one meeting
a year as a business plan review meeting. It may therefore be necessary to
increase the number of meetings of the PROMOTERS, but this is for further
consideration as well as the timing of the review procedure.
Self Assessment Questions II
State whether the following statements are True or False:
1. The strategic review of the NETWORK is designed to move the
development programme of the NETWORK on from its initial ‘proof of
concept’ phase.
2. The continued development of the Network will depend on partner
organisations having the capacity to respond to the new challenges and
opportunities arising from the evolving NETWORK.
3. The principal target for the development of the Internet Gateway is the
addition of content.
4. Once established, the Business Priorities need not be reviewed and
updated.
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2.6 Summary
A well-written business plan will serve as a guide through the start-up
phase of the business. It establishes benchmarks to measure the
performance of your business venture in comparison with expectations
and industry standards.
The first step in planning a new business venture is to establish goals
that you seek to achieve with the business.
If one fails to establish clear goals early in the process, the organization
may spend substantial time and resources pursuing potential business
ventures that may be financially viable but do not serve the mission of
the organization in other important ways.
It is also important to establish a timeline for completing the plan.
A good business plan should contain the following sections:
Executive summary
Company and product description
Market description
Operations
Management and ownership
Financial information and timeline
Risks and their mitigation
A solid business plan will clearly explain the business concept, describe
the market for the product or service, attract investment, and establish
operating goals and guidelines.
The business plan is not just a funding tool, but also a blueprint of how
the business should operate.
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2.7 Terminal Questions
1. Explain the meaning of a business plan.
2. Give examples of goals that are sought to be achieved through the
creation of a new business venture.
3. Explain various sections of a business plan.
4. Explain the steps for developing sales projections.
2.8 Answers to SAQs and TQs
SAQs I
1. True
2. True
3. False
4. False
SAQs II
1. True
2. True
3. True
4. False
Answers to TQs:
1. Refer to 2.2
2. Refer to 2.2
3. Refer to 2.3
4. Refer to 2.4
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Unit 3 Harnessing Complexity – Creativity in Business and a Favourable
Investment Strategy
Structure:
3.1 Introduction
Objectives
3.2 What is a Complex System?
3.3 Complex Systems Behaviour
3.4 Lessons for Business
3.5 Creativity
3.5.1 Best Creative Exercise Ever
3.5.2 A Simple Creative Exercise
Self Assessment Questions I
3.6 Summary
3.7 Terminal Questions
3.8 Answers to SAQs and TQs
3.1 Introduction
In the rapidly changing world of global markets, e-commerce and the
internet, the secrets of Complex System evolution provide a basis on which
to reflect on the management of our businesses. Insights gained from
Complex Systems thinking suggest that freedom and creativity count more
than cost reduction and efficiency, as these provide the foundations for
learning and change.
Today, businesses and organizations must deal with the production and
delivery of increasingly complex products and services in a rapidly changing
and uncertain environment. This raises questions concerning the
effectiveness of traditional management methods – focussed on efficiency
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and strategic planning and control – in generating successful companies
capable of flourishing in this new environment. The need to adapt, change
and be creative is crucial today, and it is therefore vital to understand how
companies can achieve this. Survival, in this brave new world, requires that
we learn how to bring about self-transformation, adaptation and change in
ourselves and in our organizations, as this is where we can harness the
insights that have come from recent research into the behaviour of Complex
Systems.
This unit deals with Complex Systems behaviour.
Objectives:
After studying this unit, you will be able to:
Explain the meaning of a Complex System.
Describe Complex Systems behaviour.
Explain the concept of creativity in business.
3.2 What is a Complex System ?
A Complex System is a system that has more than one possible future. In
other words, it is ‘free’ enough to take more than a single pre-determined
path into the future, and therefore cannot be purely ‘mechanical’. Clearly, we
are all complex systems by this definition, and so are the organizations,
communities, economic sectors, regional economies, ecologies and global
systems to which we belong and interact with. Indeed, mechanical systems
really only exist as abstractions in our minds, and the systems we inhabit
and try to manage are not mechanical. Yet all our science and our way of
thinking about problems is based on the assumption that a company or
organization comprises a set of functional components with connecting
flows of goods and information. In this view, better management is often
seen as simply running the ‘machine’ faster or more efficiently.
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But that was when life was simple and the ‘product’ or ‘service’ to be
produced and delivered only needed to be made at a competitive cost with
adequate quality. Today, we must constantly create new products and
services, with additional and novel attributes, and this creative, adaptive
capacity will be more important to our survival than our level of efficiency,
particularly if, as Complex Systems thinking suggests, efficiency reduces
creativity.
Traditionally, decision making and strategy have been based on a rational
set of assumptions such as:
We know our options.
We know and can evaluate the (single) outcome of implementing each
of them.
We can ignore effects that we do not know.
The environment in the future ‘after’ the decision is known.
There was a situation ‘before’ our decision, and that there will be a
situation ‘after’ our decision, and that we can therefore examine the
differences between them.
Such reflections are typical of a cost/benefit analysis, for example, by which
the outcomes of different possible decisions are compared. Yet, in a world
of rapid change and uncertainty, the assumptions relied upon by this kind of
‘reasonable’ behaviour are simply not true. In reality, we do not necessarily
know all our options, the path the system may take, the possible dimensions
that might be affected by resulting changes, or how circumstances may
have changed in the mean time. In short, our view of our organisation as a
machine, sitting in a fixed or at any rate predictable environment, is totally
inadequate. We must instead turn to new ideas - we must harness the ideas
arising from Complex Systems.
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3.3 Complex Systems Behaviour
In studying Complex Systems, initially in physics and chemistry, it became
clear that the key properties of ‘open’ systems, where flows of matter,
energy and information can occur across their boundaries, were that they
could undergo spontaneous transformations of structure and functionality.
Instead of a ‘fixed’ mechanical system, this showed how systems came into
being, and evolved over time, changing structurally, gaining, and sometimes
shedding, complexity and qualities.
The study of Complex Systems therefore revealed a co-evolutionary
process of a system and its environment in which successive change and
adaptation each involved two separate steps:
Discovering what to do (exploration and evaluation).
Doing what has been decided (implementation).
And these two steps are radically different in nature.
In Complex Systems, the first step is ‘taken’ by the ‘non-average’ underlying
elements within the system, while the second – the emergence of a
transformed, functioning system – concerns new, effective ‘average’
behaviour of the elements. The successful co-evolution of a system with its
environment therefore occurs through the dynamic interplay of the average
and non-average behaviours within it. Successive instabilities occur each
time that existing structure and organisation fail to withstand the impact of
some new circumstance or behaviour. When this occurs, the system re-
structures and becomes a different system, subjected in its turn to the
disturbances from its own non-average individuals and situations. It is this
dialogue between successive ‘systems’ and their own inner ‘richness’ that
provides the capacity for continuous adaptation and change.
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3.4 Lessons for Business
Clearly, these two steps will seem obvious to anyone running a business -
firstly, we work out what product or service we think will succeed, and then
organise a system to produce and deliver it as efficiently as possible. In a
world of slowly changing markets and fixed technologies, this could be
undertaken once, or very infrequently, and the system optimised. However,
in our world of fast-changing markets, competitors and technologies, there is
a constant need to keep revising and updating knowledge and information
about possible markets, customer needs and technical possibilities.
Step 1 requires that we explore the possibilities in order to discover possible
options and decide from them what to do. We need to be good at ‘going
beyond’ present knowledge and wandering into undiscovered territory. But,
in order to perform step 2 successfully, we need to execute what has been
decided as efficiently and fast as possible, avoiding any unnecessary waste.
This requires rational analysis to obtain mechanical and economic
optimisation.
The qualities required for Step 1 are the freedom and ability to move into
uncharted territory and have new thoughts, while those required for Step 2
are the ability to make and act upon rational analyses of the processes and
costs of the system but these are opposite qualities. And, not only that,
pressure for greater measurable accountability, short term share-holder
value and the increasing use of IT makes it increasingly more difficult to
protect the presence of the qualities required for Step 1 against the simpler,
more easily measured qualities for Step 2. Yet without Step 1, there can be
no Step 2.
Imagination and creativity must precede efficiency of execution. Complex
Systems models and simulations demonstrate the truth of this statement,
showing the role of individual diversity in Step 1 creativity and exploring the
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circumstances which may require more or less focus on Step 1 or Step 2
qualities. Study the following to have a clear idea regarding this:
Aerospace Design Process
A current piece of research concerns the way in which new knowledge
and technology is explored in creating a very complex product such as
a new aeroplane. Part of the technology budget is specifically allocated
to a free exploration of ideas by young technologists in the group.
There are prizes for success and bidding rounds for further support.
They are allowed to talk freely to suppliers if this is important. Precise,
detailed accountability is not applied to this exercise, but instead the
judgement of the Head of Technology is confirmed through the overall
long-term capacity of the section to deliver new technology when
required. This company has a long and successful history in this highly
competitive and innovative sector.
The Prato District Network in Italy
Just 15 km from Florence, the small Prato District encompasses one of
the largest concentrations of textile manufacturing in Europe. There are
over 8,000 companies, employing 44,000 people, with production of
$4.5 billion. Activity here dates back 1,000 years and this long evolution
has led to this adaptable social network, founded on long-term social
relationships, that allows them to respond more rapidly than
competitors to the uncertain and changing fashion market.
Complex Systems thinking provides a framework that can inform every
aspect of business management, linking research, development, concept
and design with imaginative market exploration, human resources
management, and overall business strategy and identity. It concerns the
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complete ‘knowledge dynamics’ that drives the company - right through the
creation, evaluation, selection, implementation and discarding of knowledge.
It demonstrates that this is the power behind the competitiveness of new
growth companies and indicates how it can be adopted by businesses and
by whole business networks.
Ultimately, the creativity and imagination of a business will come from the
dynamic interaction of diverse individuals. These individuals that create new
ideas and value may be within one company, but often will span several
within the network, giving rise to winning clusters of activity, capable of
evolving faster than their rivals.
Complex Systems thinking also informs us how to achieve a high rate of
delivery of new products and services and rapid adaptation to changing
conditions. Instead of designing and planning products and services as a
‘top-down’ exercise through a captive ‘supply chain’, the models of self-
organising networks provide an alternative view. Here, products emerge as
the result of a changing pattern of collaboration of a network of suppliers,
both competing and co-operating, each expert in its own domain. The
network is characterised by long-term relationships between nodes, but
does not always require the same partners to be involved all the time.
Different nodes can rapidly come together or separate for the production
and delivery of different things.
In the rapidly changing world of global markets, e-commerce, evolving tele-
communications and internet, the secrets of Complex System evolution offer
us a basis on which to reflect on the management of our businesses.
They tell us not to allow optimisation on any single criteria (e.g. cost
minimisation) and to provide freedom and resources to those parts of the
business that must be creative, while regulating closely those parts that are
purely bureaucratic. Making sure that designs and decisions are always
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debated among a diverse group of individuals, and that different
perspectives are discussed and examined, we need to encourage people to
express their individual views and differences and to have enough self-
confidence to question their present activity and knowledge. Allowing
exploration and experiment means tolerating ‘failure’ and being open to new
ideas requires an atmosphere of confidence and trust, which in turn requires
a long-term social relationship. The insights coming from Complex Systems
thinking tell us that such things matter more than cost reduction and
efficiency, as they provide the basis for a sustainable adaptive capacity for
learning and change.
3.5 Creativity
Everyone in business is creative.
Some of most creative people are in manufacturing.
They actually CREATE products that change the world.
Some of the least creative people perhaps are in advertising.
They spend most of their creative energy telling manufacturers that
they…aren’t creative!
Salespeople Are Creative – They are natural born story-tellers.
Accountants are creative.
3.5.1 Best Creative Exercise Ever
Write down your ideas.
You have a ton every day.
But most of the time, you can’t remember them by the day’s end.
Don’t let spelling and grammar issues or relentless self-editing stop you.
Get your ideas on paper (Let someone else edit it.)
Go retro: Carry a notebook, pen, and calendar into your meetings.
Look up at people.
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Story First, Technology Last.
Don’t invest in a presentation class called “How to Use PowerPoint”….
…until you’ve taken a class called “How to Tell Stories and Connect with
Your Audience”.
3.5.2 A Simple Creative Exercise…
Simplify everything. Your life, your home, your office, your desk, your
Global governance, and the interrelation between trade, investment and
sustainable development are key issues in the CSR debate. Indeed,
awareness of CSR issues and concerns will contribute to promote more
sustainable investments, more effective development co-operation and
technology transfers.
Both processes of trade and financial markets liberalisation should be
matched by appropriate progress towards an effective system of global
governance including its social and environmental dimensions. Globalisation
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has also increasingly exposed enterprises to trans-boundary economic
criminality, requiring an international response.
By abiding by internationally accepted standards, multinational enterprises
can contribute to ensure that international trade markets function in a more
sustainable way and it is therefore important that the promotion of CSR at
international level takes as its basis international standards and agreed
instruments.
Those agreed instruments are, at present, of two kinds:
First, the OECD Guidelines for Multinational Enterprises are the most
comprehensive, internationally endorsed set of rules governing the activities
of multinationals. In promoting CSR in developing countries, EU businesses
should demonstrate and publicise their world-wide adherence to them.
Second, beyond CSR, international agreements are in place and their
implementation by governments should be promoted. In its communication
on Promoting Core Labour Standards and Improving Social Governance in
the context of Globalisation1, the Commission stressed the need to ensure
the respect for core labour standards in the context of globalisation. It
stressed in particular the universality of core labour standards and the need
for codes of conduct to integrate the ILO fundamental Conventions.
At the same time, identifying common frameworks for the global dimension
of CSR is challenging due to the diversity in domestic policy frameworks,
protection of workers and environmental regulation. A number of initiatives
in which European companies participate, such as Investors for Africa,
World Business Council for Sustainable Development, and the UN Global
Compact have sought to identify basic principles and practices. The
underlying approach should be that, at global level, just as at European, the
1 COM(2001)416
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implementation of CSR principles should also go over and above the legal
requirements that businesses need to comply with, and approaches should
involve consultation with local stakeholders.
8.3.1 Abstract
Over the last decades, corporate environmentalism, sustainability initiatives
and management systems have resulted in a plethora of business practices
to increase corporate responsibility. Stakeholder dialogue is seen as a major
instrument in the involvement of the external stakeholders as well as for
communicating the corporate vision and commitment regarding these
initiatives internally. Until recently, many researchers and practitioners have
argued (or assumed) that the vision and commitment of senior management
is communicated clearly, and understood and incorporated by all staff within
the organisation in the manner as it was initially intended.
Yet, there is academic as well as anecdotal evidence that the integration of
corporate responsibility throughout the hierarchy of organisations is
marginal, and even absent in some cases. A recent study suggested that
among employees and managers there are few shared values or meaning
regarding corporate environmentalism, and that the perception of
environmental issues across levels and functions is very diverse indeed.
Thus, the corporate values relating to a firm’s responsibilities can be
perceived and experienced differently yet simultaneously within the same
organisation. This implies that it will be very difficult, if not impossible, to
truly embed responsible behaviour within an organisation if individual
perceptions of corporate value systems regarding responsibility are not
aligned proactively.
This paper proposes two complementary, multidisciplinary approaches to
further understanding of the role of shared values in attaining corporate
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responsible behaviour throughout the organisation. These two concepts
then are developed into concrete research questions for future studies.
Introduction
Corporate Responsibility2 is considered a key development in connecting
corporate practices with the societal goal of sustainable development, as
firms can “contribute to more sustainable patterns of production and
consumption within society” (Roome, 2006: p. 137). This has been
supported by research about business and the natural environment and
society, which has over the last decade predominantly focused on the
business case for sustainability and the competitive advantages of
environmental responsibility (e.g. Aragon-Correa and Sharma, 2003; Berry
and Rondinelli, 1998; Maignan and Ferrell, 2001; Porter and Van der Linde,
1995; Simpson et al, 2004). Within this field, various scholars have argued
for integration of corporate responsibility into established business routines
(e.g. Banerjee, 2001; Menon and Menon, 1997), yet in practice that does
not appear to be the case (e.g. Knox et al, 2005).
Most research about corporate responsibility focuses on investigation of
managers, and particularly on managers responsible for health, safety and
environmental issues (e.g. Cormier et al, 2004; Egri and Herman, 2000;
Sarkis, 1998). Banerjee (2002) argued that it was important to understand
the interpretations of decision makers regarding environmental issues.
Some researchers have looked at different levels of management
(e.g. Andersson and Bateman, 2000; Floyd and Wooldridge, 2002; Sharma,
2000). However, little research has been published on the integration of
corporate responsibility throughout the organisation and the possible
2 Corporate Responsibility contains both corporate environmentalism and corporate social
responsibility, and includes any initiative that reduces the environmental impact and/or contributes to the improvement of the social conditions beyond the firm’s legal obligations (Dyllick and Hockerts, 2002; Roome, 2006).
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implications of wider employee understanding of environmentalism
(Wehrmeyer and McNeil, 2000) and social issues (e.g. Lyon, 2004; McNutt
and Batho, 2005). Similarly, based on the idea that strategy development
and implementation is underpinned by the understanding of people (Floyd
and Woodridge, 2000; Mintzberg et al., 1998 and 2002), even experience
and culture (Johnson and Scholes, 2003), it is also important to understand
how decision-implementers influence the development, implementation and
success of responsible strategies and actions. Yet, we have found little
research on how employees perceive corporate values regarding
responsible behaviour.
A variety of authors (e.g. Banerjee, 2001; Gladwin et al. 1995; Hoffman,
2000) have demonstrated how using traditional management theories (in
can hinder efforts to change to a more responsible state of doing business
at the institutional as well as the organisational level. Therefore, new
perspectives, preferably from new domains, can challenge current
assumptions and facilitate the transition of developing appropriate
organisational values (Starkey and Crane, 2003). The aim of this discussion
paper is to review the current literature on corporate values regarding
Corporate Responsibility, and to reflect on the role of employees in attaining
responsible practices in an organisation. From this, we propose two
complementary, multi-disciplinary approaches to further understanding of
the role of shared values in attaining corporate responsible behaviour.
Finally, these two approaches will lead to the development of concrete
research questions for future studies.
8.3.2 Values in Corporate Responsibility
There are various theoretical perspectives on the concept of Corporate
Responsibility: ranging from a traditional view of the firm (e.g. Friedman,
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1962; Walley and Whitehead, 1994) to a call for a complete paradigm shift
in business practice (e.g. Dyllick and Hockerts, 2002; Gladwin et al, 1995).
However, all views on corporate responsibility are based on the same
premise: that there is a corporate strategic approach to environmental and
social issues (c.f. Banerjee et al, 2003; Lyon, 2004). Hence, it contains both
corporate environmentalism and corporate social responsibility (Dyllick and
Hockerts, 2002), leading to the current construct that Corporate
Responsibility includes any initiative that reduces the environmental impact
and/or contributes to the improvement of the social conditions beyond the
firm’s legal obligations (Roome, 2006). As such, it is considered a key
development in connecting corporate practices with the societal goal of
sustainable development, as firms can “contribute to more sustainable
patterns of production and consumption within society” (Roome, 2006:
p. 137).
Corporate Responsibility can be considered as encompassing two
components (Banerjee, 2002; Bansal and Roth, 2000; van Marrewijk, 2004):
a strategy focus (i.e. how strategically important environmental and social
issues are perceived by management), and an orientation aspect (i.e. a set
of underlying corporate values that provide an internal ‘compass’ to which
the company can orient its environmental and social actions). The
orientation of an organisation has significant strategic power in terms of
shaping the organisational direction (Chen et al, 1997; Keogh and Polonsky,
1998; Shrivastava, 1995c). As such, the ‘responsible’ orientation not only
influences the overall responsibility of a firm, it also affects the extent and
form that actual responsible strategies will take, as well as the ethical
behaviour standards and the environmental protection commitment of the
organisation (Shrivastava, 1995b). Therefore, the responsible orientation
within a firm needs to be studied in more detail to provide additional insights
into organisational attitudes towards the environment and society.
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Various researchers (e.g. Bansal and Roth, 2000; McKay, 2001; Prakash,
2001) found that a multi-theoretical perspective explained some organisa-
tional responses to a greater extent than single theories in isolation, and
could explain the seemingly ad hoc choices of firms to go beyond legal
compliance. Since this paper aims to propose two complementary
multidisciplinary approaches, none of the existing theories is judged or
favoured above others. Instead, the different theories are used in
combination to draw out more comprehensive notions of the role of values in
corporate responsibility.
Assuming that organisations are open systems (Katz and Kahn, 1966), and
as such become interdependent with those elements of the environment
with which they transact (Pfeffer, 1982), organisations work within such
interdependencies to reduce uncertainty and ensure survival (DiMaggio,
1988; McKay, 2001). Based on this, the central premise of resource
dependence is that power relations among actors are commonly
asymmetrical and that organisations strive to obtain power, maintain
autonomy, and reduce uncertainty in the context of external pressures and
demands. Control over resources is critical in maintaining power and is
therefore pursued by organisations (McKay, 2001). As such, an organi-
sation-wide dedication to a compelling long-range vision (a shared vision) is
the key to generating the internal pressure and enthusiasm needed for
[responsible] innovation and change (Hamel and Prahalad, 1989; Hart,
1995). Given the difficulty of generating a consensus about a purpose,
shared vision is a rare (firm-specific) resource, and few companies have
been able to establish or maintain a widely shared or enduring sense of
mission (Hamel and Prahalad, 1989). Starik and Rands (1995) extended
this idea to include values, as these act as a mechanism to unify and orient
organisational units toward sustainability. Norms and shared values are
essential to understand the sustainability of organisations, and provide links
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between the organisation and the environment and society (Starik and
Rands, 1995).
Institutional theory is also based on the open systems assumption as
described above. However, the central premise of institutional theory is that
survival arises out of conformity to external rules and norms. Thus, the
theory examines how external social and regulatory pressures influence
organisational actions (Scott 1987). Due to the powerful nature of
environmental influences, organisations seek to conform to environmental
pressures as a way to secure stability, legitimacy and access to resources.
Those organisations that are responsive to such institutional pressures are
assumed to be more likely to survive (DiMaggio and Powell, 1983; McKay,
2001). In setting environmental strategy and structure, firms may choose
action from a repertoire of possible options. However, the internal structure
and culture of the firm reflect the dominant institutions of the organisational
field, hence the range of that repertoire is bound by the rules, norms, and
beliefs of the organisational field (Hoffman, 1997).
Based on the ‘systems’ view of organisations, the central premise of
stakeholder theory is that there are specific interest groups in the outside
environment, which have a stake in the behaviour and effectiveness of that
organisation (Freeman, 1984). Although stakeholder theory shares notions
of power with both previously discussed theories, neither resource
dependence theory nor institutional theory appears to suffice to explain the
full range of stakeholder power. Both theories offer explanations of reactions
to economic or formal/legal pressures, but fail to account for political
pressures (Jonker and Foster, 2002): where environmental or social
stakeholders are involved, there is neither resource dependency nor
formal/legal pressure to conform (Frooman, 1999). The perception of the
responsible managers influences the approach to stakeholders
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(e.g. Collison et al, 2003; Cormier et al, 2004; Sharma and Henriques,
2005), and it is argued that “responses to environmental pressures can vary
widely among firms depending on managerial perceptions of environmental
risks and opportunities … on their interpretation of the importance and
relationship of the natural environment to their business activity” (Banerjee,
1998: p. 148). In explicitly describing the values and responsibilities of a
firm, business codes can help by providing a framework for managers to
guide their decisions, and simultaneously informing external stakeholders
(Kaptein, 2004).
A number of scholars argue that current research and practice in corporate
environmentalism may be limited by the assumptions under which much is
carried out (Porter, 2005). These authors therefore call for a revolutionary
way of thinking about business regarding environment and society (e.g.
Dyllick and Hockerts, 2002; Gladwin et al, 1995; Peattie, 2000; Shrivastava
(1995a); Stern et al. (1995)). A variety of authors (e.g. Banerjee, 2001;
Gladwin et al. 1995; Hoffman, 2000) have demonstrated how using
traditional management theories (in particular institutional theory, strategic
choice, transformational leadership) can hinder efforts to change to a more
‘green’ state of doing business at the institutional as well as the
organisational level. Therefore, new perspectives, preferably from new
domains, are required to challenge current assumptions and facilitate the
transition of developing appropriate organisational values (Starkey and
Crane, 2003).
From the above, we could conclude that shared values are a key
component in attaining a shared vision of the Corporate Responsibility of an
organisation and to guide interactions with stakeholders, and are formed by
rules, norms and ethical behaviour standards from both inside and outside
of the organisation.
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However, there is academic and anecdotal evidence that the integration of
corporate responsibility throughout the hierarchy of organisations is
marginal, and even absent in some cases (e.g. Barakat, 2006b; Knox et al,
2005). A recent study by Barakat (2006b) suggested that among employees
in three UK case studies there was a general absence of shared meaning
with regards to key environmental themes and issues (although smaller
clusters around hierarchical levels and some functional groups shared some
experiences on some issues). There was no system for the identification
and definition of environmental concepts, no explicit means by which
concepts could be shared and discussed, and no mechanism to indicate to
employees the concepts and definitions that would be acceptable and those
that would not. Hence, employees experienced their firm’s corporate
environmentalism predominantly in an individual manner. The perceived
corporate orientation towards environmentalism followed this, and this study
therefore offers some evidence that corporate environmental orientation can
be perceived and experienced differently within the same organisation.
Furthermore, many researchers and practitioners in the Corporate
Responsibility field (e.g. Banerjee et al, 2003; Juholin, 2004; Murphy, 1988)
have argued (or assumed) that the vision and commitment of senior
management is communicated clearly, and understood and incorporated by
all staff within the organisation in the manner as it was initially intended
(Preston, 2001; Ramus, 2001). Yet, there is little evidence that this
assumption is grounded in practice (Barakat, 2006a; Knox et al, 1995). Even
more so, there is evidence that (mainly lower-level) employees do not
perceive their firm to be pro-active in its environmental and social
responsibilities (e.g. Barakat, 2006a; Lingard et al, 2000; Ramasamy and
Woan-Ting, 2004). Research suggests that since employees are not
oblivious to the ethical climate of the company, this interaction affects the
trust that employees have of their organisations and affects their
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commitment to it (Van Dyne et al, 1994; Fritz et al, 1999; Gross and Etzioni,
1985). Also, the employees’ experience of Corporate Responsibility appears
to be significantly affected by their perception of the behaviours and
attitudes of management, especially if an employee perceives an
inconsistency between the immediate manager and the corporate policy
(Ramus, 2001). The resultant dissatisfaction and lack of engagement could
potentially impact the success of responsible initiatives (e.g. Preston, 2001;
Ramus, 2001). Hence, it has become important to understand how
Corporate Responsibility is interpreted by decision-makers (Banerjee, 2002)
and decision implementers (Ramus and Steger, 2001).
As a result of these gaps in the literature, we propose a two-pronged
approach for future research about values in corporate responsibility: Firstly,
to study the interaction with the higher level framework of values that is
provided by Corporate Identity, and secondly, to study the role of personal
values of employees in attaining a more responsible firm. These approaches
are detailed below.
Approach 1: Corporate Identity
With its roots in Marketing, the field of Corporate Identity has grown over the
past two decades. Research in the field has focused on a number of issues,
for instance corporate brands (e.g. Keller, 1999), corporate reputation
(e.g. Greyser, 1999), visual identity (e.g. Melewar, 2001), and organisational
identity (e.g. Simoes et al, 2005). Consequently, the wide spread in use of
the construct of Corporate Identity has led to an ambiguous meaning, which
makes it almost an unbounded in its range of applications (Cornelissen and
Elving, 2003). However, as a corporate construct Corporate Identity is
perceived to “indicate the way in which an organization’s identity is revealed
through behaviour, communications, as well as through symbolism to
internal and external audiences” (Van Riel and Balmer, 1997: p. 341).
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Analogous to Albert and Whetten’s (1985) definition of organisational
identity, van Rekom (1997) proposed three criteria for corporate identity:
that it contains the essence of a firm, that it sets a firm apart from others,
and that it has continuity over time.
Corporate identity research has the power to “probe into the quintessence of
an organisation's existence and … can propel to the fore issues of great
sensitivity and political importance” (Balmer, 2001b: p. 269). As such,
Corporate Identity provides a relevant framework for researching shared
values among employees, as “at its core is the mix of employees’ values
which are expressed in terms of their affinities to corporate, professional,
national and other identities” (Balmer, 2001: 280). Furthermore, every
organisation has an organisational (Albert and Whetten, 1985) and
corporate identity (Van Rekom, 1997), and as such provides a reliable
structure in which the salience and sharedness of other value systems can
be used as a reference. Finally, understanding the place and role of
corporate responsibility within a firm’s identity could offer insights into the
requirements for attaining more embedded responsibility in business
practice (e.g. Gray and Balmer, 2004).
More concretely, this leads to the following research questions:
To what extent are the components of Corporate Responsibility part of
Corporate Identity?
Is integration of Corporate Responsibility into the Corporate Identity
required to create a responsible firm? If integration would be required,
through which initiatives or activities could responsible practices become
embedded (e.g. identity scoping activities; Gray and Balmer, 2004)?
Is the absence of shared values a common theme, or does this seem to
only affect responsible values?
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Could the sharedness of values be enhanced to attain the scarce
resource as proposed by Hamel and Prahalad (1989)? How would this
be achieved?
Corporate Identity contains external and internal components (marketing
and organisational behaviour, respectively; He and Balmer, 2005). When
combined with the aspects of Corporate Responsibility, more questions
arise:
What are the interactions between the internal and external components
of a firm’s identity in the context of responsible initiatives in an
organisation?
What are the implications of the degree of internal and external
alignment regarding the firm’s objectives? E.g., if a company is accused
of ‘green washing’ (e.g. Gunn, 1999), how does this relate to its
alignment with respect to marketing? Could the perceptions of corporate
responsibility as a cost (e.g. Walley and Whitehead, 1994) or a benefit
(e.g. Christmann, 2000; Shrivastava, 1995b) affect a firm’s response
through its behaviour, structure and initiatives?
Answering these questions will contribute to the knowledge of the role of
social and environmental values in the construct of Corporate Identity. This
knowledge could influence the management of Corporate Responsibility
initiatives within a firm as it could create an increased awareness of the
issues across various levels and functions of the organisation.
Conversely, a better understanding of where Corporate Responsibility fits
within the organisation could have an impact on Corporate Identity, and as
such could develop and improve the management of a firm’s identity.
Approach 2: Personal values of employees
Individuals have been identified as the crucial factor that influences an
organisation’s sustainable behaviour. Also, employees are important change
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agents in the process towards a more responsible firm (Starik and Rands,
1995). However, it has been argued that “each individual carries around
within his or her head a subjectively valid set of beliefs. The potential for
individual subjectivity within organisations, therefore, means that
acceptance of an idea is contingent on the idea’s consistency with an
individual’s belief system – not the ideology of the organisation as a whole”
(Floyd and Wooldridge, 2000: p. 112). Therefore, personal values can also
influence a firm’s responses to environmental issues (Bansal and Roth,
2000), and can influence the individual’s perceptions of environmental
issues (Daft and Weick, 1984), behaviour (Dutton, 1997) and receptiveness
to change (Andersson and Bateman, 2000). This means that a complex
relationship exists between employees, their values and perceptions, and
the organisation, its values and the success of its responsible initiatives
(Beaumont et al, 1993; Cordano and Frieze, 2000).
Stern et al. (1995) developed a framework of the level of environmental
concern of an individual, highlighting the role of values in influencing
behaviour. Although personal values have been associated with individual
behaviour in the psychology literature, the role played by personal values in
decision-making within an organisation is less clear (Fritzsche, 1995). Past
research has found that managers tend to respond to ethical dilemmas
situationally and Fritzsche (1995) describes how personal values can relate
to various types of ethical dilemmas. Furthermore, there is evidence that the
personal orientation of managers leads to a different strategy focus (Keogh
and Polonsky, 1998). However, a recent study focusing on employees of
different levels and functions found that the link between personal
orientations and behavioural choices at work was less clear. Many of the
employees interviewed expressed strong personal values towards social
and environmental responsibility, whereas very few displayed these values
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when considering environmental issues within the company (Barakat,
2006a).
Therefore, the relevance of understanding personal values as described
above leads to the following research questions:
How and why do personal values relating to responsibility appear to be
subordinated in an organisational context? Where do social and
environmental values sit with respect to a person’s hierarchy of values?
How does this phenomenon compare with other domains like caring for
family or status?
What are the implications of misalignments between personal
‘responsibility’ values and organisational ones?
Could the environmental and social personal values be harnessed to
contribute to the responsible values of the firm? How does the degree of
employment of these values impact the execution of responsible
initiatives?
The outcomes of the above would further the understanding of the role of
individuals in their responses to social and environmental issues within their
organisation. This could have implications for the engagement of
employees’ perceptions towards the management of responsible initiatives.
The identification of the different positions available within an organisation
has the potential to provide a platform from which shared meaning and
experiences could be developed. Furthermore, the study could provide a
direction in which to develop practices to promote or mitigate the available
personal attributes towards a constructive asset of the firm.
8.3.3 Challenges for its further Diffusion
The challenges to a further awareness, dissemination and adoption of CSR
practices among enterprises stem from insufficient:
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Knowledge about the relationship between CSR and business
performance (the “business case”);
Consensus between the various parties involved on an adequate
concept taking account of the global dimension of CSR, in particular the
diversity in domestic policy frameworks in the world.
Teaching and training about the role of CSR, especially in commercial
and management schools;
Awareness and resources among SMEs;
Transparency, which stems from the lack of generally accepted
instruments to design, manage and communicate CSR policies;
Consumers’ and investors’ recognition and endorsement of CSR
behaviours;
Coherence in public policies.
Community action in the field of CSR has to build on the core principles laid
down in international agreements and should be developed in full respect of
subsidiarity principles. Within this scope, there are at least two reasons
pointing to the opportunity and the need for Community Action in the field of
CSR. Firstly, CSR may be a useful instrument in furthering Community
policies. Secondly, the proliferation of different CSR instruments (such as
management standards, labelling and certification schemes, reporting, etc.)
that are difficult to compare, is confusing for business, consumers,
investors, other stakeholders and the public and this, in turn, could be a
source of market distortion. Therefore, there is a role for Community action
to facilitate convergence in the instruments used in the light of the need to
ensure a proper functioning of the internal market and the preservation of a
level playing field.
CSR practices and instruments will be more effective if they are part of a
concerted effort by all those concerned towards shared objectives. They
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should be transparent and based on clear and verifiable criteria or
benchmarks. Public policy can contribute to the development of an action
framework with a view to promote transparency and thus credibility for CSR
practices.
8.3.4 Principles for Community Action
The Commission proposes to build its strategy to promote CSR on a
number of principles. These are as follows:
– recognition of voluntary nature of CSR;
– need for credibility and transparency of CSR practices;
– focus on activities where Community involvement adds value;
– balanced and all-encompassing approach to CSR, including economic,
social and environmental issues as well as consumer interests;
– attention to the needs and characteristics of SMEs;
– support and compatibility with existing international agreements and
instruments (ILO core labour standards, OECD guidelines for
multinational enterprises)
The Commission proposes to focus its strategy on the following areas:
(1) Increasing knowledge about the positive impact of CSR on business
and societies in Europe and abroad, in particular in developing
countries;
(2) Developing the exchange of experience and good practice on CSR
between enterprises;
(3) Promoting the development of CSR management skills;
(4) Fostering CSR among SMEs;
(5) Facilitating convergence and transparency of CSR practices and tools;
(6) Launching a Multi-Stakeholder Forum on CSR at EU level;
(7) Integrating CSR into Community policies.
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The Commission is prepared to involve the candidate countries as much as
possible in the implementation of this strategy. It will also promote CSR as
an incentive to enhancing sustainable development and good governance in
developing countries.
Improve the knowledge about CSR and facilitate the exchange of
experience and good practice.
Increasing knowledge about the impact of CSR on business and society.
The responses to the Green paper reflect a broad consensus among
businesses about the expectation that CSR will be of strategic importance to
ensure the long-term business success.
The potential of CSR policies to strengthen the symbiotic relationship
between enterprises and society has already been demonstrated in areas
such as sustainable growth, education and social cohesion. CSR can
support the creation of an atmosphere of trust within companies, which
leads to a stronger commitment of employees and higher innovation
performance. A similar atmosphere of trust in co-operation among other
stakeholders (business partners, suppliers, and consumers) can increase
the external innovation performance. Consumer confidence fostered through
CSR can be a major contributor to economic growth. More specifically,
through CSR practices, enterprises can play an important role in preventing
and combating corruption and bribery, and in helping preventing the use of
enterprises for money laundering and criminal activities financing.
CSR policies can also boost the societal benefit that enterprises create with
regard to innovation. Innovative practices aiming at better jobs, safer and
employee-friendly workplaces, gender mainstreaming and the innovation or
technology transfer to local communities and developing countries, leading
to a more equitable North-South economic and social development, are
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further examples of societal benefits created by innovative enterprises.
Indeed, CSR may play a positive role in fostering development in third
countries by helping to establish a dialogue between these countries, their
public authorities, social partners and civil society and foreign companies.
The desire of enterprises to improve their risk management is a powerful
factor behind CSR. Enterprises generally agree that CSR helps them in
managing their risks, their intangible assets, their internal processes, and
their relations with internal and external stakeholders. It has also been
argued that opportunities and advantages for enterprises stemming from
complying with international social and environmental conventions, norms or
"soft law" instruments can outweigh costs. Although most businesses
support the assumption of a positive impact of CSR on competitiveness,
particularly in the long term, they are however not able to quantify this effect.
Solid evidence that social and environmental responsibility supports
competitiveness and sustainable development, in particular in SMEs,
would be the best and most effective argument to encourage the uptake of
CSR among enterprises, in particular through:
– strengthening research on how and under which circumstances
enterprises adopting CSR can contribute to the objective of
enhanced competitiveness and a more sustainable development: the
establishment of a priority area on "citizens and governance in the
knowledge-based society" in the Framework Programme 2002-2006
of the European Community for research, technological development
and demonstration activities, will contribute to gaining this
knowledge;
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– supporting activities promoted by businesses, social partners,
education and training institutions and other stakeholders, aiming at
raising awareness and improving knowledge about CSR;
– analysis and dissemination of information about CSR practices and
their results for companies and for host countries.
Developing the Exchange of Experience and Good Practices on CSR
between Businesses:
In their responses to the Green paper, business organisations and individual
enterprises stressed the importance of the exchange of experience and
good practices about CSR between companies, as an important vehicle to
develop the concept further. It can help businesses to acquaint themselves
with the concept, to benchmark their position against competitors and to
build up a consensus about its instruments, such as reporting standards or
verification procedures. These exchanges could be particularly beneficial at
sectoral level, where they can play an important role is identifying common
challenges and options for co-operation between competitors. Such co-
operation could reduce the costs of adopting CSR and help to create a
level-playing field. It could also help to diffuse CSR in supply chains.
Co-operatives, mutuals and associations as membership-led organisations
have a long tradition in combining economic viability with social
responsibility. They ensure this through stakeholder dialogue and
participative management and thus can provide an important reference to
other organisations.
The effectiveness of existing fora for the exchange of good practice and
experience at local, regional, national and EU level, could be reinforced
through better networking and co-ordination of their activities.
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The integration of CSR into the work of European business support
networks would facilitate dialogue and co-operation between them.
Developing the Exchange of Experience and Good Practices on CSR
between Member States:
Several Member states have developed CSR policies, which differ because
they reflect national traditions, situations and challenges. In order to
facilitate the exchange of information about national policies and to support
its work in the area of CSR, the Commission has gathered together a group
of High-Level Social Representatives from the Member States that has met
on a regular basis.
The Commission will continue to facilitate an exchange of information and
dissemination of good practices about awareness raising strategies and
activities, with a particular emphasis on SME, and initiatives aimed at
exploring and establishing Total Quality Management Systems as well as
other policies (CSR-related legislation and support). It will also propose a
peer review of the CSR practices in Member States, assessing the
performance and the value added of regulatory frameworks and
monitoring schemes.
8.3.5 Developing CSR Management Skills
Most respondents to the Green Paper stressed the importance of education
and training of managers, employees, and other actors to promote CSR.
The education system, at all levels, has a crucial role to play in the fostering
of social responsibility in citizens, including those who are working – or will
work – in the world of business or outside it. It can fulfil this role by enabling
citizens to understand and appreciate social, environmental and ethical
values and equipping them to take informed decisions. Education and
training in the field of business administration have particular relevance to
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CSR in this context, and the encouragement of an effective dialogue
between the worlds of business and education on this subject can contribute
to the promotion of CSR principles and practices.
The exchange of good practices in integrating CSR principles in general
education as well as in business administration training could be further
developed between education systems, companies, employee
representatives and other stakeholders, including consumers.
The Structural Funds provide significant financial support for the
economic and social conversion of areas in structural difficulties, and for
adapting and modernising education, training and employment policies
and systems, particularly in order to increase the adaptability and
employability of workers. In this respect the European Social Fund could
be used to promote CSR in management training and for other
employees, as well as to develop teaching materials and courses in
educational institutions, including those active in lifelong learning, in co-
operation with enterprises.
8.3.6 Fostering CSR among SMEs
The CSR concept was developed mainly by and for large multinational
enterprises. In line with the Commission’s “Think Small First” strategy, the
CSR concept, practices and instruments should be adapted to suit the
specific situation of SMEs which make up the vast majority of European
enterprises. Because of their lower complexity and the strong role of the
owner, SMEs often manage their societal impact in a more intuitive and
informal way than large companies. In fact, many SMEs are already
implementing socially and environmentally responsible practices without
being familiar with the CSR concept or communicating their activities. These
practices are often defined and understood as responsible entrepreneurship
by SMEs.
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50% of recently surveyed3 European SMEs indicate that they already carry
out socially and environmentally responsible activities for the benefit of their
external stakeholders. Their community and social engagement could be
characterised as being local in scope, occasional in nature, and unrelated to
business strategy. The main driver would be the ethical consideration of the
owner/manager, even though a significant number of SMEs also recognise
business benefits such as improved relations with consumers and the local
community. Furthermore, a positive correlation between SME's strategic
focus and their socially responsible activities can be established: SMEs
focussing on innovation, quality and growth also score higher on current or
future social engagement. Lack of awareness seems to be the most
significant obstacle to social engagement, especially among the smallest
SMEs, followed by resource constraints. Small business associations,
support organisations and networks have an important role to play in raising
awareness through the provision of information, user-friendly tools and the
dissemination of good practices cases.
Since SMEs do not draw value from their engagement in the same way as a
large company, it is important to assist SMEs in adopting a more strategic
approach. Collecting evidence on the business case for different types of
SMEs operating in diverse cultural backgrounds is key to a better
understanding and increased SME participation. In the future, the most
significant pressure on SMEs to adopt CSR practices is likely to come from
their large business customers, which in return could help SMEs cope with
these challenges through the provision of training, mentoring schemes and
other initiatives.
3 The 2001 ENSR survey of over 7,000 SMEs in: European SMEs and Social and
Environmental Responsibility, report published in the 7th Observatory of European SMEs, 2002, European Commission, Enterprise DG (http://europa.eu.int/comm/enterprise/enterprise_policy/analysis/observatory.htm)
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To facilitate the wider adoption of responsible entrepreneurship practices
by SMEs, there is a need to raise further awareness about their
economic benefits and to promote them as a risk management tool, as
well as to:
– work towards a better understanding of SMEs’ current social and
environmental engagement, including research into SME-specific
aspects of CSR and the business case;
– foster the exchange and dissemination of good practices cases
identified with the help of Member State and candidate countries
experts, SME representative organisations, business support
organisations and consumer organisations (e.g. through publications,
on-line collection of good practices etc.);
– facilitate the development and dissemination of user-friendly, tailor-
made tools for those SMEs that wish to engage in or further develop
socially responsible actions on a voluntary basis (information
material, SME-toolkit, etc.);
– bring the attention of SME associations and business support
organisations to CSR issues with a view to their integration into
support provision for responsible entrepreneurship initiatives in
SMEs;
– facilitate co-operation between large companies and SMEs to
manage their social and environmental responsibility (e.g. supply
chain management, mentoring schemes etc.), in accordance with
national and EU competition rules;
– raise awareness among SMEs with regard to the impact of their
activities on developing countries, and promote SMEs proactive
policies, in particular in the fields of core labour standards,
eradication of child-labour, gender equality, education, training,
health-care assistance and insurance.
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8.3.7 Promoting Convergence and Transparency of CSR Practices
and Tools
CSR relates to a very wide range of company activities. This is particularly
the case when an enterprise operates in several countries and has to adapt
its activities to the specific situations in these countries. This diversity has
helped to create an impressive richness of voluntary enterprise initiatives,
which often include innovative elements, but also implies challenges,
namely the lack of transparency and comparability.
Transparency is a key element of the CSR debate as it helps businesses to
improve their practices and behaviour; transparency also enables
businesses and third parties to measure the results achieved4. CSR
benchmarks against which the social and environmental performance of
businesses can be measured and compared are useful to provide
transparency and facilitate an effective and credible benchmarking. The
interest in benchmarks has resulted in an increase of guidelines, principles
and codes during the last decade. Not all of these tools are comparable in
scope, intent, implementation or applicability to particular businesses,
sectors or industries. They do not answer to the need for effective
transparency about business social and environmental performance. As
expectations for CSR become more defined, there is a need for a certain
convergence of concepts, instruments, practices, which would increase
transparency without stifling innovation, and would offer benefits to all
parties. CSR benchmarks should build upon core values and take their
starting point in international agreed instruments such as ILO core labour
standards and OECD guidelines for multinational enterprises.
4 Greater transparency also prevents companies from being used by organised crime, and
terrorist groups to launder or generate money for their benefit.
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Several market-driven international multi-stakeholder initiatives are
emerging, which work towards convergence and transparency in the area of
CSR. Member states have taken various initiatives to promote them, in
accordance with their respective approaches to CSR. The Commission
wishes to do its part in facilitating convergence and transparency in the area
of CSR, by facilitating the development, diffusion and acceptance of these
international multi-stakeholder initiatives by enterprises and stakeholders.
Increased convergence and transparency would be desirable in the
following fields:
(1) Codes of Conduct,
(2) Management standards
(3) Accounting, auditing and reporting
(4) Labels
(5) Social responsible investment
8.3.8 Codes of Conduct
The increasing public interest in the social and environmental impact and
ethical standards of industry has moved many companies, in particular
those of the consumer goods sector, to adopt codes of conduct relating to
labour issues, human rights and the environment.
Codes of conduct are innovative and important instruments for the
promotion of fundamental human, labour and environmental rights, and anti-
corruption practices - especially in countries where public authorities fail to
enforce minimum standards. However, it should be underlined that they are
complementary to national, EU and international legislation and collective
bargaining, and not a substitute to them.
The biggest challenge related to codes is to ensure that they are effectively
implemented, monitored and verified. In this respect, the Commission
promotes business widespread adherence to codes of conducts developed
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by international organisations. Special attention should be given to
implementing codes in respect of workers in the informal sector and sub-
contractors and in the free-trade zones.
The Commission believes that codes of conducts should:
– Build on the ILO fundamental Conventions and the OECD guidelines for
multinational enterprises as a common minimum standard of reference;
– Include appropriate mechanisms for evaluation and verification of their
implementation, as well as a system of compliance;
– Involve the social partners and other relevant stakeholder which are
affected by them, including those in developing countries, in their
elaboration, implementation as well as monitoring;
– Disseminate experience of good practices of European enterprises.
The Commission invites the CSR EMS Forum to consider the
effectiveness and credibility of existing codes of conducts and how
convergence can be promoted at European level.
8.3.9 Management Standards
Faced with a widening range of complex issues in areas such as labour
practices and supplier relations, with implications across their organisations,
businesses, regardless of sector, size, structure or maturity, would benefit
from the inclusion of social and environmental issues into their daily
operations. In this context, CSR management systems - like Total Quality
Management systems – could allow enterprises to have a clear picture of
their social and environmental impacts, help them to target the significant
ones and manage them well.
The Eco-Management and Audit Scheme (EMAS), for example, allows
voluntary participation in an environmental management scheme. It is a
scheme for companies and other organisations that are willing to commit
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themselves to evaluate, manage and improve their environmental and
economic performance. In addition, active employee involvement is a driving
force for EMAS and a contribution to the social management of
organisations.
The Commission will promote the uptake of EMAS as a CSR instrument
and explore the opportunity to apply the EMAS approach to address the
social performance of companies and other organisations. It invites the
CSR EMS Forum (see below) to examine this issue.
8.3.10 Employment and Social Affairs Policy
Within a business CSR relates to quality employment, life-long learning,
information, consultation and participation of workers, equal opportunities,
integration of people with disabilities anticipation of industrial change and
restructuring. Social dialogue is seen as a powerful instrument to address
employment-related issues.
Employment and social policy integrates the principles of CSR, in particular,
through the European Employment Strategy, an initiative on socially
responsible restructuring, the European Social Inclusion Strategy, initiatives
to promote equality and diversity in the workplace, the EU Disability Strategy
and the Health and Safety Strategy.
In its document "Anticipating and managing change: a dynamic approach to
the social aspects of corporate restructuring", the Commission has stressed
that properly taking into account and addressing the social impact of
restructuring contributes to its acceptance and to enhance its positive
potential. The Commission has called upon the social partners to give their
opinion in relation to the usefulness of establishing at Community level a
number of principles for action, which would support business good practice
in restructuring situations.
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In its communication “Adapting to change in work and society: a new
Community strategy on health and safety at work 2002–2006”, the
Commission has expressed its intention to encourage instruments which
promote innovative approaches, to encourage the various parties to “go a
step further” and to associate all the interested parties in achieving the
overall objectives of this strategy, more especially in new fields which do not
lend themselves easily to a normative approach.
Deeply rooted societal changes such as increasing participation of women
in the labour market should be reflected in CSR, adapting structural
changes and changing the work environment in order to create more
balanced conditions for both genders acknowledging the valuable
contribution of women as strategies which will benefit the society as well as
the enterprise itself.
The 2003 European Year of People with Disabilities provides an opportunity
for enterprises to exchange experience of CSR practices and strategies and
to undertake actions with a view to acting in a socially responsible manner
towards people with disabilities in relation to promoting equal employment
opportunities, developing designed-for-all products as well as improving
accessibility to assistive technologies.
Enterprise policy
Only competitive and profitable enterprises are able to make a long-term
contribution to sustainable development by generating wealth and jobs
without compromising the social and environmental needs of society. In fact,
only profitable firms are sustainable and have better chances to
adopt/develop responsible practices.
The role of enterprise policy is to help create a business environment, which
supports the Lisbon objective of becoming the world’s most dynamic
knowledge-driven economy, supports entrepreneurship and a sustainable
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economic growth. Its objective is to ensure a balanced approach to
sustainable development, which maximises synergies between its
economic, social and environmental dimensions.
Another key element is to support businesses in enhancing their
competitiveness and in meeting the challenges of the transition to the
knowledge economy. A special focus of enterprise policy is on SMEs and
responsible entrepreneurship, where projects with Member states are
carried out to identify good practices in policy and support. Further action
priorities focus, among others, on research on the impact of CSR and
sustainable development on business performance, industry-sector specific
aspects (ICTs, tourism, services, social economy), CSR and innovation and
the management of the intangible assets of firms.
Consumer Policy
CSR has partly evolved in response to consumer demands and
expectations. Consumers, in their purchasing behaviour, increasingly
require information and reassurance that their wider interests, such as
environmental and social concerns, are being taken into account.
Enterprises are increasingly sensitive to these demands both to retain
existing customers and to attract new customers.
Consumers and their representative organisations have therefore an
important role to play in the evolution of CSR. If CSR is therefore to continue
to serve its purpose, strong lines of communication between enterprises and
consumers need to be created.
Concerning fair commercial practices, the Commission is in the process of
consulting interested parties on the detail of a possible framework directive
which would harmonise national rules on the fairness of commercial