EXTENSIVE READING (optional)
Read the text. Prepare a peer tuition class (2-3-4 students can act as teachers). Focus on the active vocabulary. Compile several exercises to master vocabulary and grammar (tense and voice forms). Write questions to the text to check understanding and questions for discussion. Present them in class.
The External Environment
In the context of the open systems model, the environment is shorthand for the external environment of an organization. In this environmentare all the people, organizations, systems, and other forces that have potential to influence the organization (and which the organization has the potential to influence).
Naturally some of these are more directly relevant to the organization than others. Therefore, it is helpful to think of the external environment as having two levels: the general environment and the task environment.
The General Environment
An organization’s general environment consists of the dimensions of theexternal environment that affect the organization broadly and often indirectly The major sub-groups of the general environment are the social, economic, legal and political and technological environments. Managers must be aware of each of these on a global level; that is, conditions in other countries may be relevant to organizations operating in those countries and may also affect the organizations operations in its home country.
Social Environment. The social environment - the societies and cultures where an organization operates—plays a major role in shaping the skills, values, and customs of the organization's human resources. To obtain relevant information about the social environment, managers study demographic data and seek to identify cultural trends and variations.
Demographics. Key demographic data include population density age distribution, and education levels. A major international demographic trend is that the average age of the populations of the United States, Europe, and Japan is increasing. Organizations can therefore expect to bear greater pension costs in these societies. Organizations serving an older clientele have a growing customer base. And the pool of young, entry-level employees is limited in these countries. In the United States, for example, the number of workers aged 25 to 34 is expected to decline by the end of the century. To cope, organizations may arrange to have some of their responsibilities carried out by semi-retired workers, extend their recruiting effort to a more diverse pool of candidates, or move some tasks to other parts of the world.
In the United States, important demographic trends include the fact that organizations are increasingly drawing their employees from a more diverse work force and serving a more varied customer base.
Education levels are critical, especially as organizations automate simple, repetitive tasks and empower their employees to make many types of decisions. In the United States, a growing number of high school students are taking challenging math, science, and foreign language classes, and the percentage of high school graduates going on to college has risen to 62 percent from 49 percent. At the same time, studies show that a disturbing lack of basic skills persists. A comprehensive survey sponsored by the U.S. Department of Education found that almost half of the U.S. population over the age of 16 cannot, for example, fill out a bank deposit slip, interpret a chart or graph, or calculate the difference between the regular and sale price of a product. Despite their poor performance, almost three-quarters of those in the bottom ranking said they read English "well" or "very well."
Many US-based organizations have sought to close the gap between desired and available skills by enhancing their recruitment and training. At the same time, employees in other countries are developing technical skills. When Hewlett- Packard opened a factory in Penang, Malaysia, to make light-emitting diodes in the 1970s, it-was mainly seeking low-cost labor. Since then, however, the plant has become increasingly automated, and its employees have taken on ever-greater responsibilities. Instead of relying on the United States for engineering support, management now uses Malaysian engineers and has hired a local team to write software. Other organizations are benefiting from the research and engineering skills of employees in India, Taiwan, Hong Kong, and China. In many of these countries, schools heavily emphasize math and science, making their graduates formidable competitors in the job market. India has the second-greatest number of English-speaking scientific talent in the world (after the. United States), including 100,000 software experts.15
Employers have available a global work force for many types of employees, not just factory workers—good news for employers perhaps, and bad news for the U.S. engineers and others who have new competition for their jobs. In a recent speech the Institute of Electrical & Electronics Engineers, Edith Holleman, counsel to the U.S. House of Representatives' Science, Space & Technology Committee, cautioned that new high-tech jobs "are not reserved for you in the First World."
Culture. Important measures of culture include values, lifestyles, and practices, including the ways people work together. Such differences affect the way organizations select their employees, employee motivation and behavior, and customer needs and preferences.
Especially in North America and Western Europe, a cultural trend with broad influence is the rise of environmentalism. A 22-country survey by the George H Gallup International Institute found that the environment was rated among the three most serious problems in half the countries surveyed. In 20 of the countries, majority of respondents said environmental protection should receive priority, even, at the expense of some economic growth. This growing desire to protect the environment has put organizations under legal and public pressure to avoid damage and to demonstrate how their practices and products help preserve the environment.
The public's enthusiasm for environmentalism has limits. For instance under the Clean Air Act, gas stations have begun selling a cleaner-burning blend of gasoline. Because it costs several cents more per gallon, however, consumers have demanded conventional gas, leading some stations to take down signs announcing they carry the new fuel. Many state and local governments have backed out of the program to introduce the fuel. How can organizations figure out just what the public will pay for a clean environment? Economists and other researchers are still refining their methods of investigating such issues. In the meantime, managers must observe how consumers behave, not just what they say.
Economic Environment. The economic conditions in which an organization operates affect the organization's access to capital, the prices it can charge and the demand for its products. Some important economic concerns include characteristics of the workplace location (e.g., prevailing wages, infrastructure, and exchange rates) and business cycles.
Location Issues. An area's prevailing wages are important for organizations to consider when locating a site, particularly for international operations. Many US-based organizations have arranged to have manufacturing done in Asia because the wage rates there are low. This once meant a shift in blue-collar jobs but as described earlier, highly-skilled Asian workers are now providing competition for engineers, researchers, and other professionals. For Western European organizations the relatively low wages of Central Europe make countries such as Hungary, Poland, and the Czech Republic attractive sources of labor, particularly as the work forces of these countries have begun to achieve quality and productivity comparable to that of their counterparts in the West. By one account, some 40,000 Western European companies have established offices in Central Europe.
Another basis for comparing economic conditions is in a country's infrastructure the roads, electrical service, telecommunications, and so on. Services considered basic in the' United States are much less available or reliable in many countries. Russia, for example, has approximately 15 telephone lines for every 100 people; the rate in the United States is closer to 50 lines for every 100. Furthermore, because the Russian telephone system is poorly maintained, uses old technology and is often overloaded, phone service is unreliable.
Global organizations must be familiar with exchange rates, factors used to convert one nation's currency into an equivalent amount in another currency, because they influence the level of profits they can report for international operations. In addition, the relative values of different currencies may make products relatively cheap or expensive in other countries. Thus, a strong Japanese yen (that is, an exchange rate at which yen can buy a relatively large amount of dollars) recently caused Japanese-made automobiles to be expensive relative to U.S.-made cars. The cost difference amounted to a sticker price that was higher by $1,500 to $3,000 for a comparable car. Japanese automakers reacted by building more production facilities in the United States."
Business Cycles. Typically, the measures of the economy rise and fall cyclically with the business cycle (the pattern of economic activity through the stages of prosperity, recession, and recovery). Managers can predict that recession will follow prosperity and vice versa. However, they cannot predict with certainty the duration of each stage.
Business cycles have a greater impact on performance in some industries than in others. The construction and automotive industries rise and fall with business cycles. Other organizations, like hospitals and dairies, are relatively unaffected by business cycles because demand for their goods and services remains relatively constant.
Legal and Political Environment. Elements of the legal/political environment include the extent and content of laws, the regulations spelling out how to comply with those laws, and the stability of the political system Laws in the United States are enacted by national, state, and local legislatures. Regulations are written by the executive branch, which must enforce those laws. Other governments may have different structures, but they, too, have collections of laws and regulations' Together, these elements of the legal/political environment influence the degree to which the organizations activities are constrained, as well as the available ways to influence the government. For instance, in a democracy such as the United States, most organizations can influence the political/legal environment by supporting political candidates and by lobbying.
Laws and Regulations. In the United States, the major laws and regulations influencing organizations are designed to encourage competition, ensure fair labor practices, and facilitate the collection of taxes, among many other goals. This combination of laws and regulations has been seen by many as creating an environment supportive of growth and innovation. For example, computer firms were somewhat relieved when the justice Department required Microsoft to stop charging personal computer makers a royalty for its operating system in every computer they make (rather than just the computers that actually contain a Microsoft operating system). In fact, many complained that the Justice Department had not done enough.
At the same time, as government regulation has grown, so have the cost and complexity of doing business in the United States. The Environmental Protection Agency, for example, has estimated that compliance with its regulations costs individuals and organizations a total of S130 billion a year.
Japan’s government is noted for its close and supportive relationship with Japanese business. Its efforts to support its businesses include allowing cooperation among competitors so that they may gain an international competitive advantage under certain circumstances (a situation that would be deemed anticompetitive in the United States). Japan is also considered to have especially strict barriers to trade; only recently has imported rice been allowed in the country
When laws and regulations differ from country to country, an international organization can face ethical dilemmas. If one country's regulations result in conditions that would be unacceptable elsewhere, what standards should the organization adhere to? In Indonesia, the largest source of Reebok products, a worker earning minimum wage earns in three hours enough to buy just one papaya; two days' pay buys enough meat to make dinner for a family of four. Yet according to a Reebok spokesman, the company would be "acting like an imperialist" to impose U.S. standards for wages. U.S. pesticide makers sell developing countries chemicals that have been banned in the United States, while other companies sell pharmaceuticals that are out of date or poorly labeled." If it is illegal (and unethical) to sell these products in the United States, how can it be ethical to sell them elsewhere? In contrast, Levi Strauss stopped working with Chinese contractors because of poor working conditions in that country. And AT&T's factory for making integrated circuits in Thailand, follows the same standards for safety, cleanliness, and training as in comparable U.S. factories.
Nature of Political Systems. Also important is the nature of political systems including their type, stability, and tolerance for corruption. For instance the combination of corruption and autocratic rule in many Asian countries has led to lax enforcement of minimum-wage and safety regulations; government officials prefer a status quo that makes their country desirable for low-cost operations. Yet these conditions have fueled a significant increase in the number of strikes and other forms of labor activism.
Political stability influences the level of risk the organization must bear to operate in a particular part of the world. CulliganInternational Company, a maker of purification equipment, saw potential in the arid climate of the West Bank and Gaza Strip. So the company signed on with the US President "Builders for Peace" program for stimulating private investment in that region. Soon after the peace process stalled and violencecontinued, forcing Culligan's vive president to cancel two trips there and to wonder whether the company involvement was really viable.
The legal/political environment for business is also difficult in Ukraine. Yevgeny Geller, though just in his twenties, was thought to be the biggest private retailer in that country'. He had a network of companies that owned four shops, four warehouses and more than 100 kiosks. However, Geller was reluctant to disclose much about his business and downplayed his success. He operated his kiosks under several different names to avoid attracting the attention of "the two mafias" the local criminal element and corrupt bureaucrats. Geller reported that his greatest operating expenses were paying for "licenses" from the government and hiring troops from Ukraine’s interior ministry to guard his kiosks at night
Technological Environment. The technological environment includes both the available tools and the ways people have learned to apply those tools. Changes in technology go beyond speeding up existing ways of working to transforming much of the world’s social structure. The laborers of the Industrial Revolution are a shrinking group, as automation and information technology lead organizations to require fewer industrial workers and more technologists, or knowledge workers, such as laboratory technicians and computer technicians. Eventually knowledge workers are expected to become the largest sector of the work force, making the importance of formal education more important than ever.
Tools in use today range from electronic calculators to cellular phones to bicycle-powered generators. Their usefulness varies from one organization to another and from one part of the world to another. Much change in the technological environment comes from finding new applications for existing equipment—for example, using computers not just to process data internally but to share information among buyers, sellers, and shippers. Innovative use of technology can transform the competitive landscape of an entire industry. In his book Global Paradox, John Naisbitt observes that whereas starting a newspaper once required an enormous investment in printing capacity, desktop publishing with a personal computer makes it possible to launch a newspaper quickly and at a remarkably low cost. For that reason, Naisbitt's local newspaper, which serves a town of only 1,400, faced new competition—something that would not have made economic sense before desktop publishing.
The level of technological development provides opportunities for organizational activities such as automating production and gathering and sharing information. Advances in communications technology enable organizations to benefit from the technical skills of employees around the world. By sharing information via telephone, fax, or modem, the organization can keep abreast of its employees' activities, no matter where they are located.
Technology also influences the needs of the organizations customers. In Indonesia, there is a serious shortage of phone lines, so placing a phone call can take hours—a big problem for most organizations, but an opportunity for the likes of AT&T and Japan’s NEC (both of which sell telephone switching equipment).
Lesson Two
Converting to a PLC
An Abbey National case study
On Wednesday July 12, 1989, Abbey National Building Society converted to become Abbey National plc. This case study tells the story of how that conversion came about and shows how, to thrive in today’s competitive financial sector, organisations must have the size and flexibility to operate in a range of related markets.
A company is set up to run a business. It has to be registered before it can start to operate, but once all the paperwork is completed and approved, the company becomes registered as a legal body. The owners of a public company are its shareholders. However, customers and other businesses do not deal with the shareholders on a day to day basis - they deal with ‘the Company’.
Shareholders put funds into the company by buying shares. New shares are often sold at a ‘face value’ (that is, a nominal price) of £1 per share, but this is not always the case. Some shareholders will only have a few hundred pounds’ worth of shares, while others may have thousands of pounds’ worth. See table above.
The shares of a listed public company are bought and sold on the London Stock Exchange. The main advantage of this is that large amounts of capital can be raised very quickly. There is the risk, however, that the original shareholders can lose control of their business if large quantities of shares are purchased as part of a ‘takeover bid’.
To create a listed public company the directors must apply to the London Stock Exchange Council, which will carefully check the company’s accounts. A business which wants to ‘go public’ will then arrange for a merchant bank to handle the paperwork.
Trading in shares has certain risks. The London Stock Exchange has good days, when a lot of people want to buy shares (this is called a ‘bull market’) and bad days, when a lot of people want to sell (this is called a ‘bear market’). If a company issues new shares in a bear market it can find itself in difficulties - for example, if it hopes to raise £1 million, it might want to sell a million shares at £1 each; but on a bad day it might only be able to sell half of its shares at this price.
The 1980s and 1990s have been a period of profound change in the financial services market. To understand Abbey National’s decision to convert to a plc it is important to understand the major forces for change. These were:
1. deregulation of financial markets. Before the 1980s it would have been unthinkable for Abbey National to straddle as many key areas of the financial services market as it does today. Until then, different financial activities such as banking, mortgage lending, savings and insurance were performed by distinctly different kinds of organisation - banks, building societies and insurance companies. That changed in the 1980s, as regulations which limited competition were abolished in a process known as deregulation. Building societies were still confined by law to a narrow range of business which involved lending mortgages to home buyers and growing depositors’ savings. The 1986 Building Societies Act changed this by allowing building societies - whose activities were very limited - to convert to plc status so that they could take advantage of the industry’s deregulation.
2. The need for wider access to funding. If Abbey National was going to expand and develop for the future, it needed wider access to funding. Most of the mortgage lending that building societies do is financed by the money deposited by savers. Another useful source of funding is the wholesale money markets, which can sometimes lend money at a lower rate of interest than banks and building societies charge their borrowers. However, the amount of money building societies can raise on the wholesale markets is restricted – going public would give Abbey National wider access to these funds.
In addition, conversion would raise valuable share capital from the sale of Abbey National shares, which could be used to finance investment in the business.
Abbey National realised that if it was going to thrive in the 21st Century it would need the freedom of action to diversify and make more use of wholesale funding. Building societies might be left behind if they remained essentially ‘one product’ home loans businesses when banks were moving into their market. Abbey National wanted the freedom to compete with the big banks on a level playing field – which it could not do as a building society.
Historically Abbey National had been ready to break new ground and find new ways of doing things - it was one of the first institutions to pay interest on current accounts, for example, and the first to set its mortgage rate independently of other societies. So it was natural for Abbey National to lead the way by converting to a plc – seven years later it is still the only society to have done so, although Halifax (now merged with the Leeds) intends to follow suit, and other building societies also plan to convert.
Going public would mean that people could own a stake in Abbey National simply by buying shares. It would give the company access to more capital to support the new activities it intended to branch into, such as life assurance, financial planning services and overseas expansion. In addition, plc status would enable Abbey National’s Treasury operation to raise more funding at cheaper rates on the wholesale money markets.
After numerous boardroom discussions the directors at Abbey National agreed that, while the company would still concentrate on providing financial services for people in the UK, it should become a public limited company and move into other financial markets.
A number of important hurdles had to be passed before Abbey National became a public company.
- The members of the society – that is, customers who had mortgages or certain savings accounts which meant they owned the building society - had to support the change. At that time over five million people were eligible to vote.
- The society also needed to gain the Bank of England’s authority to become a bank.
- The Building Societies Commission, which regulates building societies, had to approve the conversion.
Abbey National put on a series of road shows and produced extensive literature to put the argument for conversion to its members. A sophisticated voting system enabled members to vote by post if they could not attend the Special General Meeting where the ballot would be held. Of the four million votes which were received, only 300,000 people opposed conversion – it was a massive vote of confidence in Abbey National’s decision.
The regulators - the Bank of England and the Building Societies Commission - also approved the move to conversion, after carefully considering all the relevant points.
Share distribution
Each qualifying member of the society received 100 shares in the new company in recognition of their ownership. It was decided that giving an equal amount to each member was consistent with Abbey National’s history of mutuality and fairness. In addition, each current and retired member of staff received 100 shares.
The first owners of Abbey National plc were therefore its customers and its staff. At five million, it was the largest shareholder register in the world. Even today, the company has 2.4 million shareholders, one of the largest shareholder registers in Europe.
On conversion, Abbey National also offered its members the right to buy extra shares, issuing 750 million shares. This increased its capital so that it had a secure base for its expansion and development.
It is now clear that Abbey National made the right decision in 1989. The company’s pre-tax profit in 1995 was £1.026 billion - more than double 1989’s figure of £501 million. At 30th June 1995, Abbey National is the fifth largest bank in the UK, with assets of over £100 billion.
Abbey National invested in a huge branch modernisation programme after conversion. Its 12.5 million customers now do business through a network of 867 bright and spacious branches, with offices where they can discuss their affairs in complete privacy with specialist financial advisers. They can also make transactions through over 1500 Abbeylink cash point machines, or through the company’s telephone banking service. Abbey National has also invested in the latest technology, which makes processing transactions faster and more accurate than ever before.
Abbey National staff can call up information about customers’ accounts and produce details of a range of financial products in an instant. The company uses technology to speed up processing work, leaving staff free to concentrate on customer service rather than administration. In 1992 Abbey National acquired Scottish Mutual Assurance plc, which sells life assurance and pension products through independent financial advisers, and used its expertise to launch Abbey National Life in 1993. Abbey National Life products are now sold through all Abbey National branches and by Abbey National Direct, the company’s telephone sales operation.
Abbey National’s Treasury & Offshore operations continue to provide wholesale funding for its products, and to manage the Group’s liquidity. In 1994 Abbey National plc was registered with the Securities and Exchange Commission in the United States. This gives Treasury wider access to the US capital markets at lower cost. On 10 July 1995 Abbey National and National & Provincial Building Society reached agreement on the terms of a merger which was unanimously recommended by the board of N&P to its members. N&P’s members approved the merger at a Special General Meeting in April 1996 and in June the merger was confirmed by the Building Societies Commission (BSC). With the satisfaction of a number of other conditions, the merger took place on 5th August 1996.
Abbey National is continuing to expand, ensuring that it offers its customers tailor-made services to meet all of their personal financial needs. The company has a ‘mission statement’ which sums up its aims and values. This says that Abbey National’s ‘vision’ for the future is:
'To be the outstanding financial services company in the UK'
The company is working hard to achieve this vision - converting to a plc in 1989 was an important step along the way. (http://businesscasestudies.co.uk/abbey-national/converting-to-a-plc/what-is-a-company.html#axzz3KvGBEmWc)
CASE STUDY
TARMAC
Introduction
How roles and functions contribute to organisational performance
A Nottingham County Surveyor, Edgar Purnell Hooley, discovered tarmac by accident in the early 20th century. He found a barrel of tar had spilled onto the road at a local ironworks. This had mixed with waste slag from the furnaces. The result was a dust-free, strong surface. Hooley created and patented the product that could take the weight of the new automobile. In 1903 the Tarmacadam syndicate was formed, its name taken from the developer of the road construction system, John MacAdam.
The Tarmac Group is now a large and complex company and is organised into three
businesses:
• Tarmac Quarry Materials – ready mixed concrete, asphalt, aggregates, lime, cement and
contracting services
• Tarmac Building Products – mortar, screed, masonry, packed and precast products
• International.
To manage its business Tarmac has a clear strategic framework and one important element of this is having the right people with the right skills in the business. It is Tarmac’s core belief that
its people make the difference and enable the business to be the leader in its chosen markets. It aims to have motivated people all working together as one team across its business units and functions in support of its vision to ‘achieve the exceptional’.
To deliver exceptional value, Tarmac focuses on five big goals which are clearly defined and
easily remembered as the mnemonic ‘DREAM’:
1. Develop markets - and grow by working closely with key customers
2. Reduce costs - and be well positioned for the future
3. Engage employees - to work as one team and each achieve its full potential
4. Act responsibly - and be safe in everything that is done
5. Manage assets - to get the most out of its investments.
Each goal has a few targeted strategies. Each strategy has clear actions, targets and measures in order to be relevant to employees and described in a way that is understandable by all. For example, Tarmac targets and measures a reduction in waste sent to landfill as part of its sustainability strategy in order to reach its goal to ‘Act responsibly’. It wants all employees to bring their expertise, enthusiasm and commitment to the activities that will deliver most value in support of the company’s objectives. This case study focuses on how the people in Tarmac Quarry Materials deliver the highest value for customers, communities, employees and investors.
Organisational structure, roles and functions Tarmac has set in place an organisational structure that provides clear lines of control, responsibility and communication. In a business as large and diverse as Tarmac, there are many different jobs. Its structure is complex, so to help individuals within the business understand their roles and responsibilities, Tarmac has a set of Business Principles that demonstrate its commitment to operating ethically and responsibly. This helps everyone understand where his or her role contributes to overall performance and enables the whole workforce to work together to achieve the business’ aims and objectives.
Within each area, there are three main levels of staff:
1. Managers - organise and plan their departments to exceed the expectation of internal and external customers. They work closely with other managers across the company to promote a range of benefits, including:
• continuous process improvements
• improving accuracy
• reducing the need to repeat work
• driving up efficiency year on year.
2. Supervisors - work with managers to ensure that operators apply procedures and practices consistently. This involves using best practiceto create value-addedservices across the business.
3. Operators - are responsible for day-to-day operations of the business. This is the level at which a university graduate might enter the organisation in order to learn all aspects of the business. The role requires accuracy, efficiency and a high level of individual responsibility.
The Operations function at Tarmac is key to overall business performance. This is where a number of processes come together to make the products and services to satisfy customer needs. However, the Operations function needs the support of services in:
• Finance - to manage the flow of money across the business. Finance managers produce financial and management accounts not only to ensure legal compliancebut also to contribute to the strategic decision-making process by forecasting financial performance.
Budgets enable Operations to have the resources (raw materials, equipment and people) to carry out processes.
• Human Resources (HR) – This includes planning and forecastingstaff requirements and managing recruitment and selection. The HR team ensures that managers apply HR policies and procedures consistently across the business. The development of staff is a key priority within the Tarmac business. Without the right people, Operations may not be able to achieve targets.
Additionally, Tarmac also needs the services of:
• Marketing – by understanding customer needs, the marketing function can inform the overall business strategy and ensure that the Tarmac image and brand reflect its high quality.
• Procurement is the acquisition of goods and/or services at the best possible price. Within Tarmac this function secures cost effective contracts and establishes long term partners to ensure business continuity.
• IT services install equipment and applications, manage databases and computer networks to provide the business with strong and effective information and communication channels.
The Operations function
The Operations function brings together raw materials with the production process to make products that customers need. It also shares ideas across the company about how to improve processes and achieve cost savings. The benefits include increased efficiency and more effective management of health and safety and environmental issues. For example, Tarmac is implementing sustainable projects such as restoring quarries after use. This commitment is important not only commercially but also as part of Tarmac’s corporate and social responsibility programme as some of its quarries are within the boundaries of National Parks. In 2008, its work supporting biodiversity was recognised with an award from The Wildlife Trusts.
Tarmac has a typically hierarchical structurewith seven levels:
It is essential for Tarmac to have the right people in place in order to achieve competitive advantage. It recruits apprentices and graduates into key roles across the business and specifically within Operations:
• An apprentice would join Tarmac as an Operator and would gain the relevant job skills and experience during their four-year apprenticeship.
• Similarly, a graduate trainee would learn through ‘shadowing’* a Section Leader during their training period.
Once qualified, progression within the business is steady ensuring that the employee has acquired the right skills and knowledge before moving to the next challenge or role.
A Zone Manager’s role is critical and includes managing operational performance across several levels and within a large geographical area. A Zone Manager needs to understand all aspects of the business in order to meet and improve targets for cost, quality, delivery, safety and business integrity shown in agreed key performance indicators(KPIs). All staff in the zone need to understand their roles in helping to meet these KPIs. It is the Zone Manager’s job to help get the best performance from the team by:
• motivating the team through coaching and leadership
• identifying priorities for continuous improvement
• encouraging and rewarding staff who contribute improvement ideas and actions
• emphasising the importance of developing skills and capabilities.
Tarmac’s long-term aim is to develop high performance teams who work within a culture of quality and continuous improvement. Tarmac employees have the opportunity to contribute their ideas on how to achieve results. They can do this through the employee suggestion scheme or by presenting ideas to managers to discuss within development teams. This helps individuals feel part of the wider team, allows them to gain a greater understanding of the business and strengthens employee engagement and commitment to the organisation.
Claire Leggat - Plant Manager
‘I joined Tarmac because I wanted a practical and varied role and one where I could see
results. I have responsibility for three quarries. This is potentially a high-risk environment so
a key part of my job is to manage health & safety and operational performance for the
sites. There are always new things to learn, which is very satisfying. Tarmac has a policy of
getting involved with the communities in which it operates, so, for example, I have
responsibility for monitoring impacts on the local environment and am an accredited Great
Crested Newt handler!’
The Finance function
Sound financial management is critical to a business. Financial reporting is a major part of this function. Tarmac has different routes for people to join the company, at both graduate level and through apprenticeship schemes. Graduate trainees enter this support function at Operator level.
Lisa McKenzie – Credit Control Supervisor
‘I originally joined Tarmac many years ago on an apprenticeship scheme – I love the
business and am very happy here. As a Credit Control Supervisor, I have a very clear
focus. My job is business critical – without money coming in, the company cannot run
properly. My favourite parts of my job are definitely the ‘people contact’, plus seeing the
rewards of what you do immediately. Every day brings a different challenge. I need to
be flexible to find solutions to whatever problems come my way.’
Standards of reporting and accounting need to be the same across all parts of Tarmac. This is so that the business has a clear and accurate picture of its performance. This is a huge task and good team working is essential to ensure that operators, supervisors, managers and the financial controller all follow the same practices.
Simon Howell – UK Credit Control Manager
‘I joined Tarmac because I liked its approach – although it is the biggest company in its
field, it has a more ‘co-operative’ spirit. Every time I see a Tarmac lorry, I get a sense of
pride at being a part of the company. In my job I need to balance individual accounts
alongside the corporate budget so I deal not just with money but also with our
customers – this gives me the biggest buzz.’
The Human Resources function
Human Resources Management is an important assetto any business. It provides expertise in:
• managing change and facilitating training and development
• recruitment, selection and employee relations
• pensions and benefits
• communicating with employees.
Tarmac believes in ‘bringing out the best in all our people, allowing them to realise their full
potential’. It promotes and encourages a cultureof learning and development throughout the business. Tarmac aims to build the capacity and capability of its people to achieve their full potential. This strategy strengthens the business in the long term. The Talent and Development team, which is part of the HR function, leads and coordinates training, learning and development opportunities. These enable people at all levels to acquire and practice high levels of skill and expertise. This means individuals can achieve their personal goals, as well as contributing to the wider mission and visionof the organisation.
An HR manager’s role is to ensure that business managers apply HR policies and procedures consistently through all business units. This helps to develop partnerships across different teams, which supports corporate aims and objectives.
Damian McKenna – Area HR Manager North and Scotland
‘I joined Tarmac because I wanted to work for a large, multi-site company with a national
presence. My key role is in Employee Relations. This deals with improving employee
performance and capability for the company and involves many different aspects. It
includes ensuring we have appropriate numbers of staff, performance management,
training and development, and dealing with absence. I get enjoyment from the sheer
variety of what I do. Tarmac needs to remain competitive so we need to evaluate how we
do things on a regular basis. This means there is constant change, which is exciting.’
Businesses have to respond to rapidly changing markets and conditions in order to remain competitive and grow. Developments in technology, competition from new or emerging markets,
changing tastes and fashions, and changes to the law can all affect a business. Tarmac has put in place a programme of Change Management to respond to these issues and to improve performance and motivate staff. To make this happen, Tarmac is training managers to move from an autocratic (or top-down approach) to a coaching style of management.
• An autocratic manager tells people what to do and how to do it. This may be necessary if a job is urgent or needs to be done in a particular way, for example, for health and safety reasons.
• A coaching manager focuses on developing employees to manage themselves rather than managing every task. This means that they can find a way to achieve results and learn from the experience. This makes employees more motivated and better able to deal with future situations.
Conclusion
Tarmac’s business is about much more than building and maintaining roads. It is a multinational
business and serves different types of customers across its business activities. To maintain its competitive advantage, Tarmac needs to have employees with high levels of skill. To support this, it provides career development opportunities across a wide variety of job roles. Tarmac’s emphasis is on having the right people and skills. Its Change Management programme ensures that managers work closely to develop their staff. The staff benefit from developing their skills and potential through Tarmac’s positive commitment to progression. Tarmac benefits from the savings and quality enhancements arising from its process of continuous improvement.
Questions
1. What is a hierarchical organisational structure?
2. Describe the three levels of responsibility at Tarmac and the key roles for each.
3. Explain how organisational structure supports business aims and objectives.
4. Evaluate how key performance indicators help to drive business improvements.
*Shadowing:involves the employee working alongside a colleague or manager, watching them to learn what to do.
BARCLAYS
Supporting new business start-ups
Barclays is a major global financial services provider. It operates in over 50 countries and employs 135,000 people. In 2007, Barclays had an income of £23 billion, generating a profit before tax of just over £7 billion. In the UK, Barclays has 724,000 business customers. Many of these customers run relatively small enterprises; some are new business start-ups. Barclays offers a dedicated banking service for smaller enterprises called Local Business. This is provided through the bank’s UK retail banking division. More people are choosing to start their own businesses. Barclays estimated that more than 380,000 new businesses started up in England and Wales in 2007. However, the number of businesses that ceased trading also rose in 2007. While the majority of these businesses closed voluntarily, setting up in business does also carry risks.
This case study looks at the challenges of setting up a new business. It looks at some of the decisions that must be made by a budding entrepreneur. It outlines some of the services and support that are offered to business start-ups by a financial institution like Barclays.
The business idea
An obvious starting point is the business idea. Many people think that they might have spotted a business opportunity. Translating that thought into action is another matter. There are many ways of coming up with a bright idea.
| Source of idea | Example |
| Developing a hobby | A gardening service |
| Using your skills | A service creating and maintaining websites |
| A chance idea | Producing a musical toothbrush |
| Spotting a gap in the market | Selling photography online |
| Combining two ideas | Running an Internet café |
| Solving problems for people | Financial adviser |
Many people are inspired by existing businesses. Tim O’Neil runs T&T Vision, a business that sells spectacles through an online shop on eBay. Tim got the idea for his business in his first year at university. His father bought a pair of reading glasses online. This seemed a good idea for an e-commercebusiness.
Before setting up a new business, there are important questions to answer. This requires market researchto systematically gather, record and analyse data about the market for the planned goods or services. This is an ongoing process as markets are always changing. However, some market research is essential before starting any new business. The research should attempt to answer questions such as:
• What is the target market for the new business’ products?
• Who else is in this market? Is the idea already in the market? Can the new business offer something that existing businesses are not providing?
• Where are the customers based? What is the best way of reaching them?
• What do they really want? Can the product be improved?
• When do they want it? How should the product be sold or distributed?
• How much are these customers prepared to pay?
• How they be reached? What is the best way of promoting the product?
Secondary (or desk-based) research will answer many of these questions. Secondary research involves scanning already published materials such as reports, patents and statistical data. This research will help a business to decide on its marketing mix. The marketing mix (or the four Ps), sets out the business offer in terms of:
• product
• price
• promotion
• place (where the product will be sold or the service provided).
Types of business organisation
If the initial market research suggests the idea is a good one, then the entrepreneur must consider the practicalities of setting up the business. There are three main types of business form:
1. A sole traderis simple to set up - there is no complicated paperwork. The owner of a sole trader enterprise, such as plumbers, window cleaners and professional writers has complete control of the business. However, there is nothing to prevent a sole trader taking on employees and many do. The sole trader takes all the profits (after tax) but is liable for all debts the business incurs. This means that if the business makes a substantial loss, the sole trader may be forced to sell personal assets such as their house to cover the business debts. In worst cases, sole traders may face bankruptcy.
2. A partnershipconsists of between two and 20 partners. Partnerships are a common form of business for many enterprises offering professional services, such as doctors’ surgeries, accountancy practices and design businesses. Partners can bring more capitaland a wider range of skills, work and ideas to the business. However, partners can and do fall out. Like sole traders, most partnerships also have full liability for any business debts.
3. A limited companyis a legal entity. This means, for example, that if a company owes someone money, the creditorcan take the company to court. Because of its legal status, it is more complicated and more expensive to set up a limited company. Any new (or small) business choosing this form of structure will become a private limited company. The entrepreneur setting up a new company is likely to retain a large shareholding but may offer shares to some investors in return for capital. However, unlike the public limited companies (plcs) listed on the stock market, these shares cannot be sold to the general public. A limited company is owned by its shareholders, who are entitled to a share of any profits and a say in the running of the business. The main advantage of this type of business ownership is that it offers shareholders limited liability. Shareholders are not responsible for the full amount of any debt incurred by the business. The liability of each shareholder is limited to the amount of capital they have invested in the business. This is why this form of business is attractive to many entrepreneurs.
Budgeting and business planning
Many businesses fail in their first year of trading. There are many reasons, but typical ones include:
• lack of understanding of the market – a failure to carry out market research
• underestimating the strength of the competition
• failure to secure adequate finance
• inaccurate estimates in constructing budgets – for example, revenue forecasts are too high and/or cost estimates too low.
A well-structured business plan, including budgets, can help a new business to avoid such problems. A business plan provides a forecast of costs and revenues over the planning period. It sets out how sales will be achieved and how the business is to be financed. Banks expect to see a business plan before agreeing to any loan request. Many banks provide tools to help owners draw up business plans.
It is important for a new business to have clear budgets. A budget is based on the business objectives and identifies key factors, such as what money is needed, for what purpose and where it will come from.
A budget also considers the assumptionsa business may need to make about variable factors, such as interest rate changes or volume of sales. A detailed budget plan with clear targets will help give a business control by:
• ensuring money is spent on the right activities
• drawing attention to waste or loss
• focusing on areas of the business that need review, for example, if revenue is not meeting target or if costs are rising.
A budget will also take into account expected cash flowso the business can assess if its income will cover its expenditure. Difficulty with cash flow is common. It is unlikely that a new business will make a profit in its first few months of trading. It takes time to build up a business and win new customers. Many new businesses offer credit terms to customers so they must wait to be paid. The result is that the business is often short of cash. Barclays, like other banks, can offer support in several areas. Its business managers can:
• advise owners on ways of managing the business if debtorsare slow in paying up
• give guidance on effective ways of preventing late payments
• help a business create systems for its customers to pay online, speeding up payment and leaving no room for the excuse that ‘the cheque is in the post’.
Medway Mowers in Rochester used services from Barclays to take over and develop an existing business. The business was already up and running and it was purchased using a loan from Barclays securedon the new owner’s property. They also took a further loan to upgrade the business’ equipment. The business used Barclays software, which Barclays provided free, to produce the business plan. Medway Mowers plans to use Barclays marketing service to help with its future expansion.
Financing a new business
Some new businesses need little start-up capital. An online retail business like T&T Vision does not require substantial funds to buy premises or a large selection of stock for display. Other types of business require significant finance for premises, equipment and stock before they can start trading.
The owners of any new business, whether sole trader, the partners in a partnership or the shareholders in a limited company will be expected to provide some capital. However, there are other sources of business finance available to meet day-to-day expenses or to buy more expensive capital items:
• An overdraft. This arrangement, agreed in advance with a bank, allows a business to spend more than the funds available in its account up to an agreed limit. The business can dip into this ‘pot’ as and when it needs to, for example, to pay a pressing bill. The flexibility of an overdraft means the business can pay the bill immediately and the overdraft is automatically repaid once sufficient funds are deposited in the business’ account.
However, a business pays interest on the amount it owes. Interest rates on overdrafts can be higher than on other, less flexible, ways of borrowing.
• A business credit card enables a business to borrow flexible amounts quickly and for a short period of time. Banks will usually place tight limits on the amount that a new business can borrow on a credit card. If the amount borrowed is paid back in full at the end of each month, the business does not pay any interest. However, interest is charged on any remaining balance until the amount is repaid. Like overdrafts, these interest rates can be higher than other ways of borrowing because of the flexibility of the arrangement.
• A bank loan. Most banks offer bank loans for business. They are useful for borrowing larger amounts, for example, to pay for set-up or expansion costs. Barclays Barclayloan for Business is for businesses wishing to borrow between £1,000 and £25,000. The loan can be for up to 10 years and is repaid through fixed monthly repayments including interest. The advantage of this type of arrangement is that a business can borrow a larger sum of money and knows the repayments are the same every month. The business owner can also request a 12-month repayment ‘holiday’ with Barclays before beginning to make repayments, which helps cash flow. As with any loan, the business owners are liable for the debt if the business cannot make the repayments.
Other financing options from banks, such as mortgages (a loan secured on property), may be appropriate to purchase large items such as vehicles and buildings. Financial help may also be available from government agencies and charities such as The Prince’s Trust. Many people seek these sources of loans and grants and the business may have to meet conditions. For example, it may have to be located in an area of economic deprivation or the owner may have to be under a certain age. One avenue not usually open to business start-ups is venture capital. As the television programme Dragons’ Den shows, venture capitalists put money into an enterprise in exchange for a share of the business. They would always expect to see some evidence of business success before investing.
A new business is also likely to need financial advice. Banks recognise that a business has different needs to that of an employed person who has regular pay coming into a bank account:
• A business needs a means of handling payments from its customers, of making payments
to its suppliers and of managing its cash flow.
• For new business start-ups, Barclays offers free banking services (for at least twelve months) plus the support of a local business manager and other experts. Through its Local Business brand, it aims to provide support to help businesses prosper in their first trading months and years.
Tim O’Neil, the founder of T&T Vision shares his experience: ‘The business manager at
Barclays was very helpful, particularly in the early days when I needed it. He advised on
the best way of making payments to suppliers based overseas. He also provided some
good marketing advice about how to reach customers.’
Conclusion
Starting up in business is an exciting challenge. However, it is necessary to have a good idea, a clear understanding of the market and financial knowledge and skills to support the business’ development. A detailed business plan will help a business avoid failure by:
• researching the market
• assessing the competition
• predicting revenue and costs accurately
• securing adequate finance.
Barclays, as a major bank, provides a wide range of services to support new businesses from initial idea to running the business. It helps entrepreneurs to plan and monitor to achieve their goals and avoid unnecessary risks. Barclays regularly runs workshops around the country to help new and existing entrepreneurs with their businesses.
Questions
1. Set out the differences between sole traders, partnerships and limited companies. What are the benefits of each type of ownership? What are the drawbacks?
2. What are the main budget factors that a new business should take into consideration? What factors would Tim O’Neill, the founder of T&T Vision, have considered?
3. What are the key sources of finance for business start-ups? Suggest an idea that could turn into a business proposition. How would it be possible to finance the new business?
4. Based on the idea produced in answer to question 3, what are the main difficulties that might arise in trying to establish a new business?
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