Archive for January, 2012

What is Job Enlargement?

Job enlargement (sometimes also referred to as “horizontal loading”) involves the addition of extra, similar, tasks to a job.

In job enlargement, the job itself remains essentially unchanged. However, by widening the range of tasks that need to be performed, hopefully the employee will experience less repetition and monotony that are common on production lines which rely upon the division of labour.

With job enlargement, the employee rarely needs to acquire new skills to carry out the additional task, and the motivational benefits of job enrichment are not usually experienced.

One important negative aspect is that job enlargement is sometimes viewed by employees as a requirement to carry out more work for the same amount of pay.

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What is Human Resource Management (“HRM”)?

You often see phrases like these in the annual reports of major businesses:
  • “Our people are our greatest asset”
  • “Nothing is more important than our employees”

You see them so often that it is tempting to treat them as clichés. However, behind the cliché lies an important truth, which is that the human element plays a major part in the success of every business.

Effective human resource management has become more important in recent times. Here are some reasons why:

  • Most businesses now provide services rather than produce goods – people are the critical resource in the quality and customer service level of any service business
  • Competitiveness requires a business to be efficient and productive – this is difficult unless the workforce is well motivated, has the right skills and is effectively organised
  • The move towards fewer layers of management hierarchy (flatter organisational structures) has placed greater emphasis on delegation and communication

As a result, if a business is to be successful and achieve its objectives, then it needs to manage its human resources effectively. So step forward “human resource management”!

“The design, implementation and maintenance of strategies to manage people for optimum business performance”

In other words, HRM is about how people are managed by a business in order to meet the strategic objectives of the business. The functional objectives set for HRM need to be consistent with the corporate objectives.

The key is to remember that HRM is a strategic approach. HRM uses a variety of tools to help meet the strategic needs of the business, each of which needs together in an integrated way. The key tools are:

  • Workforce planning
  • Recruitment & selection
  • Training & development
  • Rewarding and motivating staff
  • Communication
  • Roles and responsibilities (organisational structures)

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What is Stock control?

Managing stock effectively is important for any business, because without enough stock, production and sales will grind to a halt. Stock control involves careful planning to ensure that the business has sufficient stock of the right quality available at the right time.

Stock can mean different things and depends on the industry the firm operates in. It includes:

  • Raw materials and components from suppliers
  • Work in progress or part finished goods made within the business
  • Finished goods ready to dispatch to customers
  • Consumables and materials used by service businesses

In order to meet customer orders, product has to be available from stock – although some firms are able to arrange deliveries Just in Time, see below. If a business does not have the necessary stock to meet orders, this can lead to a loss of sales and a damaged business reputation. This is sometimes called a ‘stock-out’.

It is important therefore that a business either holds sufficient stocks to meet actual and anticipated orders, or can get stocks quickly enough to meet those orders. For a high street retailer, in practice this means having product on the shelves.

However, there are many costs of holding stock, so a business does not wish to hold too much stock either.

The costs of holding stock include:

  • The opportunity cost of working capital tied up in stock that could have been used for another purpose
  • Storage costs – the rent, heating, lighting and security costs of a warehouse or additional factory or office space
  • Bank interest , if the stock is financed by an overdraft or a loan
  • Risk of damage to stock by fire, flood, theft etc; most businesses would insure against this, so there is the cost of insurance
  • Stock may become obsolete if buyer tastes change in favour of new or better products
  • Stock may perish or deteriorate – especially with food products

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Stock Control – application and evaluation

When a stock control situation is presented in an examination, it is likely to be in the context of a business that is facing change.

Candidates need to interpret and apply stock control principles to the particular situation, and make practical suggestions to help address the question.

Examples might include:

  • A business that is growing will need to review its re-order and buffer stock levels, and the frequency and size of orders
  • Look out for seasonality in a business; larger or more frequent orders may be needed in busy times
  • If the supplier is having trouble supplying goods on time, the firm might need to re-order at an earlier point (or seek a new supplier!)
  • Does the firm have a back-up supplier in case of delays?
  • Could small additional orders be made with a supplier as a stop gap if the firm’s stock runs out suddenly? 

Note – these orders would be more expensive because of extra transport costs and lower discount level

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4 Factors that businesses must consider in determining pricing policy

The factors that businesses must consider in determining pricing policy can be summarised in four categories:

(1) Costs: In order to make a profit, a business should ensure that its products are priced above their total average cost. In the short-term, it may be acceptable to price below total cost if this price exceeds the marginal cost of production – so that the sale still produces a positive contribution to fixed costs.

(2) Competitors: If the business is a monopolist, then it can set any price. At the other extreme, if a firm operates under conditions of perfect competition, it has no choice and must accept the market price. The reality is usually somewhere in between. In such cases the chosen price needs to be very carefully considered relative to those of close competitors.

(3) Customers: Consideration of customer expectations about price must be addressed. Ideally, a business should attempt to quantify its demand curve to estimate what volume of sales will be achieved at given prices.

(4) Business Objectives: Possible pricing objectives include:

  • To maximise profits
  • To achieve a target return on investment
  • To achieve a target sales figure
  • To achieve a target market share
  • To match the competition, rather than lead the market

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How does the Price of a Product connect with the Business Objectives?!

The pricing objectives of businesses are generally related to satisfying one of five common strategic objectives:

Objective 1: To Maximise Profits
Although the ‘maximisation of profits’ can have negative connotations for ‘the public’, in economic theory, one function of ‘profit’ is to attract new entrants to the market and the additional suppliers keep prices at a reasonable level. By seeking to differentiate their product from those of other suppliers, new entrants also expand the choice to consumers, and may vary prices as niche markets develop

Objective 2: To Meet a Specific Target Return on Investment (or on net sales)
Assuming a standard volume operation (i.e. production and sales) target pricing is concerned with determining the necessary mark-up (on cost) per unit sold, to achieve the overall target profit goal. Target return pricing is effective as an overall performance measure of the entire product line, but for individual items within the line, certain strategic pricing considerations may require the raising or lowering of the standard price.

Objective 3: To Achieve a Target Sales Level
Many businesses measure their success in terms of overall revenues. This is often a proxy for market share. Pricing strategies with this objective in mind usually focus on setting price that maximises the volumes sold.

Objective 4: To Maintain or Enhance Market Share
As an organisational goal, the achievement of a desired share of the market is generally linked to increased profitability. An offensive market share strategy involves attaining increased market share, by lowering prices in the short term. This can lead to increased sales, which in the longer term can lead to lower costs (through benefits of scale and experience) and ultimately to higher prices due to increased volume/market share.

Objective 5: To Meet or Prevent Competition
Prices are set at a level that reflects the average industry price, with small adjustments made for unique features of the company’s specific product(s). Firms that adopt this objective must work ‘backwards’ from price and tailor costs to enable the desired margin to be delivered.

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Why is Market Share important? The Profit Impact of Market Strategy (“PIMS”) analysis

An important piece of research in the 1960’s provided the basis for understanding the importance of market share – and emphasised the implications for marketing and business strategy.

The Profit Impact of Market Strategy (“PIMS”) analysis was developed at General Electric in the 1960’s and is now maintained by the Strategic Planning Institute. The PIMS database provides evidence of the impact of various marketing strategies on business success.

The most important factor to emerge from the PIMS data is the link between profitability and relative market share. PIMS found (and continues to find) a link between market share and the return a business makes on its investment. The higher the market share – the higher the return on investment. This is probably as a result of economies of scale. Economies of scale due to increasing market share are particularly evident in purchasing and the utilisation of fixed assets.

Case Study on Market Share – Dixons (UK example – it is an electrical retailer like Harvey Norman)

Dixons is widely regarded as the dominant electrical retailer in the UK. What does dominant mean? It refers to the fact that Dixons (which is the market leader) has a very high relative market share. In other words, it is substantially bigger than the next largest competitor. This can be illustrated by the chart below which lists the leading UK electrical retailers in 2000.

How might Dixon’s market dominance enable it to further increase its market share? Many retail analysts believe that the electrical retailing market provides advantages to larger businesses. In recent years, Dixons, along with the number two Comet, has been able to thrive while other retailers have suffered. The reasons for the advantages of size include:

Buying advantage: An ability to use size to source product more cheaply is a clear advantage in an industry that faces rapidly declining consumer prices

Volume advantage: As a low-margin business, retailers that can sell in high volumes are in the best position to gain market share

Access to new products: The largest retailers typically have first-mover advantage in stocking new “in demand” products that have just been released

Advertising scale: As a price-led business, access to national advertising provides the ability to keep customers regularly informed of the latest product deals. This helps to reinforce customer perception of value, in addition to strengthening the Dixons Group brands

Access to retail property: With the continuing trend towards out-of-town, larger destination stores that offer a broader range of choice, and with restrictive planning laws limiting opportunities, the larger electrical retailers have both the financial and operational capacity to secure such important new sites.

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Bases of Market Segmentation

It is widely thought in marketing that than segmentation is an art, not a science. The key task is to find the variable, or variables that split the market into actionable segments.

There are two types of segmentation variables:
(1) Needs
(2) Profilers

The basic criteria for segmenting a market are customer needs. To find the needs of customers in a market, it is necessary to undertake market research.

Profilers are the descriptive, measurable customer characteristics (such as location, age, nationality, gender, income) that can be used to inform a segmentation exercise.

The most common profilers used in customer segmentation include the following:
Profiler Examples
Geographic

  • Region of the country
  • Urban or rural

Demographic

  • Age, sex, family size
  • Income, occupation, education
  • Religion, race, nationality

Psychographic

  • Social class
  • Lifestyle type
  • Personality type

Behavioural

  • Product usage – e.g. light, medium ,heavy users
  • Brand loyalty: none, medium, high
  • Type of user (e.g. with meals, special occasions)

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6 Reasons to Segment your Markets

There are several important reasons why businesses should attempt to segment their markets carefully. These are summarised below

1. Better matching of customer needs: Customer needs differ. Creating separate offers for each segment makes sense and provides customers with a better solution

2. Enhanced profits for business: Customers have different disposable income. They are, therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits

3.Better opportunities for growth: Market segmentation can build sales. For example, customers can be encouraged to “trade-up” after being introduced to a particular product with an introductory, lower-priced product

4. Retain more customers: Customer circumstances change, for example they grow older, form families, change jobs or get promoted, change their buying patterns. By marketing products that appeal to customers at different stages of their life (“life-cycle”), a business can retain customers who might otherwise switch to competing products and brands
5.Target marketing communications: Businesses need to deliver their marketing message to a relevant customer audience. If the target market is too broad, there is a strong risk that (1) the key customers are missed and (2) the cost of communicating to customers becomes too high / unprofitable. By segmenting markets, the target customer can be reached more often and at lower cost

6.Gain share of the market segment: Unless a business has a strong or leading share of a market, it is unlikely to be maximising its profitability. Minor brands suffer from lack of scale economies in production and marketing, pressures from distributors and limited space on the shelves.

Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors. In other words, segmentation offers the opportunity for smaller firms to compete with bigger ones.

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Workforce Planning

For most businesses, large or small, the task of identifying what work needs doing and who should do it is a continuous challenge! It is rare that a business of any size operates for long without having to recruit or remove employees. For example, consider why a business might need to recruit staff:
  • Business expansion due to
    • Increasing sales of existing products
    • Developing new products
    • Entering new markets
  • Existing employees leave:
    • To work with competitors or other local employers
    • Due to factors such as retirement, sick leave, maternity leave
  • Business needs employees with new skills
  • Business is relocating – and not all of existing workforce want to move to new location
The world of work is also changing rapidly:
  • Increase in part-time working
  • Increased number of single-parent families
  • More women seeking work
  • Ageing population
  • Greater emphasis on flexible working hours
  • Technology allows employees to communicate more effectively whilst apart
  • People rarely stay in the same job for life
Businesses need to understand and respond to these changes if they are to recruit staff of the right standard – and keep them!
So what is workforce planning?
Workforce planning is about deciding how many and what types of workers are required
There are several steps involved in workforce planning:
  • The workforce plan establishes what vacancies exist
  • Managers produce a job description and job specification for each post
Job description
  • Detailed explanation of the roles and responsibilities of the post advertised
  • Most applicants will ask for this before applying for the job
  • Refers to the post available rather than the person
Job specification
  • Sets out the kind of qualifications, skills, experience and personal attributes a successful candidate should possess.
  • A vital tool in assessing the suitability of job applicants
  • Refers to the person rather than the post

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