E1 - enterprise operations - the examiner's answers - November 2010

The Examiner's Answers E1 - Enterprise Operations SECTION A Answer to Question One 1.1

D

1.2

A

1.3

C

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A

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C

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C

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B

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D

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C

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B

SECTION B The answers that follow in Sections B and C are fuller and more comprehensive than would have been expected from a well-prepared candidate. They have been written in this way to aid teaching, study and revision for tutors and candidates alike.

Answer to Question Two Requirement (a) Outsourcing involves the contracting out of a business function to an external third party provider. This usually involves two organisations entering a contractual agreement to exchange services and payments.

When a business outsources to suppliers outside a country the process is known as offshoring or ‘offshore outsourcing’.

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The increasing tendency for organisations to outsource one or more of their functions is because of the benefits that organisations can derive from this arrangement. The benefits most often quoted include the following: •

Contemporary strategic thinking emphasises a need for organisations to focus on their core activities as these are the things they best understand (‘sticking to their knitting’). Other areas of operation might more effectively be provided by a third party on their behalf. Outsourcing enables an organisation to focus on its core business and by so doing become more specialised and proficient in that business without the distractions of carrying out other functions such as IT support in which it may have limited expertise.

•

Organisations are often able to manufacture or conduct one or more processes at a lower cost than if they were to carry out the activities in-house. The attraction of outsourcing is that the cost of labour in some emerging economies is often significantly lower than in the mature industrial economies from which much outsourcing activity is initiated.

•

The cost of services charged by an external provider may often be lower because of particular expertise and economies of scale that the provider enjoys.

•

Outsourcing can result in improvements in the quality of the organisation’s product or service because the external supplier can often bring to bear specialist expertise, knowledge, equipment and best practice not possessed by the outsourcing company.

•

By outsourcing, organisations can use the experience as a catalyst to challenge the organisational culture and bring about change where lethargy or entrenched views have held the organisation back in the past.

Requirement (b) Multinational enterprises (MNEs) have played a major role in the development of so called ‘transition’ or ‘emerging economies’ through foreign direct investment (FDI) in those economies. MNE’s, often with their home base in Europe, the USA or Japan have invested in the large emerging economies like Brazil, Russia, India and China as well as in so called second tier economies like Indonesia, Vietnam, Columbia and the Ukraine.

This FDI has consisted of two main types: • •

acquisitions in which the MNE acquires shares of a local company and control of its assets and markets are transferred to the new parent, and investment in green field sites where a company builds new factories, offices and other facilities and provides all equipment and some of the senior staff but recruits other staff within the host country.

Emerging economies have, as a result, benefited from: • • • • •

an impetus to their economic growth through new building work, a contribution of expertise and finance in developing infrastructure and communication, learning from new technology and expertise, additional employment opportunities, salaries and wages earned in the host country are largely spent to boost the economy of the host country. (Profits are generally repatriated to the country of the investing company).

Requirement (c) (Note: in excess of five developments are given below). The impact of information and communication technology (ICT) on retailing is probably more obvious to the general public than its impact elsewhere.

•

24 hour retailing. The internet has enabled an infrastructure for 24 hour retailing and a widening of the customer base, potentially globally.

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• •

•

• •

•

• •

Reduced costs. The internet has enabled retailing to be conducted at a fraction of the cost of buying and selling goods in the traditional shop or supermarket due to overhead savings which can be passed on to consumers in lower prices.

Reduced staffing. Intermediaries like shop assistants and travel agents in traditional retail organisations can be replaced by significantly fewer staff using telephones and computers in call centres where goods and services can be ordered, payment taken and the goods dispatched via dedicated suppliers to the end customer. Non-physical goods like music, photographs, plans, articles and software can be distributed electronically without need for physical transportation.

Different means of advertising of products. The use of e-commerce is also cost effective for advertising in that a website is available twenty four seven for anyone with an interest in the goods and services which a particular organisation has on offer.

Growth in on-line retailers. The internet offers the opportunity for low set up costs and global sourcing which has led to a proliferation of retailers (post the dot.com boom of 15 years ago). Many retailers now sell both in store and online.

Smarter stock management. ICT also enables inventory to be maintained at cost efficient levels because the faster an order can be taken and then delivered the less waiting time there is in storage. Bar code readers and scanners on sales terminals have produced a potential for real time stock management More sophisticated product marketing. The opportunities for marketing are enhanced. The requirement to furnish personal contact details provides the marketing arm of an organisation with information about customers and customer contacts that can be used to determine individual customer preferences and target them with information about new products and new offers.

Hybrid provision opportunities. Existing retail organisations have found it profitable to integrate an on-line business with their traditional type of business to the mutual benefit of both.

Greater opportunities for individuals to buy and sell. The possibility of individuals trading anything they have to sell and want to buy has also been clearly demonstrated as thousands now trade regularly via ebay,etc.

Requirement (d) (Note: in excess of five forms of waste are given below).

A “Lean” philosophy is in essence about the elimination of waste of all kinds.

Taylorism and Fordism Lean may be a recent term but it has its roots in a long history. Early exponents of ways of eliminating waste in manufacturing included those who proposed scientific management techniques, most notably F W Taylor. Taylor used a number of techniques including work study techniques and time and motion study to eliminate unnecessary movements of men, materials or components in the production process.

The introduction by Henry Ford of innovations like the assembly line, standardisation of parts and integration of the supply chain processes for automobile production, from the extraction of iron and coal for steel production through to the sale of the finished product was all a contribution to improved efficiency.

Lean management Japanese manufacturers refined the idea of lean management by eliminating waste in storage and over stocking by use of Just-in Time (JIT) purchasing and stock management.

The Toyota Company is credited with having developed a Lean manufacturing philosophy.

Over time, various principles have been added to those developed by Toyota but include pull processing, right-first-time quality, waste minimisation, continuous improvement, flexibility, and developing and maintaining a long term relationship with suppliers. Toyota also identified seven wastes to be eliminated as follows: •

Transportation (moving products that are not actually required to perform the processing).

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Inventory (all components, work in progress and finished product not being processed).

• Motion (people or equipment moving or walking more than is required to perform the processing).

• Waiting (waiting for the next production step).

• Over-production (production ahead of demand).

• Over-processing (resulting from poor tool or product design creating activity).

• Defects (the effort involved in inspecting for and fixing defects).

Later an eighth waste was defined by Womack et al. (2003) described as manufacturing goods or services that do not meet customer demand or specifications.

Requirement (e) Service organisations include hospitals, universities, office processes, retail organisations, consultancies and many others. It should be noted that some manufacturing organisations also often provide services as part of their offering such as ‘after sales service’.

Care must be taken in adapting the principles of lean management from the manufacturing context but service organisations can make use of lean principles to improve productivity.

Given that the defining characteristic of lean management is the elimination of waste in all its forms, it follows that the essential object in any lean management programme is to first analyse the process by which a service is provided and then taking appropriate steps to eliminate it.

Amended definitions that help to identify waste in services that need to be eliminated are as follows: • • • • • • •

Delay for customers waiting for any kind of service.

Duplication as can be involved in having to repeat requested information from several different sources for the same organisation.

Unnecessary movement such as having to queue a number of times to obtain the one service.

Poor communication that leads to misunderstandings, the need for repetition and delays.

Lack of stock as happens when one is seeking out a product and being passed from supplier to supplier.

Poor service in the sense of not providing a friendly service by ignoring customers, keeping them waiting and not establishing rapport so that potential future custom is lost.

Failure to provide the quality of service the customer expects because of damage to goods or not being produced to specification.

The use of flexible workforce techniques, high commitment human resource policies and a commitment to continuous improvement are also essential ingredients of a lean management approach to services.

Requirement (f) • • • • • •

Clarify the meaning of quality in respect of the product(s) manufactured: this will involve the anticipation and satisfaction of customer needs.

Agree the specification of quality criteria including measurement so that all employees are aware of the targets they are seeking to attain.

In order to obtain full commitment, a programme of training and education will be required together with full consultation and communication.

Training must cover all levels in the organisation including the senior management.

The establishment of a steering committee in a larger organisation will be necessary, containing representatives from all levels and disciplines.

The committee members should be trained so that they can help cascade the TQM principles throughout the organisation.

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• • • •

The establishment of quality circles, each trained in problem solving and data collection, will help promote and reinforce the push for quality once the programme gets under way.

It helps to document the processes, procedures and activities undertaken thoroughly to help ensure the continuity of the programme as it develops.

Feedback on the extent to which quality targets are being met will be required once the programme is under way so that remedial action can be taken.

A philosophy of continuous improvement should be adopted so that constant effort is being made to seek to improve quality.

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SECTION C Answer to Question Three Requirement (a) Middleregion’s Human Resources Department Middleregion’s Human Resources Department has a number of important roles to perform, some of which are listed below.

Ensuring alignment of HR to corporate aspirations It should be the responsibility of the department to ensure that HR activities are aligned to the corporate strategy. The department should also make sure that new policies arising from the workforce strategy must support Middleregion’s corporate strategy and broader organisational aims and philosophy. As such, the department will need a mature understanding of organisational requirements and will need to see the link to strategic and operational human resourcing.

Leading HR planning processes As subject specialists, the department should take the principal role in matters of strategy development including leading the development of the new workforce strategy. The leadership it exercises should emphasise inclusivity and it must ensure that all key stakeholders, including line managers and employees are involved in the process. This involvement is important to ensure workforce commitment and successful implementation.

Bringing expertise to the planning process The Human Resources Department can bring specialist knowledge and skills into the planning process. As such, it should keep abreast of any developments to service provision which could affect the workforce strategy and then be prepared to brief others on the implications for Middleregion. The department is also in the best position to suggest new initiatives and approaches. As such, it could use its contacts and professional association to find out what happens in other regional units of government, other areas of the public sector and best practice within the private sector.

Maintaining Middleregion’s human resource asset Human resources activities should be aimed at delivering agreed strategy. As such, it should assume responsibility for continuously developing the skills and capacity of the workforce. In particular the department should put in place measures to remedy skill gaps identified as part of the planning process.

Develop monitoring and review mechanisms As a public body, Middleregion will need to demonstrate the impact the strategy is having on performance improvement. Middleregion’s progress towards achieving its strategy means that targets and performance indicators are required, and the department should suggest and agree key performance indicators (KPIs) and other rubrics. Regular review and reporting mechanisms should also be formalised by the department.

Ensure adequacy of HR function Senior HR managers will need to ensure that the function is capable of supporting and delivering strategy and fulfilling its organisational obligations. As such, they will need to make sure that it is staffed to an adequate level with those possessing the necessary skills and experience. The budgetary provision to operate the department will need to be adequate and, if not, a case should be made for additional funding.

Support managers A key role of the department should be to help and support line managers in carrying out their role correctly and effectively. As such, it should find ways of providing advice and support in order to improve management practice. The department should be accessible to managers and should encourage communication and a dissemination of good HR practice within the organisation.

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Middleregion line managers Classically the role of management has been expressed as organising, planning, controlling and influencing. Middleregion’s line managers are no different in respect of human resourcing issues. As such, their main role should include: Organising: Strategy and policy implementation Line managers need to recognise the potential impact they have on subordinates who are responsible for service delivery improvement and the achievement of corporate goals and strategy's objectives. These managers can play an important role in understanding and implementing the workforce strategy and people management policies. They do this by translating these into operational terms. In doing this, they may need to adapt and organise ways of working in order to fulfil the strategy requirements.

Planning: Participation in strategy and policy development Whilst the Human Resources Department offers specialist knowledge and skills, line managers can complement this by bringing local knowledge and practical ‘on the ground’ experience to HR planning processes. This should help in having practical discussions of what might or might not ‘work’.

Controlling: Monitor strategy achievement Part of the management role is that of monitoring and control. Line managers should monitor how well employees they are responsible for are performing against the strategic targets. By way of example, managers may wish to compare their team’s sickness and absence or staff turnover rates with overall organisational targets. As such, they may wish to determine (in conjunction with the Human Resources Department) local policies and measures to improve matters. More generally, line managers with their particular ‘on the ground’ perspectives will be in an ideal position to feedback issues that are getting in the way of achieving strategy or organisational policy.

Influencing: Communicate with and positively influence the workforce Line managers represent the ‘filling in the sandwich’; the link between policy makers and front line workers and, as such, they will represent the most direct communication mechanism for most staff. In terms of new initiatives, such as the proposed workforce strategy, they should look to gain the support of employees by: • explaining its main features and its impact on individuals • selling policies • defending policies on behalf of the organisation.

Asking for guidance The Human Resources Department should be seen as a source of guidance and support when dealing with people issues. Line managers must be willing to seek advice and support in order to improve management practice and deal with workforce problems and issues. The alternative of ‘going it alone’ or looking for quick fix solutions could be organisationally damaging.

Requirement (b) The external auditor has reported that a new workforce strategy will need to take account of a changing environment and be relevant to local conditions. Middleregion should plan a new workforce strategy that is mindful of these issues through: • thoroughly analysing and understanding external factors, • thoroughly analysing and understanding internal factors, • planning collaboratively, • planning flexibly, • establishing review mechanisms and being prepared to adjust strategy accordingly.

Analysis of external factors It is increasingly difficult for organisations to plan rationally when faced with a changing, and at times unpredictable, external environment. This means that there needs to be effort to analyse the environment within which an organisation exists, as part of the planning process.

The macro environment is of great significance to Middleregion for instance: • the likelihood of a change of national government may mean different funding or expectations,

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•

funding comes from local taxes and government grants. Issues of national prosperity and employment levels have heightened significance.

In terms of planning for a future workforce, external data requirements will include regional employment trends and unemployment levels, demographic projections, skill levels and shortages, education levels, transport and planning proposals, labour mobility, and migration and immigration trends. This data can help in developing forecasts of people requirement where issues of future methods of production and technology usage and likely government levels of funding assume high significance.

Analysis of internal factors It is important to understand the current and future local context facing the organisation when developing the strategy. This will help the strategy reflect the diversity of the workforce and key organisational challenges and changes. To this end, existing organisational strategy (possibly expressed as a corporate strategy) represents a first consideration. The whole purpose of a workforce strategy is that it focuses on human resourcing issues as a way of delivering overall organisational strategy.

It is also important to collect and analyse workforce planning data. A considerable amount of data, relevant to local conditions and internal issues needs to be collected and analysed.

Some internal data requirements include employee analysis: numbers, gender, qualification, trade and job skills, experience, etc., categories of staff, staff suitable for promotion or redeployment, overtime levels and trends, labour turnover analysis and reasons, absence level by category and trends, productivity ratios and trends, comparison with national, regional and general public sector trends.

Issues of staff retention, turnover and absence need careful consideration in the light of issues such as: • past retention, turnover and absence rates and those expected by reference to government targets and other units of government; • the rate at which staff are leaving and their reasons for leaving (based on exit interviews); • numbers of employees retiring and likely future projections based on age profiles.

If a significant cause of turnover is due to a lack of promotion opportunities, inadequate training, low morale or poor management, then these problems need to be addressed within the strategy.

Problems in achieving future plans might to a degree be predictable and may well, in the past, have centred on: • retention, especially when employees are well trained or have specialist skills; • slow promotion leading to staff turnover; • difficulties associated with putting succession planning into practice; • vacancies arising in very senior positions or in vital skills areas, etc.

Measures need to be incorporated into the new workforce strategy that anticipate these difficulties and counter them with positive actions.

Consideration should also be given to the organisation’s ability to continue to attract suitable recruits into its various operations. Again, if there are difficulties these should be addressed through the HR plan. Having considered the existing supply of labour, an organisation will need to project a view of what the workforce will need to be like in the future in order to fulfil its strategic plans. The difference between the two projections of supply and demand can be made (‘gap analysis’) and plans developed accordingly. This might involve, for example, retraining, part time workers, use of consultants and contractors, overtime, computerisation recruitment, redundancy policy, etc.

Planning collaboratively Workforce planning should not be seen as the job of Middleregion’s Human Resources Department but should instead be a shared process involving a range of stakeholders from across the organisation in order that the plan ultimately is realistic, and workable. By adopting such an approach the strategy that emerges should more fully reflect local conditions and culture. In terms of the external environment, a wider planning group should also lead to better intelligence sharing and a more robust basis upon which to develop strategy. If it is felt that insufficient expertise exists to build a realistic picture then Middleregion might consider

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using specialist environmental scanners and strategy consultants to provide the necessary analysis.

Flexibility The changing demands on Middleregion’s service need to be reflected in its workforce strategy, so ensuring it is up-to-date and relevant. Since employees are probably the most unpredictable organisational resource, the best plans will be those that allow the greatest flexibility, this might be achieved in a number of ways, including: • • •

scenario planning and consideration of ‘what if’ options, shorter planning time frames and cycles, revisions to the strategy in the light of changing circumstances.

When the external environment is uncertain, complex and subject to rapid change, it may be impossible to develop a single view on environmental influences. In order to take account of ‘what if’ options or possibilities, plans might be constructed on the basis of both best case and worst case positions. Scenario planning builds on plausible views on how environmental changes might impact on the workforce and what might be done if this is the case. (This planning process might be assisted considerably by the use of IS and IT through spreadsheets and modelling applications.)

Middleregion should ensure that planning time frames are realistic. To that end, every aspect of the strategy will need to be fully reviewed on an ongoing basis. Most HR plans are developed on a rolling three-year basis, which means that forecasts for next year and the succeeding years in the cycle are updated every year in the light of this year’s experience.

Detailed plans for securing sufficient and suitable employees for current needs are made for a one year period, in line with current budgets. Less detailed plans are made for the three-year period, prepared in line with the organisation’s corporate strategy. 

Review Mechanisms and being prepared to adjust strategy accordingly Middleregion could introduce more sophisticated monitoring, control and evaluation mechanisms. It is important to determine as part of the planning process how progress against the workforce strategy objectives will be measured. Once the strategy has been implemented, Middleregion will need to take measures to evaluate its success by considering what performance indicators should be used, what targets will be set, how success will be measured. Rather than being cast in stone, strategy might evolve and be adjusted in the light of ongoing experience and might lead to, for instance, resources being reallocated to accommodate changing circumstances.

Requirement (c) Middleregion should consider moving to e-HR by using technology to improve HR services, such as recording and monitoring systems, automating administrative tasks like recruitment, and disseminating HR policies and information on the intranet.

Software purchase or development costs The cost of moving to e-HR will depend on what Middleregion requires the system to do. A system can be purchased or developed to undertake one task, such as the recording and monitoring of overtime levels, or can be integrated so that it supports a range of HR activities and is linked to other organisational systems such as payroll. Middleregion needs to clarify the HR services and information it requires. Once this is done, the scope of e-HR should be determined by considering whether these HR services and information needs are best provided in their current form or whether provision by e-HR would be preferable. Following this, costs might be estimated and a decision taken involving a weighing of costs and benefits. What is important is to articulate how e-HR will support and add value to the achievement of Middleregion’s workforce strategy.

Associated costs Middleregion will also need to consider related costs such as new hardware required as a result of e-HR, and running costs associated with maintaining the new system or systems. It is also conceivable that certain HR systems are computerised but need upgrading or scrapping which will have cost implications. If the newly introduced e-HR system is incompatible with existing systems or fails to meet user requirements, then additional development costs might be involved in order to bring about the necessary adaptations.

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Cost of staff training and cost of disruption New systems will involve employees undergoing training in their use. This may involve the cost of hiring external consultants and will also involve the ‘cost’ of the participants' time away from productive activity.

Opportunity costs When making a decision to implement e-HR, Middleregion will need to carefully consider the objectives of the system and set out a clear specification for what is required, balanced against the budget available. Inevitably, the provision of a budget will represent an opportunity cost as there will be many other pressures and potential projects competing for budgetary provision. (An alternative situation may be that if Middleregion is highly reliant on manual effort at the moment, net cost savings may accrue through efficiencies implying a budget reduction).

Adjustment of business processes to fit software There may be a need to adjust existing business processes to fit the software. Similarly, it will be necessary to review the current Human Resources function and if it is structured in a way that will not support e-HR, restructuring may be necessary possibly involving greater cost.

Middleregion should explore costs further by reference to the experience of other Regional Units who have introduced e-HR, the external auditors and potential suppliers of software solutions.

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Answer to Question Four Requirement (a) Corporate Social Responsibility The social implications of DD’s marketing activity can be understood within the context of Corporate Social Responsibility (CSR). Although different understandings and definitions of CSR exist, one popular definition is ‘the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large’. Common features associated with CSR include: • • • •

an integration of social concerns into business operations, voluntary actions on behalf of the organisation, operating in ways that exceed ethical, legal, and societal expectations, and making a positive difference for society.

Promotion of healthy lifestyles DD has a ‘long history’ of supporting sporting events as part of its stated commitment to help promote healthy lifestyles. This appears consistent with the use of natural ingredients in its products. DD may be seen as acting in a consistent, socially responsible fashion. DD is demonstrating a voluntary commitment, an integration of social concern within its business model, and a desire to make a positive difference for society.

For the first time DD now spends an equal amount on online advertising. This might encourage sitting in front of a computer rather than exercising, which could appear to work against the healthy lifestyle philosophy DD is trying to champion.

Stakeholder social concerns External stakeholders look at a company’s actions in terms of its products and its impact on the environment, the locality and its workforce. DD makes charitable donations, so benefiting local communities, and clearly has a concern for its workforce, hence its reputation as a good employer. In terms of the environment, DD’s products are made using natural ingredients but there is no detail in the scenario as to whether these sources are self sustaining. Similarly, there is little detail on how environmental concerns might be addressed (particularly in manufacturing practices and product packaging).

Philanthropic donations The history of an organisation can be of significance as it can help to shape organisational culture, business philosophy and ways of operating. The DD drinks company was founded over one hundred years ago on religious principles. A percentage of all DD’s profits are allocated to a number of charitable causes (indicating a desire to make a positive difference).

There is no detail as to what these causes are but superficially at least this is voluntary action aimed at giving something back to society. Cynics may argue conversely that DD’s charitable donations represent tokenism, a way of reducing taxation or a low cost public relations exercise.

A focus on children DD spends heavily on making its drinks products appealing to the market. Undoubtedly, a main target is a potentially vulnerable group, namely children. (TV advertisements are based around childrens’ programmes and DD uses expensive packaging). Children influence their parents to purchase the products and ethical issues arise as to whether this is ‘right’.

Promotional success is based upon children placing demands on their parents and if some parents cannot afford it, this could cause difficulties.

In addition, the sugar content (and possibly other ingredients) appears important in achieving a taste that children like, but ethical questions can be raised about manufacturing and selling potentially harmful products to vulnerable groups. In addition, the heightened use of online advertising means that parents may never see the advertisements that their children are exposed to when they sit at a computer alone.

Product endorsement by an unsuitable role model An organisation’s reputation impacts not only on customer perceptions but also on workforce morale and business partners’ attitudes. Good reputations need to be maintained because once they are tarnished they could be very difficult, if not impossible to regain. DD’s new

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initiative of seeking celebrity endorsements may have been well founded but the choice of celebrity was clearly inappropriate and could have lasting damage on a reputation which has been built over a long period. Although the rapper might appeal to its target market segment, particularly teenagers, the music’s bad image either was not fully understood or was ignored

by DD. The criticism by religious and political groups and in the newspapers led to a dropping of the plan and the public acknowledgment that an error had been made. Viewed positively, this was an honest mistake. DD was prepared to listen to public opinion and changed its plans before any lasting damage was done. The company acknowledged the mistake (but no apology appears to have been issued). A less generous interpretation might be that this was a calculated risk. The proposal to use Mr TT could have been a cynical strategy that was abandoned when the public backlash was greater than anticipated.

Product content An international health ‘watchdog’ body claims that DD’s products contain potentially harmful levels of sugar and, if drunk excessively by children, can lead to long term gum and tooth decay. The fact that secret ingredients have always been used by DD adds to the potential confusion and suspicion that DD may not be operating in a socially responsible fashion. This further adverse publicity may impact upon sales and is clearly at odds with its stated commitment to help promote healthy lifestyles. DD will need to decide how it responds to the ‘watchdog’ claims, with options including: • conducting further research and possibly challenging the claims, • discrediting the findings and the body making the claims, • modifying product content so there is less sugar present and make this public, • increasing promotion to compensate any fall off in sales as a result of bad publicity.

A socially responsible organisation might look to work with the international body in order to investigate the product content and reduce the level of, or completely remove, potentially harmful ingredients.

Requirement (b) Segments, targeting and positioning Market segmentation involves an organisation dividing a market into similar customer groups with similar common characteristics. Following on from this activity, targeting is the process of selecting the most lucrative market segments for its product(s). From the scenario, it is clear that DD’s targeted market segments are children and teenagers. As ‘the world's leading manufacturer and distributor’ it is assumed that further targeting geographically has not been chosen and that the targeted market segment is youngsters world wide.

Positioning involves developing a marketing mix which aligns an organisation’s products to its targeted market segment. The apportionment of effort, the precise combination, and the integration of all four marketing mix elements to achieve organisational objectives represent an organisation’s own marketing programme or ‘mix’. In the case of DD the important aspects of the mix are described with reference to branding.

Product mix Principal features of the product mix in this case include quality, taste, package design, product range and, significantly, brand. DD’s brand with associated brand names, logos, and packaging conveys messages about quality. There is good reason for believing that these associated features and packaging are more significant aspects of DD’s product mix than the content itself. (Some products are sold as ‘own brand’ alternatives for some large supermarket chains, and although these sell more cheaply than DD branded products and are less costly, the minimal sales underline the point that branding, packaging and advertising are crucial to sales).

DD has an ‘ever expanding’ line of products in addition to own brand alternatives sold by supermarkets. The strength of the DD brand means that customers are likely to try new drink flavours in a way they might not for a company with lower or no brand recognition offering similar products.

In terms of product content, and hence taste, secret natural ingredients (and doubtless sugar content) are important factors.

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Promotional mix DD’s promotional strategy involves a ‘pull’ philosophy whereby a great deal of effort is devoted to communicating with the final customer who in turn demands that retailers stock DD’s products.

The main promotional tools used to communicate with customers about its products appear to be: • television advertising, • advertising using the internet, • promotion through brand recognition.

As such, the advertising is non-personal and mass by nature, being aimed at the market segment at large.

Noteworthy features of DD’s promotional mix are significant budgets for both television and internet advertising. Continued advances in the newer internet medium mean that DD’s promotional potential in the future may be significantly enhanced.

Public relations (PR) are also part of DD’s promotional mix. The company’s reputation as a good employer, its support for sporting events, promotion of healthy lifestyles and charitable donations provide a platform for maximising public relations and supporting the promotion of the DD brand and products. Brand development is an important part of the promotional mix by helping communicate the brand’s values, differentiating DD from its competitors, and enhancing buyer loyalty.

Place mix The place mix covers arrangements for the movement of goods from production to consumption including distribution channels and coverage, methods of transportation, locations of sales outlets, arrangements of sales areas, stock levels, and warehouse locations, etc. An effective place mix will result in getting the right products to the right places at the right time. In terms of DD, what is known is that it is the ‘world's leading manufacturer and distributor’, so it can be safely assumed that these logistic arrangements, including distribution channels, coverage and transport are at worst satisfactory, at best world class.

DD’s ‘pull’ promotional philosophy and the strength of its brand means that all sales outlets of non-alcoholic drinks will feel obliged to stock DD’s products. As such, DD’s drinks are likely to be on sale in supermarkets, from vending machines, and in cafes, bistros, pubs and restaurants, etc.

Pricing mix Although there is little direct information in the scenario, reasonable assumptions about the pricing mix can be made based upon what is known. Overall, DD is profitable which suggests that its pricing mix is appropriate. (The profitability is alluded to in the fact that a percentage of its profits are allocated to a number of charitable causes every year).

It is apparent that DD’s competitive strategy is not based on low costs and low pricing.

Instead, DD is differentiating its products from competitor products by using secret natural ingredients and investing in its brand through promotional campaigns and product packaging.

Clearly, a product differentiation strategy can be costly and such costs need to recovered in the selling price of DD’s products. (DD’s customers are in effect prepared to pay extra for these differentiated features. This much is clear from the experience of selling own brand alternatives alongside the more expensively packaged, branded goods in supermarkets).

DD is described as ‘the world's leading manufacturer and distributor of non-alcoholic drinks’ and, as market leader, the selling price DD arrives at will become something of a measuring rod against which competitors set their own prices.

The value of a brand is when it positively influences buying decisions and it can be exploited within the pricing mix. In short, branded products tend to attract higher prices, a fact undoubtedly understood by DD.

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Requirement (c) Encourage global appeal The phrase ‘world wide web’ confirms the potential scope of the medium. DD is the world's leading manufacturer and distributor of non-alcoholic drinks and the internet will ensure that it reaches a truly global market.

An effective website DD’s increased marketing dependence on the internet means that users will expect a high quality home webpage. Such an investment by DD could prove worthwhile and could become a further source of brand reinforcement and product promotion. DD’s website might contain competitions or other attractions for the user and will aim to gain user preferences and/or capture information on customers.

Encourage traffic to DD’s website DD might use search engine websites such as Google by paying to display advertisements with links to its own web site. Under this arrangement, DD would pay only when a user chooses to follow the link from its advertisement. This and other methods might be used to encourage people who are interested to visit DD’s website.

Brand management The internet can help in projecting and reinforcing a company’s brand messages. The most successful brands are those that create special relationships with customers by encouraging strong emotional responses from them. DD is using the internet to reinforce its brand.

Maintain competitive position As the market leader, DD will not wish to be upstaged by its competitors. As such, DD has little option but to invest heavily in the internet. DD’s market segments (children and teenagers) are comfortable and familiar with the internet and DD’s presence on it and the messages it conveys are doubtless more compelling than if other older media were used.

Conduct advertising campaigns When conducting specific advertising campaigns, the internet can complement other media.

DD spends equally on online and television advertising. Television adverts often have high production values but are costly to make. Now the impact of these advertisements can be maximised by making them also available online. Whilst television adverts are shown at a specific time, internet adverts can be seen at any time. The internet therefore is particularly useful in helping maximise the benefits of celebrity endorsement and strengthen particular campaigns.

One innovation used by some companies such as global drinks companies is the use of viral marketing, which encourages users to pass on sites showing memorable or ‘cult’ advertisements.

Introduce new products DD can use the internet to introduce new products and product lines quickly and easily. The internet is a key medium for delivering product information effectively by use of classified or display adverts. It is also possible to get immediate feedback through discussion forums, blogs or online questionnaires as new products are launched.

Understand segment better Online advertising can take a number of forms, including targeted email campaigns, which can result in getting product feedback and understanding the market segment better. Few other mechanisms can offer the interactivity that emailing does so helping to develop DD’s relationships with its customers.

November 2010

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Enterprise Operations