The Examiner's Answers - September 2011 E1 - Enterprise Operations

The Examiner's Answers - September 2011 E1 - Enterprise Operations SECTION A Answer to Question One 1.1

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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) Reck & Long (1988) pictured an organisation's purchasing function as progressing through a development continuum. Supply would be seen under such thinking as a developed strategic function whilst purchasing would be seen as more reactive and less developed. On this basis organisational supply might be seen as more significant than purchasing.

Purchasing Purchasing deals with the day-to-day buying of goods. Purchasing concentrates on the goods themselves including whether they conform to the quality demanded, if they are priced appropriately, and ensuring that they are delivered at the time required to the correct location.

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Supply Supply concentrates on the strategy of relationships. Supply deals with important considerations beyond the day-to-day including: • planning and implementing a supply strategy; • managing the overall supply process; • considering suitability, feasibility and acceptability of outsourcing activities; • investigating whether strategic partnerships could be established, and • the number of suppliers it should use.

In Reck & Long's terms supply is strategic by nature.

Requirement (b) Profits made by Multi National Enterprises (MNEs) through activities in these economies are exported back to head offices abroad. The two main forms of FDI and their benefits to a host economy are given below: Acquisitions The MNE acquires a local company and so gains control of its assets and markets. The acquired company becomes a division of the new parent organisation. The local economy only benefits if the company was in danger of imminent collapse and had been 'saved' or was facing other significant difficulties that were subsequently solved through the buy-out. Under these circumstances the MNE will be providing continued employment.

Greenfield investment Under this form of FDI, the MNE creates new facilities in the host country to take advantage of local conditions. The host country benefits through new employment opportunities and acquires improved skills and knowhow from the MNE as well as access to the global economy. The domestic economy should benefit from any infrastructure improvements made by the MNE, new jobs and income earned by any local suppliers.

Requirement (c) A direct approach to changeover means that at a predetermined time an old system ceases completely and a new system starts. The reason for an organisation choosing a direct approach includes: Low risk The system may be already widely used elsewhere in competitor or comparator organisations (it may be an 'off the shelf' package). Under these conditions, management may have complete confidence in the system.

Low cost Management may have weighed the options (such as phased, parallel running or pilot schemes) and concluded that a direct approach is more cost efficient in terms of time and resource usage.

Symbolic gesture Management may wish to communicate to the workforce its commitment to a particular system and the direct approach represents a symbolic act confirming its faith in it.

Ready opportunity to use direct approach A specific time for system changeover may have been identified when there is reduced system usage. A direct changeover at this time would represent an ideal opportunity when there is a low volume of transactions and limited risk of disruptions.

Existing system too problematic If the existing system is presenting so many problems that it is not worth continuing with it any further, then a direct system changeover might be viewed as wholly appropriate whatever difficulties are encountered as a result.

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Requirement (d) There are several disadvantages of outsourcing including the following: Surrender of core competence The services may represent (or contribute to) a core competence for the organisation. If this is the case, outsourcing would be inadvisable as the basis of the organisation's competitive advantage could be threatened unnecessarily.

Lack of understanding There may be a potential lack of understanding of the ethos of the business by the contractors of the outsourced service. There may be resistance from staff groups and unions representing in-house workers whose jobs may be threatened. This may harm industrial relations and possibly lead to disruption in performance. Under these conditions the initiative may be counter-productive. Outsourcing and a threat of job losses could undermine the psychological contract and lead to a lack of motivation within the workforce.

Damage to culture The move to outsourcing may detract from a positive organisational culture by eroding shared values and goodwill.

Transaction costs Additional costs will be incurred associated with determining service specifications and ultimately monitoring performance (so-called transaction costs).

Finality of decision Once a service has been contracted out it may be very difficult to take back in-house at a later date if things do not work out.

Requirement (e) A policy of organisational succession planning has a number of disadvantages: Organisational size Succession planning is unrealistic for most organisations and only feasible for those large enough to offer the opportunities for staff movement and extended career ladders.

Operational issues The positive motivational impact of the policy may not be realised if rewards seem distant and staff movement is slow or reliant on staff turnover elsewhere in the organisation. Alternatively, staff vacancies may arise at inconvenient times which do not fit individual career needs.

Negative culture reinforcement The policy helps reinforce an existing organisational culture which may be unhealthy and could lead to a lack of exposure to outside thinking and experiences.

'Too' rational Succession planning is in some ways too rational an approach and centralised in philosophy and, as such, can be counter-productive in an organisation that wishes to stress responsibility being taken by employees themselves and emergent approaches.

Insularity The policy concentrates only on developing the existing workforce and ignores the possibility of more capable candidates existing outside the organisation.

Career trends Succession planning is in many ways an outdated concept, given a more contemporary trend for movement between organisations and individuals taking personal responsibility for their own career development by building personal portfolios of experience.

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Management demands The policy may be very expensive to operate. It almost guarantees or implies promotion and requires the detailed input of specialist managers (both HR and in technical) to be involved to make it work.

Requirement (f) The main reasons for a country wishing to restrict free trade include the following: Protection There may be a need to protect fledgling industries which would not be able to compete on an equal footing with foreign competitors. These industries typically have yet to achieve economies of scale in production and possibly do not yet enjoy the factors of production that foreign competitors do. (e.g. a well trained labour force , ease of finance etc.)

Prevent 'dumping' Protection may help avoid a 'dumping' of excess goods at unrealistically low prices by foreign companies which would impact unfairly on home producers.

Overcoming spoiling tactics of foreign competitors Protection may help prevent 'loss leader' pricing of goods by foreign competitors in order to unfairly damage local suppliers and gain market share.

Protect national cultural identity A government may feel the need to protect its national cultural identity against what it views as undesirable values and influences. As a result it may restrict free trade. (For example, certain multinational operations may be discouraged if it is feared that there would be suppression by (say) undue American values being imposed on a proud indigenous culture founded on local, historical and religious heritages).

Ethical or moral grounds A government may feel a need to safeguard home consumers against harmful or distasteful imports (e.g. objects made of ivory, rare bird egg collections, 'date rape' drugs etc.)

Independence from others A government may feel a need to breed self sufficiency and less reliance on nations who could be political adversaries (e.g. in situations where national wars are threatened).

Sanctions to bring about change A government may restrict trade with another nation on the grounds that either it is an enemy state or that it engages in practices that the government disapproves of. Sanctions could be seen as a weapon to exert pressure and bring about change in another country.

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SECTION C Answer to Question Three Requirement (a) The Chief Executive is launching a new initiative called 'sharpening the focus' which is centred on: • Improved corporate performance, • Connecting more closely with customers, and • Improving marketing practices.

Effective brand management can assist iB4e's 'sharpening the focus' initiative in a number of ways: Improved performance •

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Improved profitability. Over the past year iB4e has suffered from a difficult economic climate more keenly than its competitors who enjoy stronger brand recognition. The new director promises 'revitalisation of the iB4e brand'. Evidence indicates that effective brand management will translate into improved profit potential and long term equity growth for the brand.

Brands can be a key asset for the business. Although intangible, brands can be of substantial value. Indeed, brands are often the most valuable asset an organisation owns. All assets require careful management and the brand is no different.

Strong brands can positively influence share performance. The brand is an important driver of business value and success.

Brands can command higher prices. Branded products command a higher price than unbranded goods (even if the other features are similar). It follows that the stronger the brand, the better the opportunity to charge higher prices than competitors and hence gain higher levels of profitability.

Differentiate itself from its competitors. Brands help communicate the essence of the company and its products and so help distinguish iB4e from its competitors.

Effective brand management can therefore contribute to competitive advantage.

Connecting with customers •

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Brands as an emotional conduit. Brands that take their time to listen to their target segment and incorporate their ideas into their products will be more successful.

Brands can be invaluable where marketing communications may be otherwise lost amongst the noise of competing messages. Brands can connect with consumers in a deep way. Successful brands develop special relationships with customers by conveying intangible qualities that evoke strong emotional responses. The features of a brand might include a logo, a general image, look, feel, even smell which may seem to be of minor significance on their own but in combination should be much greater than the sum of the constituent parts.

Good brand management can breed brand loyalty. Effective brand management can lead to brand loyalty which simplifies choice for the consumer. The value of brands exists in the minds of those who use them. Brands are the reason consumers choose one product over another. Products that have a positive strong brand image enjoy a significant source of competitive advantage.

Improve marketing practices • •

Provide a focus for customer relationship management. Customer relationships should involve a restatement and reinforcement of a brand whilst addressing customer requirements directly.

Base for other marketing practices. People use brands to both make statements about themselves and reduce the risk of poor product choice. A revitalisation of the

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iB4e brand should assist wider marketing practices (e.g. advertising) by establishing a bond of trust that can be built upon.

Brands are at the heart of the marketing mix. The basic 'marketing mix' of product, place, promotion and price explains the set of marketing decisions that must be balanced to achieve maximum impact on a target market segment. Branding and brands go to the heart of the marketing mix. Important features of a product include brand name in addition to quality, durability, design etc. Place includes distribution channels and coverage and obviously products with recognisable brands are more likely to be stocked by retailers. A focus on promoting the brand in general will lead to sales of products associated with that brand. Price levels are important and products with the strongest brands can command the highest prices.

Requirement (b) Advantages There are several clear advantages to iB4e developing a 'total reward package' (TRP): •

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Retention and motivation. In return for maintaining the package, the organisation will receive greater staff continuity and engagement. If properly developed, a TRP approach will help iB4e retain and motivate high quality staff. The TRP approach can strengthen and maintain staff retention and employee motivation.

Attract talented staff. A major issue for iB4e appears to be difficulty in recruiting staff. This suggests that although genuine benefits exist, prospective employees do not know about them. It is important that iB4e continues to attract talented staff and so must compete with its competitors in the labour market and must maximise its attractiveness. It seems that presently iB4e is failing to make the most of the overall reward package available (e.g. pensions, training and development, flexible working).

To improve its recruitment, this needs addressing.

Non-pay motivators. A 'total reward package' approach is consistent with contemporary enlightened management thinking. Pay is often a primary focus of HR policy but successive motivation theories indicate that a concentration on financial rewards alone is an inadequate motivator of staff.

Confirmation of organisational/individual match. A TRP approach offers staff an opportunity to consider what they value most from their employer and then compare it with the investment iB4e is making on their behalf.

Project a positive image. The initiative would have the advantage of making positive statements to stakeholders about iB4e and could reinforce its vision and culture. In terms of what iB4e values, the initiative represents an investment in the company's most important resource; its people.

Disadvantages There are also several potential disadvantages to iB4e developing a TRP: • •

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Other poor recruitment processes. The difficulty in recruiting new staff may be caused by some other factor such as use of inappropriate advertising media, poor advertising copy, response deadlines too tight etc.

Additional costs. If the benefits involve additional costs. The Director believes that additional bonuses for good performance could be given and this will add to organisational overheads. There will also be a cost associated with monitoring, managing, communicating and keeping the scheme under review.

Projects wrong image. Rather than enhance iB4e's image, the package might lead the organisation to be viewed as a 'soft touch' with a negative impact on share price.

The package itself may create an artificial comfort zone for existing staff leading to complacency and organisational stagnation.

Suspicion of motives. Staff may view the package with suspicion, feeling that management's intentions are not honourable and that it may be a ploy to keep pay rates down.

Workers only want improved pay. Staff motivation theories are not unified and it may be possible that some staff are only interested in improved pay. (For instance, 'Taylorism' suggests workers are motivated by maximising their earnings. Similarly,

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•

Theory X workers according to McGregor motivation theory are motivated by 'carrots and sticks' namely economic rewards and punishments.)

Costly failure if design flaws. If the TRP approach is not properly developed or contains design flaws, it will not achieve the potential benefits and could represent an additional cost to the company.

Requirement (c) iB4e's new Director of Branding has been asked by the Chief Executive to review a number of issues that are felt to be significant including internal marketing.

When an organisation like iB4e wants to implement a new strategy or corporate programme, it needs to align employees' attitudes and behaviours to correspond with the overall vision underpinning the initiative. If successful, this should lead to enhanced service levels which, in turn, will strengthen customer loyalty.

Internal marketing influences behaviour allowing organisations such as iB4e to communicate the actions and attitudes that lead to improved corporate performance. Internal marketing is particularly important to iB4e as some of its employees have been empowered to take on customer relationships. With more of iB4e's workers assuming responsibility for interacting directly with customers, it is important that the right corporate messages are conveyed.

Internal marketing is the process of engaging with employees through training and motivating them so as to support the organisation's external corporate activities. Motivating staff to change their behaviours and considering ways to achieve organisational goals is very important. In the case of iB4e, a new emphasis has been placed on connecting more closely with customers and improving marketing practices through more effective brand management. Employees need to know this, understand what the iB4e brand means and buy into it. Effectively iB4e is using the same persuasive methods of communication that it employs to market products and services externally, so synchronizing internal and external brands.

There is a need to recognize and reward employees who achieve against these marketing goals and the new total reward package that is being pioneered may help in this respect. It has been suggested that bonuses for good performance could be given that involve an employee choosing from a range of benefits to a maximum value from a 'menu' offered by the company.

If carefully designed and delivered, internal marketing should ensure everyone within iB4e not only understands why the organisation exists but also its key outputs and metrics. Most importantly, there should then be an understanding of how every individual within the company can effectively contribute towards corporate goals.

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Answer to Question Four Requirement (a) The proposed People and Payroll system could offer a number of benefits to LD2 including: Improved system quality LD2 wants to simplify and improve the quality of its operations, including presumably data and information. The People and Payroll software should offer a simplified system that would overcome some of the existing deficiencies which are leading to poor quality operations.

Systems integration.

At the moment there is incompatibility of software and complex reconciliation processes being performed within LD2. The solution will provide a single common integrated technology for both centralised HR and payroll processing. It is wasteful to operate separate systems and common data can be used for both applications. The unification of the systems will make reconciliation of separate data sources unnecessary.

Ability to reduce costs and increase efficiency Current systems are both outdated and various. As such, the integrated solution offered by the People and Payroll system will simplify and rationalise operations. The maintenance costs of the several systems that LD2 operates presently are likely to be costly. There is now potential for economies of scale. These savings could be applied to the costs associated with new hardware, software, staff training etc.

Improved accuracy A single system will help eliminate errors and inaccuracies arising from the existing duplication of data sources. Currently, there are payroll errors due to faulty data entry and calculation.

Better management control The information from accessible diaries, overtime patterns and holiday and sickness levels will enable managers to exercise tighter control over staff activities and possibly reduce costs as a result.

Improved management reporting A feature of LD2's operation at the moment includes management reports being late. The new system should speed up and improve managerial information for decision making.

Improved communication Within the People and Payroll system, there is a facility to allow managers to have immediate access to information on diaries and holidays etc. This will improve communication by making the arranging of meetings and work scheduling easier.

Speed of entry and processing This advanced technology will involve a direct entry facility and which should reduce entry and processing times. This may help overcome the current problem of late management reports.

Relative competitive advantage Instead of being a source of strategic weakness, LD2's systems, including the People and Payroll system, could become a relative strength. LD2's technology currently lags behind that of its competitors and the commitment to replace it with the most advanced available may provide LD2 with some competitive advantage over its rivals.

Improved security features Presently, payroll and invoicing errors are arising due to human error and, worryingly, this implies that a potential for fraudulent activity also exists. As current systems are outdated they may not be as secure as they could be, meaning that there is also risk of improper use of sensitive information and data loss. These problems have doubtlessly contributed to the poor

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quality and operational errors that LD2 is currently experiencing. Modern systems tend to have inbuilt designed security features which should overcome these concerns.

Requirement (b) LD2 wants to consolidate its business by simplifying and improving the quality of its operations by implementing a group wide quality programme. The group has a number of distinct alternative approaches to quality that it may wish to consider.

Quality control Quality control is an approach involving: • establishing quality standards for a service or product, • designing a process to deliver the service or product to the required quality, • measuring the quality of the service or product, • comparing actual quality with planned quality • taking remedial action where quality does not meet standard, • reviewing the standard originally set and making adjustment if necessary.

A quality control mechanism would be used mainly in technical production processes. It would involve identifying an aspect of the production process that is critical to the quality of production, then establishing warning limits and tolerances. Close monitoring (possibly using advanced technology) followed by immediate action to remedy any breach of the tolerance would be needed. The quality control system can be organisation-wide and could include the design process, quality assurance of suppliers of raw materials, production, warehousing, distribution, or after-sales service, etc.

Quality assurance system Quality assurance (QA) systems are in certain ways superior to quality control systems in that they attempt to create rather than control quality. The system will need to account for all operations and the way in which they are planned, managed and carried out, including: • production design, • materials of a consistently appropriate standard, • a reliable and consistent supply of materials, • reliable plant and machinery, and • staff training in order to reduce the potential for human error.

The main forms of QA systems are given below: International accreditation of standards The key feature of the ISO 9000:2000 series quality award is the underlying assurance that customer satisfaction and fulfilment of customer requirements are achieved. To qualify for accreditation LD2 must define a quality standard and the process needed to achieve it and this is regularly verified by external inspectors. Registration under the standard requires the submission and approval of documentation (e.g. a quality manual, procedure manual, work instructions, etc.). The main benefits include being recognised as having a certified standard of quality which hopefully will lead to customer confidence and increased competitiveness, sales and profitability. In addition, accreditation could prove an excellent marketing tool for LD2.

Total quality management Total Quality Management (TQM) is a comprehensive organisational philosophy that encourages and fosters continuous improvement. The fundamental features of TQM are prevention of errors before they occur and the importance of total quality in the design of products and systems. TQM focuses on quality from a customer perspective using a systematic, integrated, organisation-wide approach. There are several approaches to developing a TQM philosophy often embracing a number of quality techniques such as quality circles, Kaizen, etc.

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Common TQM features include: • The involvement of everyone in satisfying the needs of external customers and internal customers (users of departmental services within LD2).

• Open, honest communication throughout the organisation.

• Training and education to equip the workforce with the necessary skills to realise their own potential.

• Teamwork and collaboration.

• Involvement of customers and suppliers as an integral part of the improvement.

Self assessment quality model The European Quality Foundation model is one of the best known of several self-assessment models for business improvement. This provides a structured methodology for organisations such as LD2 to measure their own performance in areas that are critical to businesses. The model allows areas for improvement to be identified through self-assessment. It is a nonprescriptive framework based on nine criteria grouped into what the organisation achieves (results) and how results are achieved (enablers). Results include customer results, people results, society results and key performance results. Enablers involve leadership, strategy, people, partnerships, resources and processes.

Requirement (c) The likely features of the proposed corporate website will include: •

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Many of LD2's competitors are experimenting with online trading which is a main feature of many contemporary commercial websites. As LD2's website should be comparable with the best in the kitchen accessory, supply and fitting industry it should include this facility.

Accessibility by all browsers and IT platforms in order that the largest market audience is able to access the site.

Credit and debit card security and privacy safeguards for customers as they would be able to purchase kitchen accessories online and supply potentially sensitive information when requests for kitchen supply and fitting are placed.

In terms of features, the website needs to be comprehensive yet user friendly, formative and easy to navigate. A site specific search facility might be a worthwhile feature.

The site should be customer friendly. It could have links to other information sources such as details of LD2's showrooms, a listing of stockists of LD2 kitchen products, etc. Most likely staff would need to visit potential customers to advise on kitchen fitting and an email link for answering queries and diary for arranging visits would be features that the user would find helpful.

The website would need to be visually appealing, so aesthetic and technical considerations should help guide issues of screen layout, colour, graphics, etc.

A feature should be a potential to update quickly and easily. Ongoing maintenance of the site is important to accommodate customer feedback, price alterations or additions to, or deletions from the product range. The ease with which this can be carried out will be important.

Feedback from customers is important and a facility for customer reaction will be needed. Possibilities include a facility to post customer reviews, an email link or the completion of an online customer satisfaction questionnaire.

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