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Theories and model has been a part of organisations for centuries, whether it's a profit oriented organisation or not; theories, models and techniques are used for day to day decision making and problem solving. The objective of this essay is to critically assess the relationship between Business models (representation, an explanation or a simplified description), theories (system of ideas based on general principles) and techniques (means to facilitate an activity) and the practical benefit and application of such models. The study is based on three Business elements; marketing, motivation and business environment.
Product life cycle theory
"Every firm and organization has a range or portfolio of products, and each of these products may be at different stage in its life cycle" (Baker, 1996).
A business will stand to earn crucial advantage over it competitors, if it can determine when to launch a new product or update an existing one. For instance, it will be a very cynical error for a firm to allow its existing models (cars or computer) in the market when its competitor are introducing attractive or revamped one. This theory likened the life of a product to that of Humans. Like human beings, products also have their own life-cycle. From birth to death human beings pass through various stages e.g. birth, growth, maturity, decline and death. A similar life-cycle is seen in the case of products. The product life cycle goes through multiple phases, involves many professional disciplines, and requires many skills, tools and processes. Product life cycle (PLC) has to do with the life of a product in the market with respect to business costs, market share and sales measures. An awareness of the product life cycle will inform managers to use the best business model and strategies in managing those products. It is recognition of this cycles that the Boston consulting group develop a procedure for analyzing individual and collective performance of products in a portfolio. It is known as the "Boston Matrix".
The Boston Matrix
The Boston Matrix methodology is based on the product life cycle theory. This matrix can be used to determine a firm's product position in the market in terms of market share and market growth. It can also be used to determine what priorities should be given in the product portfolio of a business unit. To ensure a long term value creation, an organisation needs to have a portfolio of products that contains both high-growth product that needs cash input, and low-growth product that will generate a lot of cash. Below is the representation of the Boston Matrix.
The BCG matrix
Cash cow: if a product has a high share in a low-growth (possibly a declining) market, the product is a cash cow. As Peter, (2002) noted; "this type of product create a high positive cash flow and is profitable". He also noted that; "sales are high relative to the market and promotional cost are likely to be low, as a result of high consumer awareness". The firm needs to get the profit they can get from that product in order to invest on other products in the portfolio.
Star: products that are having a considerable high share in a high-growth market. These Products should be regarded as star products. Investing on these products will generate more income for the firm. There is the need for the firm to maintain the market position of this product. Because this is a high-growth (fast changing) market, promotion should be high, differentiating the product as well as to reinforce its brand image.
Problem child: product that has a low share in a high-growth market is term as 'problem child'. It is mostly a new product launched into the market, this is going to need a heavy promotion cost to help become established. It is worth doing something to get a better share. This becomes a problem that needs to be solved. The finance for this product could come from the cash cow.
Dog: These are products a firm should not keep because they have a low share in a low-growth market; rather than increasing profit they absorb money. Because market presence is weak, it is going to take large investment and hard work to get noticed. It is going to be difficult to make any profit. Peter, (2002 pg.173) rightly noted; "they may need to replaced shortly, or firm could decide to withdraw from this market sector altogether and position itself into faster growing sector".
The Boston matrix provide useful ways of looking at the opportunities open to a firm, and helps them analyze which segments of the business are in a good position, and which ones aren't. That way, they can decide on the best investment strategy for the business in the future, and where best to allocate resources. In contrast to this, it seems plausible to argue that the Boston matrix has its own limitation. Even though high market share is a sign of growth, it not all the success factor. Market growth is not the only indicator for attractiveness of a market, sometimes Dog can attract even more cash as cash cow.
Peter, (2002) noted that "No techniques can guarantee business success - this depends on the accuracy of the analysis by marketing managers and the skills they possess in employing the appropriate marketing strategies". One of such techniques is the Marketing mix.
Marketing mix: In the early 1950s, Neil Borden redefined the position of the marketing manager by introducing "marketing mix" as an integrated set of marketing "tactics" to realise organisational objectives and create a closer, higher value relationship with customers, (Jerome, 1960). The marketing mix is also known as the four (4) P's (product, price, promotion and place).
Product: comprises of the tangible and intangible benefit of a product.
Price: determining the appropriate pricing structure and strategy for a product.
Promotion: this is the process of creating awareness of a product to its targeted market or audience.
Place: this is the distribution methods and the location of the organization. Basically it is making the product available to the customers
It is important that the marketing mix or the four P's be reviewed regularly to take into account changes in customer needs.
It is often argued that the marketing mix simplicity allows for fast adaption, and at the same time its scope is wide enough to help coordinate intelligent decision for product introduction, positioning and targeted market. However on closer inspection, it can be argued that the model is biased toward consumer markets and physical goods and works less well with industrial products and services where interaction and relationships are more important.
System theory of management
The system approach attempt to bring to reconciliation the two earlier approaches to management; these are the classical and human relations." The classical approach emphasised the technical requirements of the organisation and its needs - 'organisation without people'; the human approaches emphasised the psychological and social aspects and the consideration of human needs - 'people without organisation'" (Laurie, 2002 pg.68). Worthington et al, (2009) also noted that "system approaches to organisation and management have help to integrate previous work on structures, people and technology, by portraying organisation as socio-technical system interacting with their environment".
At the turn of the 20th century, the American engineer, Frederick Winslow Taylor, proposed scientific methodologies to improve the productivity of shop floors at large plants. He argued that labour problems such as low productivity, high turnover and a conflict-driven relationship between management and staff were caused by improper production and organisation methods. The aim of Scientific Management was to increase efficiency from specialised, physical work through pre-described activities and close supervision. The "one best way" to execute such basic managerial functions as selection, promotion, compensation, training, and production had to be discovered, applied and checked on a continuous basis (Taylor, 1911).
When properly applied to large production systems, Scientific Management could greatly increase productivity. Basically one profound example is the Bethlehem Iron company, where Fredrick Taylor increased production to over 350 percent at the same time reducing workers by about 75 percent.
Taylor's methodology was the first to use statistical control to analyse work and provided a basis for time motion studies, an essential tool in job design efforts. He paved the way for the development of Ford's T-Ford assembly line in the 1920s. (Taylor, 1911)
In contrast to the above view points, Herbert Simon in 1950 criticised Taylor believes that there was a "best way to do anything"; Scientific Management was internally oriented where optimising current resources was more important than effectively allocating resources over time. He neglected the issue of organisational restructuring required by changes in customer needs. Taylor argued that firms must always increase their size to maximize advantages from division of labour and specialization of tasks.
The win-win situation between workers and managers as Taylor envisioned did not materialise. Most trade unions saw the method as dehumanising workers and undermining the value of craftsmanship.
Maslow Hierarchy of needs
Psychologist Abraham Maslow studied human motivation from the 1940s until his death in 1970. His Hierarchy of Needs explains motivation and behaviour as the result of different fundamental needs that drive individuals. Motivation is required to undertake action. He assumed that all humans have an inner core based on the sum of an individual's feelings, emotions, desires, needs, and wants. He classified this sum into five groups calling it the Hierarchy of Needs:
It has been argued that not everyone has the same needs as it is assumed by the hierarchy. Self actualisation is never permanently achieving. Peter, (2002) noted that, "jobs must continually offer challenges and opportunities for fulfilment otherwise regression will occur". Maslow regarded culture as one of the influencing factors that can cause a change in the Hierarchy's order, but the model does not take into account cultural differences.
Job rotation: Job rotation involves the movement of employees through a range of jobs in order to increase interest and motivation. In order to keep employees away from complacency and boredom, organisation uses the Job rotation techniques to stimulate the minds of their staffs through diversity of challenge. It can be argued that doing the same type of job or task over time may result to losing interest in doing that task.
Every Business operates within an environment, these environments directly and indirectly affects the way those businesses function. The two environments to business are the internal and external environments.
Internal environments and Micro external environment: The internal environment constitutes variables and forces within the control of the organisation. These variables are; conditions, entities,Â events, andÂ factorsÂ within an organization whichÂ influenceÂ itsÂ activitiesÂ andÂ choices, its philosophy, particularly theÂ behaviour of theÂ employees. Other variables include; theÂ organisation mission statement,Â leadership style, and itsÂ culture. The Micro external environments on the other hand comprises of activities of marketing intermediaries, companies, customers, suppliers, and competitors.
Value chain analysis: Value chain analysis helps identify an organisation's core competence and distinguishing those activities that drives competitive advantage (Porter, 1958). Michael Porter published the Value Chain Analysis in 1985 as a response to criticism that his Five Forces framework lacked an implementation methodology that bridged the gap between internal capabilities of an organisation and opportunities available in a competitive environment.
This framework (value chain analysis) focused on industry attractiveness as a determinant of the profit potential of all companies within that particular industry. At each stage of the value chain there exists an opportunity to contribute positively to the firm's competitive strategy by performing some activity or process in a way that is better than the competitors, and so providing some uniqueness or advantage (Porter, 1985).Â However, significant differences in performance exist between companies operating within the same industry. That can be explained either by the company's participation in a successful strategic group or by its specific competitive advantages. Porter's strength was shown in his ability to condense this activity based cost analysis into a generic template consisting of five primary activities and four support activities. The nine activity groups are:
Inbound logistics: these includes; transportation, inventory control, material handling and warehousing.
Operations: An operational activity includes; testing and maintenance, machine operating, packaging and assembly.
Outbound logistics: outbound logistics are issues involving product distribution chain, activities from, warehousing; order processing, transportation and distribution.
Marketing and sales: activities like; promotions, advertisement, selling, pricing and channel management.
Service: these include; installations spare parts management and servicing.
The other four supporting activities are;
Human resources management: recruitment, training and promotion of staffs from different levels.
Firm infrastructure: this includes activities like; planning, investor's relations, legal, and finance and general management.
Procurement: supplier contract negotiations and purchasing raw materials.
Technology development: research and development, product and process development.
The core concept for this model is Value.
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Michael E. Porter, (1985)
Porter emphasised the importance of grouping and regrouping functions into activities to produce, market, deliver and support products, to think about relationships between activities and to link the value chain to the understanding of an organisation's competitive position in the industry.
The Value Chain model was intended as a quantitative analysis. It can also be used as a quick scan to describe the strengths and weaknesses of an organisation in qualitative terms.
With the Value Chain Analysis, Porter tried to overcome the limitations of portfolio planning in multidivisional organisations.
The value chain made clear that an organisation is multifaceted and that its underlying activities need to be analysed to understand its overall competitive position. An organisation's strengths and weaknesses can only be identified in relation to the profiles of its direct competitors.
However on closer inspection it is worth considering that the Value chain analysis has its own short falls. To argue is insufficient but it is necessary to consider the following;
The Value Chain is used to analyse a firm's position in relation to its direct competitors with the assumption that rivalry drives profitability. This excludes other assumptions such as customer bonding in Alexander Hax's delta model (Hax believes a firm owes itself to its customers and they are the ultimate repository of all the firm activities).
The Value Chain Analysis should be accompanied with a customer segmentation analysis to mix the internal and external view. A feature or product provides the firm with a differentiating competitive advantage only if customers are willing to pay for it. Customer value chains need to be analysed to determine where value is created.
The quantitative analysis is time consuming since it often requires recalibrating the accounting system to allocate costs to individual activities.Â
External environment (Macro)
PESTLE analysis is a useful tool for understanding the industry situation as a whole, and is often used in conjunction with a SWOT analysis to assess the situation of an individual business. An organisation on its own cannot affect environmental factors, but environmental factors can affect the profitability of an industry or an organisation. Conducting a strategic analysis entails scanning through the macro-economic environment to detect and understand long term trends. Macro environment which encompasses the broad environmental system within which organisations conduct its business, it defines or creates the structure of the market place within which organisations operate. The elements that make up the Macro environment consist of political and legal issues, demographic trends, socio cultural influences, economic issues, technological trends and natural factors. As much as organizations can have a little control on the Micro-external environments, they have no control in any way on the elements that make up the Macro-external environments.
Relates to the pressures and opportunities brought by changes of the government and public attitudes toward the industry, changes in political institutions and the direction of political processes, legal issues, and the overall regulatory climate. How changes in government policy might affect the business.
This Refers to economic factors and structures and such variables like the stock exchange, interest and inflation rates, the nation's economic policies and performance, exchange rates, etc. These variables impact differently on different industries.
Â 3.Â Social
This Refers to cultural attitudes, ethical beliefs, shared values, level of differentiation in lifestyle, demographics, education levels, etc. Observing social factors helps organisations maintain their reputation among stakeholders.Â
This Refers to changes in technology that can affect the firm's competitive position. Industries merge; new strategic groups emerge; currents products improve and the cost of production gets reduced by process innovation.
This are issues regarding what are morally right or wrong for a business to do? For instance should an organisation trade with countries which have a poor record on human rights? Or should it do business with countries or organisations that uses child labour?
This refers to the way in which legislation in society affects the business. For instance changes in employment laws on working hours.
Swot analysis: This is a planning method use to evaluate the strength, weaknesses, opportunities and treat to a business. It involves specifying objectives of a business at the same time identifying the internal and external elements that will affect the business both positive and negative in the race to attain its stated objectives. In order for a swot analysis to be useful, desire goal or objectives must be first stated. In Swot analysis, the best strategies accomplish an organisation mission by exploiting an organisation opportunity and strength, while neutralizing its treat and avoiding its weakness. The swot analysis is a technique that can be use to summarise an organisation's internal and external environments.