Operating in a Global Business Environment Chapter 1 Operating in a Global Business Environment

Learning Objectives 1. What are the primary factors and constraints that influence an organization’s strategy and why are these factors important? 2. Why does an organization need to understand its core competencies before considering outsourcing? C1

Continuing . . . Learning Objectives 3. How does an organization’s competitive environment impact its strategy and how might an organization respond to competition? 4. How do the management functions affect strategic and tactical planning? C1

Continuing . . . Learning Objectives 5. What factors have influenced the globalization of businesses and why have these factors been significant? 6. How does the accounting function impact an organization’s ability to successfully achieve its strategic goals and objectives? C1

Continuing . . . Learning Objectives 7. Why is a company segment’s mission affected by product life cycle? 8. What is strategic resource management and why is it important to managers? C1

Global Operations Operating globally creates two primary considerations for an organization: 1. The managers must understand the factors that influence the various international business markets so that the locations in which the company has the strengths and desire to compete can be identified. 2. A company must devise a business strategy or long-term, dynamic plan that fulfills organizational goals and objectives through satisfaction of customer needs or wants within the company’s acknowledged operating markets.

Mission Statement An organization should begin its strategy formulation with a mission statement. This statement should: 1. Clearly state what the organization wants to accomplish. 2. Express how that organization uniquely meets its targeted customers’ needs with its products and services.

Strategy Strategy formulation is the foundation of organizational planning and links an organization’s mission to actual activities. Strategy is the art of creating value. It provides the intellectual frameworks, conceptual models, and governing ideas that allow a company’s managers to identify opportunities for bringing value to customers and for delivering value at a profit.

Factors Influencing Organizational Strategy Organizational Goals and Objectives Organizational Structure Management Style & Organizational Culture Core Competencies Strategic (long-term) Planning Environmental Constraints Organizational Constraints Tactical (short-term) Planning

Organizational Structure An organization is composed of people, non-human resources, and commitments that are acquired and arranged to achieve specified goals and objectives. Goals are desired results expressed in qualitative terms. Objectives are quantitatively expressed results that can be achieved during a preestablished period or by a specified date.

Continuing . . . Organizational Structure The organizational structure reflects the way in which authority and responsibility for making decisions are distributed in an organization. The right to use resources to accomplish a task or achieve an objective is called authority. The obligation to accomplish a task or achieve an objective is called responsibility.

Continuing . . . Organizational Structure A continuum of feasible structures reflects the extent of authority and responsibility of managers and employees. Centralization means that the authority for making decisions is retained by top management. Decentralization means that the authority for making decisions is distributed to many organizational personnel, including lower-level managers and, possibly, line employees.

Centralization The majority of authority is retained Name Title The majority of authority is retained by top management. Name Title Name Title Name Title Name Title

Decentralization Top management delegates decision making to subordinate managers. Name Title Name Title Name Title Name Title Name Title Name Title Name Title Name Title

Continuing . . . Decentralization For decentralization to work effectively, there must be employee empowerment. Employee empowerment means that people are given the authority and responsibility to make their own decisions about their work.

Core Competencies A core competency is any critical function or activity in which one organization has a higher proficiency than its competitors. Core competencies are the roots of competitiveness and competitive advantage. Examples: Technological innovation, engineering, product development, or after-sale service.

Continuing . . . Core Competencies Outsourcing means contracting with outside manufacturers or vendors for necessary goods or services rather than producing the goods or performing the services in-house.

Organizational Constraints A variety of organizational constraints may affect a firm’s strategy options. Three common constraints involve: monetary capital intellectual capital technology

Management Style & Organizational Culture An organization’s management style reflects the preferences of managers in how they interact with the entity’s stakeholders. Management style is exhibited in organization structure, decision-making processes, interpersonal and interorganizational relationships, resource allocations, level of risk adversity, pricing practices, organization financing, and technology availability.

Continuing . . . Management Style & Organizational Culture Organizational culture is the set of basic assumptions about the organization, its goals, and its business practices. Culture refers to the values, beliefs, and attitudes that permeate a business.

Environmental Constraints An environmental constraint is any limitation on strategy caused by external cultural, fiscal (such as taxation structures), legal/regulatory, or political situations and by competitive market structures.

Market Structures The four primary market structures are: 1. pure competition 2. monopolistic competition 3. monopoly 4. oligopoly

Responses to Competition If an organization operates in a competitive market structure, management may choose to avoid competition through: compression of competitive scope differentiation cost leadership

Confrontation Strategy . . . means that an organization tries to differentiate its products/services by introducing new features or tries to develop a price leadership position by dropping prices even though that organization knows that its competitors will rapidly bring out equivalent products or match price changes.

Business Intelligence System A business intelligence (BI) system represents the formal process for gathering and analyzing information and producing intelligence to meet decision making needs. A BI system requires knowledge of: markets technologies competitors

Management Functions 1. planning Managers have multiple organizational functions, three of which are: 1. planning 2. controlling 3. decision making

Global Competition 1. Governments have established trade agreements to reduce tariff barriers and foster global competition. 2. Operating in foreign markets creates greater risks (strategic, operating, financial, and information). 3. Business strategy is influenced by knowledge of and adherence to differing legal requirements 4. Ethical standards vary somewhat by location.

Accounting Function The accounting function can contribute both to organizational strategic and tactical management. Strategic resource management (SRM) links organizational strategy and resource deployment as well as integrates involvement of the accounting function.

Strategic Resource Management The key focus in SRM is the value chain. A value chain is the string of activities that converts organizational inputs to outputs.

The Value Chain and Strategic Resource Management Customer/Market Revenues Products/Services Profits STRATEGIC RESOURCE MANAGEMENT Capital Compensation Labor Inputs Payments Shareholders Employees Suppliers Value Chain