Principles of Business

Purpose of Business – Part 2

2

Overview• Discuss the notion of the free market and concepts of the

invisible hand; critically evaluating the role of business from shareholder value to stakeholder value and sustainability

• Illustrate how organisations are founded and the role of having a purpose and vision in a number of the most impactful and successful businesses e.g Apple, Microsoft and Facebook

• Evaluating the multiple environments in which business operate

• Discuss major trends in globalisation including KPIs of different fast growing countries

• Determine how organisations can do business across borders

• Highlight the major challenges; political, cultural, social and logistical of doing business globally

3

Learning Outcomes

• Critically evaluate the changing nature and role of business

• Determine the role of corporate purpose and vision

• Articulate the multiple environments a business operates in

• Critically evaluate the challenges and

opportunities for businesses operating on a global scale

Role of the free market

It is not from the benevolence of the

butcher, the brewer or the baker, that we expect our

dinner, but from their regard to their own self

interest. We address ourselves, not to their

humanity but to their self-love, and never talk to

them of our own necessities but of their

advantages.

Adam Smith

Characteristics of a free-market; the invisible hand

According to the invisible hand theory, each of us, acting in our own self-interests, generates a demand for goods and services that compels others to deliver

those goods and services in the most efficient manner so that they may be able to receive

compensation from others and make a profit in doing so. In this process, resources are allocated in the most efficient manner, in contrast to a process that relies on a centrally planned system.

An explanation in 60 seconds

View Video: https://www.youtube.com/watch?v=ulyVXa-u4wE

However is it always efficient?

Inefficiencies in the market

Moral Hazard Principle-Agent & Information Asymmetry

Monopolistic CompetitionPublic Interest or Good & Externalities

An example of a free market fall out: The Credit Crisis

View video: https://www.youtube.com/watch?v=bx_LWm6_6tA

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The visible hand:A new form of state capitalism

Source: Economist, 2014

The invisible hand: A myth?

View video: https://www.youtube.com/watch?v=9qjvwQrZmpk

Organisations are to moving beyond self-interest

Why have a Corporate Mission or Vision?

“Data from a 10 year growth study of more than 50,000 brands showed companies with a purpose at the centre of all they do, outperform the market by 400 percent.”

Jim Stengal, Ex-CMO

Procter & Gamble

A Vision Drives

65% to go the extra

mile

2nd most important

hiring reason

64% would be

more loyal

Source: Calling Brands’ survey, You Gov, 2013

The Ashridge Mission Model

Why the company exists

Policies and behaviour patterns

Competitive Position &

Com

petenciesW

hat t

he c

ompa

ny b

elie

ves

in

Success Factors

Source: Ranchhod and Gurau, 2007:16

Market Defined Mission Statement

According to Kotler et al (2013), a mission statement is “a statement of the organisation’s purpose – what it wants to accomplish in the larger environment”

Why

How

What

“Model of Purpose” by Simon Sinek

View video: http://www.ted.com/talks/simon_sinek_how_great_leaders_inspire_action

Consider the role of the founder in creating a mission

Purpose & Culture

Multiple Environments of Business

Source: Bovee, et al, 2013

PE(D)ST Analysis

Economics

Technology

Social

Political

Demographics

EVIDENCE BASED REGULATION

INCREASE IN REGULATOR

ENFORCEMENT

GLOBAL REGULATION & PRIVACY

ASSET PRICES INCREASE

UK RECOVERYROLE OF SOCIAL

FINANCE

60% LIVING IN URBAN AREAS (50% NOW)

5M MORE OVER 65’S>SINGLE PERSON HOMES AND <30S LIVING W PARENTS

ASSET PRICES INCREASE

UK RECOVERYROLE OF SOCIAL

FINANCE

Open vs Closed Mobile & Tablet Digitisation

Conduct a stakeholder analysis

Source: www.staekholdermap.com

Increase in and application of technology

Liberalization of cross-border trade

and resource movements

Forces Driving Globalization

Development of services that support international

business

Growth of consumer pressures

Increased global competition

Forces Driving Globalization

Changing political situations and government

policies

Expanded cross-national

cooperation

Trends in globalisation: Trading blocks

Source: Daniels et al, 2013

Members of Major Trading Blocs

Source: Daniels et al, 2013

FDI Inflows and Outflows

Source: Daniels et al, 2013

Various ways of doing business internationally

Source: Bovee et al, 2013

Challenges in doing business globally

• The external environment affects a company’s international operations

• Managers must understand social science disciplines and how they affect functional business fields

• Consider:

Physical Factors

Social Factors

Competitive Factors

Physical and Social Factors

• Geographic influences– natural conditions influence business locations

• Political policies– countries determine where and how business occurs

within their borders

• Legal policies– influence how a company operates

• Behavioral factors– may require adaptation in to local conditions

• Economic forces – explain differences in costs, currency values, market size

The Competitive Environment

• Competitive strategy for products– Cost strategy– Differentiation strategy– Focus strategy

• Company resources and experience– market leaders have more resources for international

operations

• Competitors faced in each market– local or international

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Essential work for next week

• Please consult the OLE for details of:– Essential readings*– Seminar/workshop preparation work*– Recommended further readings– Any additional learning

* Essential readings and preparation work must always be completed in time for the next session

Appendix – Sources for illustrations

Slide 4:www.whatiseconomics.org

Slide 5:www.thebillyleepontificator.com

Slide 7:www.jupiterjenkins.com

Slide 8:www.imbd.com

Slide 16:www.bombsbeat.com

Slide 14: www.cartoonwork.com

Slide 15: www.unilever.com

Slide 16: www.ted.com

End of presentation

© Pearson College 2013