How to frame a business case
How to frame a business case

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How to frame a business case

3.1 Extracts and texts

Extract 1

The term ‘environment’ in this case refers to much more than the ecological, ‘green’ issues that the word commonly evokes. ‘Environment’ here is more appropriately interpreted as the external context in which organisations find themselves undertaking their activities. Each organisation has a unique external environment that has unique impacts on the organisation, due to the fact that organisations are located in different places and are involved in different business activities, with different products, services, customers, and so on.

(Source: Capon, C., 2004, Understanding Organisational Context, Prentice Hall, p. 278)

Return to:Activity 5

Extract 2

In recent years, the term ‘the environment’ has taken on a rather specialised meaning: it involves ‘green’ issues and the poisoning of our planet by human activity. These concerns are certainly part of our considerations in this book, but we use the term ‘the environment’ in a much broader sense to describe everything and everyone outside the organisation. This includes customers, competitors, suppliers, distributors, government and social institutions.

(Source: Lynch, R., 2003, Corporate Strategy, Pearson Education, Harlow, p. 84)

Return to:Activity 5

Extract 3

A host of external factors influence a firm’s choice of direction and action and, ultimately, its organizational structure and internal processes. These factors which constitute the external environment, can be divided into three interrelated subcategories: factors in the remote environment, factors in the industry environment, and factors in the operating environment. (Many authors refer to the operating environment as the task or competitive environment.) This chapter describes the complex necessities involved in formulating strategies that optimize a firm’s market opportunities. Figure 3-1 [not included] suggests the interrelationship between the firm and its remote, its industry, and its operating environments. In combination, these factors form the basis of the opportunities and threats that a firm faces in its competitive environment.

(Source: Pearce, J.A. and Robinson, R. B., 2000, Strategic Management: formulation, implementation and control, Irwin McGraw-Hill, p. 71)

Return to:Activity 5

Extract 4

In Chapter 1, the interdependence between a business organisation and the environment within which it operates was briefly discussed. It was pointed out that society depends on business organisations for most of the products and services it needs, including the employment opportunities which businesses create. Conversely, business organisations depend on society for the resources they need. Business organisations are not self-sufficient, nor are they self-contained. They obtain resources from and are dependent upon the environment in which they operate. Business organisations and society, or, more specifically, the environment in which they function, therefore, depend on each other. This mutual dependence entails a complex relationship between the two. This relationship increases in complexity when certain variables in the environment, such as technological innovation, economic events or political developments, bring about change in the environment which impacts in different ways on the business organisation.

(Source: de J. Cronje, G.J., du Toit, G.S. and Motlatla, M.D.C., eds, 2004, Introduction to Business Management, 6th edn, OUP, Oxford pp. 81–2)

Return to:Activity 5

Extract 5

Every business is engaged in at least one conversion process, converting inputs to outputs. While doing this it is operating in an environment consisting of a great many elements. The elements in the external environment can be classified by the level of influence that they have on the business and the business has on them. As a result a business can be considered to have two environments, depending on the direction of the influences between the business and the elements within them. First there is the operating environment, composed of elements that the organisation can influence and that also influence the business. Second there is the remote environment, composed of elements on which the individual business has no significant influence but which may have a major effect on the operating environment and on the business.

(Source: Finlay, P., 2000, Strategic Management, Pearson Education, Harlow,p.163)

Return to:Activity 5

Extract 6

Before introducing the models, I will define the [term] ‘Business environment’ ... A ‘business environment’ is a set of external conditions in which an organisation exists and operates. There are two levels of business environment; the market / ‘near environment’ linked to behaviour of organisations within markets and their competitiveness and the ‘wider environment’ which are broader trends and controls outside the immediate control of individual organisations which can also shape the way they behave.

(Source: OU Business School student assignment)

Return to Activity 6

Extract 7

Business does not operate in a vacuum. There is always an environment, ‘a set of external conditions under which a business organisation exists and operates’ (Lucas, 2000, p. 5). When considering a business, its environment, and the way in which they influence each other, it is useful to have a ‘model’, which is a simplified picture of the context in which events are taking place. A model helps to identify external influences on a business and analyse their effects on the behaviour of the business.

(Source: OU Business School student assignment)

Return to: Activity 6 part 2

Extract 8

Organisations operate in a market environment, which is their near or immediate environment. However, there are a wider set of environments, which they operate in. These can be explained using the STEP model. There are four environments: Social, Technological, Economic and Political that influence organisations. Whilst organisations usually have control over the near environment it is the wider environment that controls the organisations, although some businesses can influence their wider environment.

(Source: OU Business School student assignment)

Return to: Activity 6 part 2

Text 9

STEP framework

External environments can be defined and analysed using STEP analysis, which examines the categories into which external influences on the organisation can be placed.

  • ______________ influences on organisations include ... the rules and regulations imposed by government, as well as the influences on organisations of various trade associations, trade unions and chambers of commerce.
  • ______________ influences on organisations include the impact of banks, stock markets, the world money markets, and trading blocs such as the European Union.
  • ______________ influences on organisations include changes in the age and structure of populations, the manner in which populations behave, and the way in which the culture of a population or country changes and develops.
  • ______________ influences include the development of increasingly sophisticated computer hardware and software. The development of media and communications technology covers electronics and telecommunications, including use of the internet. The ongoing development of the internet as a way of doing business and accessing information has meant a whole new ‘media’ which needs to be understood in terms of its potential use and reliability.

Basic analysis of an organisation’s external environment can be done by breaking down the external influences on the organisation into the STEP categories and assessing the impact of the individual elements identified in each category.

(Source: adapted from Capon, C., 2004, Understanding Organisational Context, Prentice Hall, p. 279)

Return to Activity 7

Extract 10

  1. Trainer companies have had to acknowledge that, despite the global status of their products, consumers in different countries have different spending power; therefore, they must tailor their product range and pricing strategy accordingly.
  2. Despite their insistence that their products are primarily sports footwear, they have to respond to fashion trends as well, if they want to ensure that a shoe is a commercial success.
  3. While Nike, Adidas and Reebok all aim for athletic credibility, the design of their shoes must incorporate the influences and styles of popular culture.
  4. They are also able to profit from beneficial trade and tariff agreements, wherever they exist.
  5. The ‘messages’ they use to communicate with various groups of consumers need to be tailored to suit the different market ‘sectors’ for which they manufacture shoes, while maintaining the integrity of their brand identity.
  6. Sales of full-price trainers have also been threatened by supermarket chains importing goods from unauthorised suppliers and selling them at a big discount.
  7. Young people are most likely to spend the highest amount, with 28 per cent of 15 to 19 year olds and 27 per cent of 20 to 24 year olds spending over £100 a year on these products.
  8. Trainer manufacturers have also responded to the growth in e-commerce – sales of training shoes via the internet. Nike sells shoes via its own website, Nike.com, and also owns internet shoe retailer FogDog.
  9. Grant aid was drastically reduced with the result that local authorities either dropped or greatly reduced their insulation programmes.
  10. Although the USA was considered by many to be at least 18 months ahead of the rest of the world in exploiting the internet, Europe had a substantial lead in mobile telephony.
  11. The US could also move directly to third-generation technology, enabling it to catch up with Europe within the next three to four years, emphasising the need for Europe to prove as effective in third-generation mobile telephony as in the current generation.
  12. By the year 2003, communications devices, from computers and televisions to mobile phones, were expected to converge, enabling all to offer the same host of services.
  13. For example in 2000, in the UK alone, Vodafone would have to pay £6 billion to the government for their new 20-year licence, on top of an estimated £4 billion of network spending and handset subsidies.
  14. It was clear to many observers that by hiving off its attractive telecoms activities into a separate company Mannesmann risked becoming vulnerable to an unwelcome take-over.
  15. Tony Blair, the British Prime Minister, however, demanded that Germany treat a British attempt to take over one of its firms with the same fairness extended to Germans buying up businesses in Britain. He rebuked Gerhard Schroeder for fighting the take-over, making it clear that in the new global economy he should not try to block it.
  16. There seems to be widespread suspicion in Germany of everything connected with stock markets. Germany does not have a stock exchange culture, as its economy is dominated by medium-sized companies and companies which are not quoted on the stock market.
(Sources: extracts 1–8 from Sturges, J., 2000, ‘Keep on running: the training shoe business’, B200 case study, OU Business School, Milton Keynes; extract 9 from Wilson, D. and Rosenfeld, H., 1990, Managing Organisations, Text, Readings and Cases, McGraw-Hill, p. 357; extracts 10–16 from a case study on Vodafone’s takeover of Mannesmann, author unknown, 2000, B200 TMA 07, OU Business School, Milton Keynes)

Return to Activity 13

Extract 11

Nike and the vexed issue of corporate responsibility

In the early 1990s, as the first factories in Indonesia were opened, the leading training shoe companies’ strategy of using low-cost Asian labour to manufacture their products came under increasing scrutiny from human rights groups, Christian organisations and even academic institutions. By the end of the decade, campaign groups aimed at stamping out this so-called ‘sweatshop’ production were active in the USA, the UK and Australia. Media interest in the topic was widespread, to the extent that UK magazine The Big Issue was urging its readers not to buy Nike trainers and US satirist Garry Trudeau featured the subject in an 11-part Doonesbury cartoon series.

Most criticism was aimed at the major trainer manufacturers, especially Nike, for reasons of their size and market dominance. The emphasis Nike and its competitors placed on social betterment through physical fitness in their advertising also made them more vulnerable to accusations of mistreatment of their Asian workers.

Initially, the trainer companies tried to divert criticism by claiming that the issue was the responsibility of their subcontractors, but were soon forced to respond when the subject was drawn to the attention of the US State Department. Eventually they were obliged to draw up codes of conduct in an attempt to eradicate human rights abuses in their factories, raise wages, ban harmful chemicals and eradicate the use of under-age labour. This was not sufficient for their critics; instead, it proved to be the first stage in a cycle of criticism and reaction which is still continuing, with the focus shifting from Indonesia to China and Vietnam, and manufacturers still struggling to establish a socially ‘responsible’ image.

While criticism of human rights abuses in training shoe factories is clearly justified, it is interesting to examine the trainer manufacturers’ operations in the context of the prevailing economic situation in countries such as Vietnam and China. Their presence in these countries can be economically critical. China is now the biggest shoe-producing country in the world; Nike is Vietnam’s biggest employer. Jobs are scarce and people want to work for companies like Nike and Reebok. Factory jobs, while badly paid by Western standards, pay twice as much as teachers earn in Vietnam.

Nevertheless, as a result of the continued criticism, corporate responsibility is now a major concern for all trainer companies whose shoes are manufactured in Southeast Asia and China. For example, in 1998 Nike appointed its first new vice-president for corporate and social responsibility and introduced six new corporate responsibility initiatives.

(Source: adapted from Sturges, J., 2000, ‘Keep on running: the training shoe business’, B200 OU Business School case study, The Open University, pp. 24, 26)

Return to Activity 15

Text 12

The growth of closed-circuit television systems

Since 2001, there has been a significant increase in the use of closed-circuit television (CCTV) cameras in public places in the USA and other developed countries. Such cameras have been used in commercial premises in the USA since the early 1970s but, after the terrorist attacks of 11 September 2001, the use of such cameras increased in public areas such as parks and streets. Citizens can now be observed going about their daily business. The number of CCTV cameras in British town centres has rapidly increased in recent years. There are similar increases in Europe and North America. During the early 1990s the total value of the equipment market for CCTV products in the UK was around £100m annually. This rose to £361m between 1996 and 2000.

According to one industry source, ‘Double-digit growth in the video surveillance market has created a huge opportunity for software and chip companies to manage these enormous video streams’. International terrorism and homeland security investments are creating an unprecedented ‘intelligent video’ (IV) growth opportunity with technology playing a major role in future development. New IV networks, automatic edge detection, event characterisation, detailed analytics, and first responder controls represent the future of IV systems just starting to come on line. IV technology represents a major growth opportunity for hardware and software companies wanting to position themselves for growth in the rapidly expanding international security industry. Middle East violence, threats to oil supplies, Chinese and Indian economic growth, Islamic and western cultural tensions, and normal concern for domestic crime will fuel massive potential demand for IV products for a long time to come.

Despite this increasing intrusion into people’s personal lives, there seems to be little chance of privacy protections limiting the use of such technologies. In the USA, public area surveillance does not count as a ‘search’. The outcome of court cases suggests that even covert CCTV surveillance in public areas is lawful.

Civil libertarians and law reform groups have raised concerns about the current lack of statutory controls over the use of public space CCTV. In China, advanced traffic control systems were used to identify thousands of people involved in the Tiananmen Square protests of 1989. In the UK, although the technology behind CCTV has been available since the 1970s, its adoption has been slowed down by political concerns. For example, although the police are keen to have systems adopted, socialist-leaning local authorities have been less welcoming. This was particularly because research showed that the technology could be used against trade unionists, peace campaigners and animal-rights activists. Financial constraints on the spending powers of local authorities also played a role in slowing down the adoption of CCTV technology.

Nevertheless, in the UK, the impetus for the adoption of the technology came with increasing levels of crime in the 1980s and the adoption of privatisation of various public services. This effectively reduced the immediate cost to the public purse of adopting the technology. Also aiding the adoption of the technology was a specific event, the murder of a child in Merseyside. His abduction, which was widely covered in the popular press, was caught on CCTV and this led to the capture of his assailants. As a result, CCTV became more acceptable.

In the UK, CCTV is also being widely used in the field of transport. According to a commentator, ‘many cities, such as Bangkok or Buenos Aires, will accept relatively high levels of congestion, but paralysing gridlock just isn’t economically, socially or politically acceptable in London’. So each part of London’s transport network, buses, underground system and roads – have separate central operations rooms, operating 24 hours a day, seven days a week.

In the medical arena, as well, the CCTV revolution is becoming more prevalent. According to a small-scale evaluation project, residents in a medium secure unit generally supported the use of CCTV at night because it made them feel safer. For example, some respondents said CCTV recordings helped to cut the risk of their property being stolen, while the fire risk was lessened because patients were less likely to smoke in their rooms. It was also popular with patients who disliked being woken up during traditional night-time checks.

Larger evaluation studies have shown more mixed results. In the UK, where reviews have been more common and comprehensive, findings about the effects on crime have been mixed. One recent study compared 13 evaluations of CCTV in city centres and public housing. Of these, five found positive effects (a reduction in offences), three reported undesirable outcomes (actual increases in crime), while in the remaining five studies there appeared to be no effect or the results were unclear.

Mixed findings such as these seem difficult to reconcile with the enthusiasm for public CCTV among local and state governments in Australia. Crime reduction is only one of the rationales for installing a camera system. Another is a desire to improve public perceptions of safety, where Australian evidence is more positive. Research in New South Wales among members of the public reported that the presence of the cameras made them feel safer in the central business district. However, a study for the City of Melbourne found that its cameras had not affected public perceptions.

Concerns about public perceptions help explain the economic and political forces pushing many jurisdictions into installing CCTV systems. They link the uptake of public space CCTV to social trends such as the rise of the ‘stranger society’. In contemporary post-industrial contexts, people tend to become more remote from familial and other traditional constraints, and to become dislocated from community networks. Hence a perceived desire for techniques and procedures, which provide reassurance that public behaviour is being monitored.

Global economic trends also increase pressures on town and city centres to attract their share of tourists, other consumers and investors. CCTV can play an important role in marketing an urban centre as relatively safe. However, it can also exacerbate tendencies to exclude homeless, unemployed and other marginalised people whose presence detracts from the ‘positive vision’ that image makers try to convey.

Example STEP analysis – notes on the growth of CCTV systems

Social

  • increased social acceptance of CCTV
  • increases in crime and terrorism
  • people’s perception that CCTV can make their lives safer
  • high profile cases where CCTV used to catch criminals
  • public opinion that the benefits of such systems outweigh the costs
  • growth of the ‘stranger society’
  • people have fewer links to their social environment
  • feelings of security.

Technological

  • increasingly more versatile or greater functionality
  • intelligent video and internet protocol
  • cheaper products due to technological developments.

Economic

  • CCTV cameras more affordable due to economic growth
  • private sector financing in public sector expenditure so sales not always involving large government expense
  • equipment leased from private sector firms making it more affordable
  • wider political acceptance of private sector funding for public projects
  • local governments need to encourage investment and promote tourism and people’s feeling of security
  • CCTV keeps existing residents or businesses happy, and encourages new ones
  • CCTV for traffic management to reduce congestion.

Political

  • more (political) acceptance of CCTV
  • increasing crime and terrorism
  • despite concerns about personal liberty and human rights
  • US law allows use of CCTV; not a ‘search’; covert use in public places
  • fairly liberal political or legal environment towards CCTV
  • no statutory controls over the use of public space CCTV.
(Source: Haider Ali, 2007, Open University Business School, Milton Keynes)

References

McCahill, M. and Norris, C. (2002) ‘CCTV in Britain’, Working Paper No. 3, March, Centre for Criminology and Criminal Justice, University of Hull.

Mental Health Practice (2006) ‘Patients positive about CCTV’, September, Vol. 10, No. 1.

Murray, L. (2006) ‘Keeping London moving’, Geographical, May [online], www.geographical.co.uk

www.jpfreeman.com/mktreport.htm#report7

www.indigovision.com/site/sections/investor/pdf/Full%20Annual%20Report %202006.pdf

uninews.unimelb.edu.au/articleid_760.html

Return to Activity 16

Text 13

Analysing stakeholders

The analysis of stakeholders involves identifying who they are and considering their power and interest with regard to the organisation. Stakeholders can be identified by brainstorming and shown on a stakeholder diagram. Once identified, the relative power and interest of the stakeholders can be mapped onto a power and interest matrix [diagram]. Additionally this analysis can be extended to consider the reaction, behaviour and position of stakeholders if a particular strategy or plan were to be implemented by the organisation.

Stakeholders with high power and high interest (category D)

Stakeholders with high power and high interest are key players in the organisation and are often involved in managing the organisation and its future. If key players are not directly involved in managing the organisation, it is vital that they are given serious consideration in the development of long-term plans and the future direction of the organisation, as they have the power to block proposed plans and implement their own alternative agenda.

Stakeholders with high power and low interest (category C)

Stakeholders with high power and low interest are those who must be kept satisfied, for example institutional shareholders. Institutional shareholders will often remain compliant while they receive acceptable returns on their investment and are pleased with the organisation’s management and activities. However, the ability of category C stakeholders to reposition themselves on the power and interest matrix into category D and become stakeholders with a continuing high degree of power and an increase in their level of interest should not be under-estimated. [...]

Stakeholders with low power and high interest (category B)

The stakeholders in category B are those with low power and high interest, who are able to exert relatively little power in influencing the organisation and its actions. However, these stakeholders have a high level of interest in the organisation and will voice their concerns if that interest is not being considered in a suitable manner. [...]

Stakeholders with low power and low interest (category A)

Stakeholders with low power and low interest are those in whom the organisation need invest only minimal effort. However, category A stakeholders should not be ignored as they may acquire a stake in the organisation by becoming, for example, a customer, supplier or competitor, which will mean an increased level of interest and/or power.

(Source: Capon, C., 2004, Understanding Organisational Context, Prentice Hall, pp. 387–8, 389)

Return to Activity 18 task 1

Return to Activity 18 task 2

Return to Activity 18 task 3

Text 14

The Automobile Association and the question of demutualisation

The Automobile Association was founded in 1905 by a group of motoring enthusiasts. It was set up as a mutual association. This means that it was owned by its members who had the right to elect the board of directors but did not receive any profits from the organisation. Its founders believed that by joining together as a group of motorists they could obtain better motoring services than they would as individuals. At the time there were many mutual associations owned by their members. The best examples were building societies.

By 1999 the AA had grown into a major organisation. It held around half the motor breakdown market, a market that was experiencing significant change. These changes included the acquisition of Green Flag by Cendant, the entry of the insurance company Direct Line into the market, and the RAC’s expected trade sale or flotation.

During the 1990s, many mutual associations had ‘demutualised’. That is they changed from being mutual associations with members to being public limited companies with shareholders. These shareholders could now receive a share of the profits of the organisation. When an organisation demutualised, the members of the organisation also received a windfall payment which was often very large. For this reason demutualization was usually very popular with members of mutual associations.

In April 1999 the AA began to consider its options with regard to retaining its mutual status or demutualising. It was rumoured that Ford had informally approached the AA with a takeover offer that would end the latter’s mutual status. Other interested bidders were thought to include Centrica and a number of venture capitalists. The then Director-General of the AA, John Maxwell, initiated a strategic review to allow the AA to assess its options. The options available included demutualisation, a joint venture with a suitable partner or takeover by another company. The merchant bank Schroders was advising the AA.

In 1999 the AA had annual sales of around £600 million from its businesses, which included roadside service, publications and driving schools, and its value was estimated to between £1 billion and £1.5 billion. Pursuit of the demutualization option and stock-market flotation would give each full member of the AA a moderate windfall of £200–250. In 1999 the AA had 9.5 million members, of which 4.3 million were full-paying members who would receive the windfall payouts. However, excluded from the demutualisation windfall were the 1.7 million associate members, including the families of full-paying members who benefit from the association’s services, and the 3.5 million members who are drivers of fleet cars with AA cover and drivers who received their AA membership as part of a package when purchasing a car.

The members of the AA were balloted in August 1999 on the proposed sale of the AA to Centrica. The result of the ballot was announced in mid-September 1999 and showed 67 per cent of eligible members voted and 96 per cent of them voted in favour of the sale. The sale to Centrica was completed in July 2000 for £1.1 billion.

(Source: adapted from Capon, C., 2004, Understanding Organisational Context, Prentice Hall, pp. 389–90)

Return to assignment title

Extract 15

Use the stakeholder model of the business environment to analyse the main influences on the Automobile Association during its demutualisation process.

Heading ________________________________________________

The category ______stakeholders are those with ______power and ______ interest. For the AA, non-members fell into this category. They were unable to receive breakdown services from the organisation and had ______ influence over its demutualisation decision. However, it should be recognised that stakeholders’ power and influence can alter over time. The opportunity of a £200-250 windfall might have encouraged some non-members to become members and move to category ______, ______ interest and ______ power.

If the number of new full members joining had been very large and there was no differentiation between new and longer-term members, the value of the windfall paid to full members could have decreased. This could have pushed longer-term full members to seek to lobby or influence John Maxwell and his management team to distinguish between long- and short-term members.

Heading ________________________________________________

The merchant bank Schroders was a category ______stakeholder, as it had relatively little interest in whether the AA finally decided to demutualise. However, as corporate adviser to the AA, it was relatively powerful as it was able to advise and potentially influence John Maxwell and his management team.

Heading ________________________________________________

The category ______ stakeholders, those with ______ interest and ______power in the demutualisation issue, included associate members and employees. The associate members clearly had a______ interest in whether or not the AA decided to demutualise. The primary concerns for associate members were the effect of demutualisation on the services they received and the cost of associate membership. However, as non-voting members, associates had ______power to influence the outcome of any ballot on demutualisation. Equally, employees had a______ interest in the future of the AA and would be concerned as to the effects of demutualisation. Potential effects of demutualisation could have included the AA becoming more competitive and this being achieved via cost cutting and job losses. However, employees had no direct role in the ballot and would ultimately have to accept its outcome.

However, also with ______ interest and ______ power were other stakeholders like potential bidders such as Ford and competitors like Direct Line and Green Flag. These were external stakeholders with a ______interest in what the AA would eventually decide to do, as their business and the marketplace in which they operated would be directly influenced by that decision.

Heading ________________________________________________

The key players were the Director-General of the AA and his immediate management team carrying out the strategic review, as well as the full members of the AA. John Maxwell and his management team were key players with ______ power and ______ interest, as their planning and decision making would determine their future with the AA, the future of the AA, the future of those who worked for the AA, and the future of AA members. The full members would collectively decide whether the AA would demutualise. They might have chosen to support any demutualization recommendations made by John Maxwell and his team, or to reject them in favour of a bidder, such as Ford, buying the AA.

(Source: based on Capon, 2004, Understanding Organisational Context, Prentice Hall, pp. 390–2)

Return to Activity 19

Text 16

TextNotes
Paragraph 1
The AA and stakeholders with high power and high interest (category D)
The key players were the Director-General of the AA and his immediate management team carrying out the strategic review, as well as the full members of the AA. John Maxwell and his management team were key players with high power and high interest, as their planning and decision making would determine their future with the AA, the future of the AA, the future of those who worked for the AA, and the future of AA members. The full members would collectively decide whether the AA would demutualise. They might have chosen to support any demutualisation recommendations made by John Maxwell and his team, or to reject them in favour of a bidder, such as Ford, buying the AA.                                         
Paragraph 2
The AA and stakeholders with high power and low interest (category C)
The merchant bank Schroders was a category C stakeholder, as it had relatively little interest in whether the AA finally decided to demutualise. However, as corporate adviser to the AA, it was relatively powerful as it was able to advise and potentially influence John Maxwell and his management team.
Paragraph 3
The AA and stakeholders with low power and high interest (category B)
The category B stakeholders, those with high interest and low power in the demutualisation issue, included associate members and employees. The associate members clearly had a high interest in whether or not the AA decided to demutualise. The primary concerns for associate members were the effect of demutualisation on the services they received and the cost of associate membership. However, as non-voting members, associates had no direct power to influence the outcome of any ballot on demutualisation. Equally, employees had a high interest in the future of the AA and would be concerned as to the effects of demutualisation.Potential effects of demutualisation could have included the AA becoming more competitive and this being achieved via cost cutting and job losses. However, employees had no direct role in the ballot and would ultimately have to accept its outcome.
Paragraph 4
However, also with high interest and low power were other stakeholders like potential bidders such as Ford and competitors like Direct Line and Green Flag. These were external stakeholders with a great deal of interest in what the AA would eventually decide to do, as their business and the marketplace in which they operated would be directly influenced by that decision.
Paragraph 5
The AA and stakeholders with low power and low interest (category A)
The category A stakeholders are those with low power and low interest. For the AA, non-members fell into this category. They were unable to receive breakdown services from the organisation and had no influence over its demutualisation decision. However, it should be recognised that stakeholders’ power and influence can alter over time. The opportunity of a £200–250 windfall might have encouraged some non-members to become members and move to category D, high interest and high power.
Paragraph 6
If the number of new full members joining had been very large and there was no differentiation between new and longer-term members, the value of the windfall paid to full members could have decreased. This could have pushed longer-term full members to seek to lobby or influence John Maxwell and his management team to distinguish between long-and short-term members.
(Source: Capon, 2004, Understanding Organisational Context, Prentice Hall, pp. 389–92)

Return to Activity 20

Text 17

Use the stakeholder model of the business environment to analyse the main influences on Nike evident in the case study

Business does not operate in a vacuum. There is always an environment, ‘a set of external conditions under which a business organisation exists and operates’ (Lucas, 2000, p.5). When considering a business, its environment, and the way in which they influence each other, it is useful to have a ‘model’, which is a simplified picture of the context in which events are taking place. A model helps to identify external influences on a business and analyse their effects on the behaviour of the business.

The model which will be used in this essay is the stakeholder model. This model ‘allows us to view the various individuals and power groups with interests in the organisation – stakeholders – attempting to exert influence’ (Lucas, 2000, p.60). The concepts of influence and power are central to this model. It analyses who has an interest – a ‘stake’ – in how a business behaves, and who actually has the power to exert an effective influence. This model will be used to analyse the influences on the large multi-national corporation, Nike, as shown in the case study ‘Keep on running; the training shoe business’ (Sturges, 2000).

The case study gives several instances of the importance to Nike of consumers, a significant stakeholder group. This group exert a powerful influence over the business behaviour of the company because of their spending power – over £1 billion was spent on training shoes in the UK in 1998 (Sturges, 2000, p.11). An example of consumer influence is the ‘pyramid segmentation’ system (Gordon, OU, video), which ensures that a design is made available only to a very exclusive group of consumers at first, and then withdrawn for several months before being marketed more broadly. ... This influential group must be won over in order to make the shoe desirable to the larger consumer group with the financial power.

The power of the consumer to influence the business behaviour of Nike is also seen in the issue of corporate responsibility. The case study describes how Nike and other trainer companies initially responded to criticism of working conditions in Indonesia ‘by claiming that the issue was the responsibility of their subcontractors’ (Sturges, 2000, p.30). As consumers took an increasing interest in Nike’s business practices in the third world, they exerted influence on the company. By the end of the 1990’s corporate responsibility was ‘perceived as an important means of establishing their credibility with their customers, current and future, as they attempt to expand sales of their product throughout the world’ (Sturges, 2000, p.31).

[...]

The group of employees is another stakeholder exerting influence on Nike, with a stark contrast between the direct employees in the West and the subcontracted workers in the third world. The factory workers have virtually no power over policy decisions. ‘It is no coincidence, it is argued, that the manufacture of training shoes takes place in countries such as Indonesia and China which have repressive governments and weak labour unions’ (Sturges, 2000, p.28). Unfortunately, these unskilled workers are seen as easily replaceable, unlike the cosseted team in the United States. It was part of Nike’s original successful strategy to recognise that value is added to shoes not in the manufacturing, but in the design and marketing (Sturges, 2000, p.21). The small number of employees with those skills give Nike an edge with the consumer. These people have influence within the company.

When the stakeholder model is used to analyse the influences on Nike evident in the case study, the most influential group appears to be the consumers. Other models would perhaps highlight different elements in the business environment. One such model is the STEP checklist, which places external influences into four categories – social, technological, economic and political (Armson et al., 2000, p.12). The situation of sub-contracted workers might have more prominence in Nike’s environment if one looked from apolitical viewpoint. The trainer companies ‘were forced to respond when the subject was drawn to the attention of the US State Department’ (Sturges, 2000, p.30). Here is an influence which the stakeholder model does not emphasise.

When looking from an economic viewpoint, shareholders would become more prominent. Nike needs capital investment to sustain its success, and shareholders must be given a profit. Much of the Nike image involves masking the profit motive and portraying a company dealing in life-styles, but the underlying aim is still ‘to boost the worth of their products by attaching social, cultural and emotional values to them’ (Sturges, 2000, p.33, my italics). As Phil Knight says, ‘When you go to buy a shoe, you’re not buying one from each company, you’re going to buy one pair. We’re going to try as hard as we can to make that shoe Nike’ (OU video). The power of the shareholders, and the continual imperative to make large profits which influences every business decision made by Nike, is clearer when the STEP model focuses attention on economics.

To conclude, the case study presents a variety of influences on Nike. Skilled employees, competitors and governments cannot be ignored and have a degree of influence. The most influential stakeholder groups are shareholders and consumers, who keep Nike constantly battling for the markets – ‘innovate or die’ (Riley, OU video).

References

Armson, R., Martin, J., Carr, S., Spear, R. and Walsh, T. (2000) ‘Identifying Environmental Issues’, in Lucas, M. (ed.) Understanding Business: Environments, London, Routledge / The Open University.

Farris, Nelson, Nike Director of Corporate Education, on B200, Understanding Business Behaviour Video (2000) ‘Keep on running: the training shoe business’, VC1188, The Open University Business School, Milton Keynes.

Gordon, Deedee, Trend Forecasting Consultant, on B200 Understanding Business Behaviour Video, (2000) ‘Keep on running: the training shoe business’, VC1188, The Open University Business School, Milton Keynes.

Lucas, M. (2000) Environments. Module 1 Study Guide, The Open University Business School, Milton Keynes.

Riley, Ray, Design Director for New Business, Nike, on B200, Understanding Business Behaviour Video (2000) ‘Keep on running: the training shoe business’, VC1188, The Open University Business School, Milton Keynes.

Sturges, Jane. (2000) ‘Keep on running: the training shoe business’, The Open University Business School, Milton Keynes.

(Source: adapted from OU Business School student assignment)
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