The Strategic Importance of Knowledge Management and Intellectual Capital to the Development and Sustainability of a Business
‘The strategic importance of knowledge management and intellectual capital has become increasingly central to the development and sustainability of a business’s competitive advantage.’ Explain what is meant by this statement. Illustrate your answer with examples from one organisation with which you are familiar. “The only certainty is uncertainty” 1 with this in mind the knowledge and intellectual capital of an organisation is a critical factor in defining competitive advantage and a key strategic resource and the ability of any company to create a product or service. Customers now have more and more choice in where to purchase goods or procure services especially with the world becoming smaller due to the growth of the internet this means a company must focus on core competencies and create a unique offering to its customers current and potential. It is creating these core competencies that allow an organisation to create a competitive advantage, core competencies has led to outsourcing non core competencies. This creates a larger emphasis on sharing knowledge and compiles expertise from all areas of a business; this will help improve a business’s competitive advantage. A business must successfully integrate their knowledge, local expertise and all competencies to offer a comprehensive service or product. Intellectual capital is becoming one of the most important assets a business can have and by managing knowledge assets correctly and using the knowledge gained from one part of the business effectively in another a business can improve competitiveness. Knowledge Management has grown in recent years due to the development of technology which has made collating and sharing information quicker and simpler, allowing businesses to use knowledge and intellectual capital easily and develop a competitive advantage because of it. It is critical for an organisation to know what they know to allow them to build and sustain competitive advantage over their rivals current and potential. Knowledge management is the effective process of collecting, storing and accessing information and use it in day to day operation as well as long term strategies. Despite the growing awareness of Knowledge Management as a powerful toll in obtaining competitive advantage very few understand how to quantify this in terms of a return on investment or business performance. That does not detract from the point that businesses are accepting that the best way to create and maintain a competitive advantage is in collecting and effectively using new and existing knowledge. Businesses are looking for ways to use what they know about their products, customers and processes to deliver bespoke solutions to individuals. Knowledge Management in action July 1999 saw managers in Siemens ' telecommunications division left at Lake Starnberger, to build rafts, with the raw materials and no talking allowed the managers, by only scribbling messages and diagrams on a paper they put together a small fleet of rafts to cross the lake. 2 This exercise highlighted how vital it is to share information to achieve a goal and how the simple principles of a raft build can be transferred to how a business communicates and what can be achieved if knowledge is shared and discussed.
1 Nonaka, I. (1991) ‘The knowledge creating company’, Harvard Business Review, Vol. 69,
2
No. 6, pp.96–104. BW Online | March 19, 2001 | Sharing the Wealth. 2012. BW Online | March 19, 2001 | Sharing the Wealth. [ONLINE] Available at:http://www.businessweek.com/magazine/content/01_12/b3724638.htm. [Accessed 03 April 2012].
Joachim D created the exercise a Siemens VP whose aim was to develop a Knowledge Management system to stop employees keeping beneficial knowledge to themselves. The plan was to create a web based system called ShareNet which would feature a chat room, database and search engine to allow the 461,000 workers worldwide to share knowledge with each other by an access point that would allow employees to share any information they believed would benefit an individual or the business. Since the start of ShareNet in 1999 almost 12,000 salespeople in Siemens have used the web based tool. $122 million in sales has been generated and a crucial $3 million contract for Telekom Malaysia was won when local sales people did not have the expertise but with ShareNet a team was discovered in Denmark to handle the contract. A $460,000 contract for two Swiss hospitals was won even thought the quote was higher as ShareNet was able to prove Siemens would be more reliable in the long run. If ShareNet is used and additional sales created Siemens Managers receive bonuses and CEO’s and CFO’s cannot receive their entire bonus if they cannot prove that they gave information or used information from ShareNet to generate sales. Those paid on commission learnt quickly the extreme benefits of ShareNet and that those who did had an advantage which could help gain contracts and customers due to an increase in knowledge offered by colleagues they may never have met. This case shows clearly what can be achieved with Knowledge Management. A business like Siemens can unlock a significant amount of potential by using the knowledge held by its entire workforce. Siemens plan to take the system across the whole of the business and not restrict it to the telecommunications division. In 1999 only 6% of global corporations had a companywide KM programme but this was projected to surge to 60% within 5 years with Chevron, Ford Motor & Johnson & Johnson adopting the strategy quickly.3 Knowledge Management is an excellent tool as long as it is not overloaded, to this end Siemens has a team checking information for relevance and remove any trivial data, this keeps ShareNet streamlined and will prevent employees using it inappropriately or rejecting use of it by deeming it a pointless exercise because you have to wade through Gigabytes of data before finding something useful and relevant.
Globalisation has been arguably the single most influential emerging business theme in the past 15 years. Discuss the implications for one selected organisation. In particular how managers may need to react to take advantage of the resulting opportunities, and/or to avoid potential dangers over the remainder of the current decade.
3
BW Online | March 19, 2001 | Sharing the Wealth. 2012. BW Online | March 19, 2001 | Sharing the Wealth. [ONLINE] Available at: http://www.businessweek.com/magazine/content/01_12/b3724638.htm. [Accessed 04 April 2012].
Globalisation refers to the increasingly global relationships of culture, people, and economic activity 4 often referred to as economic globalisation it is changing the way the economic world operates in different ways however the pursuit of economic gain should not be the only aim, sustainability and equality must are issues that need to be considered and a balance achieved and maintained. Economic globalisation comprises the globalisation of production, markets, competition, technology, 5 and corporations and industries. It is argued that a global fully integrated business model will offer better choice, service and products to customers – but can a one size fits all approach be taken when making a company a global business? The world is a varied place for many reasons and the model below (adapted from Hawkins) shows dimensions any business must be aware of when adopting a global strategy.
A business that has embraced globilisation is McDonalds. They have products that have a strong convergence of tastes and preferences across the globe (though some regional differences do apply) and due to the volume of supplies that are required by the company economies of scale play a large factor in McDonalds when dealing with suppliers. These factors contribute to McDonalds being a classic case of globalisation. However they have made mistakes in the past and have several challenges for the future. Mistakes aside many other corporations have copied McDonalds business model when it comes to expansion and strategy leading to the term McDonaldization 6 which discusses not only the impact of the company in the business world but also culturally. In 2011 Mcdonalds was rated the 4th most valuable brand in the world and from humble begingings as a BBQ restaurant in 1940 now serves 68 million customers daily in 119 countries7
4
Globalization - Wikipedia, the free encyclopedia. 2012. Globalization - Wikipedia, the free encyclopedia. [ONLINE] Available at:http://en.wikipedia.org/wiki/Globalization. [Accessed 04 April 2012]. 5 Rakesh Mohan Joshi, 2009. International Business. Edition. Oxford University Press, USA. 6 7
George Ritzer, 2004. The McDonaldization of Society. Revised Edition. Sage Publications, Inc. McDonald 's - Wikipedia, the free encyclopedia. 2012. McDonald 's - Wikipedia, the free encyclopedia. [ONLINE] Available at:http://en.wikipedia.org/wiki/McDonald 's. [Accessed 03 April 2012].
How does the diagram above reflect the globalisation of McDonalds? There are several key areas McDonalds has needed to address in its global strategy and some that it needs to continue to consider. Culture: Operating in 119 countries McDonalds has had to overcome and embrace the cultures and diversity of the different countries it has taken its product and brand to. A significant change in strategy and product has been demonstrated in emerging markets like India & China, as the Asian regions become a more dominant economic power and more affluent a high degree of cultural understanding has become and will continue to be important. In India the traditional beef patty has been replaced with lamb to show sensitivity to religious beliefs, the company must however ensure that all areas of its operation are sensitive to cultural differences as the faced a law suit in India over claims the French fries used beef fat in production. In China the design of restaurants has been modified to suit the build of Chinese customers. While McDonalds continues to tailor its menu options and restaurants to a countries beliefs and taste in the next 10 years a much larger cultural change will become apparent as consumers look for healthy options in fast food. 60% of British adults and a third of 10-11 year olds are obese, the rapid emergence of Subway, which is perceived as a healthy alternative, highlights this. McDonalds has already started to introduce healthy low fat items to its offerings but this is something that must continue and products must be tailored and improved. Also McDonalds has not been included in a recent UK Government anti obesity scheme – something that has not been perceived well, the company should ask to be included form a PR perspective. McDonaldization 8 is a concept already mentioned that which discusses when a culture can be comapred to a fast food restaurant. This shows the impact McDonalds had had on the world in general. Politics: McDonalds has to be seen from a political point of view to be working to reduce the increase in obesity with particular attention to childhood obesity. As a company McDonalds is regularly under fire for contributing to poor diets. A recent press release in America saw the company announce Healthier changes to its Happy Meals 9 however this was met with a poor response “So all the fuss—and McDonald’s has gotten huge press over this—is about 3 or 4 small slices of apples, one ounce less of French fries, and less sodium.” 10 The company must also be careful to not repeat the mistakes of the past and be sensitive to the issues in the world. In 2002 and again in 2008 the McAfrika was launched as a tie in to the Olympic Games a massive promotion at a time when starvation in Africa was receiving significant press coverage, the company suffered a massive back lash and instantly installed famine collection boxes in restaurants as an apology, but the damage was done.
8 9
10
at: http://phx.corporate-ir.net/phoenix.zhtml?c=97876&p=irol-newsArticle&ID=1642021&highlight=. [Accessed 03 April 2012]. Food Politics » Let’s talk about McDonald’s Happy Meals changes. 2012.Food Politics » Let’s talk about McDonald’s Happy Meals changes. [ONLINE] Available at: http://www.foodpolitics.com/2011/07/lets-talk-about-mcdonalds-happy-mealschanges/. [Accessed 03 April 2012].
George Ritzer, 2004. The McDonaldization of Society. Revised Edition. Sage Publications, Inc. McDonald 's Corporation - Press Release. 2012. McDonald 's Corporation - Press Release. [ONLINE] Available
"It 's inappropriate and distasteful to launch a hamburger called McAfrika when large portions of southern Africa are on the verge of starvation," 11
Environment: McDonalds will always be a target of environmental groups for the following reasons to name only a few, • • • The produce millions of tons of packaging that is used quickly then discarded. They create litter in the vicinity of their restaurants – but whose fault is that? The customers or the business? The sheer scale of their operation must contribute to loss of natural resources, global warming etc…
To combat this McDonalds must at all times look for new ways to increase its recycling and reduce the initial packaging. Many efforts have already been made for example increasing the size of fry boxes from 36 to 39lbs reducing cardboard by 2 million pounds per year 12 McDonalds’ must continue to be at the front of the queue where the environment is concerned and management at all levels will need to continue to find new ways to protect the environment while being financially astute. This may well be the one of the largest challenges they will face in the next 5 years. Finance: With the recent economic downturn it is a critical time for any company spreading across the world. McDonalds has seen this in Iceland where the collapse of the economy has led to operations being stopped a reversal in McDonald’s trend of increasing international operations. 13 This was due to the franchise agreements stipulating that all purchases be bought and imported from Germany. With the low value of the Iceland currency this made the operation to expensive and the prices that would need to be charged to the consumer as a direct result uncompetitive. With the current economic issues facing several countries (Ireland, Greece to name a few) it is clear McDonalds may need to review some of its policies in light of them. If they want franchisees to continue to invest help may be needed from a financial perspective or assistance in using local produce over imported to drive down cost while still maintaining quality. From a positive perspective McDonald’s international business has protected it from the housing led downturn of the US market 14 McDonalds expansion overseas was evident long before the economic crash as in 2006, 233 of 280 or well over half of the new McDonalds opened were overseas. In 2007, Japan had 2,828 McDonald’s locations.15
11
New from McDonald 's: the McAfrika burger (don 't tell the 12m starving) | World news | The Guardian . 2012. New from McDonald 's: the McAfrika burger (don 't tell the 12m starving) | World news | The Guardian . [ONLINE] Available at:http://www.guardian.co.uk/world/2002/aug/24/famine.andrewosborn. [Accessed 03 April 2012].
12
2012. . [ONLINE] Available at:http://www.sustainabilityinstitute.org/dhm_archive/index.php?display_article=vn304mcdonaldsed. [Accessed 03 April 2012]. 13 McDonalds and De-Globalization | World Politics News Review. 2012.McDonalds and De-Globalization | World Politics News Review. [ONLINE] Available at: http://worldpoliticsblog.wordpress.com/2009/10/26/mcdonalds-and-de-globalization/. [Accessed 04 April 2012]. 14 Globalization Strategy of McDonald 's Corporation - Business Strategy Case Studies - Case Study in Business, Management. 2012. Globalization Strategy of McDonald 's Corporation - Business Strategy Case Studies - Case Study in Business, Management. [ONLINE] Available at:http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/BSTR310.htm. [Accessed 04 April 2012] 15 Economic globalization - Wikipedia, the free encyclopedia. 2012. Economic globalization - Wikipedia, the free encyclopedia. [ONLINE] Available at:http://en.wikipedia.org/wiki/Economic_globalization. [Accessed 04 April 2012
.
Assessing the nature of the change required when an organisation responds to emerging business themes often necessitates the use of a range of management tools as outlined in Unit 3 of the ILearn module materials. Select any two such tools and contrast their usefulness to managers seeking to identify examples of current issues facing their organisation. Illustrate your answer with examples from one organisation with which you are familiar. In 2011 Haven Holidays a major UK holiday company was attacked on watchdog for poor service, standards and for not offering what the customer wanted. They were accused of being only driven by financial targets and achievements and sought at every opportunity to extract money from customers staying on its parks. The business was forced to re-evaluate itself in light of this strong and public criticism and change direction to ensure it repaired its image, retained its existing customers and while delivering a quality product and service still delivered financial obligations. Balanced Score Card: For Haven to begin a Balanced Scorecard approach, it must revisit its mission statement and its current strategic plan and its visions. From this the company must also look inward at its current financial position, the structure it has adopted, how proficient its team is and how it is performing in the areas of customer satisfaction. A Balanced Scorecard usually has four areas of focus • • • • Financial Internal business processes Learning & Growth (human focus, or learning and development) Customer
The table below indicates what areas within these factors can be examined for improvement.16
Department
Finance
Areas
Return On Investment Cash Flow Return on Capital Employed Financial Results (Quarterly/Yearly) Number of activities per function Duplicate activities across functions Process alignment (is the right process in the right department?) Process bottlenecks Process automation Is there the correct level of expertise for the job? Employee turnover Job satisfaction Training/Learning opportunities Delivery performance to customer Quality performance for customer Customer satisfaction rate Customer percentage of market Customer retention rate
Internal Business Processes
Learning & Growth
Customer
16
Balanced Scorecards explanation, examples, aims, implementation and teaching aid diagram for the concept.. 2012. Balanced Scorecards explanation, examples, aims, implementation and teaching aid diagram for the concept.. [ONLINE] Available at:http://www.businessballs.com/balanced_scorecard.htm. [Accessed 09 April 2012].
From experience of the company Haven has specific issues in internal processes, specifically in duplicating activities across functions in the online and offline marketing teams, in job satisfaction and employee turnover and finally in many elements of customer satisfaction. Haven has been accused in the past of focusing purely on financial targets and return on investment, often at the cost of its employees and its customers. The balanced scorecard approach allows Haven to be focused on its financial targets and aims but pushes them to focus on other areas as well that they may be neglecting. Once these areas have been identified a set of SMART objectives can be set to bring the business back into balance. E.g. To improve customer retention rate for the 2013 season by proactively targeting existing customers with the best advance offers, this will allow Haven to streamline its marketing, satisfy and reward its existing customers and deliver its financial obligations. Customer Relationship Management: Customers are the lifeblood of any organization be it a global corporation with thousands of employees and a multi-billion turnover, or a sole trader with a handful of regular customers.17 With this in mind a business’s customers are critical and how you manage your relationship with them also. Haven made the statement to its teams that they wanted to not only retain and try to entice back unhappy customers but it wanted to take all those customers who “liked” them and change that feeling to “loving them”. Customer Relationship Management (CRM) is the area Haven will need to work on to achieve this. A successful business will always aim to retain a strong customer base, as the cost of attracting a new customer is much higher than that of communicating with those that understand the product and service and have a preference to purchase it. Customer intimacy is a key factor in CRM as customer loyalty will be achieved through it and the potential of going to a competitor will be reduced. To be able to reach a significant level of customer intimacy Haven will need extensive knowledge of its customers and what they really want from the product and service they are offering. To this end Haven recruited the services of Pretty Little Head a research firm specialising in researching what makes a women pick a particular product as Haven had realised that it was the mother of a family that ultimately makes the decision on where a family will go on holiday. This research has lead to Haven building a stronger customer relationship with its female customers and developing a stronger level of intimacy with them as well.
Haven managers will see the business reap certain benefits by using effective CRM for example reduced costs will be realized due to less marketing being needed to recruit new customers as the business retains existing customers who return, customer satisfaction will increase and customer will become advocates of the business leading to referrals that will increase the customer base at no extra cost, these factors will help generate long term profit and a sustainable business. For Haven to maintain these advantages they need to retain focus on CRM and monitor it.
By effective use of CRM Haven can ultimately increase its profits to the target it is aiming for by 2015, and they will achieve this by reaching and exceeding its existing customers expectations, this will have the benefits of reducing marketing and compensation costs, as well as reducing the companies
17
CRM, customer relationship management solutions, software, system management: a guide to CRM application strategy. 2012. CRM, customer relationship management solutions, software, system management: a guide to CRM application strategy. [ONLINE] Available at:http://www.businessballs.com/crmcustomerrelationshipmanagement.htm. [Accessed 09 April 2012].
complaint ratio. This increased level of customer service (a major issue for the company) will also help in the reduction of stress experienced by Haven staff – this will help contribute to the a reduction in staff turnover which currently sits at around 40% due to a high level of stress, this will also help reduce costs. By offering effective CRM Haven have the ability to actually ask its customers what it wants to see changing from the company through constructive criticism instead of complaints. This will give the company the opportunity to develop faster and better than its competitors giving them a competitive advantage. The information they will receive will also allow the company to stop fire fighting and be proactive. In short effective CRM will lead to Haven experiencing happier customers, reduced costs in multiple areas and a happy and more consistent team.
Bibliography
Nonaka, I. (1991) ‘The knowledge creating company’, Harvard Business Review, Vol. 69, No. 6, pp.96–104.
BW Online | March 19, 2001 | Sharing the Wealth. 2012. BW Online | March 19, 2001 | Sharing the Wealth. [ONLINE] Available at:http://www.businessweek.com/magazine/content/01_12/b3724638.htm. [Accessed 03 April 2012]. BW Online | March 19, 2001 | Sharing the Wealth. 2012. BW Online | March 19, 2001 | Sharing the Wealth. [ONLINE] Available at: http://www.businessweek.com/magazine/content/01_12/b3724638.htm. [Accessed 04 April 2012]. Globalization - Wikipedia, the free encyclopedia. 2012. Globalization - Wikipedia, the free encyclopedia. [ONLINE] Available at:http://en.wikipedia.org/wiki/Globalization. [Accessed 04 April 2012].
Rakesh Mohan Joshi, 2009. International Business. Edition. Oxford University Press, USA. George Ritzer, 2004. The McDonaldization of Society. Revised Edition. Sage Publications, Inc. McDonald 's - Wikipedia, the free encyclopedia. 2012. McDonald 's - Wikipedia, the free encyclopedia. [ONLINE] Available at:http://en.wikipedia.org/wiki/McDonald 's. [Accessed 03 April 2012]. George Ritzer, 2004. The McDonaldization of Society. Revised Edition. Sage Publications, Inc. McDonald 's Corporation - Press Release. 2012. McDonald 's Corporation - Press Release. [ONLINE] Available at: http://phx.corporate-ir.net/phoenix.zhtml?c=97876&p=irol-newsArticle&ID=1642021&highlight=. [Accessed 03 April 2012]. Food Politics » Let’s talk about McDonald’s Happy Meals changes. 2012.Food Politics » Let’s talk about McDonald’s Happy Meals changes. [ONLINE] Available at: http://www.foodpolitics.com/2011/07/lets-talk-about-mcdonalds-happy-meals-changes/. [Accessed 03 April 2012].
New from McDonald 's: the McAfrika burger (don 't tell the 12m starving) | World news | The Guardian . 2012. New from McDonald 's: the McAfrika burger (don 't tell the 12m starving) | World news | The Guardian . [ONLINE] Available at:http://www.guardian.co.uk/world/2002/aug/24/famine.andrewosborn. [Accessed 03 April 2012].
. 2012. . [ONLINE] Available at:http://www.sustainabilityinstitute.org/dhm_archive/index.php?display_article=vn304mcdonaldsed. [Accessed 03 April 2012].
McDonalds and De-Globalization | World Politics News Review. 2012.McDonalds and De-Globalization | World Politics News Review. [ONLINE] Available at: http://worldpoliticsblog.wordpress.com/2009/10/26/mcdonalds-and-de-globalization/. [Accessed 04 April 2012].
Globalization Strategy of McDonald 's Corporation - Business Strategy Case Studies - Case Study in Business, Management. 2012. Globalization Strategy of McDonald 's Corporation - Business Strategy Case Studies - Case Study in Business, Management. [ONLINE] Available at:http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/BSTR310.htm. [Accessed 04 April 2012]
Economic globalization - Wikipedia, the free encyclopedia. 2012. Economic globalization - Wikipedia, the free encyclopedia. [ONLINE] Available at:http://en.wikipedia.org/wiki/Economic_globalization. [Accessed 04 April 2012
Balanced Scorecards explanation, examples, aims, implementation and teaching aid diagram for the concept.. 2012. Balanced Scorecards explanation, examples, aims, implementation and teaching aid diagram for the concept.. [ONLINE] Available at:http://www.businessballs.com/balanced_scorecard.htm. [Accessed 09 April 2012].
CRM, customer relationship management solutions, software, system management: a guide to CRM application strategy. 2012. CRM, customer relationship management solutions, software, system management: a guide to CRM application strategy. [ONLINE] Available at:http://www.businessballs.com/crmcustomerrelationshipmanagement.htm. [Accessed 09 April 2012].
Bibliography: Nonaka, I. (1991) ‘The knowledge creating company’, Harvard Business Review, Vol. 69, No. 6, pp.96–104. BW Online | March 19, 2001 | Sharing the Wealth Rakesh Mohan Joshi, 2009
1 Nonaka, I. (1991) ‘The knowledge creating company’, Harvard Business Review, Vol. 69,
2
No. 6, pp.96–104. BW Online | March 19, 2001 | Sharing the Wealth. 2012. BW Online | March 19, 2001 | Sharing the Wealth. [ONLINE] Available at:http://www.businessweek.com/magazine/content/01_12/b3724638.htm. [Accessed 03 April 2012].
Joachim D created the exercise a Siemens VP whose aim was to develop a Knowledge Management system to stop employees keeping beneficial knowledge to themselves. The plan was to create a web based system called ShareNet which would feature a chat room, database and search engine to allow the 461,000 workers worldwide to share knowledge with each other by an access point that would allow employees to share any information they believed would benefit an individual or the business. Since the start of ShareNet in 1999 almost 12,000 salespeople in Siemens have used the web based tool. $122 million in sales has been generated and a crucial $3 million contract for Telekom Malaysia was won when local sales people did not have the expertise but with ShareNet a team was discovered in Denmark to handle the contract. A $460,000 contract for two Swiss hospitals was won even thought the quote was higher as ShareNet was able to prove Siemens would be more reliable in the long run. If ShareNet is used and additional sales created Siemens Managers receive bonuses and CEO’s and CFO’s cannot receive their entire bonus if they cannot prove that they gave information or used information from ShareNet to generate sales. Those paid on commission learnt quickly the extreme benefits of ShareNet and that those who did had an advantage which could help gain contracts and customers due to an increase in knowledge offered by colleagues they may never have met. This case shows clearly what can be achieved with Knowledge Management. A business like Siemens can unlock a significant amount of potential by using the knowledge held by its entire workforce. Siemens plan to take the system across the whole of the business and not restrict it to the telecommunications division. In 1999 only 6% of global corporations had a companywide KM programme but this was projected to surge to 60% within 5 years with Chevron, Ford Motor & Johnson & Johnson adopting the strategy quickly.3 Knowledge Management is an excellent tool as long as it is not overloaded, to this end Siemens has a team checking information for relevance and remove any trivial data, this keeps ShareNet streamlined and will prevent employees using it inappropriately or rejecting use of it by deeming it a pointless exercise because you have to wade through Gigabytes of data before finding something useful and relevant.
Globalisation has been arguably the single most influential emerging business theme in the past 15 years. Discuss the implications for one selected organisation. In particular how managers may need to react to take advantage of the resulting opportunities, and/or to avoid potential dangers over the remainder of the current decade.
3
BW Online | March 19, 2001 | Sharing the Wealth. 2012. BW Online | March 19, 2001 | Sharing the Wealth. [ONLINE] Available at: http://www.businessweek.com/magazine/content/01_12/b3724638.htm. [Accessed 04 April 2012].
Globalisation refers to the increasingly global relationships of culture, people, and economic activity 4 often referred to as economic globalisation it is changing the way the economic world operates in different ways however the pursuit of economic gain should not be the only aim, sustainability and equality must are issues that need to be considered and a balance achieved and maintained. Economic globalisation comprises the globalisation of production, markets, competition, technology, 5 and corporations and industries. It is argued that a global fully integrated business model will offer better choice, service and products to customers – but can a one size fits all approach be taken when making a company a global business? The world is a varied place for many reasons and the model below (adapted from Hawkins) shows dimensions any business must be aware of when adopting a global strategy.
A business that has embraced globilisation is McDonalds. They have products that have a strong convergence of tastes and preferences across the globe (though some regional differences do apply) and due to the volume of supplies that are required by the company economies of scale play a large factor in McDonalds when dealing with suppliers. These factors contribute to McDonalds being a classic case of globalisation. However they have made mistakes in the past and have several challenges for the future. Mistakes aside many other corporations have copied McDonalds business model when it comes to expansion and strategy leading to the term McDonaldization 6 which discusses not only the impact of the company in the business world but also culturally. In 2011 Mcdonalds was rated the 4th most valuable brand in the world and from humble begingings as a BBQ restaurant in 1940 now serves 68 million customers daily in 119 countries7
4
Globalization - Wikipedia, the free encyclopedia. 2012. Globalization - Wikipedia, the free encyclopedia. [ONLINE] Available at:http://en.wikipedia.org/wiki/Globalization. [Accessed 04 April 2012]. 5 Rakesh Mohan Joshi, 2009. International Business. Edition. Oxford University Press, USA. 6 7
George Ritzer, 2004. The McDonaldization of Society. Revised Edition. Sage Publications, Inc. McDonald 's - Wikipedia, the free encyclopedia. 2012. McDonald 's - Wikipedia, the free encyclopedia. [ONLINE] Available at:http://en.wikipedia.org/wiki/McDonald 's. [Accessed 03 April 2012].
How does the diagram above reflect the globalisation of McDonalds? There are several key areas McDonalds has needed to address in its global strategy and some that it needs to continue to consider. Culture: Operating in 119 countries McDonalds has had to overcome and embrace the cultures and diversity of the different countries it has taken its product and brand to. A significant change in strategy and product has been demonstrated in emerging markets like India & China, as the Asian regions become a more dominant economic power and more affluent a high degree of cultural understanding has become and will continue to be important. In India the traditional beef patty has been replaced with lamb to show sensitivity to religious beliefs, the company must however ensure that all areas of its operation are sensitive to cultural differences as the faced a law suit in India over claims the French fries used beef fat in production. In China the design of restaurants has been modified to suit the build of Chinese customers. While McDonalds continues to tailor its menu options and restaurants to a countries beliefs and taste in the next 10 years a much larger cultural change will become apparent as consumers look for healthy options in fast food. 60% of British adults and a third of 10-11 year olds are obese, the rapid emergence of Subway, which is perceived as a healthy alternative, highlights this. McDonalds has already started to introduce healthy low fat items to its offerings but this is something that must continue and products must be tailored and improved. Also McDonalds has not been included in a recent UK Government anti obesity scheme – something that has not been perceived well, the company should ask to be included form a PR perspective. McDonaldization 8 is a concept already mentioned that which discusses when a culture can be comapred to a fast food restaurant. This shows the impact McDonalds had had on the world in general. Politics: McDonalds has to be seen from a political point of view to be working to reduce the increase in obesity with particular attention to childhood obesity. As a company McDonalds is regularly under fire for contributing to poor diets. A recent press release in America saw the company announce Healthier changes to its Happy Meals 9 however this was met with a poor response “So all the fuss—and McDonald’s has gotten huge press over this—is about 3 or 4 small slices of apples, one ounce less of French fries, and less sodium.” 10 The company must also be careful to not repeat the mistakes of the past and be sensitive to the issues in the world. In 2002 and again in 2008 the McAfrika was launched as a tie in to the Olympic Games a massive promotion at a time when starvation in Africa was receiving significant press coverage, the company suffered a massive back lash and instantly installed famine collection boxes in restaurants as an apology, but the damage was done.
8 9
10
at: http://phx.corporate-ir.net/phoenix.zhtml?c=97876&p=irol-newsArticle&ID=1642021&highlight=. [Accessed 03 April 2012]. Food Politics » Let’s talk about McDonald’s Happy Meals changes. 2012.Food Politics » Let’s talk about McDonald’s Happy Meals changes. [ONLINE] Available at: http://www.foodpolitics.com/2011/07/lets-talk-about-mcdonalds-happy-mealschanges/. [Accessed 03 April 2012].
George Ritzer, 2004. The McDonaldization of Society. Revised Edition. Sage Publications, Inc. McDonald 's Corporation - Press Release. 2012. McDonald 's Corporation - Press Release. [ONLINE] Available
"It 's inappropriate and distasteful to launch a hamburger called McAfrika when large portions of southern Africa are on the verge of starvation," 11
Environment: McDonalds will always be a target of environmental groups for the following reasons to name only a few, • • • The produce millions of tons of packaging that is used quickly then discarded. They create litter in the vicinity of their restaurants – but whose fault is that? The customers or the business? The sheer scale of their operation must contribute to loss of natural resources, global warming etc…
To combat this McDonalds must at all times look for new ways to increase its recycling and reduce the initial packaging. Many efforts have already been made for example increasing the size of fry boxes from 36 to 39lbs reducing cardboard by 2 million pounds per year 12 McDonalds’ must continue to be at the front of the queue where the environment is concerned and management at all levels will need to continue to find new ways to protect the environment while being financially astute. This may well be the one of the largest challenges they will face in the next 5 years. Finance: With the recent economic downturn it is a critical time for any company spreading across the world. McDonalds has seen this in Iceland where the collapse of the economy has led to operations being stopped a reversal in McDonald’s trend of increasing international operations. 13 This was due to the franchise agreements stipulating that all purchases be bought and imported from Germany. With the low value of the Iceland currency this made the operation to expensive and the prices that would need to be charged to the consumer as a direct result uncompetitive. With the current economic issues facing several countries (Ireland, Greece to name a few) it is clear McDonalds may need to review some of its policies in light of them. If they want franchisees to continue to invest help may be needed from a financial perspective or assistance in using local produce over imported to drive down cost while still maintaining quality. From a positive perspective McDonald’s international business has protected it from the housing led downturn of the US market 14 McDonalds expansion overseas was evident long before the economic crash as in 2006, 233 of 280 or well over half of the new McDonalds opened were overseas. In 2007, Japan had 2,828 McDonald’s locations.15
11
New from McDonald 's: the McAfrika burger (don 't tell the 12m starving) | World news | The Guardian . 2012. New from McDonald 's: the McAfrika burger (don 't tell the 12m starving) | World news | The Guardian . [ONLINE] Available at:http://www.guardian.co.uk/world/2002/aug/24/famine.andrewosborn. [Accessed 03 April 2012].
12
2012. . [ONLINE] Available at:http://www.sustainabilityinstitute.org/dhm_archive/index.php?display_article=vn304mcdonaldsed. [Accessed 03 April 2012]. 13 McDonalds and De-Globalization | World Politics News Review. 2012.McDonalds and De-Globalization | World Politics News Review. [ONLINE] Available at: http://worldpoliticsblog.wordpress.com/2009/10/26/mcdonalds-and-de-globalization/. [Accessed 04 April 2012]. 14 Globalization Strategy of McDonald 's Corporation - Business Strategy Case Studies - Case Study in Business, Management. 2012. Globalization Strategy of McDonald 's Corporation - Business Strategy Case Studies - Case Study in Business, Management. [ONLINE] Available at:http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/BSTR310.htm. [Accessed 04 April 2012] 15 Economic globalization - Wikipedia, the free encyclopedia. 2012. Economic globalization - Wikipedia, the free encyclopedia. [ONLINE] Available at:http://en.wikipedia.org/wiki/Economic_globalization. [Accessed 04 April 2012
.
Assessing the nature of the change required when an organisation responds to emerging business themes often necessitates the use of a range of management tools as outlined in Unit 3 of the ILearn module materials. Select any two such tools and contrast their usefulness to managers seeking to identify examples of current issues facing their organisation. Illustrate your answer with examples from one organisation with which you are familiar. In 2011 Haven Holidays a major UK holiday company was attacked on watchdog for poor service, standards and for not offering what the customer wanted. They were accused of being only driven by financial targets and achievements and sought at every opportunity to extract money from customers staying on its parks. The business was forced to re-evaluate itself in light of this strong and public criticism and change direction to ensure it repaired its image, retained its existing customers and while delivering a quality product and service still delivered financial obligations. Balanced Score Card: For Haven to begin a Balanced Scorecard approach, it must revisit its mission statement and its current strategic plan and its visions. From this the company must also look inward at its current financial position, the structure it has adopted, how proficient its team is and how it is performing in the areas of customer satisfaction. A Balanced Scorecard usually has four areas of focus • • • • Financial Internal business processes Learning & Growth (human focus, or learning and development) Customer
The table below indicates what areas within these factors can be examined for improvement.16
Department
Finance
Areas
Return On Investment Cash Flow Return on Capital Employed Financial Results (Quarterly/Yearly) Number of activities per function Duplicate activities across functions Process alignment (is the right process in the right department?) Process bottlenecks Process automation Is there the correct level of expertise for the job? Employee turnover Job satisfaction Training/Learning opportunities Delivery performance to customer Quality performance for customer Customer satisfaction rate Customer percentage of market Customer retention rate
Internal Business Processes
Learning & Growth
Customer
16
Balanced Scorecards explanation, examples, aims, implementation and teaching aid diagram for the concept.. 2012. Balanced Scorecards explanation, examples, aims, implementation and teaching aid diagram for the concept.. [ONLINE] Available at:http://www.businessballs.com/balanced_scorecard.htm. [Accessed 09 April 2012].
From experience of the company Haven has specific issues in internal processes, specifically in duplicating activities across functions in the online and offline marketing teams, in job satisfaction and employee turnover and finally in many elements of customer satisfaction. Haven has been accused in the past of focusing purely on financial targets and return on investment, often at the cost of its employees and its customers. The balanced scorecard approach allows Haven to be focused on its financial targets and aims but pushes them to focus on other areas as well that they may be neglecting. Once these areas have been identified a set of SMART objectives can be set to bring the business back into balance. E.g. To improve customer retention rate for the 2013 season by proactively targeting existing customers with the best advance offers, this will allow Haven to streamline its marketing, satisfy and reward its existing customers and deliver its financial obligations. Customer Relationship Management: Customers are the lifeblood of any organization be it a global corporation with thousands of employees and a multi-billion turnover, or a sole trader with a handful of regular customers.17 With this in mind a business’s customers are critical and how you manage your relationship with them also. Haven made the statement to its teams that they wanted to not only retain and try to entice back unhappy customers but it wanted to take all those customers who “liked” them and change that feeling to “loving them”. Customer Relationship Management (CRM) is the area Haven will need to work on to achieve this. A successful business will always aim to retain a strong customer base, as the cost of attracting a new customer is much higher than that of communicating with those that understand the product and service and have a preference to purchase it. Customer intimacy is a key factor in CRM as customer loyalty will be achieved through it and the potential of going to a competitor will be reduced. To be able to reach a significant level of customer intimacy Haven will need extensive knowledge of its customers and what they really want from the product and service they are offering. To this end Haven recruited the services of Pretty Little Head a research firm specialising in researching what makes a women pick a particular product as Haven had realised that it was the mother of a family that ultimately makes the decision on where a family will go on holiday. This research has lead to Haven building a stronger customer relationship with its female customers and developing a stronger level of intimacy with them as well.
Haven managers will see the business reap certain benefits by using effective CRM for example reduced costs will be realized due to less marketing being needed to recruit new customers as the business retains existing customers who return, customer satisfaction will increase and customer will become advocates of the business leading to referrals that will increase the customer base at no extra cost, these factors will help generate long term profit and a sustainable business. For Haven to maintain these advantages they need to retain focus on CRM and monitor it.
By effective use of CRM Haven can ultimately increase its profits to the target it is aiming for by 2015, and they will achieve this by reaching and exceeding its existing customers expectations, this will have the benefits of reducing marketing and compensation costs, as well as reducing the companies
17
CRM, customer relationship management solutions, software, system management: a guide to CRM application strategy. 2012. CRM, customer relationship management solutions, software, system management: a guide to CRM application strategy. [ONLINE] Available at:http://www.businessballs.com/crmcustomerrelationshipmanagement.htm. [Accessed 09 April 2012].
complaint ratio. This increased level of customer service (a major issue for the company) will also help in the reduction of stress experienced by Haven staff – this will help contribute to the a reduction in staff turnover which currently sits at around 40% due to a high level of stress, this will also help reduce costs. By offering effective CRM Haven have the ability to actually ask its customers what it wants to see changing from the company through constructive criticism instead of complaints. This will give the company the opportunity to develop faster and better than its competitors giving them a competitive advantage. The information they will receive will also allow the company to stop fire fighting and be proactive. In short effective CRM will lead to Haven experiencing happier customers, reduced costs in multiple areas and a happy and more consistent team.
Bibliography
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Bibliography: Nonaka, I. (1991) ‘The knowledge creating company’, Harvard Business Review, Vol. 69, No. 6, pp.96–104. BW Online | March 19, 2001 | Sharing the Wealth Rakesh Mohan Joshi, 2009