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Introduction

The psychological contract (TPC) was first coined by Argyris (1960), who observed an unwritten agreement existed between employer and employee, summarising that staff performed to a higher level if they received fair wages and had a degree of autonomy in the manner in which they worked. TPC consists of expectations, beliefs and implied obligations; none of which are written in the tangible contract between the employer and employee (Schein, 1985). Rousseau (1995, P.9) developed this idea and defined TPC as ‘individual beliefs, shaped by the organisation, regarding the terms of an exchange agreement between the individual and their organisation’.

This essay will proceed to discuss the importance for organisations of managing the psychological contract (TPC) and the implications of a breach. The essay will move on to critically analyse the difficulties organisations face in managing TPC, with particular reference to those resultant of the shift from the traditional to the contemporary employment relationship. This essay concludes with a brief summary of the importance of managing TPC and the key challenges which arise when attempting to do so.

The importance of managing the psychological contract

Fulfilment of TPC from employers has been proven to result in reciprocation from employees, leading to positive organisational attitudes, affective commitment (Tekleab & Taylor, 2000) and reduced turnover intention (Montes & Zweig, 2009), which lowers an organisations recruitment and training costs, therefore it increases its efficiency (Wilton, 2013). A balanced PC is linked with organisational citizenship behaviour (Decktop, Mangel and Cirka, 1999) and high employee engagement – meaning the employee has a high level of commitment to the organisation and its values, and exhibits willingness to help their colleagues (CIPD, 2009).

Due to TPC consisting of unarticulated beliefs, expectations and perceived obligations breaches are not uncommon (Wilton, 2013) as neither party can ever fully know what the other expects of them (Cullinane and Dundon, 2006). Social Exchange theory undergirds TPC postulating that employees and employers engage in exchanges with each reciprocating the contribution of the other (Blau, 1964). In line with the theory of reciprocity (Gouldner, 1960), when employers do not fulfil their implied or understood obligations a breach of TPC can occur, resulting in the employee reciprocating by withholding their effort from work (Bal, Chiaburu, & Jansen, 2010), negative organisational attitudes (Piccoli and De Witte, 2015), reduced performance (Restubog, Bordia, & Bordia, 2011) and workplace deviance (Bordia, Restubog, & Tang, 2008). Many organisations attempt to manage TPC in order to mitigate these potentially harmful effects.

A breach of TPC can occur for reasons such as implementation of large scale organisational change often without employee consultation (Gerber et al, 2012). Resistance to change can be extremely problematic for organisations, and the adjustment period to such change can cause vast decreases in efficiency leading to loss of competitive advantage (Dawson and Andriopoulos, 2014). Heuvel, Schalk and Assen (2015) found organisations which communicated their full intentions of change with employees implemented large scale organisational change with lower levels of resistance, due to perceived fulfilment of TPC. This suggests balancing TPC can reduce the resistance to change many employees experience and help to mitigate the potential for loss of competitive advantage.

A study by Atkinson (2007) discovered the expectations within TPC widely vary between individuals and organisations, Restubog et al, (2015) found that an aggressive and competitive culture within an organisation exacerbated any breach of TPC and increased the likelihood of employees actively seeking revenge. This suggests that organisations requiring their employees to behave in a highly competitive manner are at greater risk of negative effects from TPC breach and should take necessary measures to minimise the likelihood of this occurrence (Bankins, 2015), as the effects on the organisation will likely be more damaging than if the employee were to simply withhold their effort or decide to leave the firm.

Rousseau (1995) implied that within TPC the employer was the independent variable and the employee the dependant variable, believing the employment relationship to be dependant on the actions of the employer and their ability to recognise and meet the expectations of the employee, however this proved contentious. Theorists such as Guest and Conway (2002) advance that TPC is subject to both parties meeting the others expectations rather than just the employer meeting the employee’s, and concluded that the state of TPC is dependent on mutual trust, fairness and delivery of the deal. The following section will discuss the ways in which organisations can attempt to manage TPC and the difficulties that arise in doing so, with particular reference to the contemporary employment relationship.

The challenges of managing the psychological contract

The dynamics of the labour market have constantly changed and evolved over time (Wilton, 2013), in particular the rise in organisational demand for flexibility has resulted in a paradigm shift from an exchange of job security in return for organisational loyalty to one in which experience is offered to the individual in exchange for temporary service to improve their future employability (Adamson, Dochetry and Viney 1998). Resultantly the contemporary employment relationship can be seen as much more individualised, with Rousseau (2004) terming this as a shift from a relational to a transactional employment relationship. The new PC consists of employee assurances to work hard and be flexible and employer’s obligation to provide adequate pay, opportunities for skill development and interesting work (CIPD, 2009).

A prevalent issue in managing TPC is known as “multiple agency” (Hui, Lee and Wang, 2015). This refers to employees receiving different messages from the different managers they come into contact with within the organisation. It is therefore imperative for an organisation to ensure that they manage to maintain congruency in their messages throughout their organisation (Lapalme, Simard and Tremblay, 2011). Wilton (2013) suggests that an organisation must utilise a mechanism through which clear communication can be ensured between employer and employee in order to explain managerial decisions and give a platform for employees to voice their opinions. This is in line with Guest and Conway’s (2002) findings that employee voice in relation to managerial decisions positively influenced TPC. Internal social media is an increasingly popular method for firms to improve internal communications within their organisation and promote the brand internally in order to positively influence TPC (Mazzei, 2010). Ironically the implementation of internal social media is exactly the type of large scale organisational change which, without the correct communications could encounter significant resistance to change (Dawson and Andriopoulos, 2014) and result in a PC breach. Critics of social media note that it is impossible to regulate (Jones, 2015), as such employees could use this platform to exact revenge for a perceived breach of TPC in a more public and far reaching way than before, so organisations should exact caution when implementing this as a strategy for managing TPC. Organisational policies which are adopted in the favour of the workforce will likely positively effect TPC and result in improved workforce efficiency. This systematic adaption of a corporation’s policies to improve their attractiveness as an employer is known as employer branding (Taylor, 2005), however while this can positively affect TPC, organisations perusing this strategy must be aware that those with stronger employer branding must work harder to maintain TPC due to raised employee expectations (Bains, 2015). Bowen (2015) cites generational differences in comfortability utilising social media platforms, and so using internal social media to give employees a voice could potentially alienate some of the workforce, which if not addressed, could result in a breach of TPC. In order to mitigate this risk, training could be provided on the platform, which will likely have a positive impact on TPC as it is in line with the new psychological contract which emphasises the employer providing training and new skills for employees (CIPD, 2009).

A challenge for organisations attempting to manage TPC within this contemporary relationship is the generational diversity of the workforce. (Lyons,and Kuron, 2014). Lub et al (2015) found that different generations held very different expectations of their employer’s obligation and their own personal contribution to that organisation, suggesting that a multi-generational cohort solution offers the most effective way to maintain a positive psychological contract with the workforce. In countries with an aging workforce like the United Kingdom the generational diversity is likely to be extremely high (Hertel and Zacher, 2015), making it costly and time consuming for management to implement policies to balance the psychological contract for all. This could therefore constitute an area for further research, in order to realise the most efficient way to collectively manage the expectations of such a diverse workforce.

It is not only generation diversity which has increased within the modern employment relationship, there has also been rapid growth of a cultural diversity within the global workforce due to the phenomena of globalisation – resulting in what is known as the global workforce (Ryan and Wessel, 2015). Some commentators argue that many of the theoretical frameworks within HRM are underpinned by western cultural values, and that perspective which much of the HRM discourse is written from does not hold a universally applicable view of employment attitudes to authority or risk (Yi et al, 2015). Westwood, Sparrow and Leung (2001) found the dynamics of TPC of junior and senior management from Hong Kong proved, from a western perspective, to be extremely one sided. It seemed the underlying sense of duty and respect which is deep-seated in Chinese culture is reflected in the attitude of the employee, who believes they are more obligated to their employer than their employer is to them. This is in direct contradiction of the western findings of Rousseau (2004) who stated that the employer was the dependant variable and the employee the independent, highlighting the cultural disparity in how TPC is viewed. Not only is the holistic view of TPC likely to be different depending on the cultural context, there are likely to be international differences in the extent to which employees respond to a breach of TPC (Lucas, Lupton and Mathison, 2006), not only making it harder for managers to balance the psychological contract within the confines of foreign cultures, but also making it more difficult for management to predict what retaliation, if any, is likely to occur. A huge challenge facing managers can occur when they are of a different cultural profile to the employees they are managing, due to the commonality of difference in both motivation and interpretation of the parties (Thomas, Au and Ravlin, 2003). As a result it is recommended that organisations with cross cultural management practices give time to understanding the complexities of TPC within their workforce, and work hard to ensure that it can remain balanced.

Conclusion

The importance of an organisation managing the psychological contract within a western cultural context is well documented within HRM discourse, allowing organisations to reap the rewards of improved employee relations (Tekleab & Taylor, 2000), and mitigate the risks associated with PC breach (Piccoli and De Witte, 2015). If an organisation does not manage TPC negative work behaviours such as withholding effort or employee deviance could become typical for the organisations workforce (Bankins, 2015) causing loss of competitive advantage.

The main challenges with managing TPC in the contemporary employment relationship stem from the widening generational and cultural diversity experienced in many workforces due to the global aging population and globalisation.

HRM discourse is primarily based on western cultural assumptions, many of which do not hold true in other cultural contexts (Wilton, 2013). This presents challenges for managers working outside of their own culture or working within a multicultural society. Due to the unwritten and unspoken nature of TPC any organisation would be advised to adequately research the expectations of employees in any foreign context in which they plan to engage, in order to avoid discrepancy. It can be argued that HRM practices developed within the western culture offer ineffective ways to manage labour in divergent cultural settings, constituting a possible area for further research.

The growing generational diversity of the global workforce presents difficulty for organisations seeking to implement policies to manage TPC (Cogin, 2012), due to differing generational expectations. Thus to effectively manage such a diverse workforce time must be taken to individualise TPC (Lub et al, 2015).

Managing TPC in the individualised manner required of a culturally and generationally diverse global workforce has the potential to be both financially and time intensive. Organisations should therefore analyse the potential implications of non-effective management of TPC before adopting this policy. Consideration should be given to the individual organisational culture, as in organisations with a more competitive and aggressive culture the implications for not managing TPC can be extremely serious, with heightened likelihood of employee revenge (Restubog et al, 2015). Such an organisation would therefore be ill advised to not pursue a policy of PC management.

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Management Consulting Firms, The Industry Of Information Systems And The Advent Of New Technology
Background of Management Consulting

The economy is rapidly changing. Whereas it was once focused on production, the economy is quickly becoming knowledge-based; this change of focus has drawn the management consulting firm to the forefront as the core competency of a management consulting firm is, quite simply, knowledge, both formal and tacit (Anand, Gardner and Morris 2007). The belief that such knowledge can be held tacitly is evidenced by the fact that anyone with perceived expertise, be it experience-based, knowledge-based or creativity-based, can potentially operate as a management consultant if so desired as no formal qualification/license exists nor is the field itself regulated (Gluckler 1999). Inasmuch as this lack of regulation increases the likelihood of an incidence of malpractice, it also creates an environment where barriers to entry are low and the application of knowledge is at the forefront. Thus, while knowledge is a competency of many industries, it is the distinct province of the management consulting firm in that such firms essentially capitalise on the ability to apply this knowledge towards the development of innovative approaches/solutions (Anand, Gardner and Morris 2007).

Management consulting firms are at the forefront of “business intelligence”, or BI, a new term coined to identify the “methods that organizations use to develop useful information, or intelligence, that can help organizations survive and thrive in the global economy” and “information that will allow organizations to predict the behaviour of their competitors, suppliers, customers, technologies, acquisitions, markets, products and services, and the general business environment with a degree of certainty” (Jourdan, Rainer and Marshall 2008). This view is supported by many others (Gluckler 1999); for example, Blunsdon (2002) introduces her conference paper by paraphrasing Alvesson: “consulting involves the ability and experience in adapting to new situations”, operating essentially as, “fashion setters”. This type of “fashion setter” has been part of the economy at least since the industrial revolution, when management consultants with a variety of backgrounds – engineering, accounting, law – began marketing themselves as “efficiency experts” (Gluckler 1999).

Background of New Technology

The development of new technology creates a surge of new theories regarding business intelligence best practices (Jourdan, Rainer and Marshall 2008), which produces an opportunity for a management consulting firm to capitalise on the prevailing trend. To quote the Organisation of Economic Cooperation and Development (OECD), “the Internet and related advances in information and communication technology (ICT) are transforming economic activity, much at the steam engine, railways and electricity did in the past” (King and Lyytinen 2006). ICT is developing at an exponential rate, and while its impact can be seen on the economy at large, the impact of ICT is even more clearly demonstrated in the ways by which the new technology has enabled more sophisticated “information systems”, or IS.

“Information Systems” is an opaque term applied to a system of information management; IS, as it is defined in the vernacular, typically refers to a strategic information system that, if utilised effectively, manifests itself as a tool that builds productivity in a way that maximizes profit margins (Freitas, Luciano and Testa 2004). The use of IS to harness competitive advantage is a movement that has been prevaricated by consultants, largely due to the fact that the role of the consultant is to maximize sustainable profitability through the creation, tailoring, application of ideas and concepts towards that end (Apostolou and Mentzas 1999) Apostolou and Mentzas performed a study of management consulting firms in 1999 which found that the ability of a consultant to market an idea, and for that idea to be efficiently and effectively implemented, relies on the development of a “knowledge friendly culture”, replete with “clarity of purpose and vision”, that is committed to the application of knowledge management.

One could argue that Apostolou and Mentzas’s findings were not revolutionary; it is common knowledge that ideas of any sort will not gain ground unless the audience is receptive nor can an idea be implemented if it is not clearly defined and the goals of the application of the concept clearly set. Further, Apostolou and Mentzas argued that “information technology infrastructure is less critical, as intranets emerge as a standard medium… an out-of-the-box functionality.” Others would disagree; in April 2009, Kirwan and Conboy (2009) found that new technology presents significant opportunities for a business when used effectively, opportunities that can frequently be overlooked because of “lack of understanding” the potential of new technology “to overcome existing performance gaps or exploit new opportunities.

While new technology in and of itself is not a solution, methods by which to overcome existing performance gaps or to capitalise on new opportunities do not necessarily have to be technology-based and the term “technology” may not necessarily connote a complicated endeavour, it should be noted that, in practice, newer technology is the enabler of this strategic IS (King and Lyytenin 2006). In their 2004 study “Research topics in in the field Management Information Systems: a comparative study France/Brazil”, researchers Freitas, Luciano and Testa (2004), through analysis of 390 articles found that researchers in IS vary in their methods, and deductively in their perceptions thereof, in a way that is consistent with the variance in IS needs presented by their respective country. While Freitas, Luciano and Testa’s research method was somewhat imprecise in that article distribution was not even between countries and the variables used were not defined explicitly, their research does indicate that IS needs are very different by geographic location and this difference signifies the variant role of IS.

What are the Issues?

Whereas IS originally developed out of antiquated data processing systems and originally held a strictly technological view, a more spherical definition of the discipline is rapidly becoming a necessity (King and Lyytinen 2006). The discipline has grown to accommodate a notion of “a more integrated technology, management, organizational and social focus.” Accordingly, the following definition of IS was proposed by the UK Academy for Information Systems:

“The study of information systems and their development is a multidisciplinary subject and addresses the range of strategic, managerial and operational activities involved in the gathering, processing, storing, distributing and use of information, and its associated technologies, in society and organizations.”

While some would argue that this definition does not pay proper attention to the more creative and innovative aspects of the discipline of IS, the definition is inclusive to other fields that may have competencies that overlap those of IS; it precisely this characteristic that makes the field of IS distinctive. In fact, IS will draw from other disciplines as necessary in order to gleam insight into the situation at hand, sometimes using psychology or sociology to draw a theory as to the way the system being analysed is integrated (Bronfenbrenner, 1989) and other times pulling from theories of economics, such as game theory (Gintis 2005).

As the focus and application of IS broadens, so too does the role, or potential role, of the management consulting firm. Gluckler (1999) found in a study of 1600 EU businesses that industry specific experience was just as significant as price in the selection of consultants, both factors accounting individually for 42 percent of the reasons attributable to the hiring of management consultant firm. Avison and Elliot (see King and Lyytinen 2006) outline several major issues facing IS as an industry, issues that management consulting firms need to be mindful of in order to remain effective, and thusly competitive. Perhaps the most obvious of these issues to a consultant is to maximize the return on IS investment for the client. This is accomplished by an agile system that has the capability, and structure, to perform quickly and accurately, as well as adaptively. The system, however advanced, must serve to reduce complexity and it must be understandable. Deductively then, it stands to reason that one must have, and be able to keep professionals who are able to implement and maintain the IS. This simplistic fact draws several other issues- How does one measure the value of IS? How can performance be quantified? It is not enough to evaluate the effectiveness of a solution versus having never implemented the solution as the client company operates in an environment where some form of solution was required. Without having implemented the alternative, how can performance and the value created thereby be valued?

Further issues become more apparent- how can IS be maximized to create competitive advantage? How does the competitive edge impact business as it affects the originator, such as complementary products, cost reductions invoking aggressive pricing, or the ability to expand ones network? This, in turn, draws to mind the need for a system that is able to defensively protect information and other assets and to do so in such a way that meets or exceeds the current standards of IS governance.

Are there any viable options that you, as a manager, can consider for your organisation?
As a manager of a management consulting firm, I think thatissues such as these require special attention. Porter (1998) wrote, “now that companies can source capital, goods, information and technology from around the world, often with the click of a mouse, much of the conventional wisdom about how companies… compete needs to be overhauled. In theory, more open global markets and faster transportation and communication should diminish the role of location in competition.” In spite of this theoretical implication the development of sourcing brings, “clusters”, defined as “geographic concentrations of interconnected companies and institutions in a particular field”, and the role of geography indicated thereby, have not become less important in strategy development (Porter 1998) Rather, the importance of clusters can be seen in location choice, the engagement of local business, the “upgrading of clusters”, and in the collective works gained by operating as a cluster. As a manager, I can maximize the strength of the cluster geographically or virtually, keeping in mind the collaborative nature of the cluster, a concept somewhat akin to “having the right address”.

Technological knowledge is also prone to the effect of the cluster, as can be seen in the case of “knowledge spill-overs”, a term used to describe a situation whereby “external knowledge can augment internal resources” (Patrucco 2008). The availability of knowledge spill-overs is determined by the relationships between knowledge producers/implementers in place, the cost of acquiring said knowledge and investment required to produce such knowledge. The positive effect of localisation on a technology-based knowledge-acquisition system is based on the reduced cost of internal production and increased access to external resources. My firm is more likely to benefit from knowledge spill-overs if I can secure synergetic relationships with complementary companies (Manyika, Roberts and Sprague 2007).

As I work towards developing these types of relationships, such as through investment therein, my firm will not only be able to reap the benefit of unique resources as they relate to competitive advantage, but be able to raise industry standards (Adner and Zemsky 2006). I can maximize Rothaermel and Hill’s (2005) finding that the advent of new technology and the competitive advantage gained is dependent on the assets required to implement it. Rothaermel and Hill (2005) “found that incumbent industry performance declined if the new technology could be commercialized through generic assets, but that incumbent industry performance improved if the new technology could be commercialized through specialized assets.” As a manger, I can use this finding in that the new technology that I can help foster should be that which works in conjunction with specialised assets my firm already has and is highly proficient in. The new technology would then require a distinct learning curve and my firm would be in a position to capitalise on this proficiency, possibly as a first-mover.

I can also maximise the benefit of the new technology relative to the development and installation of information systems by developing inherent automated capabilities thereof (Manyika, Roberts and Sprague 2007). By removing the repetitive tasks often required of an information system, my firm can largely avoid the risk of human error and bias in the recording of information and to reduce time spent on the IS itself, two factors which contribute to a significant reduction in costs associated with IS. Also, a greater volume of information can be recorded efficiently, information which may identify performance gaps and/or opportunities that may have been missed otherwise due to a lack of available resources to track the determinant information.

As evidenced by the work of Cragg (2006), technology plays a strategic role in leading companies, particularly in those that customise technology to suit its particular needs and in those that seek new applications for existing technology. For many organisations, the application of technology is directed toward IS. An effective information system, aside from its ability to organise information, also provides focus on the findings that are most relevant; this usage prevents management from focusing unnecessarily on marginal attributes (Adeoti-Adekeye 1997). While, as a manager, I am in a position to facilitate this process, the increased availability of new technology increases the risk of substitute products/services and the rivalry amongst competitors; this abundance of suppliers, coupled with relatively low barriers to entry, increases the bargaining power of buyers (Porter 2001). These factors can however be mitigated through my firm’s ability to create value unique to that of its competitors and to do so by methods and processes variant to those of the competition.

What are the Lessons Learnt here?

From Gluckler’s study (1999), I learned that the primary reason (66 percent of the 1600 companies studied) that companies hire management consultants is “lack of experience in certain problem areas”, followed closely by “impartiality of external viewpoint” (49 percent), “to learn from other firms” (48 percent), and “need for new ideas” (46 percent). I believe the management consulting firm is able to accomplish these actions through the creation and application of information systems. According to Sull (2005), success is dependent upon “five categories of commitments” that “comprise the success formula:
• Strategic frames: What we see when we look at the world, including definition of industry, relevant competitors and how to create value.
• Processes: How we do things around here entailing both informal and formal routines.
• Resources: Tangible and intangible assets that we control which help us compete, such as brand, technology, real estate, expertise, etc.
• Relationships: Established links with external stakeholders including investors, technology partners or distributors
• Values: Beliefs that inspire, unify and identify us.”

Sull’s “success formula” seems like common sense, however I think it clearly exemplifies the role of the management consulting firm and draws to light aspects that may not have been evidenced at first sight.

It is common knowledge that, in order for any company to be profitable, it has to be in a position to be so, meaning that it has to have the resources, or access to such resources, be they finance-related, personnel-based, knowledge-based, relationship-based, etc., and the ability to apply those resources strategically toward the vision of the company. Should a company not possess adequate levels of the aforementioned resources, I learned that outsourcing is a viable option. Outsourcing in this way can be used to bring new products/services to the market faster, to access a perceived opportunity cheaper and quicker, to penetrate new markets and/or develop existing ones, to develop and test the viability of new products/services, or simply to enforce business strategies. Willcocks and Lavity (2006) “defined outsourcing as the handing over of assets, resources, activities and/or people to third party management to achieve agreed performance outcomes.” The outsourcing market, as they defined it, has been growing steadily from 1989, when outsourcing was valued as a $3 billion market, to the estimated $330 billion market it has grown to. While outsourcing may not be the best choice for every business, nor will it suit every need, “outsourcing” as defined in Willcocks and Lacity’s research, which encompassed traditional outsourcing, as well as management consultants, “net-sourcing” meaning virtual and fee-for-service providers, has the potential to fit many needs and situations. I learnt that it is important to “treat back offices as a portfolio of capabilities”, meaning that management should select several actions that a “source” supplier can perform far less expensively and use less time doing so; a common example is payroll. Willcocks and Lavity’s findings show that companies that use this type of “selective-sourcing” are 77 percent effective. I learned that by expanding the definition of “outsourcing” one is able to expose a plethora of applications that I had not found apparent; as a management consulting firm, “outsourcing” in this broad definition has many applications, both in-house and as potential niche markets.

In the case of “outsourcing” as applied to the operations of the management consulting firm, I have found that there are several non-core functions that could be outsourced profitably. While most management consultants have a strong ability to innovate, apply change and interpret ideas in a way that customises them to the business being dealt with, most management consultants will not be highly proficient and/or will not have the extra resource of time to spend on non-core operations such as payroll, accounts receivable, application of marketing concepts, etc. I have learnt that outsourcing these back office tasks can be a tremendous time and money-saver even for a firm such as a management consultancy, with low overhead and few daily transactions.

I also learnt that outsourcing can also be utilised by a management consulting firm as a precursor to expansion. In order for a management consulting firm to be able to address the needs of its clients as expeditiously as possible, it is a necessity that the firm not be working at peak levels on a daily basis; otherwise, it would be difficult to respond to an emergency situation one client is having without risking missing a deadline of another client. However, sometimes opportunities present themselves that, strategically, should not be passed by. I have learnt that the management consulting firm would have a viable option to outsource a component of the opportunity project. It appears that such an option could be found in the outsourcing of the research involved, administrative or clerical tasks such as audience-specific report preparation or proofreading, technical aspects such as system configuration or automation, etc., an option I had not considered previously.

As the broader definition of “outsourcing” relates to niche markets, it reveals many opportunities for my management consulting firm to pursue. The first niche that came to mind personally was the ability of the management consulting firm to capitalise on the “down-time” that is inevitable between clients by selling consulting service specialities, meaning accepting work that requires a limited amount of time involved, such as advising a business as to what features it should have on its website and the navigation thereof. Also, this type of shorter project is typically less expensive to the client customer, which would open a niche to smaller businesses which typically have limited resources.

Another niche concept that occurred to me was that a management consulting firm can take advantage of is the way industry structure has been affected by outsourcing. This could be done by diversifying the services offered or expanding the geographic radius of its client base. Gluckler’s study (1999) taught me that management consulting firms tend to grow in one of two ways: Diversification, the offering of a variety of services, and Globalisation, expanding the geographic scope of the services provided. The relative growth strategy assumed is generally dependent upon the structure by which the management consulting firm operates; it may function “regionally”, or within a certain geographic location; “functionally”, or by a speciality; or “sectorally”, meaning the offering of a variety of services within a particular sector. I realise that management consulting firms can obtain stronger and more profitable growth by structuring its growth strategy in one of these ways, rather than try to be all things to all people and risk overextension of firm resources. I think that many management consulting firms have this tendency and that focusing on the strengths of the firm is the more profitable strategy. I have learnt that successful capitalisation on management consulting strengths will translate better when a focused effort is undertaken rather than a strictly opportunistic style. I have learnt it is better to have my management consulting firm be perceived as an expert in certain issue rather than a “one size fits all” solution.

My Conclusions

The relationship between the enterprise of management consulting and the industry of information systems represents a significant correlation. IS is described by Avison and Elliott “as a field of study developed in response to the increasing necessity of organizations to improve their capabilities to process and to manage data” (see King and Lyytinen 2006). As described by Blunsdon (2002), “The management consulting industry exists because of the presence of persistent organisational and management problems which creates an atmosphere of uncertainty and exerts pressure on managers to be seen to be acting both rationally and innovatively.” Long-standing, successful companies can have a tendency to fall subject to “active inertia”, the tendency to respond aggressively to new variant markets in the same manner that had previously been successful, is a primary reason “why good companies go bad” (Sull 2005). I have found that in order to circumvent this tendency, a manager of a management consulting firm needs to be adaptive to market conditions and ensure that the management consulting firm itself serves to provide an objective perspective and innovative solutions, particularly solutions that require the application of firm core proficiencies in order to be successful.

Research findings, particularly those of Gluckler (1999), arguably draw attention to the need to clearly define what the role of IS is for a company and to determine how much of the process of IS creation and integration should be outsourced. I have found that even the “outsourced” can use outsourcing, so long as core competencies are not outsourced. As a manager of a management consulting firm, I will look to outsourcing non-core actions, particularly back-office tasks to other firms that can do such work at less cost. Further, I will analyse other, non-primary functions for the potential of outsourcing them so that my firm can focus solely on its core services, possibly diversifying to related core-type actions that we may not have had the resources for before. Likewise, inasmuch as management consulting firms have the ability to contribute value throughout the production cycle, expected outcomes need to be tangibly defined at each level and throughout each phase of the management consulting contract. Doing so creates better relationships with clients and can help identify areas of opportunity.

Whereas the economy is increasingly knowledge-based, the management consulting firm is drawn to the forefront as its core competency is, quite simply, knowledge, both formal and tacit. The development of new technology creates an opportunity for management consulting firms to capitalise on prevailing trends through the creation and application of strategic information systems. As a manager, I will look for ways for my firm to maximise this opportunity. I will also keep in mind that, as the focus and application of IS broadens, so too does the role, or potential role, of the management consulting firm, including the capability to supply “net-sourcing” and fee-for-service while avoiding the type of piecemeal outsourcing that frequently yields piecemeal results.

The relationship between the enterprise of management consulting and the industry of information systems is significant. To circumvent the piecemeal type of consulting, I will look to gearing client solutions to function more spherically and to customising those solutions precisely; this approach should yield a greater impact. By applying new technologies, such as automation, to accomplish this goal, I will minimise the use of resources required to do so. The future of management consulting firms is likely to have many developments as technology increases. Information systems, a crucial component of management consulting will develop exponentially with these newer technologies. Resultantly, my role as a manager will require me to be very innovative and focused on maximising firm opportunities as quickly as possible and to position myself and my firm in such a way as to have the synergetic relationships that will afford these opportunities.

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This work was produced by one of our professional writers as a learning aid to help you with your studies

Executive Summary

Majestic Wine Plc. opened its original wine warehouse in 1980. This Wood Green, North London warehouse merged in 1991 with Wizard Wine, which, at that time belonged to Iceland, the frozen food group, (Sunday Times, 2010, p1). Majestic Wine was listed on the Alternative Investment Market in 1996. It acquired Lay & Wheeler In 2009, a specialist in Burgundy and Bordeaux products (Sunday Times, 2010, p1). The retailing of wines, beers and spirits is its principal business activity (Majestic Group, 2009, p1).

This business report analyses the group performance for two financial years, to 29th. March, 2010. It recommends, on the basis of appropriate performance ratios, (detailed in Appendices 1 – 4), that shareholders should buy more shares. Shareholders should augment their investment significantly if the group management shows an aggressive and focused plan for achievement of its objective of retailing from 250 stores, along with the deployment of a more aggressive capital gearing ratio and sharper operations management.

1. Introduction

Majestic has grown more than 12 fold from 1985, when it had only 12 shops, to 152 shops in 2010. It aims to expand its shop strength to 250 during the coming decade (Sunday Times, 2010, p1). Its sales are at a 10 year high, a result of the discarding of its policy of retailing only 12-bottle cases.

Off-licences, (establishments selling alcohol for consumption off the premises), could in the 1980s operate only for a few hours every day, and even fewer over weekends. Warehouses circumvented this rule by posturing as wholesalers, thus compelling their customers to buy bulk 12-bottle cases (Goodway, 2010, p1). Steven Lewis, the feisty CEO of Majestic, tested and subsequently rolled out, from November 2009, a model allowing customers to buy lots of 6 bottles at a time (Goodway, 2010, p1). The policy was instrumental in increasing the number of customers by 54000 to 472000 in the course of a year (LSE, 2010, p1).

The objective of this Business Report is to recommend to the shareholders of Majestic Wine PLC on augmentation or reduction of their investment in the company.

2. Analysis
2.1. Group Operations

The detailed computations in respect of the following ratios, relating to profitability, short-term liquidity and working capital, and long-term solvency are detailed in Appendix 1 – 3.

Profitability Ratios – Appendix 1: (LSE, 2010)

Year

20102009

(1) Gross Profit Ratio

21.3%

20.6%

(2) Net Profit Ratio

4.8%

1.6%

(3) Return on Investment (ROI)

21.0%

6.9%

Short Term Liquidity & Working Capital Ratios

– Appendix 2: (LSE, 2010)

Year

20102009

(1) Liquidity of Receivables

Days

18

21

(2) Liquidity of Payables

Days

99

113

(3) Current Ratio

0.99

0.94

(4) Acid-Test/Quick Ratio

0.30

0.27

(5) Cash Ratio

0.090

0.061

Long Term Solvency Ratios – Appendix 3: (LSE, 2010).

Year

20102009

(1) Debt Equity Ratio

0.15

0.18

(2) Capital Gearing Ratio

0.13

0.15

(3) Interest Cover Ratio

35.6

34.6

The profitability ratios of the company reflect a marked improvement in terms of revenues, cost of sales and ROI.

Most organisations opt to keep their debt low and cut their debt at the earliest (Jablonsky & Barsky, 2001). Whilst such inclinations arise from the need to be conventional and secure in business, excessive eagerness to diminish debt frequently leads to poor utilisation of obtainable debt, higher costs and uneconomical capital gearing (Jablonsky & Barsky, 2001, p 7-15). The long-term debts ratios reflect under capitalisation. The low gearing ratio reflects risk adverse tendencies, which can lead to slow growth in future.

The practically unchanged working capital ratios reflect the maintenance of sub-optimal liquidity levels. The weak acid-test ratio can lead to a difficult situation if the need for liquidity arises on account of contingencies that need to be swiftly addressed.

2.2. Group Performance

The group turnover for the 52 week period ending 29th March, 2010 at ?33.2m was up 15.6 percent, with the profit before tax at ?16.0m rocketing by an incredible 117 percent (LSE, 2010, p1). Appendix 4 summarises the group performance, as reported in the Preliminary Results for 2010.

The Group has experienced strong cash generation during 2010, with operational cash-flows of ?21.2m during the year. This figure is ?5.7m more than the ?15.5m generated during the previous year, and has essentially come about from the improvement in the underlying profit before tax during 2010.

The Distribution and Administrative Costs have increased by 15.6 percent during 2009-10 as compared to the previous year. The EBIT (Earnings before finance costs and taxation) rose by 118.3 percent during the same period. The Profit before Taxation (PBT) grew sharply from ?7.4m to ?16.0m during 2009-10 year, registering an increase of 117 percent.

The sales to private customers, which make up the mainstay of the business, have shored up well, even though sales to corporate customers has been unsatisfactory. The company’s French operations have been hurt by a stronger Euro (Majestic Group, 2009, p1). This contributed to an exceptional non-cash charge of ?5.33m in 2009, which arose from the writing-down of the carrying value of the company’s French retailing operations, Wine and Beer World (Majestic Group, 2009, p1).

The company’s purchase policy of reducing the minimum purchase of 12 bottles to 6 has led to excellent results, even as it needs to be recognised that it may be difficult to replicate this year’s soaring profits next year, because of the challenges involved in manoeuvring even more supermarket customers through its shop entrances (O’Doherty & Kuchler, 2010, p1).

Majestic is nevertheless working towards seizing mid-market space with a number of value-adding schemes like developing sales to gastro pubs, increasing its wine-tasting programmes, and growing its fine wines business (O’Doherty & Kuchler, 2010, p1).

Majestic’s market share at 3.4% leaves abundant room for growth (O’Doherty & Kuchler, 2010, p1). Its share is trading at approximately 14 times its forecast earnings for 2011, higher than the average of its peer retailers, which are trading at an average of 12 to 13 times. Majestic, O’Doherty & Kuchler, (2010, p1) feel merits the premium and some more. The company’s results are remarkable, considering that the underlying profit growth of 26 percent in 2010 has been achieved after accounting for the reduction of ?5.3m in the carrying value of the French operations (Hemming, 2010, p1).

The business is well positioned to capitalise on its core strengths as the economic environment starts improving (Majestic Group, 2009, p1). The company’s acquisition of Lay and Wheeler’s fine wine business in 2009 has contributed ?12.4m to 2010 sales (LSE, 2010, p1).

It is to the credit of the group that the total dividend for the year has been raised by 5.1 percent, to 10.3p per share, against last year’s 9.8p, despite continuing market pressures (LSE, 2010, p1).

The underlying basic earnings per share (EPS) for 2010 at 18.4p were 31.4% higher than the 2009’s 14.0p. The underlying diluted EPS for the same period at 18.3p rose 30.7% against the previous year’s figure of 14.0p. The basic EPS for 2010 at 18.4p was 247.2% more than the 2009’s 5.3p. The diluted EPS for 2010 at 18.3p was 245.3% more than the 5.3p achieved in 2009 (LSE, 2010, p1).

The average transaction expenditure at ?129 for 2010 is 4 percent lower than 2009, despite a growth of 14.6 percent to 1.7m in transaction numbers (LSE, 2010, p1). The UK like-for-like sales for the 10 week period from 30th.March, 2010 to 7th.June, 2010 rose 7.3 percent (LSE, 2010, p1).

The company is expected to improve its sales in future. The retailer’s professional credentials and good service levels have produced considerable loyalty amongst its patrons, which will be of assistance in the present economic climate. Majestic will also probably not be impacted by the recommended changes to alcohol pricing as its focus is more on the superiority of its offering than on its price (TradingMarkets.com, 2010, p1).

It is recommended that shareholders should steadily increase their investments. Larger positions should be taken if the group management shows persistent and aggressive efforts to achieve its growth target of 250 sites within a decade and change its conservative capital gearing. The company however needs to address its short term liquidity in order to be ready for short-term contingencies.

2.3. Mission Statement

An exhaustive search of corporate information on the company reveals that Majestic does not have a well-defined official mission statement. The company nevertheless aims to continually increase its retail outlets and open more than 250 in the coming 10 years. The company also strives to provide high quality wine and excellent service to its customers. The achievement of these objectives can be considered to be its mission.

The company’s strategy focuses on increasing retail outlets and providing excellent value across product and price ranges and extraordinary customer service (Majestic Group, 2009, p1). The company’s commitment to its mission is demonstrated by the steady increase in the number of retail outlets over the years and the numerous quality and performance awards it has won in a competitive scenario. The company has increased the number of outlets from 12 to 150 in the last 15 years. It was awarded the “High Street Chain of the Year”, in 2008, by the International Wine Challenge Awards. The Group was also awarded The “Specialist Wine Chain of the Year” by Decanter magazine in 2008 (Majestic Group, 2010, p1).

The company’s strength in customer services emanates from its policy of recruiting and retaining high quality graduate level staff, its continual investment in comprehensive training programmes, (widely accredited as best in the wine industry), and its focus on customer service, product knowledge and management (Majestic Group, 2010, p1).

Majestic augments its specialist credentials by focusing on staff training. New staff members are encouraged to obtain the “Wine and Spirits Education Trust’s (WSET) Advanced Certificate” in six months. Several employees train further. Approximately 150 staff members presently have, or are qualifying for the WSET Diploma, even as 7 of Majestic’s personnel received Excellence Awards from WSET in January 2010 (TradingMarkets.com, 2010, p1).

Majestic distinguishes itself from its competitors is by cultivating strong customer relationships (TradingMarkets.com, 2010, p1). The company hosts numerous events, like wine tastings, and courses to enhance customer knowledge of wine (TradingMarkets.com, 2010, p1). Such approaches, combined with high service levels, have facilitated the retailer in trading its clientele up the value chain (TradingMarkets.com, 2010, p1). Majestic aims to enhance its fine wine credentials by putting up fine wine display sections in all its stores in the next two years. Approximately around 50 percent of its present stores have such sections (TradingMarkets.com, 2010, p1).

2.4. Environmental Policies

Official communication by Majestic is noticeably silent on its environmental policies. Study of information available on the company’s marketing strategy however reveals that the company is actively committed to a sustainable environmental policy of following green policies in its marketing operations (PRLog, 2010, p1).

The company stocks a carefully grown assortment of red and white organic wines. Such wines are created from organically produced grapes, developed to ensure taste and value for money, and are suitable for vegans and vegetarians (PRLog, 2010, p1).

Majestic’s online marketing manager, Jamie McRonald explains that organic wine production is difficult and expensive since grapes are vulnerable to weather and animals. Such constraints make farmers disinclined to organic grape production (PRLog, 2010, p1). Organic wine is the ultimate part of the organic riddle, with fungicide and pesticide-free grapes maturing slowly on sun-soaked vineyards sans chemical safety, intervention or stimulation (PRLog, 2010). Whilst organic wines are by and large rarely stocked by the bulk of wine retailers because of their higher costs, Majestic actively stocks and sells organic wines. Such support will encourage farmers to take up organic farming and grow grapes without the use of environmentally damaging chemical fertilisers and pesticides.

The company locates its stores off High Streets. Whilst this decision stems from its policy of keeping rentals low, it helps in reducing petrol expensive traffic jams in busy shopping areas. Majestic should however aggressively adopt and publicise environment friendly policies because of its influential position in the supply chain. A relevant area of focus could be the collection, reprocessing and disposal of recyclable waste material.

2.5. Competitor Analysis: Strengths and Weaknesses

The retail wine market in the UK is intensely competitive; it is highly fragmented and basically serviced by supermarkets and off-license retailers (Management Today, 2007, p1). Majestic thus faces competition from other off-license retailers and supermarkets. Supermarkets have over the years continuously increased their share of the wine market (Management Today, 2007, p1). Led by Tesco’s and ASDA-Walmart, supermarkets are increasing their sales of wines at the cost of off-license establishments, whose numbers fell from 5430 to 4400 between 2004 and 2009 (Management Today, 2007, p1). The recent winding up of the off-licence chain First Quench, a direct outcome of intense competition from supermarkets, led to the loss of 6000 jobs (Management Today, 2007, p1).

Whilst Majestic competes with supermarkets and off-licence chains and shops, its major competition obviously arises from supermarkets like Tesco, ASDA, Sainsbury’s and Waitrose (How, 2006, p1). This competitive analysis of strengths and weaknesses treats supermarkets as one generic form of competition, even though there could be differences in the strategies, capabilities and weaknesses of individual supermarket chains (How, 2006, p1).

The national supermarket chains provide formidable competition to majestic wines. Their physical spread is immense and they are present in all High Streets, as well as in smaller towns and in rural settlements (Management Today, 2007, p1). They stock a huge variety of foods and household items as well as wines and attract far more footfalls than specialised wine retailers like Majestic. Such larger numbers of footfalls translate into greater sales because people tend to club food and wine purchases (Management Today, 2007, p1). Supermarkets are also by and large better located and many of them have substantial parking facilities, which help in attracting customers. Supermarkets also have the advantage of lower overheads, very substantial buying and stocking capacity, and bargaining power over suppliers. This enables them to offer better prices and work with lower margins (Management Today, 2007, p1).

Whilst supermarkets have much strength, it needs to be recognised that wines are only one of their many products and management attention towards selling of wines in supermarkets is far more diluted than in Majestic, a company which literally breathes and lives wine. The difference in attention and commitment thus leads to comparatively lesser market aggression and customer service. Supermarket employees are certainly less conversant with wines than those of Majestic. It is also possible that the smaller supermarket outlets may not have all customer wine preferences.

Majestic is dedicated to the retailing of wines. The company’s strength arises from its very substantial management and staff capabilities in the sourcing, stocking and retailing of wines (TradingMarkets.com, 2010, p1). The company’s employees are extensively trained in different aspects of wine retailing, and it strives to stock an extensive range of wines, including those made from organically grown grapes (PRLog, 2010, p1).

The company however suffers, in comparison to supermarkets, from fewer and unfavourably placed outlets, higher overheads, and lesser footfalls (O’Doherty & Kuchler, 2010, p1). The company counters this by locating its outlets off High Streets and uses its financial strength to buy wisely and extensively (O’Doherty & Kuchler, 2010, p1). It delivers at home and engages in numerous customer friendly activities to build customer loyalty (O’Doherty & Kuchler, 2010, p1).

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Appendices

Appendix 1: Profitability Ratios (LSE, 2010)

Year

20102009

Sales

?000

233220

201794

Cost of Sales

?000

183528

160148

Gross Profit Margin

?000

49,692

41,646

(1) Gross Profit Ratio

Gross Profit Margin/Sales

21.3%

20.6%

Profit after Taxation

?000

11280

3,262

(2) Net Profit Ratio

Net Profit /Sales

4.8%

1.6%

This work was produced by one of our professional writers as a learning aid to help you with your studies

Why do some work and others do not (appear to)?

Why are you undertaking the research?

In an increasingly global environment, organisations, its people, strategy and marketing, and its structure are finding themselves constantly seeking innovative ways to differentiate themselves from their competitors. The complex business interactions synonymous with modern society has witnessed the consumer gaining in status and decision making power whilst the retailer explores new avenues enabling them to provide superior products and services acting as the differentiator amongst competitors. Consequently the crux for all retailers in maintaining and attracting consumers stems from the notion of ‘customer loyalty’; ‘ customer’s commitment to do business with a particular organisation, purchasing their goods and services repeatedly, and recommending the services and products to friends and associates’ (McIlroy and Barnett, 2000)

There appears however to be varying schools of thought over whether loyalty schemes and card do actually work in favour of the retailer, or whether the advantage lies instead in the hands of the customer, or indeed whether there is a mutually beneficial relationship present. The UK Competition Commission (2002) found that the average consumer holds at least two loyalty cards with retailers in direct competition such as Tesco and Sainsbury’s, where Shabi (2003) found at least 85 per cent of UK households have at least one loyalty card.

Dick and Beau (1994) propose that loyalty has both behavioural and attitudinal components. This dissertation will address the former of the ‘behavioural’ component and seek to identify how consumer’s behaviour has changed since the introduction of loyalty schemes in the 1990’s in relation to present day, and provide recommendations on how retailers can maximise consumer patterns to their advantage.

What will be the gain in knowledge?

The gain in knowledge which will arise from the above will present itself in the following ways:

Maximising effectiveness within customer loyalty market research to generate solid data from a questionnaire which will try to identify the ‘why’ and ‘what’ factors of consumer habits using pertinent research methods (discussed later). As retailers seek to innovate into new growth areas accurate market data is essential to maximise customer retention through a strong understanding of behaviour and motivation.

Developing new proposals for customer loyalty cards and schemes drawing on the findings from the data analysis which are more pertinent to today’s society, taking into account the increasing choice of loyalty schemes available to the consumer in an increasingly saturated ‘loyalty market’.

Literature review

What theoretical issues will you examine?

Sopanen (1996) posits that there are six different types of loyalty, where UK retailers fall within the incentivised loyalty segment:

Monopoly loyalty; where there are no available choices

Inertia loyalty; customers do not actively seek substitutes

Convenience loyalty; loyalty is solely defined by location

Price loyalty; customers are influenced by the lowest price

Incentivised loyalty; loyalty relates to the benefits gained from reward cards and programmes such as UK retail giants Tesco and Sainsbury’s

Emotional loyalty; customers are influenced by factors such as brand

Mauri (2003) remarks that the UK retail sector has embraced the notion of incentivised loyalty since the introduction of loyalty cards and schemes in the 1990’s where, initially established as a strategic marketing tool to garner valuable consumer data its continued use suggests that there are considerable benefits to both customers and retailers who participate in these schemes. Noorhoff et al (2004) and Sharp and Sharp (1997) believe the loyalty card exerts a positive impact on increasing customer loyalty through development of long lasting relationships and creation of a sense of belonging, where Uncles, 1994 strengthens this notion ‘ the retailer is prepared to listen, is willing to innovate on behalf of customers, and is caring, concerned and considerate‘.

Presently however according to Byrom (2001) there are more than 150 loyalty schemes in the UK with a resulting circulation of 40 million cards; therefore it poses the question of growing concern of a saturated or ‘loyalty overload’ market within the UK retail market and the subsequent consumer behavioural response to this.

Consumer Behaviour

Behavioural loyalty can be demonstrated through measurable characteristics such as increased shopping frequency, sensitivity to price, an individual’s retention over time and spending pattern (Oliver, 1999) where incentivized rewards such as discounts and points target specifically this form of loyalty. However due to the competiveness of giant retailers such as Sainsbury’s and Tesco and the ever increasing influx of incentives available to consumers it’s possible that customer perception is being altered due to the increase in choices, which in turn influences their behaviour. An example is a recent quote from a supermarket customer who claims ‘I AM loyal to my grocery store – I simply carry both loyalty cards’ (Lamb, Hair & McDonald, 2008) an indication that the customer will only shop at their preferred store only when it benefits them the most.

Based on the above, which are your research questions? Be as clear about these as possible.

I am ideally looking to explore:
‘ If loyalty cards are effective in retention of retail customers what are the behavioural changes that have occurred within the consumer to support this since the introduction of the loyalty card system in the 1990’s as opposed to present day? ‘
(Note to client; this is an idea for you to base upon; if it is too diverse you can break this down into 1) the period of 1995 onwards when the first loyalty scheme was introduced 2) focus just on present day 3) support the change in behaviour of customers and criticise the retail industry such as Tesco 4) vice versa to 3 or 4) subjectively discuss both sides)

Methodology

How are you going to address the research questions?

This question will be addressed through dissemination of a comprehensive questionnaire encapsulating the following research methods:

Kerlinger and Lee (2000) ‘Theory Dependent viewpoint’ of ‘why‘ questions examining the relationships between variables and predicting the outcome i.e. theorising that the introduction of loyalty cards will lead to customers not shopping at competitor’s stores

Phillps and Pugh (2005) ‘Descriptive research’ of ‘what‘ questions looking for patterns within relationships and theories i.e. assuming the above theory is correct what would be reasons for these relationships?

Distributed out to a demographic cross-section of people encompassing different ages, nationalities, status (single, married) and religious beliefs representative of the British consumer.(Note to client; if this is too difficult then ensure that you have picked a diverse profile of known individuals to yourself)

Sample Questionnaire: These are suggestions for the questionnaire; where it is recommended that a maximum of fifty questions are provided, equating to ten to fifteen minutes of completion time per person. The questionnaire can be adapted to 1) retail stores and managers 2) consumers; enabling flexibility in question choices i.e. for the retail manager ‘What do you perceive to be the biggest behavioural change in shopping habits of the consumer since introduction of loyalty cards?’ to the consumer ‘What do you actively perceive to the biggest changes in your purchase behaviour since the introduction of loyalty cards?’

Suggestions: Descriptive Research

-Do you have any of the following cards? (Tesco Clubcard, Sainsbury’s Nectarcard)

– Do you have any other /loyalty cards for retail stores other than supermarkets (Boots The Chemist or Homebase the DIY store)?

-How did you obtain the cards?

-Of the cards you have list them in chronological order with the most recent first:

-From the cards that you have, which do you use the most? Why?

-What made you obtain the card?

-How often do you show the card?

-Please indicate the maximum value (?1 per point) you have ever achieved on your card?

-Have you used any of the cards you own to receive discount from another retailer(s)?

-If you answered yes to the above question what were the motivators which made you change your shopping habits to the other retailer?

Theory dependent viewpoints – ‘Why’ questions in an attempt to draw relationships between theory:

Do you agree or disagree with these statements:

– “I would visit other supermarkets not currently involved with loyalty schemes if they began this service”

-“I would stop shopping at my current supermarket if they stopped the loyalty program”

-“Price is the main determinant for my choice of supermarket”

-“I always play them off against each other so I can exploit the cost savings and promotional offers to get the best deal for me”

-“Loyalty has a different meaning to the consumer as compared to the retailer”

How are you going to acquire and analyse the identified data?

Data analysis for the descriptive questions will be qualitative analysis which will be used to support or attack the theory dependent questions; i.e. once a relationship has been found from patterns in the statistical analysis this qualitative data should provide reasons for this, and thus recommendations can be given.

Data analysis for the theory dependent questions can be measured on the scale of 1-5 (1 strongly agree / 5 strongly disagree) and presented quantitatively:
-Ensure that these questionnaire’s go out to a proportionate sample size i.e. segment accordingly on different demographics
-After retrieving the data analysis can be undertaken using simple statistical analysis
(i.e. mean, mode, standard deviation etc)
-You are looking to see whether there are significant patterns appearing which either support or criticise your hypothesis, where you can offer recommendations off the back of these.

Data

Which organisations, individuals or sources will provide the necessary data? Any UK retail organisation, consumers, retail bodies, consumer bodies, and any relevant literature.
Will the data be available in the depth required? Yes: providing the questionnaire is distributed effectively.
Are there matters of confidentiality? No: I do not foresee any confidentiality issues from the consumer nor the retailer providing the questions asked follow the same structure as those suggested.

Discussion

What is your hypothesis?
‘ It is hypothesised that the increasing availability of loyalty schemes is beginning to saturate the market to one which favours the customer rather than the retailer. Application of research methods will enable identification of key relationships which support this hypothesis and thus provide recommendations to counter it.

How will this guide the research?
It is anticipated that the hypothesis will assist the dissertation research by ensuring it remains succinct and follows the objects.

How will you make adjustments following any changes in the hypothesis?
It is anticipated that the only amendments will be data which may be need to be revisited depending on the effectiveness of the questionnaire.

Bibliography

Blumberg, A, Cooper D.R, Schindler, P.S (2008) ‘Business Research Methods’; Mc-Graw-Hill Education

Bryman, A & Bell, E (2007) ‘Business Research methods’; Oxford University Press

Byrom, J (2001) “The role of loyalty card data within local marketing initiatives”, International Journal of Retail & Distribution Management, Vol. 29 No. 7

Egan, C & Thomas, M (1998) ‘The CIM handbook of strategic marketing- CIM professional development series’; Butterworth-Heinemann

Hobbs, R, Rowley, J (2008) ‘Are pub discount cards loyalty cards?’ The Journal of Consumer Marketing Santa Barbara Vol 25 Iss 6

Lamb, W & Hair, J & McDaniel, C (2008) ‘Essentials of marketing’; Cengage Learning

Oliver, R.L (1999) “Whence customer loyalty?” Journal of Marketing, Vol. 63 No. 4, Peppers, D & Rogers, M (2004) ‘Managing customer relationships; a strategic framework’; John Wiley and Sons

Noordhoff, C., Pauwels, P. and Odekerken-Schroder, G. (2004), “The effect of customer card programmes: a comparative study in Singapore and The Netherlands”, International Journal of Service Industry Management, Vol. 15 No. 4,

Saunders, M, Lewis, P & Thornhill, A (2007) ‘Research methods for business student’; Prentice Hall

Seth, A & Randall, G (2001) ‘The grocers: the rise and rise of the supermarket chains’; Kogan Page Publishers

Sharp, B. and Sharp, A. (1997), “Loyalty programs and their impact on repeat-purchase loyalty patterns”, International Journal of Research in Management, Vol. 14

Sopanen, B. (1996) “Enhancing customer loyalty”, Retail Week Smith, A, Sparks, L, Hart, S, Tzokas, N (2004) ‘Delivering customer loyalty schemes in retailing: exploring the employee dimension’; International Journal of Retail and Distribution Management, Vol 32, Iss 4/5

Uncles, M. (1994) “Do you or your customers need a loyalty scheme?” Journal of Targeting, Measurement and Analysis for Marketing, Vol. 2 No. 4

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INTRODUCTION

This research presents an analysis of the proponents and criticisms of the main leadership theories. According to Storey (2004), the study of leadership in organisations has evolved through the years with changing theories of leadership and leadership development. Storey (2004) identifies the main theories as trait theory, behavioural theories, situational and contingency theories, exchange and path-goal models, new leadership (charismatic and transformational theories), constructivist theory, leadership with learning and post-charismatic and post-transformational theories. A summary of these theories is shown in table 1 (Appendix 1).

The research is structured as follows: section one presents theories focusing on leader characteristics or traits including great man theory and trait theory; section two presents theories based on leader behaviour and situational models and section three presents the new leadership theories including transformational and transactional theories.

Great man theories

According to Kirkpatrick and Locke (1991), great man leadership theories were popular in the 19th and early 20th centuries. Judge, Piccolo and Kosalka (2009: 855) state that the great man theory is attributed to Thomas Carlyle who proclaimed that “For, as I take it, Universal History, the history of what man has accomplished in this world, is at bottom the History of the Great Men who have worked here”. According to Eckmann (2005: 4), Carlyle’s argument was that heroes shape history through “the vision of their intellect, the beauty of their art, the prowess of their leadership and, most important, their divine inspiration.” Kirkpatrick and Locke (1991) state that great man theories were based on the assumption that leadership qualities were inherited, particularly by upper class men. In other words, these theories asserted that great men were born, not made (Hoffman et al., 2011). Vroom and Jago (2007) refer to heroic concepts of leadership which they argue emerged with the great man theory of history whereby major historical events were assumed to be the work of great men with vision and genius.

Hoffman et al (2011: 349) argue that great man theories fell out of favour “amid questions as to the evidentiary basis underlying disposition-leadership associations”. Judge, Piccolo and Kosalka (2009) state that reviewers have labelled the approach as too simplistic, futile, dangerous and a product of self-delusion. Lieberson and O’Connor (1972: 117) also criticise great man theories for failing to consider a leader’s limits and state that “the evidence indicates that the influence of single individuals is seldom as decisive as the great-man theory would lead one to believe.

Trait theories

Great man theories evolved into trait theories in the early 20th century (Judge et al., 2002; Kirkpatrick and Locke, 1991). Proponents of these theories argue that leaders possess traits or characteristics that make them different from other people and give them leadership advantage. This assumption that leadership depends on the qualities of the leader makes trait theories seem similar to great man theories but trait theories differ because they do not assume that leadership is limited to a few heroic men (Judge et al, 2002). Researchers however, have failed to agree on what traits are universal and trait theories suffer from a lack of “a structure in describing personality leading to a wide range of traits being investigated under different labels” (Judge et al, 2002: 766). For instance, Kirkpatrick and Locke (1991) argue that the six traits that distinguish leaders from non-leaders include drive, desire to lead, honesty/integrity, self-confidence, cognitive ability and business knowledge. On the other hand, House and Aditya (1997) propose four factors including achievement motivation, prosocial influence motivation, adjustment and self-confident. Mann (1959) includes masculinity, dominance, adjustment, conservatism and extroversion in his list of traits. It is clear, as shown in figure 1 below, that different researchers have proposed different traits and there is no consistency in trait theories.

Figure 1: Past qualitative reviews of the traits of effective leaders ( Judge et al, 2002: 766)

Kirkpatrick and Locke (1991) state that no traits are universally associated with effective leadership and argue that situational factors are also influential. These researchers state that traits only provide the potential for leadership and additional factors including skills, vision and implanting the vision are necessary for effective leadership. Other researchers have also argued that trait theories have failed to consider situational nature of leadership (Zaccaro, 2007; Vroom and Jago, 2007). These researchers have argued that situational variables impact on leader behaviour, effectiveness and consequences.

Behavioural theories

According to Derue et al (2011) criticism of leader-trait paradigm has led to the development of behavioural theories of leadership which assume that leadership capability is not inherent, but can be learned. Storey (2004) states that important behavioural studies include Ohio State University, which is credited with developing the Leader’s Behaviour Description Questionnaire, University of Michigan (Katz and Khan, 1978; Likert, 1961) and Blake and Mouton (1964). Behavioural theories as advocated by these researchers identified four styles of leadership behaviour: concern for tasks (production or output), concern for people, directive leadership and participative leadership. Blake and Mouton (1964) developed the Managerial Grid which identifies five theories of managerial behaviour which are based on two variables, concern for production and concern for people. The combination of these variables results in different styles of management as shown in figure 2 below. Each style is expressed on a scale ranging from 1-9, with 1 representing minimal concern and 9 representing maximal concern. Blake and Mouton (1964) argue that it is possible for managers to learn in a classroom and revise their practices and procedures thereby moving towards an ideal 9, 9 (team management) organisational environment.

Figure 2: Management Grid (source: http://cisvu.net/mod/page/view.php?id=1109)

Bryman (2013) has criticised the Management Grid for its emphasis on one best way of managing organisations. This researcher also claims that empirical studies have produced mixed results on the effectiveness of the Grid and argues that there is need to have information on other variables such as management and organisation change programs before definitive conclusions can be made on the effectiveness of the model. Another criticism of behavioural theories is that they do not offer guidance on what constitutes effective leadership in different situations (Bolden, Gosling, Marturano and Dennison, 2003). Kilmann and Thomas (1977) have also criticised the validity and reliability of instruments used in behavioural theories and Vroom and Jago (2007: 19) also state that behavioural models advocated by the Ohio State University and the University of Michigan have never produced “a solid body of scientific evidence sufficient to guide practice.” Additionally, these researchers also state that these theories neglected the significance of situational variables and their impacts on leadership behaviour.

Contingency (situational) theories

According to Gill (2011) contingency theories suggest there is no one best way of leadership because successful leaders use different styles depending on the nature of the situation and the followers. This means that effective leaders are flexible and have the cognitive ability to adopt a different leadership style for a given situation. Storey (2004) states that proponents of cognitive theories include Fiedler (1967), Vroom and Yetton (1973), Yukl (2002) and Hershey and Blanchard (1984). Other behavioural leadership theories include path-goal theory, leadership substitutes theory and normative contingency theory (McClesky, 2014). Fiedler’s (1967) two factor model divides leaders into relationship motivated and task motivated groups and suggests that leaders should be placed in the situation which is favourable to their style. Hershey and Blanchard (1984) present four leadership styles including directive, consultative, participating and delegating which are related to the readiness (maturity) of followers, for instance, leaders will adopt a directive style in a situation where followers lack readiness or the ability and confidence to perform a task. As the employees gain ability and become more confident, the leader will adopt a participating and delegating style. In other words, the level of follower maturity (job and psychological) determines the correct style of leadership. Figure 3 below shows the situational leadership model.

Figure 3: Situational leadership model (Blanchard, Zigarmi and Nelson, 1993: 26)

Gill (2011) claims that contingency theories like Fiedler’s (1967) model and path-goal theory which develops Fielders contingency theory have been criticised for inconsistent results and measuring problems. McClesky (2014) similarly states that situational leadership theory (Hershey and Blanchard, 1984) has flaws related to consistency, continuity and conformity. McClesky (2014) also states that research shows that there is no style of leadership that is universally effective and leadership types were abstract and hard to identify. Lorsch (2010) argues that contingency theories are focused on leaderships in primary groups and ignore leadership in larger organisations. Lorsch (2010) also states that contingency theories assume that one type of leadership can fit all situations and this is not plausible, for instance, the leader of an army platoon would have different leadership challenges than a sales manager or a CEO or even a senior partner in a law firm.

New leadership theories: transactional and transformational theories

According to Storey (2004), the 1980’s saw the development of new leadership theories promoting the concept of transformation, visionary, charismatic and inspirational leadership.

Bass (1985, 1991) presents a model of transformation and transaction leadership which has three dimensions of transactional leadership, namely, contingent reward, management by exception (active) and management by exception passive) and four dimensions for transformation leadership, namely, charisma , inspiration, intellectual stimulation and individualised consideration. The characteristics of transformational and transactional leaders are shown in figure 4 below.

Figure 4: Characteristics of transformational and transactional leaders (Bass, 1991: 22)

Bass (1999: 10) defines transactional leadership as “the exchange relationship between leader and follower to meet their own self interests”. Kunhert and Lewis (1987) state that this simply means that transactional leaders give followers something they want in return for leaders getting what they want. Bass (1999) states that this exchange may take the form of the leader clarifying through direction or participation what the follower needs to do in order to be rewarded for the effort (contingency reward) or taking an active or passive role in monitoring and correcting follower performance.

Proponents of transformational theory including Bass (1985, 1991) and Avolio and Bass (1995) define transformational leadership in terms of the leader’s effects on followers and argue that transformative leaders have exceptional influence over followers whose feelings of trust, admiration, trust and loyalty towards the leader motivates them to make self-sacrifices, commit to difficult objectives and achieve much more than is expected of them. Bass (1991) states that transformative leaders are able to achieve these results through behaviours including individualised consideration, intellectual stimulation, charisma and inspirational motivation. Shamir, House and Arthur (1993) refer to transformation theories as charismatic theories and argue that they emphasise different leader behaviour than that emphasised by earlier theories of organisational leadership. These researchers state that while earlier theories focused on leader/follower exchange relationships, providing direction, support and reinforcement behaviours, charismatic theories emphasise symbolic leader behaviour, visionary and inspirational messages, non verbal communication and appeal to ideological values.

Transactional leadership differs from transformational leadership in the leader/ follower exchange relationship, with transformational leadership inspiring followers to move beyond self interests to collective interests and to do more than was originally expected (Hartog, Muijen and Koopman, 1997). Bass (1999) argues that transformational leadership builds on from transactional leadership and states that “changes in the marketplace and workforce over the two decades have resulted in the need for leaders to become more transformational and less transactional if they were to remain effective” (Bass, 1999: 9).

Kunhert and Lewis (1987) state that Bass’s (1985) model of transactional and transformation leadership is based on the model developed by Burns (1978) and argue that this model lacks an explanation of the internal processes which lead to the development of the actions of transformational and transactional leaders, in other words, neither Burns (1978) or Bass (1985) has “provided a framework for understanding the motivational states or personality differences that give rise to these two types of leadership” (Kunhert and Lewis, 1987: 648). This is a weakness that has been identified by other researchers including Shamir, House and Arthur (1993) and Yukl (1999). Shamir, House and Arthur (1993) state that existing motivational theories such as exchange theories, reinforcement theories and cognitive theories cannot be used to explain the claims that a variety of behaviours can transform follower behaviour from self-interests to collective interests. Yukl (1999) also states that weaknesses of transformational leadership theory includes ambiguous constructs, narrow focus on dyadic processes, omission of some relevant behaviours, insufficient specification of limiting conditions and a bias towards heroic conceptions of leadership. Rafferty and Griffin (2004) also argue that despite the popularity of transformational theories, there are concerns regarding the definition of the sub-dimensions of the model and these concerns have resulted in empirical research providing mixed support for the differentiation of the components of the model. Researchers have also highlighted problems with the operationalisation of the concepts of the Multifactor Leadership Questionnaire (MLQ) which has been developed to measure transformational leadership (Hartog, Muijen and Koopman, 1997).

CONCLUSION

A review of leadership theories shows a progression from great man and trait theories to new leadership theories including transformation and transaction theories. Research shows that each of these theories has its strengths and weaknesses and there is no ideal leadership theory.

REFERENCES

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Bass, B. (1985). Leadership and performance beyond expectations. New York: Free Press.

Bass, B. (1991). From transactional to transformational leadership: Learning to share the vision. Organizational Dynamics, 18(3), pp.19-31

Bass, B. (1999). Two Decades of Research and Development in Transformational Leadership. European Journal of Work and Organizational Psychology, 8(1), pp.9-32.

Blake, R. and Mouton, J. (1964). The managerial grid: key orientations for achieving production through people. Houston, Tex.: Gulf Pub. Co.

Blanchard, K., Zigarmi, D. and Nelson, R. (1993). Situational Leadership(R) After 25 Years: A Retrospective. Journal of Leadership & Organizational Studies, 1(1), pp.21-36.

Bolden, R., Gosling, J., Marturano, A., & Dennison, P. (2003, June). A review of leadership theory and competency frameworks. Centre for Leadership Studies, University of Exeter. http://www2.fcsh.unl.pt/docentes/luisrodrigues/textos/Lideran%C3%A7a.pdf

Bryman, A. (2013). Leadership and organizations. London: Routledge.

Burns, J. (1978). Leadership. New York: Harper & Row.

Derue, D., Nahrgang, J., Wellman, N. and Humphrey, S. (2011). Trait and behavioral theories of leadership: an integration and meta-analytic test of their relative validity. Personnel Psychology, 64(1), pp.7-52

Eckmann, H. (2005). Great Man Theory: A personal account of attraction. [online] www.jameslconsulting.com. Available at: http://www.jameslconsulting.com/documents/GreatManTheory.pdf

Fiedler, F. (1967). A theory of leadership effectiveness. New York: McGraw-Hill.

Gill, R. (2011). Theory and practice of leadership. London: SAGE.

Hersey, P. and Blanchard,, K. (1984). The situational leader. Center for Leadership Studies.House, R. and Aditya, R. (1997). The Social Scientific Study of Leadership: Quo Vadis?. Journal of Management, 23(3), pp.409-473.

Hartog, D., Muijen, J. and Koopman, P. (1997). Transactional versus transformational leadership: An analysis of the MLQ. Journal of Occupational and Organizational Psychology, 70(1), pp.19-34.

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Judge, T., Bono, J., Ilies, R. and Gerhardt, M. (2002). Personality and leadership: A qualitative and quantitative review. Journal of Applied Psychology, 87(4), pp.765-780.

Judge, T., Piccolo, R. and Kosalka, T. (2009). The bright and dark sides of leader traits: A review and theoretical extension of the leader trait paradigm. The Leadership Quarterly, 20(6), pp.855-875.

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McCleskey, J. (2014). Emotional intelligence and leadership. International Journal of Organizational Analysis, 22(1), pp.76-93.

Rafferty, A. and Griffin, M. (2004). Dimensions of transformational leadership: Conceptual and empirical extensions. The Leadership Quarterly, 15(3), pp.329-354.

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APPENDIX 1

Table 1 : Summary of main leadership theories (Storey, 2004)

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Introduction

Leadership is easily one of the most sought after and best-rewarded talents in the corporate world, politics and other spheres of life. A 1998 study by McKinsey & Company involving upwards of 6000 executives drawn from 77 organisations, coupled by case studies of 20 “talent-rich” organisations, established that up to 75% of companies were chronically short of leadership. The study projected that the demand for intelligent, sophisticated, globally astute, technologically literate and operationally flexible talents would remain a challenge for decades to come (Chambers et al, 1998). With the rapid expansion of the global economy and heightened international competition for scarce talents, coupled by rapid and unpredictable changes in operating environments, the need for leadership has never been greater. Yet, the nature and function of leadership remains one of the most dynamic and subjective concepts that has defied centuries of theoretical thought, research, practice and interest (Chamber et al, 1998, p.274). Among the outstanding issues remains whether leadership is an innate ability or can be learnt like any other skill. While this paper does not presume to have found the answer, it argues that leadership is a skill that can be achieved through effort, training, education, practice and experience (Swaroop & Prasad, 2013).

The Leadership Concept

In order to understand leadership’s nature and whether it is innate or acquired, it is helpful to separate different conceptions of leadership, while at once setting out how it differs from concepts of coercion, management and power. Over the recent decades, there have been more than 65 classification systems, developed to define varied and changing dimensions of leadership (Rowe, 2007). Rowe (2007) and Northhouse (2007) conceive leadership as a focus of multiple group processes, effectively giving a leader a critical role in shaping the group’s will, activity and change. Accordingly, leadership is a process by which a person influences a group to attain a desired goal. The process perspective argues that leadership is a contextual phenomenon that arises from the interactions between the followers and leaders. It is clearly observable in a leader’s behaviour, and as such, it can be acquired by others. In addition, leadership is a multi-directional/interactive effort that involves a measure of influence to direct the energies of a group towards serving a mutual purpose (Northhouse, 2007). Rowe (2007) defines leadership as “ a process of influencing others to understand and agree about what needs to be done how to do it, and the process of facilitating individual and collective efforts to achieve shared objectives ” (p. 1).

On the other hand, the trait perspective of leadership conceives leadership as a characteristic or set of characteristics possessed in different degrees by people (Northhouse, 2007). Effectively, leadership resides in a select few individuals who are born with such traits. This approach emphasises individual leadership qualities such as motives, personality, skills and values. Further, there is a difference between assigned and emergent leadership. Assigned leadership refers to the appointment of people to authority positions, whether or not they have the capacity to lead (Connelly & Rudnick, 2001; Kotter, 2011). Given the fact that organisations in the United States suffer from chronic leadership shortages (Chambers et al, 1998), it is highly likely that the tendency to assign people to leadership positions without considering their leadership capacity is mainly responsible for the lack of leadership. In part, this is explains the leadership shortages in Chambers, et al (1998). The shortages do not imply there are vacancies, but that important leadership positions are occupied by individuals without leadership capacity. It is easy to equate leadership to assigned position holders such as presidents, queens and mayors, but these positions can filled by bad or great leaders. There are individuals in villages, kindergarten classrooms, far-flung communities and even among animals, away from the cameras and public attention, with or without formal leadership positions, who perform leadership roles. Most of these people are emergent/situational leaders, who are perceived and accepted as most influential members of their respective communities, groups or organisations (Rowe, 2007; Northhouse, 2007). According to the social identity theory, emergent leadership is dependent on how well individuals fit with the group’s identity as a whole (Rowe, 2007). Effectively, the nature versus nurture debate regarding leadership comes down to the trait and style perspective on one hand and the process, situational, assigned and emergent leadership perspectives of leadership on the other.

Innate Leadership

The perspective that leadership is innate has largely been popularised by lazy corporate succession planning practices. Many organisations have devised systems to identify the best leaders in the industry and with the right compensation, they attract and retain them. This practice is driven by the fact that it is difficult to change people and instead of attempting to, companies look for the best and hire them (Beechler & Woodward, 2009; Chambers et al, 1998). Even individuals who have innate leadership traits (such as vision, inspiration and determination) are trapped in stagnant organisation succession plans, without opportunities to develop and practice their skills (Beechler & Woodward, 2009). The idea of developing leadership capacity is unpopular because offering adequate learning opportunities and experiences requires heavy resource commitment and time. High annual employee turnovers and the existence predatory organisations that seek to poach talents discourage organisations from investing in building their own talents. In addition, developing effective leaders for an organisation requires that groups accurately diagnose their leadership needs and identify high potential individuals to develop. This is a risky process, which given the great expense, is very unattractive to organisational leaders, whose pay check largely depends on the short term performance (Byham, 2010).

Theorists and leadership practitioners that support the trait perspective argue that leadership is genetic, but may be encouraged through learning. It is difficult to give a person leadership traits, even with the right developmental interventions. There is genetic evidence that links some chromosomes (DRD4 on chromosome 11) with certain personality types and leadership traits (Byham, 2010). People have different personality types and traits, with some having attributes that are best-suited for leadership than others. Some intelligence theories support this argument. According to Spearman’s theory of intelligence (initially published in 1904), mental ability tests exhibited manifold positive correlation, meaning that if an individual is unable to perform well in mathematics for instance, they are equally unlikely to perform well in other subjects or aspects of life. This theory has the implication that individuals are suited to do different tasks depending on their genetic endowment. Similarly, Gardner’s theory of intelligence argues that there are multiple types of intelligence that include linguistic, mathematical/logical, spatial thought, musical, kinetic/bodily, interpersonal, intra-personal and naturalist intelligence (Sternberg, 2004). These intelligences are mostly natural, but can be shaped during a child’s formative years. According to the multiple intelligences theory, people are differently suited to different occupations including leadership. According to this perspective, Stephen Hawkins, who is a theoretical physicist (mathematical and spatial intelligence), is less suited as leader compared to Oprah Winfrey (interpersonal, intra-personal and naturalist intelligence).

Acquired Leadership

According to Kotter (2011), leadership occurs daily and everywhere. Organisations, communities and even countries face adaptive difficulties always and if leadership were a preserve of a select few, there would be a crisis. This assertion is backed up by the hugely influential contingency theory, which argues that leadership is dependent on certain situations (Heifetz & Laurie, 1997). Michael Brown’s leadership as the director of the United States’ Federal Emergence Management Agency (FEMA) before and after Hurricane Katrina is illustrative of this argument. When Katrina hit, FEMA failed to order timely evacuation of vulnerable populations and was ill-prepared to respond despite its massive resources and having received ample warnings from the National Hurricane Centre of the impending disaster. FEMA failed to plan for, and was unable coordinate emergency responses among the local, state and federal agencies, including failure to mobilise its own staff, sister-agencies and the military (U.S. House of Representatives, 2006).

Other than failed strategic planning, Brown’s indecision before during and after the disaster, poor initiative and failure to inspire the confidence of the victims were key to the botched response and crisis. While it is fundamentally arguable that Winston Churchill and Roosevelt would never have been as great without World War II and the Great Depression respectively, there are endless contingencies and leadership varieties in the world today. Organisations, communities and other groups face increasingly globalised operating environments,, with volatile markets, diverse modes of work and cultures. The rise of the knowledge economy, technology, demographic changes, increased mobility, changing economic trends and other factors have not only put a premium on leadership, but also emphasised how dynamic leadership can be (Beechler & Woodward, 2009).

According to Kotter (2011), the argument that leadership is a question of vision, charisma or other fancy trait is a pernicious half-truth that has been told too many times so much that some believe it. Leadership has little to do with innate individual traits, other than those that can be acquired and nurtured. Leadership is about coping with change and adaptation to new conditions, including setting direction, aligning and motivating people. On the other hand, Peter Drucker, one of the foremost management consultants today, argues that leadership has little to do with personality. The most effective leaders exhibit hugely varied values, personalities and personal strengths. They may be reclusive or extroverted, controlling or easy-going, parsimonious or generous (Drucker, 2011). With discipline and constant practice, it is possible for anyone to gain the knowledge needed to make great decisions, achieve accountability and channel acquired knowledge into effective action. Drucker (2011) and Kotter (2011)’s assertions are confirmed by findings in a survey of leadership practitioners and thinkers by Marques (2010). This study concluded that leaders exhibited widely varied morals, values, integrity, ethics, listening skills, forgiveness, kindness, courage, love, trust and honesty.

Even if it were true that leadership is innate, most of the leadership traits espoused as indicative of great leadership can be taught. Assertions that leadership is innate emphasise the fact that effective leaders are characterised by among others, vision, charisma, strategic thought, inspiration, integrity, confidence, communication and decisiveness. However, in order to direct these traits into action and influence other people, leaders need power. While a few repressive leaders like North Korea’s Kim Jong-un can get by through coercion, (penalties, threats, rewards and punishments), the measure of effective leadership today lies in the ability to leverage any power available to one, towards the attainment of a desired goal (Goleman, 2004). Without coercive power, emotional intelligence is critical. As an indication that leadership can be acquired and nurtured, emotional intelligence has five key components (self-awareness, empathy, motivation, social skills and self-regulation), all of which can be acquired through hard work, learning and exposure to the right conditions (Goleman, 2004).

Further, since leadership is about coping with change and adapting, one of the most important ingredients to succeeding at this task is the ability to learn and apply lessons from previous experiences. Leaders that do not learn from their, and other people’s experiences set themselves up to fail. The emphasis is on learning (Connelly & Rudnick, 2001). The American auto industry, for instance, has fallen behind its Japanese and German competition because of its failure to improve product quality, efficiency, performance and service despite these being clear market trends decades ago. The lack of innovation, motivation and strategic vision came to a head during the 2008/2009 global economic crisis, when GM and Chrysler needed the federal government bailout in order to stay afloat. In the United Kingdom, the global economic crisis also exposed leadership failures by institutions such as Northern Rock and the Royal Bank of Scotland. These organisations did not only ignore clear warnings of a market crash and had lived through the Asian crisis in 1997, but they also failed to draw proper lessons and hence the disaster (Gros & Alcidi, 2010).

Conclusion

While it is impossible to define or even describe leadership as a concept, many people know leadership when they see it. Most, if not all the skills necessary for effective leadership identified in this paper can be acquired or encouraged in people (Drucker, 2011; Heifetz & Laurie, 1997; Connelly & Rudnick, 2001). It is undeniable that there are leaders who are born, but such leaders are too few and undependable, given the huge demand for leadership. In addition, it is clear that leadership not only requires continuous learning and adaptation, but is also a function of interactions between the leader and the followers. Leaders at any level, with or without power, must engage followers in confronting challenges, changing perspectives, adjusting values and adopting new habits. As against the perception that leadership is innate, the fact that leadership can be taught and further that it is a process of leader-follower interaction reduces the burden on leaders, because they never have to know all the answers (Heifetz & Laurie, 1997).

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Introduction

Following the post-2008 worldwide economic slump, businesses have continued to keep a tight control on their costs and expenditure. At the same time, they have also sought to remain competitive in their markets by keeping abreast of the latest industry developments and progress. As such, senior executives have often come to see training and development, on the one hand, as one of a number of competing internal requests for investment. But, on the other hand, it is also the potential source of competitive advantage. As a result of this tension, HR business leaders are under increased pressure from senior managers to justify the value of training by providing supporting evidence, such as business cases and ROI forecasts. However, studies in recent years have suggested that fewer than five percent of organisations are able to provide any hard data on how their investment in learning and development has affected their bottom line (Bersin, 2013). Indeed, training managers in the corporate learning function have routinely identified measurement and evaluation as their top challenge (Bersin, 2006). This paper discusses the challenges of measuring the business impact of learning and development within organisations. It discusses the advantages and disadvantages of Donald L. Kirkpatrick’s four-level framework (1998) for evaluating the effectiveness of training programmes, before drawing conclusions about its relevance in today’s economic environment.

The tension between the benefit and cost of training also characterises the literature that investigates the relationship between training, human resource, employee performance and financial outcomes. Some argue that workplace learning is essential for an organisation’s competitiveness and believe that substantial investments should lead to improved performance and/or results (Salas & Cannon-Bowers, 2001). Others, conversely, criticise training for not transferring to the job and being too expensive (Kraiger, 2003) and question the link between training and results criteria (Alliger et al, 1997). The contrasting opinions point strongly towards a lack of consensus, both practically and theoretically, about how to evaluate learning and development programmes. In order to understand the reasons for a lack of confidence in training evaluation, it is helpful to consider current practice. The best-known model for evaluating training programmes was developed by Donald Kirkpatrick in the late 1950s. A cursory glance at popular business websites today shows how his four-level framework continues to characterise training evaluation models today. The following section describes the model in more detail before discussing the benefits and disadvantages, which may underpin to the on-going cost-benefit debates.

Kirkpatrick’s Four-Levels

In his model, Kirkpatrick set out to evaluate the impact of training by assessing the following key areas: (1) reaction, or the extent to which learners were satisfied with the programme; (2) learning, or the extent to which learners took on board the course content; (3) behaviour, or the extent to which learners applied their knowledge in role; and (4) results, or the extent to which targeted outcomes were achieved, such as cost reduction, increased quality and productivity.

Level One: Reaction

Results at Level One are typically measured by means of post-training questionnaires which encourage participants to appraise criteria such as the topic, materials, and instructor. Reaction level evaluation is popular with training professionals as it is relatively easy to administrate and provides immediate information to managers and supervisors about how valuable participants found the programme. Indeed, Morrow et al (1997) describe how some professionals choose to rely solely on this level of evaluation. However, to use the reaction-level exclusively as an accurate measure of training effectiveness is to overlook its limitations. ‘Smile sheets’ (Davis et al 1998) do not indicate the extent to which participants have internalised the programme’s goals, nor do they offer direct insight into how the organisation will benefit from the investment. Indeed, participants’ subjective responses may be influenced by a wide variety of personal factors, from lack of interest in the topic, to personal problems and distractions. By responding to this level of feedback in isolation, organisations risk revising programmes needlessly (Aldrich, 2002). Clearly, organisations need to consider further, complementary levels of evaluation to generate a more holistic view of training’s impact.

Level Two: Learning

Learning results are frequently measured either by end-of-training examination, or by participants’ self-assessment about whether learning expectations have been met. Whereas the latter evaluation method remains open to criticism about participants’ subjectivity, the former does not necessarily indicate whether the participant can transfer and apply their classroom knowledge to the workplace. Indeed, research still quoted today suggests that only 10%-30% of training content translates to the workplace knowledge and skills (Ford & Weissbein, 1997). As Wisher et al (2001) point out , data sources need to be unbiased, understandable and immune to irrelevant influences if they are to indicate accurately a training session’s effectiveness. Thus, Level Two, like Level One, remains a useful source of information, but is not substantiated by hard facts and therefore cannot be relied on exclusively as a measure of effectiveness.

Level Three: Behaviour

Kirkpatrick’s third level aims to measure the continuity between learning and practice by assessing how training participants apply their new knowledge and skills in the workplace. Traditionally, this would have been measured subjectively by supervisors, whose evaluation skills and working relationships with the employee would inevitably vary greatly. However, increasingly, technological solutions are used to assess objectively and consistently whether a participant can apply their knowledge and skills to perform tasks, take actions and solve problems (Galloway, 2005). As technology advances, it is likely that these indicators of proficiency and competency will become more sophisticated and accurate. Thus, Level Three evaluation attempts to address the barriers to transfer that Levels One and Two both neglect. In doing so, it contributes to an organisation’s understanding of the strengths and weaknesses of its training and development process. It permits the identification of successful participants one the one hand, and, on the other, creates the opportunity to reinforce important points to those who have not grasped them. As such, Level Three evaluation begins to indicate how well training is aligned with certain organisational goals and the likelihood of achievement (Phillips, 1994).

Level Four: Results

Evaluation at Kirkpatrick’s fourth level aims to produce evidence of how training has a measurable impact on an organisation’s performance. Hard data, such as sales, costs, profit, productivity, and quality metrics are used to quantify the benefits and to justify or improve subsequent training and development activities. For business leaders, this is arguably the most important level of evaluation. Yet, it is also the most difficult level to understand, define and execute well. As Wile (2009) points out, the challenge is to connect the results specifically to the training. Not only is it necessary to identify the most relevant measures, but it is also essential to attribute any change in those measures to the intervention of training.

Discussion

Kirkpatrick’s model is relatively simple to understand and presents a useful taxonomy for considering the impact of training programmes at different organisational levels. As discussed above, there are risks and weaknesses to using the individual levels in isolation. However, Kirkpatrick did not mean for the framework to be so used. Rather, each level of evaluation is intended to answer whether a fundamental requirement of the training program was met, with a view to building up a picture of the whole-business impact of the training. All levels are important as they contain diagnostic checkpoints for their predecessors enabling root cause analysis of any problems identified. For example, if participants did not learn (Level Two), participant reactions gathered at Level One (Reaction) may reveal barriers to learning that can be addressed in subsequent programmes. Thus, used correctly, the evaluation framework can benefit organisations in a number of ways.

Firstly, the evaluation framework can validate training as a business tool. Training is one of many options that can improve performance and profitability. Proper evaluation allows comparisons and informed selection in preference to, or in combination with, other methods. Secondly, effective evaluation can justify the costs incurred in training. When the money is tight, training budgets are amongst the first to be sacrificed. Only by thorough, quantitative analysis can training departments make the case necessary to resist these cuts. Thirdly, the right measurement and feedback can help to improve the design of training. Training programmes need continuous improvement and updating to provide better value and increased benefits. Without a formal evaluation, the basis for change is subjective. Lastly, systematic evaluation techniques can allow organisations to make informed choices about the best training methods to deliver specific results. A variety of training approaches are available at different prices with different outcomes. By using comparative evaluation techniques, organisations can make evidence-based decisions about how to get the most value for money, and thereby minimise the risk of wasting resources on ineffective training programmes.

Despite its popularity, Kirkpatrick’s model is not without its critics. Some argue that the model is too simple conceptually and does not take into account the wide range of organisational, individual, and design and delivery factors that can influence training effectiveness before, during, or after training. As Bates (2004) points out, contextual factors, such as organisational learning cultures and values, support in the workplace for skill acquisition and behavioural change, and the adequacy of tools, equipment and supplies can greatly influence the effectiveness of both the process and outcomes of training. Other detractors criticise the model’s assumptions of linear causality, which assumes that positive reactions lead to greater learning, which in turn, increases the likelihood of better transfer and, ultimately, more positive organisational results (Alliger et al, 1997).

Training professionals also criticise the simplicity of the Kirkpatrick model on a practical level. Bersin (2006) observes how practitioners struggle routinely to apply the model fully. Since it offers no guidance about how to measure its levels and concepts, users often find it difficult to translate the model’s different initiatives. They are often obliged to make assumptions and leaps of logic that leave their cost-benefit analyses open to criticism. Most are able to gather Level 1 and Level 2 feedback and metrics with relative ease, but find the difficulty, complexity and cost of conducting an evaluation increases as the Levels advance and become more vague. Bersin claims that only five per cent of organisations measure ROI (and they do so for a small percentage of their programs) and fewer than ten per cent regularly measure business impact. Paradoxically, therefore, it is precisely the elements that Heads of Learning and Development want to measure, that they end up measuring the least.

On a more fundamental level, some have taken issue with the content of Kirkpatrick’s model. Philips (1994), for example, adds a fifth level to the framework in order to address the recurring need for organisations to measure return on investment in training and development activity. Bersin (2006) goes further still and calls into question the overall relevance of Kirkpatrick’s framework as a means of measuring the business impact of training. He argues that the model fundamentally overlooks the role of learning and development as a business support function. Whilst it is appropriate for business critical lines to be measured according to the outputs for which they are directly accountable, e.g. revenue, profit or customer satisfaction, it is not reasonable to measure HR and Training by the same means. Since these non-revenue-generating functions exist to support strategic initiatives and to make business lines run better, their business impact needs to be measured differently. Since Kirkpatrick’s model overlooks this, practitioners who attempt to apply it to their business activity end up spending large amounts of time and energy trying to evaluate direct business impact, where there is only indirect responsibility.

Conclusion

Kirkpatrick’s four-level framework is a simple, flexible and comprehensible means of evaluating the business impact of training. Its enduring influence on evaluation methods used by training professionals today is a testament to its adaptability and practicality. However, evidence suggests that most organisations succeed only partially in executing all levels of measurement. By focussing on the reaction and learning levels, they rely on subjective participant-related feedback at the cost of assessing the full impact at the organisation-level. Confusion about precisely what to measure at the higher levels, and how to do so, further detracts from evaluation. Thus, although Kirkpatrick provides a useful point of reference for evaluating the business impact of learning and development, its limitations are evident from training professionals’ on-going call for a simple, repeatable, standardised measuring process that is more flexible, scalable and business orientated.

References

Aldrich, C. (2002) Measuring success: In a post-Maslow/Kirkpatrick world, which metrics matter? Online Learning 6(2), 30-32

Alliger, G. M., Tamnenbaum, S. I. ; Bennett, W. Jr. ; Traver, H. and Shotland, A (1997) A meta-analysis on the relations among training criteria. Personnel Psychology 50, 341-358

Bates, R. (2004) A critical analysis of evaluation practice: the Kirkpatrick model and the principle of beneficence Evaluation and Program Planning 27, 341-347

Bersin J., (2006) High-Impact Learning Measurement: Best Practices, Models, and Business-Driven Solutions for the Measurement and Evaluation of Corporate Training. [Online] Available from http://www.bersin.com

Bersin by Deloitte. (2013) The Corporate Learning Factbook 2013. [Online] Available from http://www.bersin.com

Davis, A., Davis, J., & Van Wert, F. (1998) Effective training strategies: A comprehensive guide to maximising learning in organisations. Philadelphia: Berret-JKoehler

Ford, J. K. & Weissbein, D. A., (1997) transfer of training: An updated review and analysis. Performance Improvement Quarterly 10(2), 22-41

Galloway, D. L. (2005) Evaluating distance delivery and e-learning: Is Kirkpatrick’s Model Relevant?. Performance Improvement 44(4), 21-27

Kirkpatrick, D. L. (1998) Evaluating training programmes. The four levels. Philadelphia: Berrett-Koehler

Kraiger, K. (2003) Perspectives on training and development. In W. C. Borman, D. R. Ilgen, & R. J. Klimoski (eds.), Handbook of Psychology: Industrial and Organisational Psychology (pp. 171-192) Hoboken: Wiley

Morrow, C. C., Jarrett, M. Q. & Rupinski, M. T. (1997) An investigation of the effect and economic utility of corporate-wide training. Personnel Psychology 50, 91-119

Phillips, J. J., (1994) Measuring return on investment, Alexandria: American Society for Training and Investment

Salas, E. & Cannon-Bowers, J. A. (2001) The science of training: A decade of progress. Annual Review of Psychology 52, 471-499

Wile, N. (2009) Kirkpatrick four level evaluation model. In B. Hoffman (ed.) Encyclopaedia of educational technology. [Online] Available from http://eet.sdsu.edu

Wisher, R. A. , Curnow, C. K., Drenth, D. J. (2001) From student reactions to job performance: A cross-sectional analysis of distance learning effectiveness. Proceedings of the 17th Annual Conference on distance teaching and learning. (pp. 399-404) Madison: Wisconsin University

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The UK grocery market is a highly competitive and saturated market with thousands of competitors. Demand is distinct for being price elastic such is the nature of the market. This makes it notoriously difficult to make any advances on market share (Burt and Sparks, 2003). Since entering this market in 1994, Lidl have become deeply entrenched with over 600 stores at its disposal which expresses the phenomenal success that they have achieved (Lidl 2012). They are now a formidable competitor feared by the other major supermarkets. The big four supermarkets in the UK such as Tesco and Asda have now endured a decrease to their market share, as the discount supermarket Lidl has made gains (Butler, 2015). Brinded (2015) outlined that as of May 2015, Lidl had accomplished a record market share of 3.9% with an 8.8% increase in sales. Such displays of growth are very much owed to the marketing strategy implemented by Lidl. Fifield (1998, p.27) defines marketing strategy as the “process by which the organisation translates its business objective and business strategy into market activity”. He also emphasises the importance of executing plans quickly in response to various market changes. Lidl as will be explained has executed this definition to great success. This essay will analyse the marketing strategies devised by Lidl and will also propose suitable recommendations to enhance the marketing strategy to sustain financial performance and UK expansion, with a brief insight into the enormous challenges encountered by Lidl.

Barriers to Entry

With the price per majority of products being relatively small it is crucial that stores sell a high volume with great variety. Therefore a large and repeat buying consumer base is crucial for any long term success (Oliver, 1999). Such a rigid outline for success means that the barriers to entry are quite formidable. Stigler (1968, p.67) categorised barriers to entry as “a cost of producing that must be borne by firms seeking to enter an industry but is not borne by firms already”. Of course Lidl was and still is a massive supermarket in Germany from the 1980’s and was recognised throughout other European countries but it was completely diverse to the stores in the UK which made Lidl’s introduction a risk. It doesn’t seem cynical to suggest that there also exists a long established oligopoly whose economic dominance makes the market even more challenging to infiltrate (Blythman, 2008). BBC (2006) support this view by reporting in 2006 that Tesco, Asda, Sainsbury’s and Morrison’s controlled 74.4% of the market. This oligopoly means that there are higher barriers of entry, requiring significant capital to overcome. It has also fostered extreme levels of customer loyalty which is a complex obstacle in itself to overturn. Such dominance translates to quite high profit margins when compared to discount stores. Ferrell and Hartline (2014) identified capital, advertising, government regulations and adequate infrastructure as the primary barriers to entry in a market which is oligopolistic.

Marketing Strategy incorporated by Lidl

From their European operations Lidl had already amassed a substantial budget, giving it the economic strength to establish a corporate base in the UK market. However initially Lidl did not aim to match supermarkets such as Tesco for store size as they recognised that their brand simple wasn’t reputable enough in the UK for such an aggressive strategy. They operated on a financial scale below that of the larger supermarkets which helped them to systematically build their operations from a small and solid foundation. Aaker and Mcloughlin (2010) distinguished four key principles needed to ensure a successful marketing strategy. These were strategic analysis, innovation, multiple businesses and sustainable advantage. Lidl’s marketing strategy was extremely competent at orchestrating these principles as interpreted below;

Strategic Analysis- Lidl’s rise to prominence during the financial crisis was a massive example of how strategic analysis benefited their marketing strategy. Senior and Swailes (2010) were adamant that for any successful marketing strategy the information needed to be accurate and timely. In specific they pinpointed environmental triggers of change which encompasses, political, economic, social, technological, legal and ecological factors. Lidl regarded the financial crisis as an opportunity and began to stock greater numbers of cheaper products. Most notably middle class consumers who before the crisis would not have shopped at a discount store were attracted by the cheaper prices of products. This stimulated an uplift in customers, leading to a massive increase in sales. It is evident that Lidl’s marketing strategy is identifiable with that of the evolutionary approach, whereby reacting to changing market conditions by launching initiatives has been a success (Fifield, 1998). Johnson and Scholes (2000) believed a SWOT analysis was an efficient method of enhancing any marketing strategy. While a SWOT analysis portrays the financial crisis as an opportunity it would also highlight major weaknesses so that they can be confronted. Poor reputation and brand image would seem to be Lidl’s major weakness with Connolly (2008) exposing poor working conditions and minimum wage throughout the UK stores. This illustrates that there are areas which Lidl’s marketing strategy did not address.

Innovation- Although simplistic, Lidl incorporated a basic standard of store interior where stock was commonly placed in bulk on pallets with minimal or no additional services such as a butchers which is a familiar service in most supermarkets. It is apparent that Lidl have relied heavily on the framework of the generic strategy of cost leadership. Porter (1985) presented this strategy as one where a competitive advantage is engineered by minimising costs and lowering prices. This has been cardinal to Lidl capturing market share, whilst producing considerable profits. This strategy has also been successful for huge multinational companies such as Ryanair who can offer greatly reduced prices by maintaining a low standard of service. As can be seen with Porter’s (1985) generic strategies matrix, Lidl’s marketing strategy achieved optimum success as they had a broad market scope to aim at.

Figure 1. Porter’s Generic Strategies Matrix (Porter, 1985 p.12)

Multiple Businesses- Lidl was already a major force in mainland Europe and therefore had massive capital to sustain large scale expansion into other countries. The marketing resources were present and availed of in an ambitious marketing strategy where Lidl would operate below the level of the larger supermarkets, aspiring to build themselves up eventually to that pedigree. Hooley et al (2008, p.289) commentated that “marketing assets and capabilities have potential for exploitation”. Lidl’s marketing strategy utilised the assets of the company to allow them to continuously grow without any cash flow shortages.

Sustainable Advantage- Higher quality consumables that can match the quality of household brands primarily stocked in the major supermarkets has attracted a larger range of consumers. Moreover it has provided an effective competitive advantage which diversifies Lidl. Small, unknown brands mean that Lidl can comparatively sell at a much lower price than what is demanded from market leading brands. Durrani (2015) highlighted that in 2012 alone Lidl had spent ?21 million on advertising activity, another key factor in the effectiveness of their strategy.

In contrast to Porter’s theory of cost leadership, it must be appreciated that this strategy in isolation does not sell the product. McCarthy (1960) constructed the marketing mix which gives a much more definitive portrayal of how to produce sales. From the above analysis it is clear that Lidl’s marketing mix which as McCarthy (1960) outlines involves product, pricing, place and promotion worked with emphatic success.

Recommendations for Future

Interestingly it has been contested that much of Lidl’s success has been owed to the financial crisis of 2008. While this does demonstrate Lidl’s competency at processing information and intelligent decision making, they now must be proactive and plan for the future. It is likely that they will again exist in a strong economy where consumers will be more inclined to spend on luxury brands and in stores such as Marks and Spencer’s. With the grocery market being so dynamic and volatile it is crucial that Lidl engage in further market research to identify exactly what consumers want so that the company can be improved to accommodate for these demands. If done so correctly customer loyalty will be retained. Oliver (1999, p.33) has discovered that “the net present value increase in profits that results from a 5% increase in customer retention varies between 25% and 95% in 14 different countries”. With regards to this information it would be advisable for Lidl to engage in loyalty schemes where repeat buyers are rewarded with discount and exclusive offers. However it is a complex task to estimate factors such as consumer spending as explained by Dekimpe et al (2010, p.29) who states that “predicting aggregate consumer spending is vitally important to marketing planning, yet traditional economic theory holds that predicting changes in aggregate consumer spending is not possible”. This demonstrates how challenging it is to make accurate assumptions. As proposed by Chisnall (1995) it would be recommendable that Lidl should execute multiple sourcing on a wider scale whereby a larger variety of suppliers are contracted. He explained that this would secure expansion as it would limit the consequences of a main supplier defaulting.

Brand repositioning is the possibly the most important recommendation to ensure Lidl continue making substantial market gains. Burt (2000) noted that although discount stores can potentially make significant gains it is essential that for long term success their brand image must be improved. It was revealed by igd (2015) that the UK market on March 31st was worth ?177.5 billion, an increase of 1.7% from the previous year. An indication that consumers may begin to expect greater quality, which could leave Lidl surplus to requirements. To reinforce the need to improve the brand image Ross Millar, the managing director of Lidl Scotland (Lidl 2012) revealed that 63% of customers interviewed agreed that if they had more money they would buy better quality food. It is clear that Lidl will have to improve the quality of produce that they source. Further large investment is required to modernise store interiors with additional services needed to be established. This will not only increase revenue due to diversification but as mentioned above the brand image will be vastly improved. Lidl will be transformed from the perception of being solely a discount retailer to being a ‘one stop’ shop where consumers can purchase all of the groceries that they plan on purchasing.

Furthermore a popular feature of larger supermarkets is ‘online shopping’ whereby by customers can make online orders for home delivery. It has been a huge success for Tesco which has also boosted its brand image. For Lidl to continue to compete with the larger supermarkets in the future and to prosper, they too must develop an online shopping service. Such is the age we now live in where spending is heavily dictated by technology it would be naive of Lidl to ignore such an opportunity (Burt and Sparks, 2003). It also promotes brand awareness. Blackman (1975) suggested that corporate social responsibility (CSR) is another factor which many large multinational companies are having to introduce as it ranks highly in priorities demanded by stakeholders in the 21st century. Lidl have already began to source fair trade products, but they must do a lot more as consumers now expect fresh produce and a range of ethical products. Drucker (1984) was of the view that CSR will influence consumer behaviour greatly as it is increasingly in the interest of society. However Boulstridge and Carrigan (2000) maintained that price, quality, brand familiarity and value were still the key factors that controlled consumer spending.

Conclusion

Lidl’s marketing strategy has been as innovative as it has been opportunistic, which reflects the position it now finds itself. Ferrell and Hartline (2014, p.17) stated that marketing strategy “is a plan for how the organisation will use its strengths and capabilities to match the needs and requirements of the market”. It is apparent that Lidl have executed their marketing strategy to maximum effect, exploiting an opportunity in the market with exceptional financial performance as a result. Lidl’s ascendency is summarised by Fuller (1999, p.3) who defines marketing success as “satisfied consumers and concurrent profit for the firm”. Lidl’s performance as a direct result of their marketing strategy firmly reflects this concept, which is testimony to all that they have achieved. However just as change brought Lidl success, it must be acknowledged that it can usher in collapse. Lidl have constructed a vast infrastructure in the UK that will allow them to pursue even more market share. The strategies that they deployed in the past seven years may no longer be adequate so it is vital that they continue to evaluate their environment and make decisions accordingly. Brand awareness and changing brand perception is the most vital area for the future marketing strategy as it will determine continued customer loyalty. Lidl now undoubtedly have the platform to become a market leader in the long term future if they continue to fuel growth by reacting to the ever changing consumer demands which has helped them climb to such a prosperous position. Structural inertia must not be allowed to breed, with moving forward the primary focus.

References

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Blackman, J. (1975) Social responsibility and accountability. New York: New York University Press.

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Describe the four criteria for an organisation’s core competence. Explain how core competencies can be identified and leveraged to develop strategies, Give example(s) to support your argument.

Introduction

This essay starts by briefly describing how the term core competencies was established before looking at why it is necessary to identify core competencies within an organisation. The four criteria used to identify core competencies is discussed with an analysis of each followed by an overview of strategy. This provides the pretext to discuss the role of correctly identifying core competencies and why leveraging them in strategy development is important.

Core competencies

Formulating strategies is a cyclical process in which an internal analysis of an organisation plays a crucial part (Introduction: What is strategy? 2006:1). This analytical process involves taking a theoretical approach known as a resource-based view (Unit 3: 5) in which an organisation objectively looks at all its resources and capabilities to see how best they can give an organisation competitive advantage. Grant has established that an organisation’s resources can be tangible, intangible or human and that these can be matched to its capabilities to eventually provide competitive advantage (Grant, 2008: 131). This process of exploiting the unique combination of resources and capabilities has given rise to the term of core competencies which have been defined by Prahalad and Hamel (1990: 78-90) as the ability of an organisation to coordinate all its technologies and production skills in order to deliver its strategy.

Identifying core competencies

Core competencies are the building blocks on which organisations are able to strategise so it is vital to identify them correctly using four specific criteria (Segal-Horn, 2009: 169):

1) Does it provide significant value?

2) Does it allow to increase or dominate market share?

3) Is it difficult for competitors to imitate?

4) Does it provide competitive advantage?

It is important to understand that these are not mutually exclusive categories therefore it is essential to meet all criteria in order to establish a core competency. Usually it is not possible for an organisation to have more than a handful of core competencies (Segal-Horn, 2008: 170).

Value in this scenario is in terms of ‘perceived’ benefit to the end user of the product or service (Segal-Horn, 2009: 169). For instance, Vodafone became a leader in the world of mobile communications in the late nineties by providing value-adding services such as short message services and voicemail (Unit 1: 10) to their existing portfolio. The concept of value is equally applicable in not-for-profit organisations such as Crisis, a charity for single homeless individuals. One of its core competencies is achieved through its long establishment of over 40 years and its ability to provide services at a national level and this level of dedication is seen as a valuable asset. Organisations which have value-creating resources are at an advantage to those who do not, for example Vodafone who made heavy investments in their research and development to stay ahead of their competitors (Unit 1:9). It is important to understand that value is not always represented by revenue, as in the example of the charity Crisis; the value of such a service to a needy individual is priceless hence this is a context-specific measure.

Markets are becoming increasingly complex and with the advent of globalisation and the internet they are not restricted by geographical boundaries so identifying competencies which can help to increase market share are exceptionally valuable. An example of this would be the ability of an organisation to provide a service in several different languages simultaneously. Organisations whose infrastructure is such that it allows simultaneous function across continents are clearly at an advantage to those who have a lesser ability to do so. Markets are dynamic so the ability to adapt to changes in the environment due to specific capabilities can be regarded as a core competency.

The third test is to see whether it can easily be replicated by another organisation; the more difficult it is to imitate, again the more value it holds as a core competence. A competitor might be able to obtain identical technology on how to build a TV but the core competence might lie in the ability to have a more efficient production line. Apple Inc. for example use an operating system which is unique to their products and sometimes reputation, an intangible resource, can be seen to be difficult to imitate especially in organisations which have been established for a significant length of time such as certain retailers.

If a particular asset, (or combination of assets) has the potential to provide competitive advantage that is extremely useful in identifying a core competence. Competitive advantage is the ultimate goal of an organisation’s strategy (Grant, 2008: 131). Organisations with unique assets such as a patented technology immediately translate into a competitive advantage, however in many industries, competitive advantage is achieved through extremely precise combinations of resources and capabilities and the method by which an organisation exploits these assets is a core competence.

Strategy development

Strategy allows an organisation to deliver its vision. To develop a deliberate strategy which could potentially increase the sustainability of an organisation clearly requires the identification of core competencies but often a single strategy is not the answer. Organisations require a headline strategy to fit a brief which resonates the vision but several strategies are required over many departments such as research and development, production and marketing to deliver the main strategy. The process of strategy development is complex and methodology depends on several factors including the availability of resources and the external environment. The second step in strategy development following identification of core competencies is the process of leveraging resources so they can be exploited for maximum benefit.

Strategy development is a crucial step in attaining competitive advantage but a strategy is only as successful as its implementation. The process of leveraging core competencies therefore is vital and requires careful consideration since it forms the basis of implementation.

Leveraging core competencies

This is the process of exploiting core competencies in the most appropriate manner for effective strategy development because not all core competencies need to be used all the time and some may be more beneficial than others in any given scenario. Prahalad and Hamel (in Segal-Horn, 2009: 33-40) have highlighted five broad ways by which core competencies can be leveraged:

1. Concentrating core competencies effectively,

2. Efficiently accumulating core competencies,

3. Creating value through complementing core competencies with each other,

4. Conserving core competencies through contingency plans and

5. Recovering core competencies in a timely manner.

Concentrating core competencies is a method which has two facets; one being convergence which reflects the overall vision most closely so all the resources ‘converge over time’ (Segal-Horn, 2009: 33) and the second being focus. By focussing the most appropriate core competencies on key aspects only it allows an organisation to meet significant short-term goals most effectively. This is most useful in situations where some departments require more development than others for example the production team may be meeting the targets set for them but the marketing department might not be on par so although all departments are working towards one goal, one or more of the core competencies are being focussed on the under-performing department.

The process of accumulating core competencies refers to both organisation-specific core competencies as well as those of other organisations. Having a bank of information which has not been developed by an organisation themselves but is easily accessible can be extremely beneficial since it reduces time spent carrying out menial tasks as well as allowing the organisation to continue their learning and development by borrowing resources through mergers, acquisitions, joint ventures and so on. Knowledge through experience and the continual process of an organisation to learn and unlearn in order to ‘apply lessons’ is known as extraction.

Some core competencies are stand alone resources, one example being the open culture exhibited at Apple Inc. where creative individuals are given appropriate space to develop their ideas. More often than not, organisations find that the cumulative effect of core competencies is far greater than that of exploiting them individually and this method is known as blending. An extension of this idea is balancing core competencies which ensures that different operational areas within an organisation work together in harmony and do not overshadow or undermine each other. When applying these methods to leverage core competencies it should be noted that adjustments to re-balance the status quo may need to be made periodically.

Conserving core competencies is a methodology which can be divided up into three areas. Shielding which involves protecting an organisation’s resources to reduce risk to a minimum while simultaneously increasing risk for competitors, co-option which is a collaboration that often results in increased market share for stronger party in the collaboration and the final methodology is recycling whereby core competencies which have a proven track record in significantly contributing to maximising profits are used time and time again.

The final method which is used to leverage core competencies is recovery. The faster the speed of recovery, the time taken to turn around a product from development to market saturation and back to new product development, the greater the chances of recovering investment quicker. This leverage method is particularly noticeable in the technology industry where soon as a product garners popularity, its successor is already ready to be launched.

Conclusion

The brief analysis above has discussed that in an attempt to develop successful strategies, the first step is an internal analysis to identify available resources and capabilities. The next stage is to identify the core competencies of an organisation using criteria to test whether they add value, increase market share, are difficult to imitate and together do they possess the potential to serve as competitive advantage.

In doing so it is evident that an organisation may be capable of drawing up a list of several resources and capabilities but only a handful of core competencies will result in any one organisation. Whilst several organisations may have similar resources in terms of tangible resources, it is the existence of intangible and human resources and the capabilities to combine them which create opportunities to develop core competencies. Once correctly identified, it is vital that core competencies are leveraged most effectively to maximise their potential in attempting to deliver an organisation’s strategy.

Core competencies can be leveraged in one of several ways depending on the nature of the brief. In some rare instances all of the core competencies may be used all of the time but more often than not the combination used is context-specific. The specific nature of the task will determine whether core competencies need to be reserved, extracted, borrowed, converged, recycled, shielded, blended, balanced, focussed or co-opted.

Whilst the work on core competencies carried out by Prahalad and Hamel has been cited extensively and used by organisations globally, it is worth noting that the research is almost 25 years old and the longevity of theory may be questionable. With markets becoming more complex and consumer behaviour changing rapidly perhaps not all of the existing methods of leverage may be completely relevant.

References

1. Segal-Horn,S. (2009) The Strategy Reader, Oxford: Blackwell

2. Grant,R. (2008) Contemporary Strategy Analysis, Oxford: Blackwell 3. Segal-Horn,S. and Boojihawan,D. (2006) B820 Unit 1 Introduction: What Is Strategy?, Milton Keynes: Open University 4. Gleadle, P. and Bakhru, A. (2007) B820 Unit 3 Competing With Capabilities, Milton Keynes: Open University 5. Crisis (2014) The national charity for single homeless people, [Online], Available: http://www.crisis.org.uk [29.08.14] 6. Prahalad, C.K. Hamel, G. (1990) ‘The core competence of the corporation’, Harvard Business Review, May/June, pp.78-90

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Abstract

Intrapreneurship is an inevitable aspect for the success and sustenance of an organisation that keeps in pace with the changing trends in the market and relies on innovative concepts for growth. Innovative ideas are usually suggested by the research and development experts of an organisation. However, research by the employees of the organisation who are well aware of the organisational objective is a cost and time effective method to venture into a new business, or to improve an existing product. An employee who acts as an entrepreneur and researches the development of innovative ideas is called an intrapreneurial researcher. The role of intrapreneurial researchers is highly sought after in organisations that diversifies and improves its various business ventures.

Introduction

Intrapreneurship is beneficial for the performance and revitalization of large organizations and small and medium enterprises. Intrapreneurial research is significant to develop innovative ideas to diversify existing business with the production of new services, products and technologies. Intrapreneurial research also supports the revitalization process such as reorganization, strategy reformulation and organizational change.

Intrapreneurial research is undertaken by an intrapreneur who has inherent qualities like competitiveness, initiative, aggressiveness and the courage to take risk to achieve organizational objectives. The orientation, activities and emphasis of intrapreneurship is similar to the traits required for entrepreneurship as recommended in Schumpeterian innovation. In a general view, the improvement of existing products and services and the use of administrative techniques, markets and technologies to conduct organizational operations such as marketing, production, distribution and sale and establishing a change in organising, strategy and managing competitors are innovations made by the intrapreneurial researcher.

Intrapreneurship is an important attribute that predicts the absolute growth of an organization and overcomes traditional bureaucratic barriers to adhere to high standards for open communications, assessment of business environment and the renewal of business policies to act proactively in the ever competitive marketplace. An intrapreneurial researcher plays a significant role in transition economies to adapt to the changing standards of developed economies to sustain the profitability and growth of existing organizations (Antoncic, B. & Hisrich, R.D. 2001 p.495-527).

Who are intrapreneurs?

Intrapreneurs or in-house entrepreneurs are dreamers and doers who have the capability to accelerate the speed and improve the cost effectiveness of transferring technology to the market place. Traditional research methods ignore the services of the intrapreneur. This method does not yield a good result during product innovation because an outside researcher requires more time to understand the organisational objectives and therefore this kind of research is time consuming and expensive. The size of the budget and the extent of self sufficiency are important factors during innovation.

A cost effective innovation emerges out of an organization when a person is passionate about bringing out an innovative concept and functions with enthusiasm to develop it using the available organisational system. This gives a new insight for the R & D managers to recognize and understand the significance of intrapreneurs (Pinchot, G. 1987).

Risk and Returns in intrapreneurial research

Intrapreneurial research is carried out by intrapreneurs or employee entrepreneurs or intra-corporate entrepreneurs working within an organisation who risk something of value to achieve a greater objective. The risk may be in the form of the time required to accomplish a preliminary research or a business plan while simultaneously holding the responsibilities as a corporate manager. The risk may also include financial sacrifices in the way of cut down on increments until the successful accomplishment of the new business or a reduction of certain percent of salary until the bonus for accomplishment is declared. The intrapreneur has to negotiate the quantum of risk for each project with the management, since risk is a factor that tests and improves the drive and conviction of the intrapreneur. Further, the organization is bound by an implied contract to abstain from interrupting the actions of the intrapreneur unless in the case of poor performance.

In the course of the product development, the researcher intrapreneur must make use of the opportunity to create a value similar to capital. On successful completion of a research project, the intrapreneur has the right to avail rewards and incentives from the organization based on the completed research which is predetermined by a trusted committee. The amount of reward is calculated either as a fraction of the value of the project or on the basis of accounting systems of the organisation. Other than the cash bonus, the intrapreneur has total control over a specific amount of research and development funds which the intrapreneur can invest on behalf of the organization for future research projects. These funds are called intra-capital (Pinchot III, G. & Pinchot, E.S. 1978).

Who can become intrapreneurs?

Intrapreneurial research is delegated to employees with a good performance record and business acumen during the initial stage of innovation. These traits enable a seasoned manager to face challenges with respect to the new venture efficiently (Pinchot,G. &Pellman, R. 1999 p.33).

When an intrapreneur is given the responsibility in a large organization to work with the internal service intraprise, they tend to show more enthusiasm to achieve their mission because they are responsible to manage the internal profit centres. In the due course, intrapreneurs pay attention to notice the highest revenue generating function and use customer feedbacks to understand their requirements in a better, faster and cheaper manner (Pinchot,G. & Pellman, R. 1999P.36). The creativity in the intrapreneurs enable them to foresee how potential customers would envisage a new product (Pinchot,G. & Pellman, R. 1999P.37). The outcome of delegating responsibility in this manner is a complete intrapreneurial organization that results in new vistas in productivity and innovation.

Support from the organisation

The organisation is also accountable while delegating intrapreneurial research. The organisation has to support the intrapreneurial researcher in terms of periodical coaching in addition to the initial workshop, and allocate essential resources. The extent of progress in the research has to be reviewed after six months and any obstacles identified in the research has to be rectified (Pinchot,G. &Pellman, R. 1999P.36).

Intrapreneurship in research and development requires the intrapreneur to possess different levels of skill from the one possessed as a corporate manager. The strategies of traditional managers to follow existing hierarchical structures with less risk factor and more short term goals inhibits the flexibility, creativity and risk needed to accomplish innovative ventures. Therefore, while setting up intrapreneurship, encouragement from the organization to experiment new concepts together with an environment for voluntary intrapreneurship and the promotion of teamwork is essential. The intrapreneur must work within the organizational structure diplomatically with open discussions and support from team members and must be persistent to overcome unavoidable barriers (Hisrich et al. 2005 p.54). The intrapreneur also avails freedom and privilege in terms of exemptions from controls that exist in a large organization (McKenna, E.F.2000 p.241).

Traits and tasks of intrapreneurs

One of the most important qualities in an intrapreneurial researcher is the awareness about competitors. The awareness that customers have alternatives in the marketplace enables the intrapreneur to research and design innovative products by considering the reality.

Intrapreneurial research entails the researcher to place positive concern over the product, generate leads for the products, ascertain the leads, respond to the needs of customers, explain the product, handle objections, close sale and offer after sale support (Pinchot,G. & Pellman, R. 1999 p.38)

Intrapreneurship in research begins with a business plan. The early stage of a business plan is a mere fantasy which the intrapreneurial researcher has to transform into a reality. In the course of the transition various questions arise about the plausibility and consistency of the innovation. This step is followed by the research to find solutions to complex assumptions. On completion of the process, intrapreneurs observe the fact, and the errors in the innovation plan are then corrected to meet the actual objective of the research (Pinchot,G. & Pellman, R. 1999 p.39).

Intrapreneurship and the organisation

On completion of the research project, intrapreneur has to take the project to the business development stage by testing and validating the new concept. This is called proof of concept. In case the intrapreneur has conducted market testing for a product, the same can be provided as a proof to support the claim that there is market potential for the innovative venture (Alterowitz, R & Zonderman,J. 2006 p.92).

Conclusion

It may be concluded that intrapreneurs are highly motivated, committed and proactive individuals who can sense opportunities in the market and employ entrepreneurial principals in the creation of innovative marketing decisions (Weaven, S.2004). Intrapreneurial researchers persistently reassess the dimensions that forecast, describe and design circumstances in which intrapreneurship flourish (Hornsby et al. 1993). These traits of an intrapreneurial researcher are also observed in an entrepreneur.

References:

Alterowitz, R & Zonderman, J. 2006 Financing your business made easy California: Entrepreneur Press

Antoncic, B. & Hisrich, R.D. 2001 Intrapreneurship: Construct refinement and cross-cultural validation Journal of Business Venturing Vol.16, Iss.5, p.495-527 Available: http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VDH-42JYW56-4&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=976947237&_rerunOrigin=scholar.google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=10e7cdbbcecfa450fc64c7d3d5982cef. Retrieved on August 14, 2009

Hornsby, J.S., Naffziger, D.W., Kuratko,D.F. & Montagno, R.V. 1993 An Interactive Model of the Corporate Entrepreneurship Process Entrepreneurship: Theory and Practice, Vol. 17

http://www.questia.com/googleScholar.qst?docId=5002192997. Retrieved on August 14, 2009

McKenna, E.F.2000 Business psychology and organisational behaviour: a student’s handbook New York: Psychology Press

Pinchot III, G. & Pinchot, E.S. (1978) Intra-Corporate Entrepreneurship Available: http://www.intrapreneur.com/MainPages/History/IntraCorp.html. Retrieved on August 14, 2009

Pinchot, G. (1987) Innovation through intrapreneuring Research Management Volume XXX No.2 Available: http://www.intrapreneur.com/MainPages/History/InnovThruIntra.html. Retrieved on August 14, 2009

Pinchot,G. &Pellman, R. 1999 Intrapreneuring in action: a handbook for business innovation San Francisco: Berrett-Koehler

Hisrich, R.D., Peters, M.P. & Shepherd,D.A. 2005 Entrepreneurship New York: McGraw Hill Professional

Weaven, S. 2004 Intrapreneurial Behaviour within the Franchising Context Marketing Accountabilities and Responsibilities – Conference Proceedings of ANZMAC 2004 Available: http://www98.griffith.edu.au/dspace/bitstream/10072/2340/1/26238_1.pdf. Retrieved on August 14, 2009