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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).

References

Beechler, S., & Woodward, I. (2009). The Global “War for Talent”. Journal of International Management 15 , 273–285.

Byham, W. C. (2010). Are Leaders Born or Made? London: Deloitte.

Chambers, E., Foulon, M., Handfield-Jones, H., Hankin, S. E., & Michaels, I. (1998). The war for talent. The McKinsey Quarterly 3 , 44–57.

Connelly, K., & Rudnick, E. (2001). Born with it or Not: Leadership Requires Learning. Web Exclusives

Drucker, P. F. (2011). What Makes an Effective Executive? In H. B. Review, HBR’s 10 Must Reads on Leadership (pp. 23-36). Boston: Harvard Business Review.

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Gros, D., & Alcidi, C. (2010). The Impact of the Financial Crisis on the Real Economy. New York: Intereconomics.

Heifetz, R., & Laurie, D. (1997). The Work of Leadership. In H. B. Review, HBR’s 10 Must Reads on Leadership (pp. 57-78). Boston: Harvard Business Review.

Kotter, J. (2011). What Leaders Really Do. In H. B. Review, HBR’s 10 Must Reads on Leadership. Boston: Harvard Business Press.

Marques, J. F. (2010). Awakened leaders: born or made? Leadership & Organization Development Journal, Vol. 31 Iss: 4 , 307 – 323.

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U.S. House of Representatives. (2006). A Failure of Initiative: Final Report of the Select Bipartisan Committee to Investigate the Preparation for and Response to Hurricane Katrina. Washington: Government Printing Office.

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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.

Blythman, J. (2008) The rise of Lidl Britain during the credit crunch. Telegraph. [online] Available from: http://www.telegraph.co.uk/news/features/3637902/The-rise-of-Lidl-Britain-during-the-credit-crunch.html

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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

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Essay Question: Describe the ethical concerns facing the communities in which the Cooperative Group operates

This essay examines the ethical concerns which are foremost in the communities in which the Cooperative Group operates. The discussion argues that most important among these ethical concerns are the dual problems of global ethical dilemmas, led by the issues of fair trade and climate change, but also a keen interest in supporting local communities and local suppliers. The latter has become increasingly important in light of the financial crisis as it often a key factor in how local communities fare. The discussion begins with a critical analysis of how these ethical concerns affect local communities before reflecting briefly on how the Cooperative can be seen to assisting with such problems.

The Cooperative Group operates throughout the entirety of the UK. It can therefore be said that broadly speaking, the ethical considerations which effect the communities in which the Group operates are the ethical considerations which are currently foremost among the UK population as a whole. As outlined in the introduction, these issues can broadly by summarised as a concern about the environment and concerns about global poverty, international development and the role of trade in dealing with such problems. The UK voluntary sector is one of the best supported in Europe and has an annual turnover into the tens of billions (Harris 2001). Whilst this is not explicitly relevant to the role of the Cooperative Group it nonetheless illustrates the general spirit of the British nation and the importance which they attach to ethical considerations in life. These ethical concerns are important ones for the Cooperative Group to consider as much has been made recently of the role of consumer choice in shaping the nature of the world’s problems (Klein 2010 p.242). There is therefore a strong connection between the ethical considerations of such communities and the role of the Cooperative Group.

We must therefore acknowledge that one of the biggest concerns which many people feel in relation to the issue of climate change and global poverty has been the sense of how best they can help with the problem on an individual level. In an age when many people have lost faith in traditional political routes to problem solving or addressing ethical concerns, there is more and more emphasis placed on the importance of consumer choice. Writers such as Klein (2010), Tomlinson (1999) and Giddens (2002) have all been involved in arguing that perhaps one of the most important ways in which people can change the world in which they live is through supporting movements such as the Fair Trade movement, through taking an interest in the carbon footprint of their shopping and in generally being a much more politically aware consumer. Such arguments argue that consumer choice can effectively be used as a less dramatic form of economic sanction to place diplomatic pressure on certain areas to either reform their political practice, or to operate in a more considered manner. This point is made particularly strongly by Garton Ash who argues that, with so much choice over which charity to support and what particular manner in which to attempt to influence events, many people feel overwhelmed. Evidence put forward by the Guardian Sustainable Business report suggests that many consumers do believe that there choice of products makes a difference to such issues and that the majority of consumers are influenced by such factors . There is therefore a strong precedent for supermarkets and organisations such as the Cooperative Group to develop practical alternatives for such people and furthermore to inform their customers of the ethical issues which surround their consumer choices.

However, perhaps one of the most important ethical issues which faces such groups in the current economic climate is the issue of local employment and local livelihoods. Like many ethical considerations this issue ties in neatly with many of the other concerns which we have previously discussed. Throughout the post war period there has been a growth in the power of markets internationally to the point where the vast majority of the UK’s manufacturing industry and a large part of British domestic agriculture has been superseded by cheap foreign imports, be it manufactured goods from China or fruit and vegetables which are grown in warmer climes and shipped to the UK either on boats or planes. Such trends create a dual problem of increasing carbon emissions but also threatening local livelihoods, particularly in the more rural areas which the Cooperative Group operates in such as parts of Yorkshire and the Lake District. A significant ethical issue in this context is therefore the level of support which major shops such as the Cooperative Group give to local industries and producers. This issue has been highlighted by a significant number of globalisation theorists such as Dunkley, as well as more mainstream writers such as Stiglitz and Klein. Such ideas represent a significant concern for much of the world as the free market system has created more problems than it has solved for a great number of people.

Strong evidence suggests that such trends are being felt at the supermarket checkout and in the local shop. In 2010 Bevin reported that in response to a survey carried out for the Guardian “the majority of the 766 respondents indicated strong concern about carbon emissions, pollution, and resource depletion”. A majority of respondents also stated that the level of transportation was a key factor for them. They were therefore much more likely to purchase a product which had been locally sourced. It is also worthy of note that the Guardian report also found that the purchase of groceries came second only to transportation in the full ethical consideration of household expenditure. Areas such as utility bills or clothing were not considered to be as important ethically as were groceries.

When all of the evidence is collated there is a strong precedent set for the centrality of environmental and wider global ethical considerations in consumer choice. The evidence put forward by the Guardian report provides recent and solid support for the idea that an increasing number of consumers see themselves as key actors within the global economy and global society. It is increasingly the case that works by Stiglitz on globalisation, Klein on marketing and Dunkley on free market capitalism are becoming mainstream texts with a growing number of people understanding and forming judgements on some of the wider macro issues which are presented in such works. The result has been a grass roots movement away from simply buying products at the cheapest price towards buying products based on their ethical considerations. This is something which has continued through the recent financial recession with the Guardian Sustainable Business report being published in June of 2010. It is also worthy of note that the ethical stance, although slightly more of a factor at higher incomes, was largely constant across the income range.

It can therefore be concluded that the major ethical considerations for those people who live in areas that the Cooperative Group would operate in are the major ethical considerations which people consider in their day to day lives. Perhaps the most important of these has been the impact of products on the environment. It is increasingly the case that people buy products based on the distance that they have been transported, the amount of packaging they have and the place in which they originated. However, we should not ignore the wider ‘knock on’ ethical considerations which surround global warming and global climate change. The influence of poverty has been strongly felt with the fair trade movement receiving considerable support, to the point where the majority of coffee is now fair trade certified. It is clear that such issues have considerable crossover. The more locally something is grown the more chance there is that it will have less of a carbon footprint and the more chance that it will have of supporting local industries and therefore reducing global poverty overall. However, more important of all to the ethical considerations of the local people in which the Cooperative Group are considerations as to how best to reduce their carbon footprint and assist in the reduction of greenhouse gas emissions.

References and Bibliography

Bevins, Vincent. “Guardian survey reveals shoppers’ green concerns.” The Guardian London: The Guardian, 2010.

Cooperative Group. “Ethical Trading and Fairtrade.” Manchester: Cooperative Group, 2010.

Dunkley, Graham. “Free Trade: Myths, Reality and Alternative.” London: Zed Books, 2004.

Garton Ash, Timothy. “Giving well is hard to do.” The Guardian London: The Guardian, 2005.

Giddens, Antony. “Runaway World: How Globalisation is Shaping Our Lives.” London: Profile Books, 2002.

Guardian, The. “Consumer attitudes and perceptions on sustainability.” The Guardian Sustainable Business (2010):

Harris, Margaret. and Rochester, Colin. “Voluntary organisations and social policy in Britain: perspectives on change and choice.” London: Palgrave Macmillan, 2001.

Klein, Naomi. “No Logo.” London: Fourth Estate, 2010.

Stiglitz, Joseph. “Globalisation and its Discontents.” London: Penguin, 2002.

Stiglitz, Joseph. “Making Globalisation Work.” London: Penguin, 2007.

Tomlinson, John. “Globalisation and Culture.” Cambridge: Blackwell, 1999.

An assessment of the social implications of business ethics for the Cooperative Group

This discussion examines the social implications of business ethics within the Cooperative Group. It focuses on both the Cooperative Group bank, but also the Cooperative Group grocery stores in order to argue that the social implications of the Cooperative business ethics model are particularly positive. The discussion focuses predominantly on the social implications of the Groups policies on the eradication of global poverty as it is this subject area which creates a particularly useful crossover between the Bank and the Grocery side of the Group. The discussion begins with a look at the banks and how the Groups bank is different to mainstream banks. It then moves on to reflect on the Cooperative grocery stores before bringing the two strands together in a wider analysis.

The Cooperative Bank is an institution which pledges very strongly its ethical commitment to fair finance. In an age in which issues such as globalisation are having more and more of an effect on the way people live their lives, it is no longer possible to ignore global poverty and global climate change. However, the majority of Western commercial banks have grossly compounded many of the problems by attempting to make short term profits from developing nations. Many such banks should be seen as significantly responsible for the major debt crisis which hit Sub Saharan Africa in the 1980s and they should be held to account as being motivated purely by greed. Such institutions lent money at extortionate rates to nations which they were well aware were unable to repay such loans as they thought that they would ultimately be bailed out by huge IMF loans and therefore still make a profit . Such behaviour was also the hallmark of the banks which created the most recent financial crisis in the developed world. Investment banks which were being operated essentially as casinos in which gambles were rewarded and losses were covered have had dire social implications for the majority of the Western world.

One of the biggest problems now facing the UK economy in particular is how it is going to be possible to get credit to small businesses in order to stimulate growth whilst at the same time making public sector cuts which will amount to half a million redundancies. Major banks have more or less refused to lend to small businesses and households and therefore many people are beginning to turn to more ethical alternatives led by the Cooperative Group bank, but also other institutions such as the Triodos bank. The Cooperative Bank is committed to funding small businesses which it sees as being solidly enough set up to succeed and yet it is also committed to supporting projects in developing nations which have been properly set up and costed. In these two moves it has immediately made itself significantly more ethical than the vast majority of its competitors and has also had a significantly beneficial social impact. The availability of credit at reasonable rates is perhaps one of the most important single moves which a bank could have made in order to attempt to improve the situation in the UK and the wider Western world. However at the same time the bank has retained its commitment to developing real solutions for global poverty. Stiglitz has argued strongly that we should never underestimate the power of ethical banking to create and empower in the world. Well placed and secured investments can reap considerable social rewards. The bank itself sums this approach up when it says that it is “committed to making an impact by creating social, economic and environmental change”

If we then move on to examine the role of the Cooperative Group grocery store we can see that the social implications of the ethical approach which the Group has taken has been positive. The lead which the Group took on the issue of Fair Trade has benefited a significant number of farmers and by extension their families in some of the most deprived regions of the planet. Further to this it must be acknowledged that the wider impact of such policies can have on stimulating economies through the knock on effects which capital can have. Keynes highlighted the multiplier effect by which one business opening can lead to other businesses opening as they seek to provide services for aspects of the original business, be it sandwiches for the workers, parts for machinery, or any number of other services. Where there is a steady supply of capital through fair trade this can then be used to create reliable and consistent growth. The social implications of this policy should therefore be highly commended.

Within the broader sphere of the fight against global poverty we can therefore see that the Cooperative Group and its ethical policies are having an important beneficial effect. The vast majority of development writers who debate key issues within the subject frequently tend to agree that the central problems of development is creating sustained economic growth. This point is made by Stiglitz, Collier and Dunkley. Whilst it is important to note that there are other important factors in this problem, the United Nations Human Development Index (a statistical index based on a number of development factors such as life expectancy, GDP per capita, deaths from preventable disease and literacy rates) strongly correlates with the GDP per capita index . Therefore, where it is possible to create sustained economic growth it is possible to lift people out of poverty and empower them to develop their own solutions to their problems.

Within this more developed context it can therefore be argued that the social implications of the Cooperative Groups policies are hugely socially beneficial. The importance of the initial loans which the Bank offers to setting up projects such as schools or roads or water infrastructures are crucial to the steady development of these areas. However, perhaps even more important than this is the guarantee of a good and fair price for commodities which have previously been at the mercy of the international markets. Commodities such as coffee have suffered notorious drops in prices, particularly during the 1980s and early 1990s. This meant that often what had started out as a promising spell of growth developed into a slump and further poverty. The importance of a steady market at a fair price cannot be underestimated. The social implications of this are huge.

It can therefore be argued that the social implications of the ethical approach taken by the Cooperative Group are hugely important. Without such ethical considerations it would not be possible for developing world farmers to sell their commodities at a price which guaranteed them a profit and instead they would be left to the mercy of international markets and buyers who are particularly ruthless. The simple commitment to pay a fair price for good quality commodities sows the seeds of economic growth in many of these regions and provides a stability which was previously not there and the social impact of which cannot be underestimated. In a similar manner the ethical commitments of the Cooperative Group bank should be seen as being a key part of this process. We have seen from our basic analysis of development literature how the majority of current development theorists believe that finance is a vital part of the move away from poverty, but only where it is used responsibly and without an immediate desire for profits. The Cooperative Bank’s commitment to these principles means that they are likely to be one of the most important institutions in helping the developing world move away from poverty.

We can therefore conclude that the ethical considerations and principles of the Cooperative Banks provide vital financial support for key projects which have enormous social benefit. The provision of clean water, infrastructure projects and key buildings cannot be undertaken without responsible financial support. In addition to this the commitment of the Cooperative Group to pay a fair price for major developing world exports sows the seeds of stable growth and means that such areas are able to begin building and planning for the future where they were previously unable to think beyond the next week.

References/Bibliography

Bevins, Vincent. “Guardian survey reveals shoppers’ green concerns.” The Guardian London: The Guardian, 2010.

Collier, Paul. “The Bottom Billion.” Oxford: Oxford University Press, 2008.

Cooperative Group. “Ethical Trading and Fairtrade.” Manchester: Cooperative Group, 2010.

Dunkley, Graham. “Free Trade: Myths, Reality and Alternative.” London: Zed Books, 2004.

Garton Ash, Timothy. “Giving well is hard to do.” The Guardian London: The Guardian, 2005.

Giddens, Antony. “Runaway World: How Globalisation is Shaping Our Lives.” London: Profile Books, 2002.

Guardian, The. “Consumer attitudes and perceptions on sustainability.” The Guardian Sustainable Business (2010):

Klein, Naomi. “No Logo.” London: Fourth Estate, 2010.

Stiglitz, Joseph. “Globalisation and its Discontents.” London: Penguin, 2002.

Stiglitz, Joseph. “Making Globalisation Work.” London: Penguin, 2007.

United Nations. “Human Development Report 2009.” New York: United Nations, 2009.

An Assessment of the ethical concerns facing the communities in which the Cooperative Group operates and measures that could be taken to improve corporate responsibility

This discussion brings together the two strands of domestic ethical concerns and the wider ability of the Cooperative Group to respond to corporate social responsibility issues. The discussion begins with an outline of the major ethical concerns facing the communities in which the Group operates. This takes in both the communities in which the Group predominantly sells its products, but also on some of the areas in which the group sources its products. The major ethical policies of the organisation are then questioned in order to determine areas in which the Group could improve. Central to these criticisms are the failure of the Group to develop a coherent ethical policy in the manner of other retailers such as SUMA.

The major areas in which the Cooperative Group operates are predominantly the UK but to an extent worldwide. It is certainly true that the majority of the Groups business comes from within the UK with all of the Grocery outlets being in the UK. Therefore the major ethical concerns of the Groups customers are likely to come from these areas.

The majority of evidence suggests that the major ethical concerns of the UK population as a whole are the best ways to deal with global climate change, but also other problems such as global poverty and the problems which surround this. A recent report commissioned for the Guardian concluded that the vast majority of UK consumers are now heavily concerned about the impact that their day to day shopping and choices has on these issues. The notion of green marketing and the green consumer are two things which have gained considerable currency in recent years and have made consumers feel much more responsible but also empowered as to how they go about their business. It can therefore be argued that the central ethical concern of the Coop’s customers relates to how best to reduce their own personal carbon footprint. They see the selection of products which they buy as a way of reducing such problems and ultimately aiding in the fight against global warming.

However, if we look at the major areas in which the Cooperative Group sources its products we can see a slightly different story. The major area which is worth examining in relation to ethical considerations has been the region of Sub Saharan Africa and the impact of the Cooperative Group’s policies on commodities such as tea and coffee, as well as chocolate. The primary ethical concern in this area is the reduction of global poverty. This concern focuses on developing solutions which enable people to work their own way out of poverty through sustainable farming solutions and the development of markets within these areas. Central to this problem has been the issue of fair trade and the ability of farmers to gain a fair price for their commodities. Previously to the fair trade movement it was often the case that farmers would end up selling their products at a significant loss as a result of a huge world market and a collapse in global demand due to a financial recession in one area (for example in the late 1980s and early 1990s) . This problem led to significant calls for a commitment to pay a price which would guarantee a profit to those farmers who produced the aforementioned commodities.

We can therefore see that between these two areas of operations the Cooperative Group has two major ethical concerns, both of which are duly highlighted by the organisation itself. These are firstly the commitment to reduce the carbon footprint of the business, through sourcing more locally grown foods, reducing the levels of packaging which are used and also reducing the amount of transportation which is required to distribute products through greater logistical support. Secondly is the issue of assisting in the reduction of global poverty through a variety of policies from both the Cooperative Bank but also the Cooperative Grocery aspect of the business.

In terms of analysing the success of the Corporate Social Responsibility of the Cooperative Group one has to conclude that the organisation is one of the best performing of all businesses in the world today. Its commitment to the two issues outlined above should be taken seriously and is proved by real action and it has a reputation as a more open and approachable organisation responding to local customers’ needs in a much more approachable way than many of its competitors.

However, one of the major criticisms of the group which has been highlighted previously is the slight inconsistencies which arise particularly among the Grocery division of the business. These inconsistencies mean that the group which has a very commendable commitment to ethical issues such as the fair trade movement, can also be seen to be selling products which directly contravene these principles. The fact that such products are sold by the Cooperative Group means that such products are being profited from by the Group itself and that there is therefore a strong argument to suggest that the Group is itself contributing to the inequality which such principles create. If the group were to improve its service to its communities even further then it would be important for it to develop a strategy which was much more water tight and which served as a much more cohesive and inclusive model.

Whilst such a model would no doubt have logistical and technical problems it is important to note that there are companies and businesses which have been set up and run on very similar lines. One notable example is the food wholesaler SUMA, based in Leeds, West Yorkshire. This wholesaler is able to source a significant number of its own products directly but also works with other suppliers to develop a catalogue of supplies which it is able to provide to customers. This process involves significant research into the origins of certain products and a constant commitment to maintaining the high standards which are set but it is something which can be achieved. If the Cooperative Group were to seek to develop its own Corporate Social Responsibility policies even further then the SUMA model would be a particularly useful model to examine. It is also worthy of note that SUMA itself supplies several of the Cooperative Grocery Stores, in particular in the areas around Leeds where local demand for such products is high.

It is therefore possible to say that the ethical issues which are felt by the majority of the Cooperative Group’s customers centre on two major areas of interest. Firstly there is the area of global climate change and how consumers and people can reduce their carbon footprint as part of their everyday lives. Secondly there is the issue of how best to attempt to tackle climate change. As we have seen these two issues frequently overlap and in many ways can be strongly linked. However, we must also acknowledge that there are few groups better equipped than the Cooperative Group at developing strong policies in these areas. The diversity of the Group means that it is able to respond to crises in a much broader way than many of its competitors are able to. For example, on the issue of tackling global poverty, the Group is able to provide Fair Trade agreements with farmers for the supply of certain products, but is also able to use the Cooperative Bank to help develop key infrastructures and services within such areas. This dual pronged approach make the Corporate Social Responsibility Programmes of the Cooperative Group particularly impressive. However, if the Group were to seek to develop these valuable points further then there is considerable room for growth in the central principles of product choice which the Group makes. A more developed and ethically accountable set of principles here (in the manner of SUMA) would make the organisation significantly ethically stronger and would have massive social benefits for the areas of operation of the business.

We can therefore conclude that the Cooperative faces the two major ethical considerations of climate change and global poverty. Its commitment to combating these issues is noteworthy and certainly deserving of praise. However, with a more calculated and ethically sound approach the Group could perform even better in this very important area.

References/Bibliography

Bevins, Vincent. “Guardian survey reveals shoppers’ green concerns.” The Guardian London: The Guardian, 2010.

Collier, Paul. “The Bottom Billion.” Oxford: Oxford University Press, 2008.

Cooperative Group. “Ethical Trading and Fairtrade.” Manchester: Cooperative Group, 2010.

Dunkley, Graham. “Free Trade: Myths, Reality and Alternative.” London: Zed Books, 2004.

Garton Ash, Timothy. “Giving well is hard to do.” The Guardian London: The Guardian, 2005.

Giddens, Antony. “Runaway World: How Globalisation is Shaping Our Lives.” London: Profile Books, 2002.

Guardian, The. “Consumer attitudes and perceptions on sustainability.” The Guardian Sustainable Business (2010):

Klein, Naomi. “No Logo.” London: Fourth Estate, 2010.

Stiglitz, Joseph. “Globalisation and its Discontents.” London: Penguin, 2002.

Stiglitz, Joseph. “Making Globalisation Work.” London: Penguin, 2007.

SUMA. “SUMA nominated again!.” Leeds: SUMA, 2010.

An assessment of how the Cooperative Group could improve its operations ethically

This discussion examines the manner in which the Cooperative Group could improve its operations ethically. It begins by commending the Group on its stance on ethical issues such as Fair Trade, with all of the Cooperative Group’s own brand coffee and chocolate now being exclusively Fair Trade certified. It does however argue that there is a certain double standard in the way in which the shops will frequently sell other brand products which do not meet such requirements. The central argument is that, if the Cooperative Group is to develop its ethical stance further, it would need to create a set of absolute principles or standards by which it would judge all of its stock, in a similar way to food wholesalers such as SUMA. The discussion argues that, whilst such a view may be seen as slightly extreme or impractical by some people it is nonetheless the major direction down which the Group should aim to go. It is worth noting that some of the evidence discussed here relating to specific in store advertising is primary evidence taken from local Cooperative outlets and should be treated as such. Where possible this is highlighted.

The Cooperative Group deserves strong praise for its stance on key ethical issues such as fair trade, global climate change and global poverty. Its decision to develop all of its chocolate and coffee products from Sub Saharan Africa and South America into fair trade products was a decision which they took ahead of all of their major competitors and one which has been followed for the most part. A brief glance at the Cooperative Group website reveals a relatively prominent section entitled “ethics in action” in which the Group outline their major commitments to develop schemes in local areas such as walk to school schemes to assist the environment and community cohesion, but also their wider ethical commitment to reduce poverty through low interest finance, fair trade products and overseas projects. It is therefore worth making absolutely clear how commendable such actions are and how much they should be applauded by the Groups customers.

However, it is also possible to identify certain ethical anomalies within the Group. The aforementioned commitment to own brand Fair Trade Coffee and Chocolates often sits next to a promotion for Galaxy chocolate or Nescafe Coffee neither of which have any ethical merits. It is also frequently the case that such products are advertised in store, perhaps largely as a result of promotional offers such as ‘Buy One Get One Free’ but also through other “contracted out” advertising space which is operated by a “third party advertising agency”. There is therefore an ethical double standard here, whereby the Group will publicly commit itself to its own ethical standards but will then continue to profit from other products which clearly fail to meet such standards. Not only this but such products are often advertised in store in order to generate further profit. The Group is therefore promoting one image on the one hand, and carrying out an entirely different act with the other.

It can therefore be argued strongly that, were the Group to be taken seriously and present a water tight and uniform ethical case, it would have to develop its own benchmark of ethical standards by which it would judge all of its products. These would not need to be hugely ground breaking, certainly not in the first instance, but could be based on the ethical standards by which the Group develops its own products. If products meet such standards, for example Cadbury’s chocolate has been certified fair trade in recent years then they can be sold and the consumers can then make their choice according to other criteria such as taste, price or the

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Executive summary

Spice Man aims to establish itself as a B2B focused company specialising in the distribution of premium organic specialty Asian cooking sauces in the UK. It aims to capitalize on the growing consumer demand for quality healthy food and the UK’s love of Asian food in particular. The company has secured funds and warehouse/office facilities and its founder has already negotiated the sale of 5,000 cases each, for the four leading specialty Asian supermarkets across the UK.

Contents

Executive summary p.1
Mission statement p.2
The product mix p.2
Productp.2
Pricing p.2
Place p.2
Promotionp.3
SWOT – market overview p.3
Strengthsp.3
Weaknessesp.4
Opportunitiesp.4
Threats p.5
Competitorsp.5
Operational channels p.6
Finance strategy p.6
Spice Man assets p.6
Budgeting sales p.7
Expenses/Overheads p.7
Human resources strategy p.7
Summaryp.8
Referencesp.8

Mission statement

Spice Man is a B2B distributor of premium quality organic Asian cooking sauces to the specialty supermarket sector, in four key areas across the UK. Spice Man aims to fill a clear gap in the market and cater for growing customer demand for high quality, healthy premium Asian sauces.

The product Mix
Product
The product concept:

• Premium quality specialty imported South East Asian cooking sauces
• The USP’s of the product: organic luxury ingredients and completely authentic recipes developed by top specialist chefs
The types of sauce include:
• Rendang sauce and fried rice sauce from Indonesia
• Curry noodle sauce from Thailand
• Curry sauce for fish and one for lamb from Malaysia

Pricing

• The average cost to Spice Man of a case of 12 jars of any of these sauces, including cost of shipping insurance and freight (CIF) for arrival at Southampton is estimated at ?6.80
• The RRP of ?2.49 would produce ?1.92 profit per jar and the hoped for 100% mark-up on products would mean that Spice Man would sell its products to an intermediary for ?1.25, producing 67.8p profit
• Of the initial stock of 35,000 cases, Spice Man needs to sell the vast majority – 84%, at the full retail price in order to break even

Place/distribution

• The distribution of Spice Man’s products will be to up-market speciality supermarkets in London, Bradford, Manchester and Birmingham (key Asian food hubs). This could be challenging as ‘dealing with new suppliers has unpredictable aspects’
• Spice Man will use its new warehouse in Southampton, to stock products. Delivery will be handled initially by a logistics firm. If things develop well, Spice Man hopes to invest in its own delivery vehicles, plus drivers.

Promotion

• The sauces will be branded with ‘Spice Man’ labels stressing the organic, authentic nature of the products
• Although the focus is B2B, Spice Man also aims to promote the launch of his new sauces in ethnic minority based newspapers. Research has shown that in relation to grocery shopping, the majority of ethnic consumers found this to be an important source of food information

SWOT – Market Overview
Strengths

• The UK’s diverse population and the growth of worldwide travel have developed the UK’s taste for Asian cooking sauces and this trend is set to continue
• Asian food has an image of being healthy and quick and easy to prepare, as a result the oriental grocery food market is worth ?146m with a growth of 4% year on year. Indonesian food has grown 82% in value since 2007.
• 8 out of 10 UK households buy a cooking sauce at least once every year, with the average shopper buying once every three weeks
• There are few equivalent products available

Weaknesses

• The retail price of Spice Man’s sauces is relatively high at ?2.49 per jar and in today’s difficult economic climate customers may prefer cheaper, trusted products
• There is strong competition from other ethnic food markets such as the Italian food sector in the UK, which has the largest market share and is worth ?324m and grows by 8.7% each year 3
• Consumer interest in health has encouraged some customers to stop using ready-made sauces 4

Opportunities

• The cooking sauce market will grow by 7% by 2011 4
• Key competitor markets are under pressure e.g. sales are static in the Indian food sector 3
• More shoppers with children are buying, as are up-market shoppers and customers under 28 years old. There is also growing consumer demand for higher quality, greater nutritional value and more convenient formats. This could offer communications opportunities for Spice Man to differentiate itself from its mass of competition.

Threats

• The competition is fierce in the Asian cooking sauce market and new, competitively priced products are being introduced all the time

Competitors

The competition is strong in this market and new, competitively priced products are continually being introduced.

Key brands in competition with Spice Man:

• Sharwood’s – quality brand, Red Thai sauce ?1.57
• Lloyd Grossman – premium brand at ?2.09 per jar
• Supermarket own brands – high quality yet reasonably priced products such as Tesco Finest Thai curry sauce (Red or Green Thai) at only ?1.65. New variants include Finest Yellow Thai and Finest Laksa at ?1.49
• Patak’s Karai – quality mainstream sauce at ?1.57
• Goldfish Curry sauce (specialty product) – ?1.49 per container
• The Real Organics Food Company – organic Thai cooking sauce at ?2.69 per jar (only currently available in the south of England)
• ‘Xotiq’ produces ambient South Eastern Asian meal kits which are distributed through independent grocer shops, butchers, delicatessens, farm shops and garden centers

Operational channels

Specialty supermarkets have been identified as the best retail outlets because:

• Such operations can be flexible in their terms and conditions, whereas mainstream supermarkets will want to impose conditions such as low promotional prices
• Specialty supermarkets already target the kind of customers that Spice Man sauces will appeal to

Suitable outlets include:

• London – Hoo Hing – leading independent supermarket network and delivery service
• Birmingham – Sing Fat Chinese supermarket and wholesalers
• Manchester – Win Yip and Woo Sang supermarkets
• Bradford – the Pride Asia supermarket chain

Sales agreements have been established with these stores with each taking an initial stock of 5,000 cases.

Finance strategy
Spice Man assets:

• ?100,000 in seed capital to invest in the initial stock
• Further ?350,000 loan secured from a high street bank

Budgeted sales:

• Spice Man hopes to make 67.8p profit per jar. If it sells all its initial stock, it will make an overall profit of ?284,760 (on 420,000 jars)

Initial Expenses/Overheads

The following cost must be deducted from any profit made:

• Initial stock of 35,000 cases, then future stock
• Premises – rental of small warehouse in Southampton with tiny onsite office
• Power (light, heat, electricity, gas)
• Telephone
• Insurance
• Transport cost of goods plus insurance (inbound and outbound)
• Postage
• B2B Marketing and advertising
• Interest and bank charges payable
• Office stationery
• Founder’s salary
• Equipment hire for example, a small fork lift truck to receive and send on, cases of sauce
• Training budget – specialist training in for example fork lift truck driving, health and safety etc.
• Petrol expenses – for sales visits to potential clients
• Expert fees including accountancy, lawyers etc.
• Depreciation – office and warehouse materials and eventually delivery fleet
• Tax

Human Resources Strategy

• The founder of the company is Indonesian and fluent in relevant Asian languages and English. He also has a track record in the food sales business as he was a successful Asian sauces salesman for Europe. He has the relevant skills to launch such a business and he will be the sole staff member in the short-term.
• As a distributer Spice Man will need to develop strong working relationships with three sets of key customers including suppliers of the sauces (based in Thailand, Malaysia and Indonesia), logistics partners and the eventual retailers of his product
• In the longer-term Spice Man hopes to employ staff including a sales force, warehouse packers, delivery drivers and a finance expert

Summary

Spice Man has already secured promising distribution deals in its key marketplaces across the UK. It has the human, financial and operational capacity to launch the business but will need to ensure that the quality of its products and service is top class, in order to cement the strong business relationships it needs to succeed as a B2B operator.

References:

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Cripps, P. 2009. Morrisons debut for northeast curry maker Maysan. The Grocer. [Online]. Available at: http://www.thegrocer.co.uk/articles.aspx?page=articles&ID=198842. [Accessed 29th April 2009]

Ford, R., 2009. Kitted out for an Xotic evening. The Grocer. [Online]. Available at: http://www.thegrocer.co.uk/articles.aspx?page=articles&ID=198732. [Accessed: 30th April 2009]

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This assignment will critically discuss three approaches to Corporate Social Responsibility (CSR) which are as follows: CSR as value creation; CSR as risk management and CSR as corporate philanthropy. For the purposes of this assignment, the definition of CSR will be based on Carroll’s CSR Pyramid (1991) which states that the economic, legal, ethical and philanthropic responsibilities of the organisation are dependent upon their particular context (Crane and Matten 2010).

This first section of the assignment will critique CSR in terms of value creation. Value creation can be interpreted in two ways. Firstly, there are the values created by the organisation which influences its CSR practices such as their role, ethical stance and stakeholder management (Crane, Matten and Spence 2014). Secondly, there is the value created by the delivery of these CSR practices. This may include an economic value, such as the reduction in pollution costs, and a social value, in terms of a reduced negative impact on society (Griseri and Seppala 2010). The model of Carroll’s CSR pyramid (1991) argues that the economic and legal responsibilities of an organisation are expected by society, such as the payment of taxes and operating within the law. However the changing context of society also expects an organisation to undertake both ethical and philanthropic responsibilities, particularly in response to the increased power and influence of organisations within society (Crane and Matten 2010). An organisation undertaking these greater levels of responsibility can arguably create value both for themselves and the society in terms of responding to a wider societal need in terms of harm reduction and the creation of benefits and value. However, critics of CSR suggest that there is no tangible link between CSR and value creation, but this may be in part due to the difficulties in measuring these links (Crane, Matten and Spence 2014). In order to assist in an assessment of CSR, ISO26000 offers a pathway for organisations to improve and report their CSR activities but this is a voluntary scheme (International Standards Organisation 2013). Other CSR value creation methods include triple bottom line reporting which includes the measurement of value in terms of economy, society and environment. However it can be difficult to measure how these three merge together to contribute to value creation and often, each element is measured individually (Blowfield and Murray 2011).

The traditionally held viewpoint of an organisation is as a creator of economic value for its shareholders (Friedman 1970). However CSR as a value creation tool argues that both economic and social value must be considered and this needs to include a wider view of stakeholders (Haigh and Jones 2012). Organisational initiatives which may decrease harm in terms of pollution or natural resource usage could create value for the organisation in terms of lower economic costs, in addition to creating societal value in terms of a reduction in pollution. However, it may be the pursuit of lower economic costs which may be more of an incentive for organisations, particularly in the current economic climate.

The argument for a better understanding of CSR as value creation is through aligning economic and social value. Porter and Kramer (2011) suggest a concept of shared value as a route to, not only increase the connections between economy and society, but as a way of enhancing the organisation’s competitiveness and growth. This form of value creation focuses on the future of the organisation and its interdependencies on society as a provider of, and consumer of, its goods and services. However, this relationship may be affected by issues such as who the organisation views as its most important customers or stakeholders and what matters to them in terms of the value creation proposition of CSR (Basu and Palazzo 2008).

In conclusion, CSR as value creation has moved from a traditional economic based view to a more inclusive economic and social value one. Value can be created by providing different CSR approaches to an organisational role such as reducing pollution, which creates economic and social value, in terms of reduced costs and harm. Concepts such as Porter and Kramer’s shared value (2011) suggest that the connections between economic and social issues can create competitiveness. However issues with measuring social value have led to some criticism of CSR.

The second part of the assignment will consider CSR as risk management. Risk is defined as an uncertainty which has an impact which needs to be assessed and responded to through the process of risk management (Institute of Risk Management 2015). CSR as risk management will therefore need to consider external issues such as the changing societal context within which they operate and consider risks such as human rights, particularly if the organisation operates in different countries (Crane and Matten 2010). Changes in economic, legal, ethical and philanthropic responsibilities may create uncertainty, which the organisation will need to assess within their internal environment. Blowfield and Murray (2011) suggest that risk management may include areas such as brand value and reputation; working conditions and human rights. With an increasingly connected society, risk management and CSR will need to look at tangible risks, such as a business premises fire, and intangible risks, such as human rights in order to protect the reputation of the organisation. The tragedy of garment factory fires in Bangladesh have highlighted the need for greater worker protection but have also demonstrated the difficulties of implementing CSR as risk management in countries where regulations are weaker (Husock 2013). The process of CSR as risk management should therefore assess these factories in terms of the implementation and monitoring of health and safety issues in order to protect the human rights of the factory workers (Griseri and Seppala 2010). If CSR as risk management is designed to lessen an organisation’s negative impact on society, then this must include all stakeholders who are essential for the survival of the organisation (Griseri and Seppala 2010).

Blowfield and Murray (2011) cite Schafer (2005) who suggests that risk management tends to focus on the economic consequences and this forms the basis by which it approaches the risk management of social or environmental risks. However, most organisations are built around an economic model, so the tendency to view organisational issues may be through the economic viewpoint (Crane, Matten and Spence 2014). This viewpoint may reduce the understanding of risk management, in terms of reducing harms to society, as the emphasis will be on the economic impact, rather than the societal one (Margolis and Walsh 2003 cited by Blowfield and Murray 2011). This focus on the organisation and the impacts of risk upon them arguably narrows the CSR approach, however, without a broader, voluntary approach, governments may be forced to bring in regulations to change the behaviour of firms (Crane and Matten 2010).

The use of Carroll’s pyramid as a model for CSR highlights some of the areas of risk management. For instance, an organisation has legal and economic responsibilities to society such as paying tax and adhering to the law in the context within which they operate with the state providing a framework for risk management through legislation (Power 2004). Failure to do this may lead to consequences such as economic and legal sanctions such as fines. However, adhering to these economic and legal responsibilities also implies an ethical responsibility (Crane and Matten 2010). Tax avoidance by organisations arguably undermines the CSR approach of an organisation as it fails to consider the impact of this decision on the wider society, in terms of loss of income and the negative impact on the organisation’s reputation (Crane, Matten and Moon 2008). Here the risk management arguably needs to not only cover what might happen, but also to be undertaken in the context of the expected behaviour of CSR activities. Risk management may involve the reduction of harm to the organisation, but CSR outlines a wider approach, in terms of the lessening of harm to the wider society (Warhurst 2005).

In conclusion CSR as risk management needs to undertake a broader approach due to the connections between the organisation and society. Risk management addresses uncertainties and these are part of the changing context within which the organisation operates and therefore needs to include both economic and social issues. However, there may be difficulties with risk management in countries where regulations are weaker.

The third section will consider CSR from the approach of corporate philanthropy. Corporate philanthropy is defined as charitable donations made by organisations and is described as a desired responsibility of an organisation as per Carroll’s CSR pyramid (1991) (Crane, Matten and Spence 2014). Motivations for philanthropy may vary, but these charitable donations may be underpinned by economic motives such as increasing sales or to improve the public image (Crane, Matten and Spence 2014). Porter and Kramer (2002) argue that philanthropy is becoming more strategic for the organisation and in order to be effective for the organisation, in terms of achieving competitive advantage, needs to be assessed in terms of the economic and social impact of the philanthropic action. If an organisation’s CSR activities are strategic, this will support their competitive advantage (Husted 2003). For example, the organisation is part of the society within which it operates, so therefore its actions, positive or negative, impact on this society. If an organisation needs skilled workers in order to grow, philanthropy which improves the local education system could have both a societal and economic benefit (Porter and Kramer 2002).

An organisation may only have a limited knowledge of the society within which it operates in terms of the marketing and economic knowledge or it may be seeking to enter a new market. Here in order for philanthropic activities to have the greatest impact, it may be that partnerships with non-government organisations may be sought (Warhurst 2005). These partnerships may benefit organisations in terms of building relationships and trust within the local context and this may in turn provide access to a market for the organisation as well. Here the consideration of the internal and external context of philanthropy may increase its benefit to both the organisation and the society within which it operates.

There are a number of routes by which an organisation may choose to undertake philanthropic activities in order to gain the most benefit (Husted 2003). Three different options are suggested which include charitable contributions; an organisation-led project or a collaboration between the organisation and an NGO. Blowfield and Murray (2011:244) suggest a form of philanthropy called ‘venture philanthropy’. This focuses on the social impact of the philanthropic action by working in partnership with NGOs in order to alleviate a social issue (Blowfield and Murray 2011). Here the desired activity of the philanthropic activity considers the context within which it is operating in order to create benefits for the organisation and its community by reducing harms. This activity arguably creates a greater level of CSR for the organisation as it may be seen to be undertaking a role of corporate citizenship in the performance of its duties not only to itself, but to others (Crane, Matten and Moon 2008). Corporate citizenship, in terms of CSR, conceptualizes the role of the organisation in society in terms of their responsibility, such as philanthropic actions as per Carroll’s CSR pyramid (Crane, Matten and Spence 2014). However, it is the way in which the philanthropy is undertaken which seems to have the greatest impact on societal issues (Husted 2003). This includes whether the CSR as corporate philanthropy aligns with the organisation and the society which the philanthropy is aimed at. For example the donation of food by supermarkets to food banks has a number of CSR as corporate philanthropy elements such as a charitable donation, reduction of food waste and enhancing the reputation of the supermarket as helping the community within which it is based (Willsher 2015).

In conclusion, CSR as corporate philanthropy may undertake a number of forms including charitable donations and partnerships with NGOs. There are different motivations for corporate philanthropy and these may include increasing sales or improving the company image. The approach to philanthropy may depend upon the strategy of the organisation. If the organisation’s strategy and philanthropy are closely aligned, competitive advantage may be created.

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Mergers and acquisitions have long been an established form of corporate development to increase the strength of a business in an array of areas. The logic behind the Daimler and Chrysler merger was obvious, with Neubauer et al (2000) elaborating that it would potentially make the company an automobile powerhouse internationally and not just in mainland Europe. Furthermore, both companies felt that they were individually too small to challenge on a global scale in the long term. Chrysler were in agreement and believed the merger would generate enhanced prosperity. In 1998 Daimler paid $38 billion to takeover Chrysler in a horizontal merger (The Economist, 2000). The advantages of such a formidable merger are massive, with Gaughan (2007) believing that the primary benefits of a merger are synergy, value creation and competitive advantage. The merger of Disney and Pixar has symbolised these benefits with Barnes (2008) indicating that since 2006 Disney’s stock rose by 28% in 2008 and revenue streams have continued to increase substantially. The two firm’s adopted a united approach, utilizing their expertise to increase the quality of their products. With Daimler ranked 17th and Chrysler 25th globally in 1988, the amalgamation would undoubtedly boost the value of the combined company, whilst also exploiting economies of scale which would allow the company to maximise profits, increasing share value. The sum of the whole was anticipated to be greater than the two parts. The merger was claimed to be a ‘merger of equals’ where the expertise and knowledge of the two companies would be combined to forge high quality marketable products.

In reality this was not the case with Daimler thrusting their authority over Chrysler by installing German executives into senior positions within Chrysler. The scale of the failure of the DaimlerChrysler merger was illustrated when Daimler sold Chrysler to Cerberus for $7.8 billion in 2007, an astounding loss on what they had invested for Chrysler. Jensen and Ruback (1983. P.43) stated that “on average target shares increase in price from 16% to 30% around the date of the tender offer”. This does offer reasoning for why Daimler incurred such a loss. However, the issues are much more complex than this simple explanation. Jensen and Ruback (1983) believed such direct action was critical for corporate control. Sudarsanam and Mahate’s (2006) research would support this claim as they identified that hostile takeovers in nature tended to produce higher returns than a friendly takeover. From this aspect such a strong action was recommendable to achieve control. Johnson and Scholes (2000) believed a SWOT analysis was an effective method isolating the opportunities gained from a merger. Indeed such an analysis portrayed that the merger would allow massive market power growth, value creation and competitive advantage. A SWOT analysis in regards to the merger has been created below to illustrate the strengths, weaknesses, opportunities and threats of the merger.

Daimler and Chrysler Merger SWOT Analysis

Strengths

Savings through economies of scale
Large corporate brands
Increased capital strength
Competitive advantage through size

Weaknesses

Difficult to control and direct such a large organisation
Two diverse cultures (European & American) to infuse
Different customer bases

Opportunities

Entry into new markets (Particularly Asia) and market expansion
Innovation through combined expertise
Potential to become a dominant market leader

Threats

Such a large merger can be high risk to the existence of both companies
Newly formed DaimlerChrysler lacks any corporate identity, customers may not align with it
Cultural Differences

Matsumoto (1996, p.16) defined culture by stating that “culture is the set of attitudes, values, beliefs and behaviours shared by a group of people, but different for each individual, communicated from one generation to the next”. In contrast to the thought of Jensen and Ruback (1983) the ousting of management violated the long established culture within Chrysler, which in turn was the catalyst for the cataclysmic failure that was the DaimlerChrysler merger (Neubauer et al, 2000). Employees resisted the European style which caused great conflict and tension between the two organisations. Incidentally, this compromised the communication process, resulting in poor products and disappointing sales in relation to the size of the merger. Pritchett (1997, p.7) identified “a failure rate of 61% in acquisition programs, with failure defined as not earning a significant return”. This was very much the case for DaimlerChrysler, with the BBC (2000) reporting a record low share price of $42.79 from a high of $108 in 2000 for the company. Just two years into the merger performance was plummeting. The BBC (2000) also revealed that in contrast the ‘merger of equals’ the Daimler chairman, Jurgen Schrempp actually viewed Chrysler as a division of Daimler and not as a partnership. As eluded to above, Schrempp directed Chrysler as a European company by replacing Jim Holden, the Chrysler president with Dieter Zetsche. Forcing this European style programme of change was greatly contested and fuelled disengagement from staff at Chrysler. Through Schein’s (2010) theory of ‘The Organisational Iceberg’ it is clear to isolate culture as an area which can be one of the most challenging barriers to introducing change. Schein (2010) attributed culture as part of the informal organisation which influences values, beliefs and conflict. If this is not confronted then attempt to integrate change will become extremely difficult (Senior and Swailes, 2000). Gertsen et al (1998) proposed that this fierce resistance to change was due to the fact that employees emphasise cultural differences to demonstrate their distinctiveness and social identity.

Hofstede’s (2002) ‘Cultural Dimensions Theory’ found that culture within different organisations was influenced by which country they resided in. He developed the dimensions of national cultures which consisted of the power distance index, individualism versus collectivism, uncertainty avoidance index, masculinity vs femininity, long term orientation versus short term orientation and indulgence versus restraint. Hofstede (2002) found that these dimensions all varied in organisations depending on what their national identity was. From this it is clear to appreciate the huge problem of attempting to amalgamate a European and an American culture as there are so many variables. Daimler was very rigid and bureaucratic with Chrysler in contrast being much more informal. Daimler and Chrysler by their very cultures were incompatible, stressing the need for an effective change management programme. Haslam and Ellemers (2005) believed that there was positive correlation between the level of employee’s social identification towards the organisation and performance. It is apparent that a key reason for DaimlerChrysler’s drop in share price in 2000 was due to many of Chrysler’s employees seeing little association with themselves and their counterparts of Daimler. The companies in isolation varied in so many ways. For instance Daimler had a brand image of being a high end luxury brand while Chrysler was a low end cars and trucks manufacturer. These contrasts meant defining the very identity of the merger was plagued by paradox’s which meant both employees and customers failed to connect to DaimlerChrysler. Daimler had instilled a great emphasis on the operational and business synergies of the merger, seemingly ignoring the implications of culture.

Human Resource Management

The investment decision is one that is integral to any success of the allocation of capital by a company. Pike et al (2012) stated that the “investment decision is the decision to commit the firm’s financial and other resources to a particular course of action”. With culture being the predominant factor of the DaimlerChrysler merger’s demise, the HRM policies of the chairman at any given time were equally responsible. Daimler had envisioned lucrative rises in profit yet they failed to invest in a strategic human resource management process which would introduce the desired change in an effective manner (Gaughan, 2005). Schuler and Jackson (2001, p.239) attributed the importance of HRM to the interpretation that “companies today need to be fast growing, efficient, profitable, flexible, adaptable, future ready and have a dominant market position”. HRM is critical to implementing these factors which the DaimlerChrysler merger had lacked greatly, providing evidence as to why in the 21st century specifically that they crumbled. The transition of management and integration must be done in a systematic and people orientated approach (Schuler and Jackson, 2001). The HR issues associated with mergers can be categorised into two unique phases;

Pre-Merger: Involves an analysis of the cultural differences and other issues such as the impact on employee morale. This stage reinforces the need for human resource planning as such an analysis would demonstrate major challenge. Solutions to such difficulties would be to modify the recruitment and development process whilst introducing specific appraisal systems. The protracted difficulties would be allocated an effective change management plan by the HRM department. However, Daimler critically undervalued this crucial aspect of a potential merger, which would have long term effects as explained.

Post-Merger: The reality of the impact of the merger on HR related areas is revealed at this stage. The diverse HRM practices can unsettle staff, with Chrysler’s staff resenting the European style of management, resulting in high levels of intransigence. Such emotional reaction diverts staff focus away from productivity, contributing heavily to laboured performance. The workshops devised by Daimler were not extensive enough to combat the massive cultural gap.

It is imperative that strategic HRM is implemented to adjust a company’s HRM strategy to that of the business strategy. For example Cisco has a culture constructed around risk taking and ambition. If they find that a protracted merger does not embody these values then they will refuse to force their culture on to a company, abandoning the prospect of the merger, such is the scale of problems which culture can present. There was also serious contemplation of separate headquarters such was the dismal level of communication between the two firms. Directions need to be from a centralised power source who is respected with Handy (1993) suggesting that this was the ideal way to assume control and maintain effective decision making. Chrysler’s flat structure when compared to Daimler’s hierarchical structure made it extremely difficult to initiate any HRM directives as both companies had different ways of doing so. The post-merger stage caused unprecedented difficulties for the merger as a result of little pre-merger analysis being undertaken. The cross-cultural differences were allowed to manifest into a massive concern with both Schrempp and Zetsche underperforming in their roles as chairmen of the merger. They distinctly did not commit their resources to developing training programmes which would have aided the alignment of Chrysler’s staff to that of the overall vision of Daimler. Tannenbaum and Yukl (1992) firmly contested that staff training was an area which should be reviewed regularly to ensure staff are being trained in accordance with the strategy of this business. Daimler did initiate HRM policies, but there was a lacking in depth. Regular staff appraisals and cross cultural learning days would have been methods of narrowing the gap between culture (Tannenbaum and Yukl, 1992).

Conclusion

From analysing the development and subsequent failure of the DaimlerChrysler merger it is abundantly clear that HRM’s involvement in the change management process is integral. To overcome cultural issues, a tailored strategic HRM policy must be implemented such is the formidability of cultural factors. Daimler failed to realise just how potent the resistance of change can be and that as explained, originates from the informal structure of a company. It is undeniable that the Daimler and Chrysler merger had the potential to dominate the automobile industry due to their individually established size and profit margins. However, it was a mammoth failing as the two companies in reality were never able to amalgamate into a single corporate identity. AOL and Time Warner was a similar failing with the $164 billion deal eventually resulting in Warner’s stock diving by 80% (Bewkes, 2010). AOL’s problem was that they did not anticipate that wireless internet and other relevant technology would revolutionise the broadband industry. They failed just like Daimler to analyse their threats and assess whether such a merger was of value. The Daimler and Chrysler merger was only a failure because Daimler underestimated the power that culture can forge. Strictly speaking, the merger for both companies was disastrous due to the stark culture gap, but equally so, this challenge was not managed effectively by the relevant departments. Perhaps the collapse of this huge merger can be embodied by Daimler’s chief of passenger cars, Juergen Hubbert who is quoted as saying “we have a clear understanding: one company, one vision, one chairman, two cultures” (The Economist, 2000).

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BBC. (2000) DaimlerChrysler shares hit new low. [Online] Available from: http://news.bbc.co.uk/1/hi/business/1090975.stm

Bewkes, J. (2010) ‘AOL merger was the biggest mistake in corporate history’, believes Time Warner chief Jeff Bewkes. Telegraph. [Online] Available from: http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/media/8031227/AOL-merger-was-the-biggest-mistake-in-corporate-history-believes-Time-Warner-chief-Jeff-Bewkes.html

Gaughan, P.A. (2005) Mergers: What can go wrong and how to prevent it. New Jersey: John Wiley & Sons, Inc.

Gaughan, P.A. (2007) Mergers, acquisitions and corporate restructurings. 4th ed. New Jersey: John Wiley & Sons, Inc.

Gertsen, M.C., Soderberg, A.M. and Torp, J.E. (1998) Cultural dimensions of international mergers and acquisitions. Berlin: De Gruyter.

Handy, C. (1993) Understanding organizations. 4th ed. England: Penguin Books.

Haslam, S.A. and Ellemers, N. (2005) Social identity in industrial and organizational psychology: Concepts, controversies and contributions. International review of industrial and organizational psychology, 20 (1), pp.39-118.

Hofstede, G. (2002) Cultures consequences: Company values, behaviours, institutions and organizations across nations. 2nd ed. Great Britain: SAGE Publications, Inc.

Jensen, M. and Ruback, R.S. (1983) The market for corporate control: The scientific evidence. Journal of Financial Economics, 11 (4), pp.5-50.

Johnson, G. and Scholes, K. (2000) Exploring corporate strategy. Harlow: Pearson education.

Matsumoto, D. (1996) Culture and psychology. CA: Brooke/Cole.

Neubauer, F., Steger, U. and Radler, G. (2000) The Daimler/Chrysler merger: The involvement of the boards. Corporate Governance: An International Review, 8 (4), pp.375-387.

Pike, R., Neale, B. and Linsley, P.M. (2012) Corporate finance and investment: decisions and strategies. 7th ed. Great Britain: Pearson Education

Pritchett, P. (1997) After the merger: The authoritative guide for integration success. Texas: Pritchett and Associates, Inc.

Schein, E.H. (2010) Organizational culture and leadership. 4th ed. San Francisco: Jossey-Bass.

Schuler, R and Jackson, S. (2001) HR issues and activities in mergers and acquisitions. European Management Journal, 19 (3), pp. 239-253.

Senior, B. and Swailes, S. (2000) Organizational Change. 4th ed. Edinburgh: Pearson Education Limited.

Sudarsanam, S. and Mahate, A.A. (2006) Are friendly acquisitions too bad for shareholders and managers? Long term value creation and top management turnover in hostile and friendly acquirers. British Journal of Management, 17 (1), pp.10-17.

Tannenbaum, S and Yukl, G. (1992) Training and development in work organizations. Annual Review of Psychology, 43 (2), pp.339-441.

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Introduction

The globalisation process that has been occurring and indeed accelerating in recent times has been due to various factors; changes in information technology have given the impression of reduced physical distance, and so have the advances in communication technology. Also, the (economic) rise of developing nations has added new actors to the global stage. All this has been greatly aided by the adoption of various forms of international trade agreements including the establishment of economic areas such as the European Union, just to mention the most prominent example.

Whatever the causes and nature of the globalisation process, in this context the internationalisation of an individual firm has gained more and more importance as firms now have the need, and at the same time the incentive, to enter new countries and markets quickly and effectively, in order to exploit the opportunities that the global stage offers, and to avoid being left behind by their rivals.

There are different motives that can lead to a firm’s internationalisation decision, and different choices that the firm’s management has to make as to the mode of entry into the international market. The aim of this essay is to outline and critique some of the various theories that have been presented by academics, which try to describe how and why the internationalisation process occurs.

The UPPSALA Model

The Uppsala model describes the internationalisation process by a firm as a gradual and incremental phenomenon whereby the expansion into a new country, and therefore into a new market, happens in subsequent progressive steps, starting from exports into the new markets and aiming to the establishment of operations in that country/market (Johanson and Vahlne, 1977). The key to this process is the experiential learning or knowledge gained by the individuals who work in the firm as they proceed with the expansion. Each step in the process is thus a platform for the next step, and the firm can then expand into other countries and markets. Also, this model postulates that the expanding firm will try to enter markets and countries to which it feels closer to, and with which the psychic distance is smaller, subsequently progressing to countries and markets which are further away (not merely geographically but from a psychic distance point of view) and more different. It is a stages-based approach which has a sequential take on the internationalisation process (Whitelock, 2002).

The model has been criticised for its simplicity and perhaps excessive generalisation. Forsgren (2001) for example, addresses the scope and nature of the organisational learning that the model assumes, which only really considers the experiential learning by the organisation’s management, while in practice there may be other ways in which the learning occurs. For instance, firms can learn through imitation of their competitors, by altogether taking a radically different approach from the existing one, or even by simply acquiring other firms that already operate in the new market and thus possess the relevant knowledge and/or skills.

Another criticism is the one-dimensioned approach of this model, whereby the internationalisation process occurs through exports via a third party middleman first, then via a sales subsidiary, and finally through the establishment of production facilities in the new market. This process may not be so straightforward in practice and firms may use other, even mixed approaches, depending on the individual markets they are considering. In this respect, Buckley et al (1987) analyse the case of European firms in Japan, which mostly favour the joint-venture route as a means of entry into the market.

Firms can even have a different goal from the establishment of production facilities abroad. For example, licensing may be the strategy of choice for high-technology companies (Root, 1998).

A similar model to the Uppsala model is the Innovation model as developed by Cavusgil in 1980 with its subsequent refinements, however, these “explicitly or implicitly build on Johanson and Vahlne’s contribution” (Andersen, 1993: p.212), and therefore they are not discussed in this essay.

The Eclectic Paradigm

The eclectic paradigm as formulated by Dunning (1988) seeks to explain the internationalisation process by underlining the importance of three main conditions that influence the firm’s decision to internationalise its operations. Firstly, the company has to enjoy ownership advantages relative to its indigenous rivals (for example trademark rights, returns to scale, certain entrepreneurial skills etc.). Secondly, the market to be entered must be attractive in terms of the resources and factor endowments it enjoys (e.g. lower wages, certain natural resources etc.). Thirdly, there must be an advantage for the firm in internalising its production, that is to say in producing the goods or providing the services itself rather than offering them through contractual arrangements with a third party. Thus, the internationalisation process is viewed as a rational one, based on the evaluation of its benefits as compared to its costs.

This approach may be too simplistic, particularly in the light of the risk diversification theory expressed by Rugman (1979). This author points out that the same set of circumstances in relation to a certain investment opportunity in a foreign country may be assessed differently by different firms, according to their perception of, and attitude towards risk, among other things. Firms will often seek to diversify their risk and distribute their portfolio of activities accordingly. Therefore, with reference to the eclectic paradigm, different firms may act differently in relation to the same set of ownership, locational, and internalisation advantages, and the model will be deficient to the extent that it cannot take into account the firm-specific circumstances and factors that ultimately influence the internationalisation decision.

Industrial Networks and the Interaction Approach

The above theories and models, while making some certainly valid if somewhat disputed points, run the risk of being uni-dimensional inasmuch as they only really consider the viewpoint of the individual organisation that takes the decision to internationalise. However, organisations do not exist in a time-space vacuum: they interact with the world around them, which is made up of a network of other agents, and this in turn influences their decisions as to whether, and how to internationalise their operations.

This is known as the Interaction Approach, developed by the International Marketing and Purchasing (IMP) Group, which departs from other theories on four levels. Firstly, it challenges the view and consideration of a “single discreet purchase”. Secondly it challenges the assumption of a “generalised and by implication passive market”. Thirdly, it challenges the “atomistic” and perfectly fluid view of the market “with ease and speed of change between different supplier for each buyer”, and very low or no barriers to entry and exit from the market for those suppliers. Fourthly, it challenges the separation in the analysis of the buying and selling processes as if they were totally distinct and not influenced by one another (Hakansson, 1982: 1).

This approach identifies four sets of factors or variables as being key to the establishment and maintenance of fruitful relationships between the various agents (most notably buyers and sellers), and therefore to the internationalisation decision: the interaction process itself and its structure, the atmosphere in which the interaction takes place, the parties involved in the interaction process, and the environment in which this occurs (Woo and Ennew, 2004).

A criticism that has been levelled to this approach is that, while it goes in the right direction, it perhaps does not go far enough in the analysis of the interaction network that the expanding firm is involved in, and other, more detailed and specific dimensions of the phenomenon should be considered (Fletcher, 2008).

Born Globals

The so-called ‘born global’ firm has been defined as “a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries” (Oviatt and McDougal, 1994: p.49). Thus, this view of the internationalisation phenomenon differs from the theories outlined above in that, while the latter adopt a sequential and progressive view of the firm’s expansion into new countries/markets whereby domestic success is considered an antecedent to international expansion, the born global definition implies that said expansion can even occur simultaneously to the domestic phase of the firm’s growth, or at least soon after, in an accelerated manner.

A review of the extant literature on the born global phenomenon was conducted by Sultan and Wong (2011), and this highlighted that various theoretical approaches have been used to explain and describe the born global phenomenon, spanning from studies emphasising the importance of foundational resources (particularly knowledge) within the firm, to models that focus on the importance of networks, or which stress in an evolutionary sense that some firms are simply better than others at exploiting their resources and creating new knowledge, thus achieving better performance.

These authors however, also highlight that the born global approach as it stands presents some gaps, more specifically with regards to the antecedents of the born global phenomenon in terms of managerial behaviour and preferences, and with regards to the outcomes in terms of the born global’s strategic (as opposed to purely financial) performance. This critique is corroborated by Zahra et al. (2005), who point towards the internationalising management’s motivations as well as cognitive abilities as key determinants of the internationalisation decisions and processes. As for the performance of the born global firm, Cavusgil and Zou (1994) argue that exporting firms have multiple goals in their sights, not just financial but also strategic (e.g. establishing a presence in a strategically important market, or simply ensuring their product is known outside of the existing markets). Thus the born global approach needs to address these gaps in order to become a more comprehensive framework that can explain the internationalisation phenomenon.

Business Strategy Approach

The business strategy approach to the process of firms’ internationalisation revolves around the concept of businesses making strategic choices as to whether to expand in new countries and markets, based on the practical reality of certain specific variables that they may face during the process itself . Reid (1983), as referenced by Whitelock (2002), states that these variables include the type of market the organisation faces and its opportunities, the attitudes, preferences and behaviour of the individuals who work for the company, and the firm’s endowment of resources.

ore specifically with regards to the market the firm is trying to enter, other authors identified three factors which are key to the choice of market the expanding firm might make. These are the new market’s “accessibility, attractiveness and psychic distance” (Turnbull and Ellwood, 1986: 188). On the other hand, these authors suggest that for the purposes of deciding upon the organisational structure to adopt, more internal variables and factors may play a key role, such as the management’s preferences, technological resources and the organisation’s history (Turnbull and Ellwood, 1986).

Although this approach tries to take a more empirical and practical view of the internationalisation phenomenon, its limitation may lie precisely in the fact that in practice too many factors or variables may be considered relevant or even key to the internationalisation process, depending on each specific instance of an internationalising firm, and therefore it may not be easy to draw universally valid conclusions.

Conclusion

The various theories on internationalisation expressed above address different aspects of the firm’s internationalisation decision, and they all have their merits. The Uppsala model is more concerned with experience and the knowledge derived from it as a key influential factor in the internationalisation decision. The eclectic paradigm focuses on the cost of the transaction leading to the firm’s presence in the new market. The born global approach departs from the stages-based, gradual and sequential approaches to address the simultaneous or at least accelerated expansion of certain firms, while the Interaction approach takes into account a number of different actors and the environment which the internationalising firm tries to enter as being key to the decision. Finally, the business strategy theory states that the firm’s decision will depend on the managerial philosophy as well as the kind of opportunity the market is presenting and the resources available to the firm. None of these theories and models can be said to be comprehensive or exhaustive, so perhaps a different approach is needed, one that manages to select and condense the key components and factors of each, so as to cover most if not all of the relevant angles

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