NATIONAL QUALIFICATIONS CURRICULUM SUPPORT
Business Management
Managing Organisations:
Case Studies
[ADVANCED HIGHER]
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Qualifications support programme for Business Management.
© Learning and Teaching Scotland 2006
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Contents
Case Study 1: Honda
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Case Study 2: The Italian Job – Margiotta
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Case Study 3: The Post Office
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Case Study 4: The Body Shop
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CASE STUDY 1
Case Study 1: Honda
Read the following case study and answer the questions that follow.
A number of Japanese car companies have invested in the USA. They include
Honda, Mazda, Nissan and Toyota. Collectively they hav e invested multibillion dollar sums in North-American-based car assembly plants. The early
leader in this trend was Honda with two major plants in Ohio and one in
Canada. In addition, Honda has built an engine plant to supply its Ohio
assembly plants, set up research and development, and engineering facilities
within the assembly plants, and purchased an existing car test centre adjacent
to the assembly plants. Two-thirds of all Hondas sold in America are now
made in Ohio, with domestic content of around 75%.
Honda has also invested heavily in major British assembly plants. It uses the
country as a base for serving the rest of Europe – with employment and
balance-of-payments benefits for Britain. Honda can treat Western Europe as
a single market because of the European Union’s success in removing trade
barriers and stabilising exchange rates in the member countries. It therefore
has three major markets: Japan, North America and Western Europe.
Honda’s own direct investment in the USA produced complementary
investment by many of its Japanese suppliers of component parts. Honda
required that many of these companies build their plants close to its Ohio
complex so they could introduce a just-in-time production system, in which
parts are delivered to the assembly plants just as they are needed , reducing
cost by virtually eliminating the need for inventories.
There were a number of reasons why Honda made such a large direct
investment in America. Firstly, it enabled it to avert the threat of
protectionist trade legislation, which would limit Japanese exports into the
USA. Secondly, there was a sharp rise in the value of the Japanese yen
against the US dollar in the late 1980s, which dramatically increased the cost
of exporting both finished cars and component parts from Japan. Thirdly,
there was high unemployment in Ohio. Honda had a number of comparable
alternative countries to invest in and, as a result, was able to use its
bargaining power to achieve tax breaks, low-interest loans and grants from
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CASE STUDY 1
the US authorities. Finally Honda’s long-term corporate strategy should be
considered. As a latecomer to car production in Japan, it had always struggled
to be profitable in the intensely competitive home market. This was an
opportunity to make major inroads in the American market ahead of its
Japanese rivals. Sugiura (Honda’s chairman at that time) claimed that a
company needed to establish top-to-bottom engineering, design and
production facilities in each major market in which it competed to produce
products that account for local difference in customer tastes and preferences.
Having moved to the USA, Honda brought its value system with it (see table
below). Employees at all levels in Honda, both in Japan and the USA, say
that Honda’s values affect issues like how a particular problem should be
solved or how a person should be treated. The everyday presence and
continuity of these values helps to generate trust. Trust stems from a
psychological contract between company and employee. Honda recognises
that trust is slow to accumulate, and quick to dissipate. Values and trust
establish the preconditions that encourage i ndividuals to think, experiment
and improve. Once employees know what an organisation stands for, and trust
it to honour their commitment and effort, they begin to truly extend
themselves. If management provides employees with the tools, understanding
and latitude to make a difference, great things are possible. This is a
distinguishing characteristic at Honda.
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CASE STUDY 1
‘Maintaining an international viewpoint, we are dedicated to suppl ying
products of the highest efficiency yet at a reasonable price for
worldwide customer service.’
Honda Motor Company Ltd
Management Policy
 Proceed always with ambition and youthfulness
 Respect sound theory, develop fresh ideas and make the most
efficient use of time
 Enjoy your work, and always brighten your working atmosphere
 Strive constantly for a harmonious flow of work
 Be ever mindful of the value of research and endeavour
Operating Priorities
In all areas of manufacturing operations, Honda observe s the following
priorities:
1. Safety
2. Quality
3. Production
Operating Principles
Quality in All Jobs
Learn, Think, Analyse, Evaluate, Improve
Reliable Products
On Time, with Excellence and Consistency
Better Communication
Listen, Ask and Speak Up
‘Quality for the world from our hands and minds’
An important focus of the car manufacturing industry is the use of technology
in all aspects of the business from product inception to delivery of product.
Honda is committed to using and developing technology that provides
environmental advantages. Reducing emissions and increasing fuel efficiency
are only two areas where it has improved its conventional car engine
products. In 2001, approximately 88% of Honda vehicles were certified as
low-emission vehicles. Alternative fuels, which mean less reliance on
dominant commodities like imported oil, are an area of investment for the
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longer term. Honda has an alternative-fuels programme which, in 1999,
resulted in the production of a Honda Civic natural gas vehicle, at t hat time
the cleanest internal-combustion engine in the world.
All major plants worldwide already meet ISO14001, the standard which
covers a host of environmental areas such as waste disposal, water treatment
and energy use. Honda’s ‘Green Factory’ Progra mme means that every Honda
manufacturing plant has to work to reduce emissions and energy use as well
as to find ways to re-use raw materials, paper and plastic. Its plants have cut
emissions by more than 65% in just five years.
Honda’s investment goes beyond its factories and products. Honda is a
contributing member, both economically and socially, to communities where
it does business. Much of its work is in the USA and includes:
 Eagle Rock School and Professional Development Centre , which is a yearround residential high school offering a challenging opportunity for young
people who have not succeeded in conventional school settings
 The American Honda Foundation providing funding for many youth orientated programmes
 Ride for Kids which raise awareness and funding for the Paediatric Brain
Tumour Foundation
 Child safety Awareness Days to promote all aspects of child safety within
the community
 Sponsorship of the Los Angeles Marathon for the past 11 years.
Honda has a great track-record of agility and adaptiveness – executing a late
but successful entry into the automotive field, a company regarded by many
as the one of the best-managed companies in the world.
Sources: Charles W L Hill, International Business: Competing in the Global
Marketplace, Irwin McGraw Hill, 2000; Richard Pascale, Managing on the Edge,
Penguin Books, 1990; www.honda.com
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Questions
1.
Discuss the benefits that Honda’s decision to invest in the USA could
bring to (a) the host country (USA) and (b) its home country (Japan).
2.
Discuss the non-financial ways that Honda could use to motivate its
employees.
3.
Explain the extent to which each of the following could apply to the
way in which Honda manages its factories:




Scientific management
Human relations
Systems theory
Contingency theory.
4.
In what ways has Honda shown itself to be ‘socially responsible’ ? How
might this benefit the company?
5.
The British government could decide to help the funding of Honda’s
plant in England. Why might they decide to d o this?
6.
Britain is used as a ‘hub’ for supplying Honda vehicles within Europe.
State four effects that trading using the euro would have in the sale of
such vehicles within Western Europe.
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Suggested solutions
1.
Discuss the benefits that Honda’s decision to invest in the USA
could bring to (a) the host country (USA) and (b) its home country
(Japan).
(a)
Benefits to Japan
Balance of payments
Japan would have benefited from the inward flow of foreign earnings. Also, if
Honda needed to export process equipment for the new assembly plants in
Ohio or use materials in its production such as specific components only
available in Japan, this would have improved the current account situation of
Japan’s balance of payments.
Employment
Positive employment effects would have been seen if Honda in the USA
imported from Japan capital equipment for its new plants or component parts
to be used within the production process.
Economic growth
Honda could learn from American management techniques and product and
process technologies, which, in some areas, may have been superior to
Honda’s. This knowledge could then have been transferred back to Japan to
be used by Honda, and by other Japanese companies, thus contributing to
Japan’s economic growth rate.
(b)
Benefits to USA
Resources
This FDI would have supplied capital, technology and management resources
to the USA. Capital investment was made by Honda which both developed
green-field assembly plants as well as buying existing businesses such as the
car test centre. Process technology that Honda had used in Japan was used in
the initial assembly operations. American employees were hired and trained
to occupy many managerial, financial and technical posts. If these managers
left at a later date to join indigenous firms thi s would have economic
benefits. Likewise, if superior management skills in Honda stimulated local
suppliers, distributors and competitors to improve their management skills
this would be a further benefit to the country.
Employment
Honda employed many thousands of workers in Ohio creating direct
employment. Indirect employment was also likely to be an important aspect –
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with jobs created by local Honda suppliers and as a result of increased local
spending by employees.
Balance of payments
The USA’s capital account would have benefited from the initial capital
inflow when Honda moved to the country. As in this case FDI was a
substitute for importing Honda cars, the USA’s current account would
improve. A further benefit to the USA would have been possible if it exported
any of its assembled cars to other countries e.g. South America.
Effect on competition and economic growth
Honda, and the other Japanese manufacturers moving to the USA, increased
competition, driving down prices and increasing the economic welfare of
consumers. This increased competition often stimulates capital investment in
plant and equipment by competitors as they struggle to gain an edge over
their rivals. The long-term results could include increased productivity
growth, product and process innovations, and greater economic growth.
2.
Discuss the non-financial ways that Honda could use to motivate its
employees.
Job enlargement
This could be used to improve the job scope of Honda’s employees and
improve the meaningfulness of the work they are doing. Instead of workers
repetitively placing single semi-conductors on a board, they could complete
the entire board and test that it is working; workers who previously made just
a seat frame could progress to covering it with foam and upholstery material,
and completing the entire chair.
Job rotation
This could be used to help ensure that staff were not bored doing one
particular job repetitively, but were able to do one of multiple tasks (as long
as training had been provided). This variety wou ld decrease monotony and
make work more interesting and enjoyable for staff.
Empowerment
Honda’s values and the trust that is generated within the company provide the
foundation for employee empowerment. Once employees know what an
organisation stands for, and believe that it is sufficiently trustworthy to
warrant their commitment and effort, they begin to extend themselves. Honda
wants to employ thinking people who are creative (this is clearly stated in
both their Operating Principles and Management Poli cy), so empowering their
employees would be mutually beneficial.
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Job design
Honda would specify the description of the job to be undertaken by each
worker, but in such a way that innovation and creativity w ere not
discouraged. This would allow employees to be sure that they were clear
about their tasks and responsibilities and were satisfied when they had
completed a job well.
Job enrichment
This could be used to provide more challenging duties to Honda workers on
the assembly line e.g. machine maintenance or source materials from other
departments.
Group working
Team working at Honda would encourage ‘harmonious flow of work’
(Management Policy), good communication between employees and therefore
a more positive working environment.
Quality circles
The use of quality circles is very common with Japanese companies operating
throughout the world. This would benefit the company by providing valuable
employee input to products and processes while at the same time making
employees feel that they are valuable contributors and that their input is
sought by the company.
3.
Explain the extent to which each of the following could apply to the
way in which Honda manages its factories:




Scientific management
Human relations
Systems theory
Contingency theory.
Scientific management
This theory that all workers wanted was a fair day’s work for a fair day’s pay
seems to be culturally at odds with Honda’s values e.g. ‘Quality in all Jobs –
Learn, Think, Analyse, Evaluate and Improve’.
Human relations
Managers must be aware of employees’ ‘social’ needs and cater for them in
order that employees work with the company rather than against it. This
underlies Honda’s Management Policy.
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CASE STUDY 1
Systems theory
Systems theory is particularly relevant at Honda : it views suppliers at one end
of the supply chain to customers at the other end as one ‘entity’ to be
managed effectively. This is well demonstrated by Honda’s exceedingly close
links with suppliers (often geographically based beside their assembly
plants).
Contingency theory
This seems very applicable to Honda where the best fit between tasks, people
and the organisation is sought. Honda is not an organisation that encourages
people to be happy with the status quo, but to always question if there is a
‘better way’ to do produce products, carry out processes, manage people, etc.
in an environment that is always changing.
4.
In what ways has Honda shown itself to be ‘socially responsible’ ?
How might this benefit the company?
Environmental
Manufacturing of product
Honda shows that it has strong environmental policies, not only complying
with existing legislation in areas such as producing low -emission vehicles but
also producing such vehicles with efficient use of energy, re -use of materials
and reducing factory emissions. Having such a ‘green’ policy within its
manufacturing plants would save money e.g. less money spent on power, and
therefore improve profitability and product price competitiveness.
Producing fuel-efficient cars with low emissions
Producing cars with good fuel efficiency not only reduces greenhouse gases,
makes better use of a finite resource (petroleum), and reduces the USA’s
dependency on imported oil, it also encourages possible consumers to buy a
car that will save them money on a day-to-day basis. Likewise, producing
cars with low emissions is a positive message and could increase demand by
consumers who are attracted by a company with sound environmental and
social practices.
New product development
Honda’s research and development investment in alternative fuel vehicles has
paid off in the production of new products such as the Honda Civic natural
gas car, which in the longer term could be a profitable business venture.
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Social
Honda employees
The company would appear to have good relationships with its emp loyees
which would benefit the company in attracting and retaining staff, thus
cutting Honda’s recruitment and training costs. The staff are likely to be more
motivated and loyal as a result of seeing that their company works in an
ethical manner.
Community programmes
Consumers are influenced to buy from companies who behave in an ethical
way. By showing social responsibility within communities e.g. sponsoring
events or investing in the community ensures that the name Honda is
promoted within communities in a positive way.
By investing in many youth projects and education projects, Honda not only
helps invest in the education of the next generation but enforces the Honda
‘brand’ on teenagers who will soon be new consumers for their cars. Honda
invests in a variety of community programmes to reach all prospective
purchasers of their vehicles from marathon runners to grandparents. This
provides positive public relations and ‘free’ advertising for the company to
enforce the company and product name – Honda.
5.
The British government could decide to help the fundi ng of Honda’s
plant in England. Why might they decide to do this?
One reason would be to increase employment, especially if the area was an
unemployment ‘black spot’. This may be a political statement b y the
government to increase electoral votes, especially if an election was
imminent. However, it would mean less unemployment benefit being paid by
the government in the area, and thus, more disposable income being
available, which would therefore have a positive knock-on effect on other
local businesses.
Another reason might be that the government see the benefits to Britain of
FDI (see host country benefits above in question 1), many of which are
relevant to Britain e.g. balance of payments benefits, advanced management
knowledge transfer etc.
Finally, any investment made by the government could be more than ‘repaid’
by taxes paid by Honda over the lifetime of the plant. This flow of income to
the government allows investment in infrastructure e.g. new roads to
strengthen the economy, as well as funding for education, health care and
security, which are key financial government responsibilities.
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6.
Britain is used as a ‘hub’ for supplying Honda vehicles within
Europe. State four effects that trading using the euro would have in
the sale of such vehicles within Western Europe?
Effects could include:
 Reduced exchange and transaction costs since Honda would not need to
convert between sterling and other European currencies.
 Easier accounting required when using one currency rather than multiple
currencies.
 Reduced risk from constant currency fluctuations and potential loss of
earnings.
 Currently car manufacturers price cars differently in different European
countries. Moving to the euro will pressure Honda and other car
manufacturers to standardise their pricing mechanisms. This is likely to be
to the detriment of Honda.
 Initially Honda would need to invest in training staff, new euro accounting
software etc. in order to trade using the euro.
 Critics argue that the euro (to date) has performed poorly on world
currency markets and that it could lead to lower economic growth and
higher inflation within Europe, all of which would negatively affect
Honda.
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CASE STUDY 2
Case Study 2: The Italian Job – Margiotta
Read the following case study and answer the questions that follow.
Franco Margiotta started working in his family’s ice -cream and café business
in Edinburgh when he left school. ‘We worked very long hours, from 9am to
11pm’ he recalls. ‘We were one of the original ‘stay open late’ shops.’ Over
the years the business prospered but market conditions changed. In 1987, the
business split. Franco’s brother continued with the ice cream café/newsagent
side of the business while Franco concentrated on the grocery/conven ience
market.
Margiotta, owned and run by Franco and his wife, began purely as a grocery
and convenience store selling food and a selection of wine. However, the
business soon moved up-market with the aim of offering extended customer
choice with high quality products. There are now eight stores, four of which
have delicatessens and four have in-store bakeries.
Franco is a strong supporter of local producers and manufacturers, with food
lines running from staple groceries to premium Scottish produce. He buys
from various suppliers, but with a bias towards local ones. He makes a point
of stocking things that the supermarkets do not, such as Parma ham, a wide
range of cheeses, pre-packed fresh meat, fresh smoked salmon and even
haggis. All eight stores stock locally produced genuine Italian, French and
Jewish bread – a range Franco claims is unrivalled in the city. Vegetarian and
vegan food is a speciality in one store, which has picked up a special mention
in the Vegan’s Society magazine. Wine tastings are a regular event; he even
employs a part-time wine consultant to give him regular advice. ‘I’ve no need
or desire to expand out of Edinburgh, there’s plenty of scope for expansion
here. There are a lot of areas of Edinburgh with no real local shop and I do n’t
see why, all things being favourable, those places should not have a
Margiotta,’ he says.
The company recently opened a wine emporium, Enoteca Margiotta, where it
claims to stock more variety than any other off licence in Scotland. Enoteca
means ‘wine library’ in Italian, and this is what they have tried to create.
Enoteca carries a wide range of old and new world wines, around 100 malt
and blended whiskies, specialist liquers and beers. But Franco will not be
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CASE STUDY 2
opening a string of Margiotta wine emporia: ‘The emporium’s about quality
and expertise and we see it developing as a single centre of excellence for
wine in Scotland. My father was renowned as the best winemaker in his
village, and his father before him, so I felt a moral duty to get involv ed with
wines,’ he says.
Franco has high hopes for his wine shop and is launching a loyalty scheme
whereby customers receive a free bottle of house wine after nine purchases.
In addition, they have developed four Margiotta own label French wines.
‘We’re hoping to launch a whole series of Italian own label, and possibly
some Australian wines under our own label too. I personally taste all our own
brand wines and if I’m not happy with it, irrespective of whether I think it
will sell or not, I won’t stock it. I must like the product,’ he says. Enoteca
Margiotta is so successful that in its first year it has been named Independent
Off-licence of the Year by the trade publication, The Scottish Grocer.
This own label concept extends to convenience foods in the company’s
delicatessens. ‘This was borne out of the fact that, when we started our delis,
we couldn’t get half decent salads, so we decided to open up our own kitchen
and produce these ourselves.
You can really taste the difference,’ he says. ‘When Italia ns prepare food or
wine, it’s got to be good – you just can’t get away with making do – it’s
always got to be the best.’ The demand has been such that the kitchen now
produces pizzas, sandwich fillings, polenta and ready meals such as lasagne
and spaghetti bolognese.
As well as a vast variety of sandwiches, drinks, etc for individuals,
lunch@margiotta also supplies corporate platters for meetings, office parties
and business lunches. In fact, corporate business has become a new area for
the company, which is now targeting the corporate market to supply them
with their wine and catering requirements.
Such initiatives have helped raise company turnover for this year to £5
million and it now has over 100 staff. ‘I made up the business as I went
along. I had no training and no help. In the last few years we wised up a bit
more and started making better business decisions. In the last six months
most of our energies have been devoted to building a management team,’ says
Franco.
Not everything has been running smoothly. Franco believes there has been a
dip in the quality of service in his chain of shops and is working on bringing
standards of quality back up to the level on which the business built its
reputation.
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CASE STUDY 2
One city analyst describes the Margiotta brand as ‘instantly identifiable’. It
is a name, as well as a brand, that is readily known around Edinburgh. Why
has he been so successful? ‘Look and learn from your competitors but get to
know your customers and understand their needs’ – that’s Franco’s advice.
As for the longer-term future for the company, Margiotta says that whilst he
has been approached several times by some of the bigger players in the
market interested in buying his business, he’s just not interested. ‘The
money’s not the main motivator,’ he says. ‘I enjoy what I do. It is important
that there are still independents, they offer that individuality and speciality
that you just cannot get elsewhere. The more multiples there are, the more
choice is reduced. I just wish more people would get up and do something.
My family is young and I’d like to give them the opportunity to get involved
in the family business but, then again, if they don’t want to, then fine, we
might sell it or they might sell it.’
Sources: ‘The Italian Job’, Business Scotland, June 2000; ‘Wine library is a real
corker!’ Edinburgh Evening News, 25 April 2000; ‘Fruits of the vine’, Evening
News, Business and Finance; ‘Forza Italia’, Independent Retail News, 8 May 1999;
www.margiotta.co.uk
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CASE STUDY 2
Questions
1.
Prepare a SWOT analysis on Franco Margiotta’s businesses at the
present time.
2.
What conclusions could you draw from this SWOT analysis?
3.
Given what you have read above, what would you suggest is
Margiotta’s current mission statement?
4.
Explain the strategy that Margiotta appears to be following.
5.
Assess the extent to which the strategy you have identified in question 4
matches the mission statement in question 3 and the conclusions from
the SWOT analysis in question 2.
6.
Franco Margiotta has begun to use new technology such as e-commerce
to expand his business interests. Discuss the benefits that this could
bring to the business and evaluate the costs that may be incurred.
7.
Franco has stated that he wants to build a good management tea m.
What advice would you give him to help him achieve a good team?
8.
Franco can be seen as the leader of the company. In what way has he
demonstrated this? Analyse the factors that could affect his leadership
style.
9.
Give examples of two financial and two non-financial incentives that
could be used to increase the sales achieved by staff in the eight
Margiotta stores. To what extent would these incentives help Franco to
improve the quality of service in the stores?
10.
Discuss the personal qualities that a business person like Franco
Margiotta is likely to require.
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CASE STUDY 2
Suggested solutions
1.
Prepare a SWOT analysis on Franco Margiotta’s businesses at the
present time.
Strengths
Well-known ‘brand’ name of Margiotta
Proven high quality products and service in the PAST
Years of retail experience in Edinburgh
Experienced entrepreneur
Three businesses, so if one fails less risk overall
Weaknesses
Company size
Lack of management experience
Opportunities
Promotions to enter new market or increase market share in exi sting market:
 Joint venture/partnering opportunities
 Franchising opportunity
 Market own label products in other retail outlets e.g. Jenners food hall,
airport shops
 Enter new markets in other geographies e.g. outside Edinburgh or Scotland
 Target ‘niche’ markets e.g. affluent areas such as Morningside, Barnton,
etc.
 Online selling of products.
Threats
Supermarkets or large chains with lower product costs
Internet suppliers
Other retail competitors large and small e.g. Oddbins or other small retail
outlets such as local delis (Valvona and Crolla)
Recent decrease in quality of customer service
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CASE STUDY 2
2.
What conclusions could you draw from this SWOT analysis?
Many, but could include:
 Use the well-known brand name of Margiotta to sell franchises e.g.
Enoteca in every major city (use strength to grasp an opportunity)
 Hire experienced managers with experience of retail marketplace, or train
internal staff in management techniques ( attack a weakness)
 Provide online sandwich bar in other major cities e.g. Glasgow, Lon don
(grasp opportunity)
 Partner with other small chains or independent retailers when purchasing
goods to decrease product costs e.g. B2B e-commerce (attack threat)
 Provide own-label wine to existing internet suppliers, small markup but
large volume (minimise threat)
 Use the internet to greater advantage to promote existing businesses and
enter new markets (opportunity)
 Open ‘up-market’ coffee shop within existing prime location sites to
encourage people to sample produce (opportunity)
 Increase sales of own-label products by selling them in quality retail
outlets e.g. Peter Green off-licence or Jenners food hall (opportunity)
3.
Given what you have read above, what would you suggest is
Margiotta’s current mission statement.
The mission statement should certainly heavily emphasise the goal of quality
products and services, and secondly focus upon the geographical area of
Edinburgh e.g.
‘Margiotta provides high quality food and beverage products and services at a
convenient location for its customers within the city of Edinburgh’.
4.
Explain the strategy that Margiotta appears to be following:
Margiotta is refocusing the business on ‘quality’ at the same time as building
a management team.
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CASE STUDY 2
5.
Assess the extent to which the strategy you have identified in
question 4 matches the mission statement in question 3 and the
conclusions from the SWOT analysis in question 2.
Margiotta’s strategy of focusing on quality is at the heart of Margiotta’s
mission statement. This plays to one of the main strengths in the SWOT
analysis – proven high quality products and service. It also strengthens the
successful ‘Brand’ name of Margiotta as well as decreasing one of the
threats shown in the SWOT analysis – recent decrease in quality of customer
service. Poor quality would hamper all efforts to be successful with the
opportunities listed e.g. other businesses would not be interested in
partnering or a joint venture if quality was perceived to be inadequate.
Likwise, Margiotta has spent considerable time building his managemen t
team as he recognises that he does not have all the business skills in -house
that he needs to run the business successfully. This strategy attacks one of his
weaknesses – lack of management experience – at the same time putting him
in a better position to cope with threats and seize opportunities.
6.
Franco Margiotta has begun to use new technology such as ecommerce to expand his business interests. Discuss the benefits that
this could bring to the business and evaluate the costs that may be
incurred.
The internet could be used as a marketing and promotional tool to increase
sales in a particular market segment, enter a new market, launch a new
product, etc. It could be used by customers who want to order products (B2C
– Business to Consumer), perhaps expanding this to his wine emporium
business. Margiotta could use it when orderi ng products from suppliers (B2B
– Business to Business), which is normally a very cost-effective method for
businesses to purchase products.
Internet banking could be used to improve company efficiency and reduce
costs. With minimal investment in a PC, he, or his accountant, could view
online statements, transfer funds, pay bills etc. rather than having to pay
visits to banks, or have lengthy phone calls to query balances etc.
Email could be used, particularly if Margiotta does enter the corporate
market. It could be used to reply to company enquiries, as an ordering
mechanism, to promote products or services to a niche market, etc. If
products are bought outside the UK e.g. win e or deli products imported from
Italy, email is a fast and efficient ordering mechanism.
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Costs incurred could include:




Cost of hardware e.g. PC, printer, modem card, phone, etc.
Cost of software e.g. Microsoft Office, etc.
Telephone line costs – quarterly line rental and call costs
Cost of designing and maintaining web pages (likely to be done by
specialist company)
 Staff training in the use of e-commerce tools
 Time for staff to monitor and answer emails and gather data from online
questionnaires.
7.
Franco has stated that he wants to build a good management team.
What advice would you give him to help him achieve a good team?
Answers are many but could include:
 Chose a management team of 6–8 people to manage the businesses. This
would ensure that team size is adequate to handle the job but not too large
to be unwieldy. Given the company employs just 100 people a large team
is not appropriate (team size).
 Ensure a suitable management style is used to achieve specific objectives ;
sometimes this may be autocratic, other times democratic etc. If Margiotta
wanted to brainstorm with his senior people on how to best enter the
corporate hospitality marketplace then a democratic management style
would be best fitting. However, he or one of his managers may have to be
more autocratic if an urgent decision had to be taken (team tasks).
 Ensure team objectives and individual responsibilities are clear, and that
commitment exists to achieve these objectives. Examples of a team
objective could be that Margiotta’s businesses accrue profits of £x in
2006, and it may be a purchasing person’s goal to negotiate more
favourable purchasing contracts for products from suppliers by y% in
order that the team goal can be achieved (team goals).
 Hire staff who fit a variety of Belbin’s roles, rather than individual
contributors (team roles).
 Hire new staff or train existing staff to ensure that experience in all
business areas is available e.g. knowledge of corporate hospitality market ,
or skills in marketing, finance, purchasing, sales etc (team roles).
 Ensure channels of communication are clear and it is easy for people to
communicate within the team. Given the relatively small size of the
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company it is unlikely that a hierarchical/chain approach would be
suitable, but that people would be free to communicate easily to all
members of the management team (communication).
 Clear description of tasks to be carried out within a specific timeframe,
with a suitable number of people involved in carrying out those tasks. An
example could be to approach possible suppliers of Italian wines which
would be suitable for ‘own label’ bottling by the end of the quarter
(nature and clarity of task).
8.
Franco can be seen as the leader of the company. In what way has
he demonstrated this? Analyse the factors that could affect his
leadership style.
He has shown himself to have vision, looking outwith the bounds of his
family’s original business (ice cream/café) to other retail opportunities such
as delicatessens, the wine emporium etc. He is mo ving the organisation on,
using new technology such as the internet in his online sandwich business,
opening up horizons, initially targeting individuals, then the
corporate/business market for its lunch products. He is reacting to change in
the market – listening to what customers want, keeping in touch with what the
competition are doing, and changing the products and services he provides as
a consequence. He is taking on supermarkets by providing a loyalty scheme
and own label products rather than merely selling existing products. When he
couldn’t buy quality salads for his delis, he didn’t just decide to sell the best
he could get, but decided to make them himself so he could ensure they
would be high quality.
He has taken the decision to get back to the business’ core values of quality,
and to help lead the company in the future with this ‘mission’ ; by doing so he
has set a clear direction for the business. He aligns people to achieve his
goals e.g. hiring a wine consultant, concentrating on his manage ment
structure. He is more than an owner/manager but has the vision to lead the
business to be more successful in the future.
Factors that could affect his leadership style include:
Task – If a competitor suddenly decided to open up an online sandwich
business that undercut Margiotta’s prices, he may have to take a fast decision
on how to react to this rather than waiting to meet with all his managers and
make a democratic decision.
Group size – If the company was to grow substantially in its core busine sses
or expand into other businesses, then perhaps his style would have to change
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as it may be impractical with a larger company to seek input from all staff
prior to decisions being taken.
Organisational culture – The company is a relatively small one and based
within the city of Edinburgh. As a result, a lot of his staff will know each
other on first name terms and have a close relationship with each other. If the
company, for example, trebled in size, the culture of the organisation is likely
to move from a ‘family’ type of organisation to a more distant/formal
organisation. This could impact the way in which Franco heads and leads his
businesses.
Nature of group members – If, in creating his new management structure , he
hired staff who were used to being heavily involved in decision-making, and
Franco was used to an autocratic style, then a conflict is likely to arise and
one or both parties would need to ‘move’ their style accordingly. Likewise, if
new managers were reticent to make decisions and Fra nco preferred a more
democratic approach to decision-making then this may affect his leadership
style too.
9.
Give examples of two financial and two non-financial incentives that
could be used to increase the sales achieved by staff in the eight
Margiotta stores. To what extent would these incentives help Franco
to improve the quality of service in the stores?
Financial incentives could include:
 Employee share ownership scheme (x shares provided per employee if the
company achieves sales targets)
 Performance-related pay for sales staff rather than a fixed salary
 Bonus for sales targets which have been achieved e.g. £50 bonus for
selling x cases of own-label wine or x number of own-label products in a
week
 Case of wine for the staff member who sells most of product x in a month.
Non-financial incentives could include:
 Encouraging empowerment and free flow of ideas from the sales staff up
to sales management
 Allowing sales staff to have responsibility outwith their normal remit e.g.
entering customer information into database, deciding on in-store
presentation of products, etc
 Brainstorming with others; for example, how best to increase in-store
product sales e.g. seasonal themes
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 Allowing staff to carry out a variety of tasks within the store e.g. filling
shelves, operating the till, cleaning shelves, wrapping goods, etc. rather
than just one single task.
Quality of service could be improved in a number of ways:
 Higher employee morale normally leads to a more positive attitude at work
and this passes on to customers in terms of quality of service e.g.
enthusiasm passes on to customers
 Incentive schemes that encourage employees to sell more of certain
products motivate staff to learn more about the products in order that they
can present the product to customers in a more favourable light. Again,
increased product knowledge will result in better service to the customer.
 Financial incentives to sell certain products in particular can make
employees more willing to help customers in this area
 Allowing staff to carry out a variety of tasks e.g. filling/cleaning shelves
as well as serving customers will ensure that customers perceive a clean
environment where products are displayed attractively
 If employees feel their input is valued, then they are more likely to make
suggestions which improve the quality of service they provide e.g. ‘I
notice that a lot of pensioners like to buy product xyz, which we display
on the lowest shelf and hard for them to reach. I suggest that we redesign
the display of these products on a higher shelf’.
 If employees are allowed to be involved in recording information in their
customer database then they will be more aware of, for example, certain
products that regular customers like. This knowledge will allow staff to
deal on a more personal level with such customers e.g. ‘Hello Mr.Smith.
Have you come for your regular Margiotta Carbonara pasta today? Did you
know that we have just launched a new mozzarella garlic bread that would
compliment that so nicely?’.
10.
Discuss the personal qualities that a business person like Franco
Margiotta is likely to require.
Self-confidence and self-reliance – as a successful entrepreneur, Franco has
demonstrated that despite mistakes he has made in business, he is confident
to make a success of the business.
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Clear view of the way forward – he has shown vision e.g. using new
technology to enter a new market – online sandwich business.
Ability to deal with uncertainty – Franco has risked his business a number of
times by entering new markets e.g. the wine emporium, which is a niche
market.
Technical skills – his knowledge of the retail business has been achieved
through years of working in the front-line, this has allowed him to get close
to customer needs, in particular understanding that quality is key to his
customers.
Communication skills are necessary to deal with staff, managers, customers
(corporate and shoppers), financial institutions, the press etc.
Administration and organisational skills – initially Franco and his wife would
probably have handled much of the invoicing, payments, etc. but now with a
larger company to manage, this will be handled by his management team.
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Case Study 3: The Post Office
Read the following case study and answer the questions that follow.
The Post Office comprises three distinct businesses:
 Parcelforce, its parcel delivery business,
 Post Office Counters, which provides a network of sub and Crown post
offices, and
 Royal Mail, its postal delivery arm.
In July 1999 the government published a White Paper with the dual purposes
of opening up the postal services market to competition (1998 Competition
Act) and to provide the Post Office with more financial and operational
freedom by making it a PLC. The government will, in future, only expect a
dividend at commercial levels. This will be about half the rate at which
profits are taken out of the business by the government currently. This will
greatly increase the Post Office’s ability to invest in new technology and
enhance services in its core business as well as in new business areas.
A new system of regulation and licensing has been put into place, giving the
new regulator (the Postal Services Commission) new duties and powers to
protect the interests of postal services including licensing of all operator s. Its
primary duty will be to promote consumer interests by promoting
competition, insisting on high standards of service, regulating prices and
ensuring that the Post Office is able to provide the universal service
obligation at a uniform tariff (the legal right of everyone to receive a postal
service at the same price). To protect consumers further, the Consumer
Council for Postal Services has been formed to bring consumer representation
in the postal services market into line with the provision of othe r utilities.
These and many other changes were embodied in the Postal Services Bill,
which was enacted in July 2000 with five main objectives:
 To improve postal services for business and domestic customers through
greater choice, better quality and falling real prices
 To maintain a universal postal service of postal delivery throughout the
UK, and a uniform tariff
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 To establish clear and accountable relationships between Government, the
Post Office, the Regulator and its Consumer group
 To equip the UK Post Office to meet the challenges of the changing postal
market both domestically and internationally
 To support a viable network of post offices so as to ensure nationwide
access to a range of public and private sector services.
Parcelforce
‘Our aim is to become one of the world’s leading distribution companies’,
declares Post Office Chief Executive John Roberts. Distribution is a
significant issue in a modern economy. Delivery and logistics services are
the key that unlocks the potential of e-business. Internet shopping won’t take
off unless buyers can be certain that they will receive their goods promptly
and, preferably, next day.
The Post Office reckons it is well positioned to become a major player in this
business. It is the only organisation that must, by law, deliver to every house
in the UK. It has invested £100m in two new distribution hubs to allow much
larger volumes of parcels traffic to be handled in the future.
Abroad, the Post Office has embarked on an ambitious acquisition and
partnership strategy to turn it into the global player that Roberts envisages.
‘To compete successfully in a global postal sector’, he says, ‘postal operators
must become complete distribution companies with global reach. Global
capability will be crucial to success’. A priority is to build a European parcel
business in order to catch the growth in the Continent’s boom in internet
shopping.
Post Office Counters
The rate of closure of sub-post offices has been dramatic – in the financial
year 1999/2000 382 of the UK’s 17,500 sub-post offices disappeared. The
number of sub-post offices in Scotland has now fallen below 2,000 for the
first time. Fears are growing that vast areas of the country could soon lose
access to a sub-post office altogether, well before the promi sed extra
government business comes on-stream in 2003. One of the main reasons for
businesses closing is that by 2003, payment of Jobseekers Allowance and
Housing Benefit will be by automated transfer into bank accounts, saving the
Treasury £400 million per year. There have been some suggestions of ways
that sub-post offices could get new business. They include allowing
customers to pay rent and council tax at sub -post offices but these have not
yet been agreed. As a result, government subsidies in the s hort term have
been called for in order to maintain the remaining offices.
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To further help combat this decrease in Benefit Payment business, around
1,200 Scottish post offices have recently been computerised , which will
enable them to offer an increase in services. Talks about a universal bank are
at an advanced stage and, if they are successful, it will mean that residents of
the 60% of villages that have post offices will be able to use them to conduct
their banking.
Royal Mail
For the Post Office all this is worrying enough. But there is another imminent
threat – this time from Europe. The European Commission has published a
draft directive that would reduce the letter -weight limit above which there is
free competition from the current 350g to 50g by January 2003. (As a marker,
a first class letter can currently weigh up to 60g). For the first time ever,
Royal Mail may have competition for letters business.
In the face of these new challenges, there is a clear recognition at the Post
Office that it has got to change its ways. During 2000, the whole organisation
went through a major restructuring. The semi -autonomous businesses of
Royal Mail, Parcelforce and Post Office Counters were integrated to make it
easier to put together service packages for cus tomers. Roberts has declared
that the primary concern for the Post Office is providing customer service. He
points to the fact that while they are 1,300 managers less, around half of the
top 250 managers in the organisation come from outside, providing a g ood
mixture of experience to meet the challenges ahead. The key question is
whether they can manage the critical balancing act of defending the home
market from more competition while extending international presence to
become a global player.
As the government shackles are loosened, there is a real chance for Robert’s
management team to show what they’re made of. His main asset could be the
trust that ordinary people have in the Post Office. But if it can’t deliver in the
face of tougher competition, people could still vote with their feet. Roberts’
problem is that, with deregulation bearing down fast, there is not much time
to complete the wide-ranging culture change needed to instill a customer
service ethos in the organisation.
Sources: ‘Delivery Pains’, Institute of Directors magazine, Peter Bartram,
September 2000; ‘Second class delivery’, The Scotsman, William Chisholm, 11
November 2000. www.dti.gov.uk/sectors/postalservices/ind ex.html
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Questions
1.
Draw a force field diagram to illustrate the current situation facing
Parcelforce. Assess the driving forces, restraining forces and the assets
for change.
2.
Imagine you own and run a small village post office. At present you do
not make a large profit and you estimate that the loss of the Benefit
Payments business in 2003 will cut profit by a further 35%. Assess
how you might be affected by this change. In what ways does this
situation illustrate the qualities required by someone w ho works on a
self-employed basis?
3.
Discuss the ways in which the case study illustrates the various stages
of change i.e. preparation, unfreezing, changing, refreezing and
evaluation.
4.
Evaluate the ways in which the changes proposed by John Roberts are
consistent with the objectives of the Post Office.
5.
Assess the ways in which the Post Office illustrates market
segmentation.
6.
Assess the ways in which a) the European Union and b) the actions of
the government have influenced the operation of the Post Of fice.
7.
To what extent is the Post Office a ‘socially responsible’ organisation?
Justify your answer. Suggest one way in which the Post Office could
show itself to be more socially responsible.
8.
Identify one internal stakeholder in the Post Office and as sess how it
may affect the operation of the business in the future.
9.
The Post Office has been trying to change its organisational culture.
Analyse the effects that organisational culture can have on managing
change. Explain why you think the Post Office has had to introduce a
customer-oriented culture to cope with deregulation and increased
competition.
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Suggested solutions
1.
Draw a force field diagram to illustrate the current situation facing
Parcelforce. Assess the driving forces, restraining force s and the
assets for change.
Forces for change
 Changing customer demand e.g. businesses seeking next day delivery to
internet customers
 Globalisation of postal services opening up European and world markets
 Competition
 Regulator – Postal Services Commission
 Consumer representation through the Consumer Council for Postal
Services
 PLC status
 New technology e.g. internet
 New managers from outwith the industry with fresh ideas
Restraining forces
 Years of culture within the public sector e.g. attitude to cust omer service
 Existing organisational structure
 Fear of change at all levels in the organisation
Assets for change
 Experience in the UK marketplace
 Experience (although limited) of competition in the Parcelforce business
 Strong management team
 Customer loyalty
 Existing investment in plant and materials
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Drivers
Resistors
New technology
Organisational culture
Global markets
New management
PLC status
Organisational structure
Customer demand
Consumer groups
Competition
Fear of change
Regulator
Note: Size of arrows is to some extent subjective.
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2.
Imagine you own and run a small village post office. At present you
do not make a large profit and you estimate that the loss of the
Benefit Payments business in 2003 will cut profit by a further 35%.
Assess how you might be affected by this change. In what ways does
this situation illustrate the qualities required by someone who
works on a self-employed basis?
Emotional
 How will I cope with less income?
 If I have to close the Post Office will:
– people locally think that I’m a failure?
– people locally feel that I have selfishly deprived them of a local
service?
– I get another job?
Political
 Will I be able to influence a counter-decision?
 If I became a smaller outlet as a result of this decision, will I lose further
control of my business?
Rational
 This will negatively affect some of my customers e.g. old people with no
bank accounts; is this the right decision?
 How could the decision be over-turned (plan)?
 Can I make up this profit deficit? If so, how? e.g. expand into another
complimentary area, such as cards, newspapers, etc.
Qualities required by a self-employed person could include:
 Business aware e.g. ability to look long term at financial implications of
change
 Ability to deal with uncertainty by being resourceful, creative e.g. look at
alternative options for increasing income within the post office
 Ability to work under your own ‘steam’ i.e. self -reliance and selfconfidence
 Administrative and organisational skills, necessary to keep up with the
paperwork involved in a sub-post office
 Communication skills to deal with members of staff, customers, banks etc.
 Technical skills – an understanding of the business, and therefore the
implications of losing revenue to the business as a whole.
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CASE STUDY 3
3.
Discuss the ways in which the case study illustrates the various
stages of change i.e. preparation, unfreezing, changing, refreezing
and evaluation.
Preparation
 Regulator appointed to oversee industry and ensure the change will have
positive impacts for the Post Office, its competitors and ultimately
consumers
 Consumer Council appointed to ensure that consumers’ voices will be
heard in the future
 Announcement that benefit payments no longer to be paid ‘over the
counter’
Unfreezing
 Legislation allowing deregulation of the postal sector provides an
environment for change to happen
 PLC status loosens the shackles of the organisation to become more
commercially viable
 Government decision to accept less dividend payments provides finance to
allow future investment
 European Commission directive to allow competition in the ‘letter market’
Changing (as at 2003/in the case study)
 Acquiring and Partnering with companies in the Parcelforce sector
 Investment in distribution hubs
 Computerisation of Post Offices to allow increase in service offerings
 Formation of Universal bank
 Restructuring of the company to integrate the three businesses – Royal
Mail, Parcelforce and Post Office Counters
 Focus on customer service
 Company re-organisation with fewer managers and ‘fresh blood’ at the top
Refreezing (future)
 This will involve stabilising changes that have been made and reinforcing
the changes e.g. annual employee appraisal to reflect customer service
goals.
Evaluation (future)
 This will be done by three bodies – the regulator (Postal Services
Commission), consumers (the Consumer Council for Postal Services) as
well as the Post Office.
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4.
Evaluate the ways in which the changes proposed by John Roberts
are consistent with the objectives of the Post Office.
Objectives are in bold, proposed changes are in normal case:
 To improve postal services for business and domestic customers
through greater choice, better quality and falling real prices
– Re-organisation of the three businesses into one
– Focus on customer service
– Employment of new senior managers from outside the industry
– Computerisation to provide greater choice of services
– Universal bank as an additional service to its cus tomers
– Focus on customer service culture
 To maintain a universal postal service of postal delivery throughout
the UK, and a uniform tariff
– Roberts has to accept this as a ‘fait accompli’ or a ‘given’. It is
something his organisation has always provided.
 To establish clear and accountable relationships between Government,
the Post Office, the Regulator and its Consumer group
– Roberts has to accept this, he has little control over the organisation of
the industry itself.
 To equip the UK Post Office to meet the challenges of the changing
postal market both domestically and internationally
– Customer service focus
– Fresh management blood
– Integrated the three business units to make it easier to provide customer
service packages
– Acquisition and partnership to build a global parcels business
– Investment in distribution hubs to handle larger volumes of business
– Provision of additional services such as the Universal bank and through
computerisation of sub-post office branches
 To support a viable network of post offices so as to ensure nationwide
access to a range of public and private sector services.
– Computerisation of Post Offices
– Universal bank services
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CASE STUDY 3
5.
Assess the ways in which the Post Office illustrates market
segmentation.
The Post Office clearly supplied to three main market segments:
 Royal Mail customers – people and businesses who post letters
 Parcelforce customers – people and businesses who post parcels and
 Post Office Counters – people and businesses who use post offices.
These could be broken down further to allow target marketing to take place
e.g. the Parcelforce segment could be broken down into:





Internet shopping customers
UK parcels business
Other European parcels business
Worldwide parcels business
Parcels < or > xkg weight etc.
6.
Assess the ways in which (a) the European Union and, (b) the
actions of government, have influenced the operation of the Post
Office.
(a)
European Union
 Competition from European companies could mean potential loss of
business to the Royal Mail with many business and social impacts e.g.
redundancies.
 ‘Cherry-picking’ by incoming European competitors could mean that the
Post Office was left with only with non-profitable business areas e.g. rural
deliveries.
 Possible lower price and better service for consumers as a result of
European competition.
 Opportunity for Royal Mail to provide a ‘host’ country service in other
European countries e.g. delivering post sent from within France .
 European Commission directive could, in the future, mean competit ion in
the letters business.
 Universal Service Provision at a Universal Price could be in jeopardy for
the future i.e. it may be unworkable economically with a number of
players in the market.
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(b)
Government
 A regulator has been appointed to liberalise and control the industry. The
aim is to strengthen the Post Office and improve its competitive position
in the European market and beyond, as liberalisation extends and markets
are opened up.
 Consumers are represented by a new body to ensure that the voic e of all
types of consumers can be clearly heard.
 The move to a PLC will provide greater commercial freedom to the Post
Office and allow it to compete fairly with other postal operators.
 The decision to pay benefits into bank accounts has saved the Treas ury
money but caused the closure of thousands of sub -post offices.
 The continued provision of the Universal Service Provision at a universal
tariff provides a ‘fair’ service to all in the UK, but geographical cross subsidy is needed to support it, and it may be difficult to enforce with
multiple companies operating in the sector.
 Allowing competition encourages innovation, productivity and growth ,
which in turn brings improved services and falling prices for users e.g.
other public ‘utilities’ such as gas, telecomms, electricity.
 The government has greatly reduced the dividend it will take from the Post
Office, which will result in loss of income to the Exchequer in the short
term. But it will be hoped that investment made by the Post Office to grow
its business should also produce higher returns (and tax receipts) on a
sustainable long-term basis.
7.
To what extent is the Post Office a ‘socially responsible’
organisation. Justify your answer. Suggest one way in which the
Post Office could show itself to be more socially responsible.
The Post Office could be deemed to be socially responsible for some of the
following reasons:
Today it allows benefit payments to be paid into a bank or building society
account as well as providing cash over -the-counter at Post Office branches.
This provides consumer choice.
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The Post Office provides a universal service at a universal tariff, so no matter
where you live or where a letter is being sent it costs the same to post, there
is no geographical discrimination.
The government has recently put in place a Regulator as well as a consumer
representation organisation to manage and control the industry in a ‘fair’ way
to the benefit of the public.
A network of Post Offices (albeit a declining numbe r) is in place to allow
nationwide access to post office services.
Computerisation of Post Offices provides increased services to all its
customers the length and breadth of the nation. The ultimate aim is that if you
live in the Western Isles, for example, you still have access to global
services, can do banking etc. at your local sub -post office.
Examples of how it could show further social responsibility could include:
 Maximise the use of rail transport.
 Optimise delivery routes used for vehicles.
 Maximise the use of bicycles or other non-motorised machinery for
delivery purposes.
 Look at fuel economy of vehicles whenever possible.
 Promote efficiency in the use of diesel, petrol, gas, electricity, water and
other resources.
 Minimise waste generation and recycle waste wher ever possible.
 To buy, sell, stock or use as appropriate re -cycled products e.g. mail sacks
and stationery.
 Access points for sending mail e.g. pillar boxes and post offices – number,
type and distribution should be adequate and take account of the needs of
vulnerable users such as disabled persons.
 Postal Services Commission should encourage efficiency and economy by
postal operators, which in turn would provide a cost-effective service to
the public.
 Free services for blind and partially sighted (post in Braille and talking
books are heavier and therefore more costly to send).
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 Ensure that people in rural communities and people in deprived urban
neighbourhoods have convenient access to post offices.
 Ensure letters sent in response to the many children who write to Santa.
 Continued provision of the post bus service that benefits people in rural
communities.
8.
Identify one internal stakeholder in the Post Office and assess how
it may affect the operation of the business in the future.
There are three main internal stakeholders:
Employees
 The attitude of employees could have a large bearing on the level of
customer service provided.
 Industrial action could decrease the service provided to both businesses
and the public.
Managers
 If managers are poor at team-building and motivating their staff then this
will impact employees, which in turn will affect the business.
 Likewise, good management is likely to have positive effects on the
business.
 Managers with new ideas for business growth have the opportuni ty to
allow the company to expand.
Shareholders/owners
 In this case the Government is responsible for managing the Post Office on
behalf of its shareholders (currently the public).
 Legislation can affect the future operation of the business e.g. if all p ostal
operators had to comply with stringent environmental policies, or
employment policies changed, etc.
 Any change to the remit of the Regulator could impact the business e.g. if
licensing control changed.
 Changes to business taxes could affect the finances of the business.
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9.
The Post Office has been trying to change its organisational culture.
Analyse the effects that organisational culture can have on
managing change. Explain why you think the Post Office has had to
introduce a customer-oriented culture to cope with deregulation and
increased competition.
Organisational culture can have both a positive and negative impact on the
Change process. Some areas which can impact the change process include:
 The organisational structure of the company can o ften impact change e.g.
companies with very hierarchical structures may have to ‘flatten’ their
organisation to allow change to take place; too many layers are too
cumbersome. The existing structure may suit the existing culture but may
not be suitable once change has occurred.
 The style and leadership of the organisation may, or may not be suitable,
to support the company’s change process.
 The success or failure of past change programmes within the organisation
can affect how those driving, or those affected by, change will react (at
least initially).
 The balance of power at all levels of the organisation from individuals to
groups can impact the change process.
 An attitude of ‘We’ve always done it this way, why change now?’ is a
common reaction by staff when change is suggested. This can cause a
negative reaction to change.
Why has the Post Office introduced a customer -orientated culture ?
Survival – the Post Office is aware that with deregulation and competition,
consumers can ‘vote with their feet’ in the future and go elsewhere.
Growth plans – in order to grow the company within Europe and beyond, it
knows that its current level of customer service will be unacceptable to
European consumers.
Decreasing reputation has caused business impacts. Many companies have
changed suppliers for their parcels business as a result.
Competition – the advent of more competition Europe-wide means that
customers will have a choice of supplier and will not have to put up with the
service supplied by a monopolistic supplier like the Post Office.
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Regulation – the new Postal Services Commission will be setting standards
which will impact customer service e.g. 98% delivery of 1 st class letters to be
delivered on time. There will be financial penalties for non -compliance.
Consumer body – this new body will feed back input from domestic and
business customers on issues such as customer service. This feedback will be
publicised and, if negative, could cause embarrassment and decrease
business.
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CASE STUDY 4
Case Study 4 - The Body Shop
Read the following case study and answer the questions that follow.
The Body Shop operates in 49 countries, employing some 5,000 staff in over
1,700 shops. It consistently ranks among the world’s 30 most recognised
brand names. The company sources many of its ingredients directly from
producers in developing countries and is renowned for its independently
audited social and environmental practices and its efforts to create
sustainable local economies.
However, at the start of the new century, t he youthful vigour of its early days
had begun to ebb. The company had experienced a series of financial setbacks
and come under pressure from investors. Its share price slid from £2 in 1996
to below 80p although by 2001, it had recovered to £1.20. These difficulties
reflect the fact that The Body Shop has struggled to transform itself from an
entrepreneurial venture controlled by husband and wife team, Anita and
Gordon Roddick, into a professionally managed organisation.
The recent strategy to turn the business round includes:
 reviewing the multi-channel strategy
 bringing the USA operation back to profitability
 getting out of the manufacturing business
 hiring a new management team.
Multi-channel strategy
Initially, The Body Shop was primarily a retail operation and it expanded
rapidly round the world. In recent years it has found growth difficult to
achieve, although there are opportunities for expansion through larger stores,
secondary stores in local towns and other formats such as factory outlets,
station outlets and kiosks. However, in common with other retailers, The
Body Shop is experiencing significant increases in rent and rates across its
store portfolio. The company has realised that there are other opportunities
outside its retail base to achieve growth by the use of other sales channels
such as Body Shop Digital and Body Shop Direct.
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Body Shop Digital
The core market for The Body Shop has been teenagers and 20 -somethings
who are concerned about the environment. However, these groups have
moved on to a different obsession – the internet. ‘Our natural market loves
the internet’, observes Gordon Roddick, a Scot. ‘They are up for any kind of
innovation’. The company had to move fast – its young, style-conscious,
socially aware customers were a natural internet audience and, if The Body
Shop did not serve it on the web, then plenty of other companies would.
Think-natural.com was one British start-up looking to tap that market with a
range of natural beauty products and Clickmango.com another. Bi g medical
sites were also targeting the health and beauty-conscious young consumer.
Like most businesses, The Body Shop has created a website for its products.
This details the products it sells and tells people where the shops are. It also
provides links to other like-minded, socially-aware companies and
organisations such as Comic Relief and Amnesty International (where it has
helped in campaigning for human rights with an online petition ). Overall,
however, the site was little more than a corporate br ochure made from silicon
and pixels rather than ink and paper.
As a result, a new approach is to be introduced. A business called Body Shop
Digital is due to be launched in the UK in early 2002. It will act as a portal,
feeding customers through to a variety of complementary goods and services,
and will not just be an electronic shop selling the products of The Body Shop.
Body Shop Direct
In the past two years The Body Shop has recruited and trained 6,000
consultants in the UK to sell its products at pa rty-type events. Developing
Body Shop Direct as a complementary sales channel is an important element
in the UK’s growth strategy. Last year alone, in the UK, the Body Shop
Direct reached over 900,000 customers through 95,000 home parties. Such
has been its success that the company are starting to plan the international
development of Body Shop Direct. In this respect, the multi -channel strategy
has greatly contributed to raising the profile of the brand.
The Body Shop feels that such a multi-channel strategy will also benefit its
retail business as it will help to promote a more solid relationship with its
customers. Developing a strong internet presence and increasing brand
recognition through Body Shop Direct should both increase cu stomer loyalty
and broaden the customer base.
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The Body Shop USA
The growth in the company’s retail outlets included opening stores in the
USA, which is the world’s largest cosmetics market and, as such, offers
significant opportunities for growth. To begin with the company
concentrated on opening stores in urban centres. However, later on, it
decided to move into shopping centres. This proved less effective as it
provoked rival companies to set up. They used the distinctive concept
without bothering about ethical niceties and beat The Body Shop on price.
The Body Shop’s expansion stalled and profits fell. However, growth is now
back on the agenda, with the USA achieving an operating profit of £3.1
million in 2000 despite losses of £2.6 million the previous year. The stra tegy
for the coming year is to build on the progress achieved last year by reducing
the company’s operating cost base and increasing sales trends.
Manufacturing and supply
The Body Shop is still committed to continuing the growth of its Community
Trade Programme – a core aspect of its Supply strategy. The Body Shop
believes in non-exploitation of Third World workers and pays them wages
comparable to those earned by British workers. During 1999, 27 new products
were launched containing ingredients sourced f rom Community Trade
suppliers. The Body Shop trades with 36 supplier groups in 23 countries;
examples include loofahs from South America, massage rollers from India
and packaging from Nepal.
In order to ensure that its ethical standards were upheld, the c ompany tried to
control everything in which it was involved. As a result, it ended up in the
manufacturing business when it should have been focusing totally on
retailing. To regain direction and focus, it has sold its factory in
Littlehampton and they have formed partnerships with specialist producers
such as Soapworks in Glasgow and COSi in Littlehampton to meet its
manufacturing requirements.
Management
Anita Roddick says that she is an ideas person who ‘couldn’t manage her way
out of a paper bag. I bounce about breaking the rules and pushing back the
boundaries of possibility’. She describes her management style as ‘loosely
structured, imaginative and improvisational’. She has always encouraged
everyone to question what they do and how they do it. D iscussion is actively
encouraged.
‘I tend to measure our employees by how many questions they ask. My staff
do not go home dreaming of moisture creams. They go home absolutely
riveted when they come back from a project in Bosnia or Kosovo. The
experience changes their values. When you have a process of education that
goes on in a company – not educating to sell, but bigger education – people
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don’t want to leave you. There’s nothing more joyous in retailing (which is a
freakingly dull industry), than to engage in the community, to do
volunteerism on company time. What’s the benefit? There’s a passion that
persuades, that binds both customers and employees to you, that sparks staff
innovation’, she says.
Since the profit slump four years ago there have been management changes
that have seen Anita Roddick move into a co -chair role with her husband,
while brand-builder Patrick Gournay was installed as chief executive. The
company has completed the recruitment of an Executive management team,
both at the centre and in the four new regions. The team is now well
established and working cohesively to develop and manage their global
business in the new regions – UK & Ireland, the Americas, Europe & Middle
East and Asia Pacific.
‘When you fail on a financial level it’s because your management or your
products aren’t right. It has nothing to do with ethical behaviour’, says Anita
Roddick. The Body Shop has delivered without forgetting that ‘investors are
just one of our stakeholders’, she says. In the most conclus ive sign that
radical surgery is paying off, the company has forecast profits of £40m for
2000 against £28.8m in 1999.
Sources: ‘MICE in the Body Shop’, Matthew Lynn, Management Today, August
2000; ‘The radical hippy goes hi-tech quite naturally’, Mark Williamson, Business
on Sunday, 9 June 2000; www.thebodyshop.com
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Questions
1.
Select one stakeholder in The Body Shop. Analyse the way in which it
can influence the operation of the company.
2.
The Body Shop has a policy of using small local suppliers throughout
the world rather than investing in FDI. Discuss the benefits of this
policy to host countries who supply many of The Body Shop’s products.
3.
When the company experienced financial problems four years ago, it
was forced to make changes. Explain the driving forces for change, the
restraining forces against change and the assets for change. Illustrate
your explanation with a force field diagram.
4.
Explain how Patrick Gournay has, or could, apply each of the follo wing
to his role of Chief Executive of The Body Shop:
Planning, organising, commanding, co-ordinating, controlling
5.
The Body Shop has started to make use of e-commerce. Discuss what
benefits this gives the company.
6.
The Body Shop could be described as a ‘socially responsible’ company.
Assess the benefits and drawbacks to the company of pursuing this
objective.
7.
Explain the style of leadership adopted by Anita Roddick. Discuss the
advantages and disadvantages to The Body Shop of her style of
leadership.
8.
The Body Shop’s UK & Ireland region sells more products than the
company’s other regions. The company has retail outlets in many other
member countries of the EU. Analyse the likely effects on The Body
Shop if the UK were to adopt the euro.
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Suggested solutions
1.
2.
Select one stakeholder in The Body Shop. Analyse the way in which
it can influence the operation of the company.
Stakeholder
Example of method of influence
Employees
Strike action
Franchisees
Refusal to open late or on a Sunday
Customers
Decision to buy or not buy their products
Managers
Day-to-day decision-making powers
Suppliers
Change discount levels
Shareholders
Voting rights, sell shares
Government
Legislation e.g. health & safety, consumer
protection
The Body Shop has a policy of using small local suppliers
throughout the world rather than investing in FDI. Discuss the
benefits of this policy to host countries who supply many of The
Body Shop’s products.
 No exploitation of cheap labour and resources
 Less likelihood of transfer costing, and money movement being used
to the detriment of the host country
 Use of local labour increases local employment
 Tax on host company profits means revenue source to the host
government
 Demonstrates social responsibility to host country
 Not competing with domestic companies
 GNP of host country increases and so should standard of living
 Balance of payments improvements.
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CASE STUDY 4
3.
When the company experienced financial problems four years ago,
it was forced to make changes. Explain the driving forces for
change, the restraining forces against change and the assets for
change. Illustrate your explanation with a force field diagram.
Drivers
Shareholders due to poor financial performance
Success of retail competition worldwide, but especially USA
Customers going elsewhere due to internet competition e.g. Thinknatural.com
Increase in rent and rates costs, making retail outlets less profitable
Size of USA market
Cost of manufacturing
Resistors
Existing culture, which wanted to control ALL aspects of the busine ss
Fear of change at some levels of the organisation is likely to have been a
consideration
Need for internet investment and investment in Body Shop Direct
Never having laid off staff e.g. manufacturing plant cuts
Assets
Valuable brand name
Years of experience in Europe
Senior management willing to make changes e.g. Roddick stepping down as
Chief Executive
Existing investment in manufacturing plant , which could be sold to improve
the balance sheet
Customer loyalty
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Drivers
Resistors
Control Culture
Shareholders
Manuf costs
Making staff redundant
USA market
WWW
Competition
Fear of Change
Retail costs
Retail
competition
Investment
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CASE STUDY 4
4.
Explain how Patrick Gournay has or could apply each of the
following to his role of Chief Executive of The Body Shop:
Planning, organising, commanding, co -ordinating, controlling
Planning
Organising
–
–
Commanding
–
Co-ordinating –
Controlling
–
4.
he has defined five elements of strategy to be followed
new management structure, and re-organisation into four
regions
selling manufacturing site in Littlehampton, reducing
USA operating costs
training Body Shop Direct consultants to deliver service
monitoring quarterly performance in USA (plann ed vs
actual)
The Body Shop has started to make use of e-commerce. Discuss
what benefits this gives the company




Internet shop will lower cost of sales
Attacks competitive companies endeavouring to steal marketshare
Enforces social responsibility e.g. Co mic Relief
Future plans to tie with complementary products and companies, taps
a larger market
 Internet provides global reach
5.
The Body Shop could be described as a ‘socially responsible’
company. Assess the benefits and drawbacks to the company of
pursuing this objective.
Benefits could include:
 Social responsibility is a positive message to existing and new consumers
who may be encouraged to buy their products because the company does
show social responsibility
 Increased employee motivation
 Ability to attract and retain good staff
Drawbacks could include:
 Costs to the business are greater than simply sourcing the cheapest
supplier of goods.
 Business practices company-wide have to be continually reviewed to
ensure that social responsibility can be demon strated – this is added cost to
the business.
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 If a business opportunity has to be declined due to an ethical problem, then
this could impact the ‘bottom line’.
 The above costs could provide a cause for concern for shareholders with a
profit motivation.
6.
Explain the style of leadership adopted by Anita Roddick. Discuss
the advantages and disadvantages to The Body Shop of her style of
leadership.
Anita Roddick shows a ‘loosely structured, collaborative and imaginative’
leadership style, which is most definitely democratic – encouraging the
asking of questions by employees and general discussion.
Advantages of such a style include:
 Valuing input and feedback from employees increases employee
motivation – this positive attitude passes on to the customer
 Increases job satisfaction e.g. training does not just involve reading a
training manual or sitting in a classroom for a day, but possibly being
involved in a Third World project to understand the worth of using labour
and supplies from these countries
 This in turn makes employees more socially responsible and underlines
company culture
 Utilises employees’ knowledge and experience to the benefit of the Body
Shop
Disadvantages of such a style include:
 Some employees may be unable to work without close supervi sion
 Could cause dissatisfaction if employees are encouraged to offer feedback
about day-to-day issues and not strategic ones
 Decision-making process could be lengthy if too many people are
consulted
 Leaders need to have good communication skills to operat e in this
democratic way, some leaders are good at seeing the ‘big picture’, having
vision etc. but not particularly good at employee communications
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7.
The Body Shop’s UK & Ireland region sells more products than the
company’s other regions. The company has retail outlets in many
other member countries of the EU.
Analyse the likely effects on The Body Shop if the UK were to adopt
the euro.
 Reduced exchange and transaction costs
 Fewer people required in positions of Finance within The Body Shop e.g.
accounting department could be smaller
 Pricing would need to be displayed everywhere in euros, advertising and
marketing material would need to change and there would be a cost implication of doing this
 Consumers would expect the same price to be charged for t he same
product in all countries committed to the euro. If this strategy was
followed what would be the impact on the company?
 Costs of updating or installing new computer software in all areas of the
business that used currency e.g. sales invoices, end o f year P&L etc.
 Need to prepare both suppliers and customers for the change of currency
 Reduced risk from currency fluctuations and potential loss of earnings
from international trade
 With transparent prices, The Body Shop could improve competitiveness by
seeking low cost supplies
 A stable currency makes exporting easier
 It is argued that ‘exchange rate stability leads to sustained long -run
competitive advantage for firms located within the currency area (over
those who are not)’. Certainly, where exchange rates vary, interest rates
may also vary, and as a result, business is less likely to plan or invest.
Currency price uncertainty and a perception of exchange rate instability
engenders a short-term outlook and a lack of business confidence .
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