ACCA F1 P3 Charles Handy Culture Types for Business Structures Influences.

ACCA F1, P3 Charles Handing Cultural Types

Charles Handy identifies the four culture types to explain how different cultures affect the businesses and organizational structures. He assigned each cultural type a name of Greek God. It does not influence the understanding of the cultural types. It is only written for your knowledge here.
Power culture (Zeus)
In power culture importance is given to person having power to take decisions. Power culture is like a dictatorship in which nearly no rules and regulation exists other than made by a dictator.
In power culture, decisions are taken on almost centralized basis and swiftly without involving others into discussion. Individual working in that culture cannot question the validity of decisions taken by person having the power. Rationality of decisions is just limited to the knowledge of the powerful person(s).
Power culture is usually associated with entrepreneurial business structure.
Commonly power is derived from legal ownership of the business. Example is corner retail shops.
Role Culture (Apollo)
In role culture importance is given to the position (role) of a person in the organizational hierarchy. However, the persons themselves are not important. No matter how specialist knowledge and experience they possess they cannot influence the decision outside their scope of role and responsibilities.
Roles are formally defined with the help of job descriptions and organizational charts. Business organizations have clear policies, procedures and authority/responsibility defined. Role culture is associated with Bureaucratic organizational structure.
Example is family run businesses where ethical standards do not permit to question rationality of decisions taken by senior family members.
Read more charles handy cultural types
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Tags: ACCA F1, ACCA P3, ACCA F1 Notes, ACCA P3 Notes, ACCA F1 Lectures, ACCA P3 Lectures

Characteristics of Good Quality Information (ACCURATE).

Characteristics of good quality information can be defined as an acronym ACCURATE. These characteristics are interrelated; focus on one automatically leads to focus on other.

Accurate

Information should be fair and free from bias. It should not have any arithmetical and grammatical errors. Information comes directly or in written form likely to be more reliable than it comes from indirectly (from hands to hands) or verbally which can be later retracted.

Complete

Accuracy of information is just not enough. It should also be complete which means facts and figures should not be missing or concealed. Telling the truth but not wholly is of no use.

Cost-beneficial

Information should be analysed for its benefits against the cost of obtaining it. It business context, it is not worthwhile to spend money on information that even cannot recover its costs leading to loss each time that information is obtained. In other contexts, such as hospitals it would be useful to get information even it has no financial benefits due to the nature of the business and expectations of society from it.

User-targeted

Information should be communicated in the style, format, detail and complexity which address the needs of users of the information. Example senior managers need brief reports which enable them to understand the position and performance of the business at a glance, while operational managers need detailed information which enable them to make day to day decisions.

Relevant

Information should be communicated to the right person. It means person which has some control over decisions expected to come out from obtaining the information.

Authoritative

Information should come from reliable source. It depends on qualifications and experience and past performance of the person communicating the information.

Timely

Information should be communicated in time so that receiver of the information has enough time to decide appropriate actions based on the information received. Information which communicates details of the past events earlier in time is of less importance than recently issued information like newspapers. What is timely information depends on situation to situation. Selection of appropriate channel of communication is key skill to achieve.

Easy to Use

Information should be understandable to the users. Style, sentence structure and jargons should be used keeping the receiver in mind. If report is targeted to new-comer in the field, then it should explain technical jargons used in the report.

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Types of Business Organizational Structures

 
1. Entrepreneurial Structures.
   Entrepreneurial structure is the most basic form of business structure. It is a feature of small and growing business. It composed of the owner and its workers. Most business initially starts with this business structure, subsequently as business grows they changed into functional and divisional structures. This type of business structure can most seen in retail shops which require day to day attention of the owner cum manager.
   
   
2. Functional Structures.
   Functional structures is next to entrepreneurial structure regarding its complexity. Most medium to large sized business have this form of business structure in practice. It analyze all business processes into separate activities or tasks. Each function is responsible for performing these task, allocated based on expertise of personnel in that function to perform such . It allows all the similar work is gathered into one area of the business. It eliminates duplication of tasks and encourages economies of scale. Example purchasing computer by purchase department on centralized basis, this would allow them to gain bulk purchase discounts which would otherwise be not possible if every person is ordering computers separately.
   
   
3. Divisional Structures.
   Divisional structures is another form of business structure. It is found mostly in larger organizations. Divisional structure is often used to combination with functional structures. As the business grows in size it begin to offer its goods or service in geographical locations and deals in range of goods and services. Consequently, business begin to operate in Divisions by product, customer group and geo-location. Manager is appointed to manage the business for each product or geo-location to manage the profitability of product or operate the business in particular location taking into account culture and risk of that location.
   
   
   Each division has its own functional departments. They account for its own cost and earns revenue within authority granted to them. You can imagine them just like separate business and each separate businesses are united to form large business unit.
   
   
4. Matrix Structures.
   Matrix structures are the most complicated business structures and most difficult to manage. Matrix structures are feature of large multi-national companies who have expertise and resources to manage such structures. Some industries and innovative fields in which products are non-repetitive and technical in nature uses this type of business structure like construction business in which each building in different from each other. Matrix structure is a combination of functional and divisional structure. In this business structure each employee has two bosses, one is the functional manager and the each is product or geo-location wise divisional manager. Example employee in the production department is responsible to production manager (Civil engineer) for production scheduling and also responsible to product manager (Sale manager) to report on likely completion date of the product (building).
     
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Roles of business Analysts in Modern Business Environment.

1. Linking IT Department.
   Business analyst provides a link between information technology (IT) and business. It defines requirement of business to information technology department and helps in integration of the work of IT department and performs acceptance testing of the services delivered by information technology department on behalf of the business.
   
   
2. Strategic Analysis.
   Business analyst indentifies the changes in external environment affecting the business performance. They recommends strategies to respond to these changes. Business analyst ensures the achievement the business objectives by evaluating variables affecting the business performance and recommending appropriate actions. They do so by performing SWOT , PESTEL analysis and other frameworks so that resource can be allocated wisely, opportunities can be exploited and threat can be avoided.
   
   
3. Business Process Designing.
   Business analyst reviews the existing business processes and recommends changes in process where there is a chances of new improvement. They also indentifies new activities and eliminates existing activities according to their value adding ability to the business from the value chain.
   
   
4. Business Case Development.
   Business analyst evaluates the requirements proposed by various departments for its benefits to the business. It include various projects such as Quality, Software development and many more. They performs cost/benefit analysis and risk analysis of various proposals and evaluates how these proposal can lead to strategic success of the business.
   
   
5. Markets and Products Portfolio Analysis.
   Business analyst evaluates existing markets and products for its appropriateness in achieving business objectives. They also evaluates new strategies proposed by board and senior managers of its success in his business objectives. They evaluates and recommends pricing strategies that would be useful considering the external environment.
   
   
6. Stakeholder Management.
   Business analyst identifies the interest of various stakeholders involving in the business and how each one can affect business performance. Business analyst recommends appropriate strategies to keep them satisfied so that business can operate without any disruption.
   
   
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Types of Market Research Methodologies for Businesses.

There are two popular types of market research business can carryout to evaluate opportunities and threats, entering new markets, building new products, before planning changes in the business processes and setting prices of the products.


1. Primary Market Research.
   Primary market research is a quantitative market research. Research can be done just sitting in the office it is also known as desk research.  It gathers data from existing publications from various sources. It includes news papers, monetary and fiscal policies, statistics on population, employment rate and wages, relevant legislations affecting the business and so on.
   
   
   These are readily available cheap source of information. Integrity of information depends on source from which it is extracted. It can be used initial market research tool and use as screening device. Proposals which are found attractive can be further analyzed for qualitative information.
   
   
2. Secondary Market Research.
   Secondary market research is qualitative market research. Research is performed by doing outdoor surveys, interviewing public, contacting customers through e-mail and visiting customers place. Data is gathered from wide range of sources are often subjective based on individual opinion and in narrative form making comparing and differentiating difficult. Market research tool need to be employed to convert qualitative data into qualitative data, such as ranking scales, rating systems, MCQs and smileys can be provide to capture the emotions etc.
   
   
   This method of market research is relatively costly and time consuming. Its provides fresh information, fills information gap not obtainable from quantitative source and direct from the source for whom market research is carried out.
   
   
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Role or Responsibilities of Project Manager for Project management.

1. Outline Planning.
It is a skim planning of the project it involves selection of project sponsor and project manager. Identifying stakeholders, SWOT analysis, cost/benefit analysis, feasibility, objectives, time, cost and scope of the project. It contains all the planning necessary to obtain project approval.


2. Detailed Planning.
Establishing role and responsibilities, control procedures, risks, assumptions, constraints, key activities, interdependencies of activities, resources required.


3. Obtaining Resources.
Majority of the project resources are already available and procured. But it is possible to anticipate all the required resources. Project manager must ensure that resource are available when they are needed to complete the project within time and cost without compromising on scope and quality.


4. Teambuilding.
Project manager should manage conflicts, motivate and get the work done by using his/her leadership skills.


5. Communication.
Project manager should facilitate communication among team members and able to communicate his/her messages in appropriate format in a timely manner. Project manager should be available for team members to whenever problems arises and provide guidance to resolve them.


6. Coordinating.
Project manager should manage activities to ensure that they are done in harmony and as planned. Each activity should be completed on time so that subsequent activities can be carried out.


7. Monitoring.
Project manager should establish formal procedures for monitoring and controlling project performance. Control procedure should be measureable so that it can be compared with initial planning to keep the project on track and assist in evaluation of project success.


8. Problem Solving.
Project manager should deal with problem not initially indentified and arises during the course of the  Project. Projects are usually involves non routine activities which can not anticipated so project manager should be able to deal with unforeseen problems on unplanned basis.


9. Quality control.
Project manager should understand the standard of quality required by the project. Quality is the major determinant of level of project success. Project should try to achieve required quality within budget time and cost or make best trade-off to complete project on time and cost.


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Project Initiation Document (PID) Contents for Project Management.

 

WHAT IS PROJECT INITIATION DOCUMENT (PID)?

Project initiation document is important point in project management. It gathers information from other documents like risk register, business case, communication plan, terms of reference and project plan etc. it is detailed action plan to successfully complete the project. It gives guidance to team workers and customers (internal or external) on what is expected of the project and how the expectation can be satisfied. It is not one time activity performed before starting the project it should be continuously adjusted to reflect the changes in key variables and new information obtained. Normally, project initiation document contains information on the following, but there is no precise format and contents of the project initiation document and it depends on project to project.

 

CONTENTS OF PROJECT INITIATION DOCUMENTS (PID).

• Objectives.

Specific and measurable business objectives are defined. Objectives can be defined in terms of benefits expected on completion of the project to business executing the project. Performance measures designed to measure the achievement of objectives.

 

• Scope.

Areas and stakeholders affected by the project. Number and type of activities needed to successfully achieve the business objective. Defining the scope make clear to the team workers what activities are part of their project and what are activities are beyond it. Thus helps reduce misunderstandings which can be costly and delay the project delivery.

 

• Business Case.

Business justification of undertaking a project. Cost benefit analysis are performed and projects monitored for its benefits, costs and feasibility to decide continue or abandon the project. Control procedures are established to monitor costs and the benefits like to receive from the project. Other factor that can change the project benefits are change in strategic planning and business objectives so the project no longer reflect what the business needs to achieve.

 

• Project Deliverables.

Deliverables are tangible product arises at the completion project in the form of report and good or services. Quality standards are established to make ensure project activities comply with these standards and activities are evaluated for quality.

 

• Resources.

Resources are the economic factors necessary to perform the project. Resources needed could be measured in terms of material, person, equipments and finance. Identification of resources enables the project manager to ascertain the feasibility of the project in delivering business benefits.

 

• Roles & Responsibilities.

Each team worker is assigned a role suitable to his capabilities and held responsible for his performance. It ensures that no area of project is neglected and team workers are aware of the contribution expected of them. In the event of problem person expected to solve his problem can be identified and information can be communicated to the targeted person.

 

Project sponsor, project manager, team workers across functional departments are identified. Projects organization structure is created with communication lines developed to communicate issues and whom to report on their work done. Contact information of each participant is recorded.

 

• Risks & Assumptions.

All the anticipated risks are analyze for its impact and likelihood and assumptions are made in the absent of information necessary for planning or uncertainty exists. It ensures the fluent operation of the project. Risk strategies are decided like drawing a contingency plan, establishing control procedures. Risk & assumptions are actively reviewed and amended in the light of new information available as project progresses.

 

• Constraints.

Variable affecting the projects are analyzed for it scarcity so that variables such as time, cost and quality, limiting the project scope are closely monitored and effectively utilized to achieve project objectives. Changes in constraints are actively reviewed and amended in the light of changes in objectives, scope and deliverables.

 

• Project Schedule.

Dates of meetings and stages of project deliverables and important activities are decided. In addition timing of each activity and their dependencies on other activities are decided. Whether activities should be performed side by side or one after one and order in which these activities are performed. Control procedures are established to monitoring the project performance and amendments are made throughout its life where necessary.

 

 

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Project Management Skills For Project Management Success.

• Leadership Skills.

Project management involves dealing wide variety of people from different backgrounds and functional departments. Project manager have to motivate, direct and control team workers get things done.

 

• Political Skills.

Project manager should be flexible enough to consider other view points, take criticisms constructively, negotiate and maintain good relationships with team worker and stakeholders and adapt to changing circumstances.

 

• Communication skills.

Project manager is center of information. Project manager needs to be able choose appropriate medium to communicate information in a timely manner.

 

• Change Management skills.

Most of the projects aim to change existing processes. Project manager should be able to identify the existing culture and take actions to implement required cultural changes.

 

• Knowledge Management.

Ability to preserve knowledge gained from the project, so that it can be applied to subsequent projects. Knowledge are treated as an asset.

 

• Financial Skills

Project managers should be able to understand the financial reports and budgeting information to complete the project within cost limits and ensure cost does not exceeds benefits.

 

• Information Technology Skills.

Project manager needs to know software applications necessary to prepare Gantt chart. Project team structure diagrams and establish relationships between various activities.

 

• Risk Management Skills.

Ability to apply risk management frameworks, analyze risks and uncertainties and deciding appropriate strategies to mitigate risks. Managing risk ensures the project completion without any distractions.

 

• Time Management Skills.

Time is the key variable in project management. Project needs to be completed on time if benefits is to be derived from the projects. Delay in project delivery can lead to financial and reputation loss resulting in loss of subsequent work from clients.

 

• Conflict Management Skills.

Project receives inputs from the team workers having their personal goals and desires different from each team worker and project objective. Project manager needs to ensure that team worker direct their effort to project objectives.

 

• Stakeholder Management Skills.

Ability to indentify key stakeholders that can impede project performance and managing stakeholders having opposite views and reconciling the differences.

 

• Procurement Skills.

Project manager may needs to procure material relevant to project. He should be able to decide what, how much and when to order materials, so that materials are available when it is needed and with in budget.

 

• Legal Knowledge.

Project manager needs ensure legitimacy of activities and deliverables of the project. Project manager may have adhere to minimum quality standard and safety procedures to comply with in achieving project deliverables.

 

• Decision Making Skills.

Projects are associated with activities having non routine activities. Decision needs to be taken in exceptional circumstances on ad hoc basis.

Project Initiation Document: Benefits,Purpose,Uses.

 

• Objectives of the project are determined. These objectives are the same as define in business case document. This can help team workers understand what kind of benefits are expected from their work, so that they can direct their effort towards these objectives.

 

• Scope of the project are determined. This gives details on business process affect, degree of change, stages of project completion and activities need to be performed. It helps in the identification of key resources, time, quality and skills need to produce deliverables of the project to realize business benefits described in the form of objective.

 

• Show the viability of the project and its benefits to the business to secure the necessary resources or commitment from project sponsors or steering committee.It ensures the project are undertaken for a reason and it will make best use of resources against other available options. It also makes sure that project will contribute to strategic success.

 

• It provides benchmarking against which project performance can be measured, deviations identified and corrective actions can be taken to successfully complete the project within required time and cost. Original version of project initiation document needs is secured to evaluate the project performance at closing stage.

 

• It communicates the team workers and stakeholders what kind of performance is expected in advance, so that quality expected to be delivered by the project can be maintained.

 

• Constraints affecting project are determined resulting in better resource allocation. emphasis can be given over variables such as time, quality and cost to exercise close control and activities can be scheduled overcome these constraints.

 

• Risks and challenges faced by the project are identified, so that resource and attention can be direct with respect to their expected value (average financial impact). Being aware of the risk and challenges in advance helps in controlling project performance.

 

• Roles & responsibilities are clearly identified. Each team worker is assigned suitable roles and held responsible for their actions. So there will no question arises on who will do what. It ensures that no area of project left undefined for responsibility.

 

• Stakeholders are identified which can support or resist the project completion. Supporters can provide inputs to the project in terms of finance and knowledge, while resistance can be overcome by communicating the benefits of project to them. Reports can be send on project progress.

 

• It provides a platform where all information needs to be communicated to team worker necessary to complete the project successfully and changes required to the project are documented to ensure that team worker gets the up to date information on all areas of project management.

 

 

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What’s Project Management Methodology, Activities and Documents?

 

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What’s Project Management Methodology, Activities and Documents?

Stages	Activities	Documents
Initiating a project	Project is assigned to project manager by project sponsor or steering committee. Project manager is appointed and team workers are selected from various departments. Project manager gathers details of the projects. Project sponsor approves the project based on details provided by project managers.	Planning Brief.  It provides information on suitability, acceptability and feasibility of the project to the business.
Planning a project	define the objectives of the project. What the project needs to achieve to provide benefits to the business defines the scope of the project. Scope means giving description of project in terms areas affect, speed and extent of work required to complete of project. Project deliverables (desired benefits) are set. Project interdependencies (projects depending on each other) are indentified. Resources are secured necessary for successful completion of the project. Key variables such as cost, time, quality and can be others are identified. Activities necessary to complete project are determined and scheduled. Roles & responsibilities are established. Each activities related to project are assigned to individual or team having suitable skill to undertaken them.	Business Case(extension of planning brief). It defines benefits of the project to the business, risk and uncertainty, assumptions and constraints. Gantt Chart. It help in project scheduling. It considers two variable time and activities. Project Initiation Document(PID). It is the formal detail document contains planning information extracted from other sources such as business case, communication planning, risk register, Gantt chart etc. It contains all information necessary for execution of the project.
Executing a project	Project plan now implemented. Project may be revised to due change in circumstances or requirement of the project in the light of new information available. Monitoring also take place concurrently throughout the execution stage, deviations from schedule in determined and corrective action are taken to finish the project within time, cost and quality. Reporting is essential so that progress of the project can be determined and activities can be performed in harmony toward the project objectives within time and cost. Stakeholders (sponsors, team workers, customers) needs to be informed to gain their support.	Reports. It can take many form (electronic or manual) and formats (formal or informal)according to the stakeholders and time limits.
Building on project. (combining the project deliverables with business processes).	Testing of project against acceptability from the eyes of client (internal or external) for quality Training are provided where necessary to equip those who are expected to use the project deliverables. Apply the project outcome in business context. So that benefits can flow to the business.
Monitoring and controlling project	Monitoring is explained with executing a project. Some text books describe monitoring separately while others are not.	Reports
Closing a project	Evaluating the success of the project by comparing the project benefits expected with actual benefits achieved. Documenting any skill learned from the project. Decommissioning resources engaged in the project to their respective places or where they are needed. Archiving project planning documents for future use. Reviewing performances of team workers for their contribution in project success and for rewarding them. Celebration (optional)

 

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Project Initiation Document: Benefits,Purpose,Uses.

 

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What is Mintzbergs Organizational Structure?

Mintzberg, proposed that traditionally organizations (profit making or not for profit) can be divided into five components. In practice organizational structure may differ from proposed model. Factors influencing organizational structure are industry norms,  size, experience, culture, external forces (competition, inflation, minimum wage legislation etc). Components identified by Mintzberg is useful for understanding the  workflow of organizations.

Strategic Apex.

Strategic  apex is the most senior level in the organization. Management working at this level is referred as board of Directors (chairman, CEO, executes and non executive directors). They set the objectives (increase sales by 10% in one year) and strategic direction (new product and markets developments) of the organization. They take major investing (takeovers) and financing (Shares issue)decisions. They are not involved in day to day operations of the business. They do not deal with customers and suppliers except in exceptional cases (dealing with complaints). They represent the organizational face to external stakeholders (person have interest in the organization like government). Integrity of organization can be judged by integrity of its board of directors.

Middle Line.

Middle line managers interprets objectives and strategies of the strategic level management into feasible plans and standards to get the work done through operational managers (see below). They set budget, receives reports from management accountants, monitors performances and take corrective actions where necessary. They often take investing (purchase an equipment) and financing (Trade payable and overdraft management) decision to the extent of authority given by strategic level management. They synchronize works of individual departments so that all departments works in single direction towards the achievement of organizational objectives. Making 20000 units of a product by production department does not help achieve organizational objectives if sales department can not sell them.

Operational Core.

Operational core manager often referred to as operational managers are involved in day to day running of the organizations. They are the personnel who actually achieves organizational objectives under the guidance of senior managers. They deals with external stakeholder (Customers and suppliers etc). They are responsible for quality and efficiency of the organizational results. They provide important information in deciding strategic directions and budgeting by senior managers, as they now better what is practicable due their operational experience.

Technostructure.

Personnel work in technostructure are employees and managers just in the same way as chain command runs from strategic apex to operational core. Difference is they do not involved in any revenue generating or core (for which organization exists) activity. They only assist managers at all levels performing core activities to perform it effectively and efficiently and report whenever corrective actions needs to be taken to achieve the performance targets and objectives. What activity or functional department is considered under technostructure depends on industry like in banking sector accounting is considered a core activity, while in supermarket accounting is optional activity because supermarket will not closedown if accountants get absent, they just provides information on inventory, debtors and creditors information.

Support Staff.

Support staff is of least importance to the organization as their absence does not directly affects the performance of organization. Organization still spends on supporting activities because it provides good working environment and facilities (peon) to core employees to prevent down time. Departments like canteen, cleaning and maintenance comes under this heading. As like technostructure, what is considered supporting activities depends on the industry.

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What is mission, goals, Objectives, Strategy and Budgets purposes?

Business Documents	details	Duration	Nature	Examples	Origin
Mission or vision statement	Sets purpose, stakeholders, culture and ethical values. Frame work for other documents.	Unlimited	Narrative	Mission of ACCA is to promote Accountancy profession and safe guard its members interest and society at large. The way exams are taken reflects culture and ethics like invigilator uniforms and enforce security in the premises.	Top level like board of directors.
Goal	Sets direction. Motivating.	Unlimited	Narrative	Goal is the dream comes in the mind of the entrepreneur like "I want to be the best accountant in the world"	Dream of organizational leader such as CEO.
Objective	Sets future position & Practicable based on business position in the macro environment: PESTEL	Long term normally 1 to 5 yrs.	Specific Measureable Attainable Relevant Timely	Objectives are rational decisions like "I have to pass two per session". This is set after taking account for various factors like time available, energy limitations, IQ levels, money to pay fees etc.	Top level managers aware of external influence affecting the business.
Strategy	Way to achieve future position. Strategy is the thoroughly considered option among various alternatives based on  SWOT analysis	Initially equal to objectives. Subsequently revised to due to changing conditions.	Narrative.	There are following options available. Option 1. distance learning. Option 2. Go to tuition provider. Option 3. Study with other students. Strategy I chose is distance learning (option 1) based on my SWOT analysis.	Top level may be same as those involved in objectives setting.
Budget	Breaks strategy into small bits of targets. It identifies and allocates resources and challenges to implement the strategy.	Normally 1 yr May be made quarterly.	Quantitative financial data.	Amount of fees I need to pay and its time. Exam dates of papers chosen. Cost of learning material to buy. Time needed to read the material. Setbacks likely to take time due to illness, traditional occasions.	Top level by imposing the budget. Participation of operational managers. Negotiating with low-level managers.

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Michael Porter's five forces Model for Competitive Position of Business

 

 

Michael Porter's five forces model is used in assessment of competitive position of the business in  macro environment. Porter has identified five positions which give competitive benefit and limitations to businesses. There are five  interrelated factors.

 

• Bargaining Position of Suppliers.

  Bargaining position of suppliers can be assessed in terms of their size relative to the business. Availability of raw materials and services used by the businesses, shortage of raw material and services to the business gives suppliers strong bargaining position. Competition among suppliers also influence their bargaining positions. If competition is fierce among suppliers than business can negotiate discount with suppliers more easily.

   

• Bargaining Position of Customers.

  Bargaining position of customers can be assessed in terms of their size. Large customers can invite tenders so that they can purchase from the business offering lowest prices and favorable terms like credit period and after sale services. Competition among businesses gives considerable benefits to customers. If business is providing some unique product like blue diamonds which are few in the world, found in south Africa, than customers bargaining position is relatively weak.

   

• Competition and Rivalry.

  Competition and rivalry leads to increase in costs for the business as more marketing expenditure will be required to create brand loyalty and business reputation. Prices may have to be decreased to maintain and  increase market share. Research and development expenditure have to be increased to devised new products to cope with actions taken by competitors. Competition and rivalry also forces business to work efficiently and provide better quality product to obtain an edge over competitors. Managers will be forced to unnecessary costs like wastage and idle time to increase their PRP (profit related pay) because profit making through increase prices may not be possible.

   

• Barriers to Entry.

  Barriers to entry can be assessed in terms of licensing requirement by the law and initial capital expenditure required to initiate the business. Some businesses like telecommunication requires both licensing and capital expenditure to install communication networks. These thing provides deterrent to businesses specially small business which do not have know how of legal requirement and money to invest in such resources. Fierce competition may also act as barrier to entry because the potential business find it difficult to create market share to achieve sales growth.

   

• Threats from Substitute Products.

  Threats from substitute products can be judged in terms of number of alternative products that customer can use instead of using existing product. Like glass mugs and steel mugs if glass mugs are getting higher in prices than customers can used steel mugs. Another thing to consider is switching cost of the product to the customer. Some products are like above can be easily switched but some products which require training and have lack of resale value are difficult to switch. Ex, if buses fare increases it will be difficult for travelers to switch to different mode of transport like purchasing their own vehicle because it involves substantial invest which everyone cannot afford. if electricity gets expensive, customer normally have no alternative but to reduce electricity consumption.

   

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• What is Michael Porter’s Generic Strategies for Business Success?
• What is Michael Porter’s Diamond Model for Competitive Advantage of Business?

 

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