Management Theory and Environmental Forces - Essay Example

Management Theory and Environmental Forces Term Project "How does Value Based Management contribute to wealth creation of an organisation?" Value Based Management In the current scenario the management approach is continuously reforming to improve the overall performance of organisations this includes ‘uninterrupted improvement’, ‘total quality management’, ‘empowerment’, ‘reengineering’, ‘team building’ among the others. More to the point, these approaches sometime prove to be successful and sometimes fail to provide significant results as anticipated. In most of the cases the noteworthy reason behind the failure is the lack of proper alignment of the approach with the ultimate goal of creating the value (Koller, 1994). Value base management helps to overcome the problems through providing a precise and explicit metric to create value. Thus, the approach of value base management is centred on the principle that how organisations utilize its major strategies and key decisions through the alignment of the aspiration, management process and analytical techniques towards creating the value (Young & OByrne, 2000) Literature Review Need for Value Based Management in an Organisation Bryan & Joyce (2007) have argued that in the 21st century organisational structure is based on the mutual interest of the various members, so that people work together in a coordinated manner (Bryan & Joyce, 2007). An organisation needs to work effectively and provide significant value to various stakeholders. Brandenburger & Stuart (1996) stated that the value based management approach is created through the vertical chain in an organisation. Moreover, an organisation needs to decide how much the value derives from the each different players of the chain. The evolution of the notion of the value based management in an organisation is implemented, as firms need to acquire various recourses during operational process. Besides, with the growing importance of the maximising the wealth of the shareholder in the corporate practices, it is important for an organisation to maintain the positivity and effectiveness in the each level (Brandenburger & Stuart, 1996). Personal social connectivity within and outside an organisation is advocated to enhance collaboration along with reducing the cost of coordination activities in order to ensure that operations are conducted effectively with related knowledge and interest. People in an organisation having a common interest due to similarity in working procedure, area, and operational objectives will naturally assist in building a successful social network in an organisation. Thus, it is important for an organisation to provide the maximum value that it can provide to satisfy the stakeholders, which ultimately helps them to increase its wealth (Bryan & Joyce, 2007). Viinamäki (2009) comprehended that values are the health of any organisation and it is not only preferable, but also very much essential for its long term sustainability. The important point here is that such value is delivered competitively if the firms are able to offer in more convenient, accessible, better or superior measures as compare to its rivals, this is the essence value based management (Weber & Seger, 2001). Mujtaba & Sims (2006) claimed that the various departments, sub departments and the other stakeholder whom it is accountable also provide considerable understanding of references in respect of proving significant value (Mujtaba & Sims, 2006). Graber & Kilpatrick (2008) stated that in the 21st century organizational settings are becoming more complex. Correspondingly, it has been argued that in an organisation, leaders are increasingly concerned over the cost-conscious ‘set of values’. Moreover, the study also advocated that higher authorities are required to determine whether the key values are under the defined scope of organisational environment or not. Moreover, this will allow an organisation to derive its final set of values that helps to maximise their overall wealth (Graber & Kilpatrick, 2008). Factors Influencing Value Based Management Value-based management approach is people-focused which is of a prime important factor in the current business practices. Treviño et al. (2003) reviewed that in the modern scenario business, an organisation highly recognises about people, develop their workforce capacity, respect and proper and right treatment. The authors also added to the fact that leader evidently needs to downsize their self-importance and put their high concern and interest for the people that gets affected by an organisation. Moreover, this credibility highly depends on the persecution of the leader to lead people into the right direction. This underlying measure gains the significant importance in an organisation and value creation which help to fulfil the overall goal of an organisation (Treviño et al., 2003). However, Bausch et al. (2009), argued that in the last two decades, the level of competition in the business environment and its ultimate effect on the business is significantly growing, which has triggered the rise in the concept of value-based management and its prior role in an organisation (Bausch et al., 2009). With the high importance of mentioned activity in the business environment has intensified the corporations are required to focus towards value based management. According to the viewpoint of Low (2000), it is revealed that the shareholder return is generally based on the price changes in the share and dividend. This is the key component in the performance indication of the firm in the market. Moreover, Lewis explicitly rejects the tradition methods of costing system with the modern value based system to increase firm wealth (Low, 2000). Additionally, the value-based management approach assists an organisation to empower its structure, strategy, processes and performance (Arnold, 1998). Conversely, Michalski (2008), argued in this respect through underlying the fact that the basic object of the firm is to maximise its overall value. This results in selecting the best alternative that assists it to provide significant value and thus the concept of value based management is allotted with high amount of importance (Michalski, 2008). Structures and/or Strategies Business strategy is a general outline of the idea regarding what the business requires to accomplish during the course of time and how to accomplish that in an effective manner. In the current scenario, the entire business organisations whether big or small outline its respective strategies in broader and narrow sense. Modern business strategies also involve the long term goals and prospective of an organisation and its objectives. In this context, modern business organisational strategies are very much depended on the type and the structure of the organisation and in general the strategies of one organisation vary with others. In the modern business environment the business strategy that is having the high concern over the international branding is effective to meet the growing requirement of the customer and growth of the business. Additionally, most of the companies are considering the aspect of developing the new product while the others through its strategies focus ubiquitous recognition. Besides, the successful business strategies focus on the modern technologies and improved communication means (1Griffin, 2014). Correspondingly, most organisations follow the hierarchical structures, which facilitate it to coordinate efficiently through having the clear lines of authority. In the current scenario, quick adaptability to the changing conditions along with the ever-changing requirements of the customer is of significant importance for the business to survive. This structure and design are prepared so that the entire communication is followed in a very dynamic way through coordinating individual and organizational as whole. This structure is very much focuses on flexibility to meet the changing requirement with high involvement of employees (2Griffin, 2014). In this regards, it can be comprehended that most organisations in the modern business setting build its strategies through keeping the short run conception rather than focussing on the long term prospective. Nevertheless, forward looking strategy will help an organisation to anticipate any changes either the demand or the technological aspect in a better way and make significant alterations in the operation of the business activities (The Institute of Cost Accountants of India, 2013). Direct and Indirect Forces that Influences Modern Organization In the 21st century working environment, organizations are faced with several events of changes with the reforms in many dimensions. Respectively, many of these reforms have direct or indirect effects in the global market, organisational approach. In the changing scenario owing to globalisation and expatriation, organisations are offered with certain opportunities as well as encountered with severe challenges in managing workforces within or outside an organisation. With the changes in the environment with respective time frame organisations have also been strongly influenced in terms of its performance and respective activities as well as the entire organisational process is influenced. The two direct forces from the task environment that influence the modern organisations are the customers and the competitors in the market. Besides, the indirect forces, which generally found in the general environment of the modern organisations, are the technological and the economic forces. Additionally, each of these forces has major impact on the overall operation of an organisation (Jones & George, 2013). Current Impact of Forces on Modern Companies and their Strategies In the task environment, the customers are one of the major direct forces for modern organizations. Modern organisations are involved in the production of various goods and services in a wider dimension of the economy that includes science, technology and engineering and an organisation’s products and services. The end user includes publics, institutes, governmental bodies and other respective agencies. Moreover, the primary objective of business organisation is to increase its revenues and retain its position in the market. However, the satisfaction of the customers is very much important for modern organisations to attain its broad objectives. Thus, the working of organisations is highly depended on the how much effort it puts on creating value for its customers. Thus, the modern organisational strategies are highly impacted with the customer’s involvement. Competitors are another task environment force that directly influences the modern organizations. Competitors for the modern organizations are the organizations, which produces or undertake similar tasks and offerings to target the particular market. Today’s modern corporate have high turnover and a large number of employees. In this respect, if any organization is unable to retain its competitive edge through valuing the products and services, there could be significant chance that it will loss is market share. In this respect it is important for the organizations to track down the competitor’s behaviours and policies to build its effective strategies and take advantage of the available opportunities. Thus, competitor is also the important direct force that affects modern organisations and its strategies (Clem & Mujtaba, n.d.). Impact of Economic Forces on Modern Companies and their Strategies Economic forces are the important general environment components which have the significant impact on modern organisations and its strategies. As an organisation has to work in alignment with the economy and significant change in the economic factors have the multiple effect on its operation are apparent. For example, any changes in the interest rate will correspondingly shift the price of the raw materials and other useful components. Moreover, in the general terms the various economic factors will influence the wellbeing of the company, national and world economy at large. Besides, the organisation in the current scenario operates its business globally, thus, the economical factor of one nation will likely to impact to changes in the business strategy and operation (Clem & Mujtaba, n.d.). Impact of General Environment Component on Modern Companies and Their Strategies General environment component can be related to technological forces which act as an important aspect in the company’s ability to design strategies because technology have an immense impact in the mode of the operation of the modern organization. Additionally, technology helps to increase the efficiency of the organizations in respect of proper decision making and enduring an organisation task in most effective and efficient manner. Nevertheless, the technology is one of the key virtual elements of organisations which are closely associated with innovation and new product development (Clem & Mujtaba, n.d.). Analysis of the Various Impacts on Modern Companies and their Strategies In the current scenario all these forces have significant influence on organisations. In respect of the customers the organization is highly focused towards providing the best possible value to them through focusing on the needs and demands of the customer through framing effective business strategies. Moreover, modern organisations prepare their strategies by focusing on providing unique ranges of products and services through personalization of the services and product to meet the changing requirements (MaRs Library, 2013). In the similar manner, the analysis of competitor reaction and their policies in proper manner helps organisations to grab the opportunities available thorough effective strategies. Today’s organisations evaluate the competitive environment through recognising competitor market structure, intensity, degree of differentiation, expected growth, product life cycle, new launch and expected growth. All these factors are taken into the prior consideration to derive in the opportunities and to eliminate the expected threats in the environment (Papulova & Papulova, 2006). In order to access the economic forces, an organisation seeks for the constant information regarding the economic base and the future prospect of the economy. Moreover, constant tracking of the economic factors and its impact will significantly assist the modern organization to make noteworthy changes in its working structure such as wage rate, disposable income, unemployment among others (1Barnat, 2014). Nevertheless, utilization of the new technology will provide organisations with an effective application of the new technologies to take major advantages. On the other hand, technology aspects are the way through, which an organisation manages its entire process of wealth creation in an organisation. Thus, in the current business practices, an organisation constantly tracks the changes in the technological aspects and its impact in the existing operation and further utilises the needful technology to take advantage of the opportunities (2Barnat, 2014). Market-Based Management Practices and Modern Organisations Impact of Forces on Modern Organisations In the changing dimension of the competitive business environment, business organizations are required to conduct an effective analysis of a market segment before succeeding in the global market. In the last few decades global workplace has witnessed major changes in the business operation and society. This significant change has been encountered due to wide changes in the political, business and technology dimensions. Organisations are highly faced with the problem to form proper coordination between the various organisational decision and knowledge management. This gives importance towards hiring experts to solve the underlying problems and examine and analyses the situation faced by organisations and prepare a detailed plan regarding the proposed problematic dilemma. However, for the most of firms this measure are not able to provide significant solutions due overlooking the fundamental elements of reality and improper communication among the other pitfalls. Koch pioneered the term market based management (MBM) practice which attempts to integrate the market principles in the management philosophy. This practice share more or less common view found in as the models such as ‘total quality management’ (TQM), ‘just-in-time inventory control’ (JIT) and various other management practices suggested. MBM is the framework of understanding the organisational problem through analysing and evaluating the TQM, JIT and other management practices for improving the overall organisational performance. This approach helps an organisation to understand the human prospective, which is called ‘market process analyses’. This analysis further helps to anticipate how the societies organised itself that allows people to live and employ in a harmony through the wellbeing of the entire society. Moreover, the process allows an organisation to have higher information regarding the activities of people that needs to undertake and coordinate in the similar manner. Organisations are an important part of society, which has its own corporate identity, needs to adopt ‘market-based principles’, that will help them to increase its effectiveness through redesigning into own systems (Whaltley, 2013; 1H. Wayne Huizenga School of Business and Entrepreneurship, n.d.). Role of Market Based Management Correspondingly, MBM allows the organisations to build its significant organisational structures, values, inducement and responsibilities, which helps to motivate people within an organisation to work corporately towards the accomplishment of the common goal. Furthermore, the effective MBM practices permit organizations to respond in a noteworthy manner to customers and other key dimensions. The guided principles of the MBM facilitate organisations to evaluate its policies, conducts, norms and establish shared values and behaviours that allow the people to work in a coordinated manner through social integrity. The ten guided principles of MBM include compliance, value creation, integrity, customer focus, respect, integrity, knowledge, change, humility, integrity, and fulfilment. On the other hand, the five dimensions of MBM include, vision, virtue and talents, decision rights and knowledge processing. The use of these fundamental elements of MBM within the existing system will extensively assist organisations to accomplish their respective objectives. Moreover, with the extensive treatment of people will empowered them to generate high value to firm and will generate a sense of belongingness towards the organisation (Whaltley, 2013; 1H. Wayne Huizenga School of Business and Entrepreneurship, n.d.). Strategy for Dealing with Forces in the Current Scenario In respect of the use of MBM approach in the current business environment, there have been noteworthy evidences of implementation of the principle of MBM and have been significantly benefited from its use. Koch industries incorporation, a well know privately-owned group of companies in the last 50 years has been able to overcome the challenges associated with growth and expansion. Through implementing the approach of MBM, Koch industries is recognised as one of the most successful organisations around the world. The group applies the VDM approach through delegating increased responsibility to its employees, which allows them to use their own decisions approach into business. Moreover, high responsibility is also given to manger to guide the employees rather than creating all the decision on its own. Besides, with the essence of MBM Koch industries, highly sustain its value towards its customers, societies and for them. Nevertheless, MBM practices are helping organisations with the knowledge and ideas of its employees in order to innovate its products as well as processes in an effective manner (Koch, 2014; CJ Staff, 2009). Recommendations Thus, through the above observation, it can be recommended that the approach and practices of MBM are not restricted to large commercial organizations, but the other small private sector entities and bodies will also get benefited from the same. For instance, education sector will highly get assisted, as academic sector, mostly rely on the knowledge and is the one of the most important means of building high value (Stanfield, 2007). Value Driven Management Value Driven Management (VDM) is an integrated process through which the organizational strategy-makers organize and incorporate the key eight value drivers, including the culture of external decision making, organisational culture, customer culture, supplier, customer, third party, competitor and owner’s value into the organisation to maximise its own value (2H. Wayne Huizenga School of Business and Entrepreneurship, n.d.) Impact of Value Driven Management VDM impacting the customer force includes the cost of the production and the service provided by an organisation. Companies need to put their efforts towards providing very dependable product at reasonable cost. The low price helps an organisation to provide high customer value. Moreover, significant level of service to the consumers helps an organisation to increase customer value. Thus, the VDM largely impacts an organisation’s ability to retain its customers in the long run (2H. Wayne Huizenga School of Business and Entrepreneurship, n.d.). VDM of competitors’ value is equally important for driving its strategies, plans, and the important action. An organisation needs to develop the proper understanding into its competitor’s value into its decision-making as well as its strategy formulation to gain the significant position in the market (2H. Wayne Huizenga School of Business and Entrepreneurship, n.d.). VDM of an organisation have higher impact on the economic force, as based on the factors that provide significant value to organisations, it decides the prices of the products and services. Moreover, the prospect of organisational growth in the future will also have a major impact on the national growth and employment opportunity. Correspondingly, the VDM is an integrated philosophy of the management process, which taken into account for the proper decision making and strategy implementation through the evaluation of the changing technology in the global environment (2H. Wayne Huizenga School of Business and Entrepreneurship, n.d.). Role of Value Driven Management In this regard, from the above analysis and evaluation it can be comprehended that this facet of the VDM will significantly help organisations to add value to its operation. Moreover, the mentioned facets facilitate the people within an organisation to work in positive as well as in a proactive manner to exploit the opportunity in the changing scenario of the business environment and create higher value. Moreover, it helps an organisation to create a cordial relationship with its clients and achieve the organisational objectives. It also helps an organisation to provide the variety business offerings to meet the changing demands of customer with increased value (Pohlman & Gardiner, 2000). The modern organization seeks for the people who contribute towards adding value to its operations as well as people having belief on it and those having the potential to create a sound organization. Additionally, the value adder helps to take positive steps in order to effectively deal with the limitation associated with overall growth of an organisation. Besides, few elements destroy the organisational values. In this regards in order to transform the value destroyer into value adders, organisations are required to strengthen its man power with competent executives and top level managers. These personnel have the multiple responsibilities to overcome the problematic elements destroying the organisational value. Furthermore, these personnel protect and promote the overall growth of the organisation. Moreover, through looking for the constant evidences of the value destroying elements and motivating the workforce through inspiring them to reduce those obstacles will be significantly helpful. Nevertheless, with the approach of the building a reliable team to work towards removing the value destroying element will be significantly be helpful while exerting efforts towards accomplishing the broad organisational goals and objectives (Pohlman & Gardiner, 2000). Conclusion From the above discussion, it has been comprehended that owing to the complexity accompanied with the changing business environment, management of organisations has been witnessing considerable changes. Value base management helps to overcome the problems through providing a precise and explicit metric to create value towards various forces to meet the organisational problems. In the 21st century organisation people and customers are given the special priority in every respect to meet the overall objective of an organisation. Similarly, business organisations prepare and manage its plans accordingly to motivate employees to achieve desired objectives. In addition, the key personnel and the set of plans keeping in view the various factors such as proper planning, managing risk, and reducing organisational vulnerability. Moreover, the current organisational strategies and structure is highly based on the customer focus and hierarchical structures. Besides, the customer and competitors are the key task environment forces. On the other hand, the economic factors and technology are the general or global environment forces influencing the working structure of an organisation. Furthermore, market-based management practices approach and Value Driven Management helps an organisation to benefit from its application in the business practices to maximise the overall value of the organisation. Hence, it can be concluded that people in the current scenario help to subordinate organisation by aligning various theories in management practices while attaining the overall objective of an organisation. References Arnold, G. (1998). Corporate financial management. London: Pitman Publishing. Bryan, L. F., & Joyce, C. (2007). The 21st century corporation. The Mckinsey Quarterly, 1-75. Bausch, A., Hunoldt, M., & Matysiak, L. (2009). Superior performance through value-based management. Springer-Verlag Berlin Heidelberg, 15-36. 1Barnat, R. (2014). Economic forces. Retrieved from http://www.strategy-formulation.24xls.com/en105 2Barnat, R. (2014). Technological forces. Retrieved from http://www.strategy-formulation.24xls.com/en105 Brandenburger, A. M., & Stuart, H. W. (1996). 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EVA and value-based management. United States: McGraw Hill Professional. Read More