Strategic Analysis of the UK Online Retail Industry and implications for strategic management

By Juma CJO

1.0 Industry description

Effective strategic management is a function of both the internal environment (vision, resources, planning capabilities) and the external environment (opportunities and threats). The managers must be alive to the internal strengths and weaknesses as well as the industry and the macro environment for them to steer the organisation into sustainable success. One of the external analysis platforms is industry analysis. The latest comprehensive statistics indicated that the online retail industry had grown by 15% to reach revenues of $38.3 billion (Datamonitor, 2011). This industry is forecasted to experience remarkable growth rates with the revenues expected to reach the $66 billion mark by 2015: a 72% increase over the 2010 figures (Retail Futures, 2011). The UK online retail sector is estimated to account for about 23.5% of the European online retail industry and this makes it one of the most vibrant industries in the region. France and Germany follow closely with their sector revenues for 2010 being $21.5 billion and $15.7 billion respectively (Datamonitor, 2011). Electronics products constitute the most commonly traded products in this industry with other products including cosmetics, groceries, general apparel and others (Retail Futures, 2011). An overall assessment reveals that the level of market rivalry in the industry is high when the number of competitors and the low level of consumer switching costs are considered. However, the forecasted growth rates as well as the presence of differentiation avenues dampen this rivalry significantly.

2.0 Features that influence the industry’s competition and profitability

The industry’s profitability is mainly hinged on its ability to move large volumes of sales with relatively low capital inputs (Nielson, 2008). This low capital outlays allow them to pass the low cost benefits to the end consumers by offering very competitive prices and this in turn attracts large volumes of shoppers who are out to make savings by taking advantage of the best deals available in the market.

The level of competition on the other hand is influenced by the ease with which potential entrants can set up operations (Johnson, Scholes and Whittington, 2008). In this industry such costs are very low. However, there is a huge potential for differentiation with brilliant strategists always at liberty to embrace differentiation in a manner that sets their online retail operations above the rest of the market (Datamonitor, 2011). Differentiation is one of the strategic management approaches that are embraced in highly competitive industries where organisations are compelled to take measures to stand out above competitors. Differentiation can relate to the specificity of the products on offer, the provision of selected shopping baskets at a great discount, the uniqueness of the shopping process, or even the delivery service specifications (Johnson, Scholes and Whittington, 2008). With online retail, it is possible for business executives to embrace the blue ocean strategy and create demand in sectors that are yet to be explored in the economy.

The legal provisions available also influence the level of profitability and competition in the economy. The legal costs of setting up operations are relatively lenient and this provides ease of entry to additional competitors (Datamonitor, 2011). The legal frameworks are also useful in increasing the market confidence in online transactions by providing mechanisms through which offenders can be decisively held responsible in case of fraud. These legal frameworks have indeed been a major contributing factor to the growing popularity of the sector.

The presence of enabling infrastructure also helps in attracting consumers to the industry and by extension contributing to the profitability of the sector. The cost of electronic transactions is increasingly low with most fees being within affordability limits of most consumers (Office of Fair Trading, 2010). In other words, the cost of transaction is seldom enough to offset the price difference between the online retail offers and the traditional shopping malls. Consumers therefore find it increasingly easy to opt for online retail as a source of their products.

3.0 Industry attractiveness analysis

The determination of the attractiveness of an industry is necessary to enable businesses intending to venture into such an industry to determine their chances of success (Hitt, Duane and Robert, 2001). Where an industry is found to be unattractive, business managers are advised to avoid it unless they have a good strategy for overcoming any of the handicaps identified. After all, strategic management extends to effective risk management with managers encouraged to venture into a market only where there are reasonable chances of realising success. The best model for analysing industry attractiveness is the porter’s five forces analysis which makes a comparison of the prevailing factors among the different segments of an industry (Hitt, Duane and Robert, 2001). The attractiveness is as analysed below.

3.1 Rivalry among competitors

The main players in this industry are the retailers offering products for sale online with the leading players being Amazon.com Inc, Home Retail Group plc, Tesco plc, and Wal-Mart (Davis, 2011). Despite the presence of a few large multinationals that operate at countrywide and global scales, the industry remains largely fragmented with many of the players being small businesses targeting defined localities. There is a rapid growth in the number of competitors with many new entrants getting into the market and existing market suppliers diversifying into offering online retail portfolios (Davis, 2011). This heightens rivalry significantly. The fact that most of these players target the same market segments also heightens competition. However, the rivalry is lowered by the low switching costs where a market player can leave the industry without incurring heavy losses. This is due to the low investment amounts required in the industry. The industry is also characterised by a rapid growth of customers as more and more consumers in the UK opt to turn to online retailers to secure the best deals (Nielson, 2011). This growing market helps in lowering the market rivalry. The rivalry is further lowered by the fact that the level of differentiation is high with many online retailers being able to carve out a niche for themselves based on the uniqueness of their products and services as well as the uniqueness of the business processes. The overall assessment of the market rivalry therefore puts the level at the level of moderate.   

3.2 Buyer Power

There has been a surge in the number of consumers turning to online retail and this presence of large number of buyers decreases the buyer power (Datamonitor, 2011). This surge can easily be explained by the changing economic fortunes that have seen the disposable income levels among consumers reduce significantly. As a result, consumers are constantly on the lookout for the best deals and this makes them turn to the convenience of the internet where vast amounts of information can be collected at the click of a button (Global Agricultural Information Network, 2011). On the other hand, the price sensitivity of these buyers increases the buyer power marginally as industry players are constantly under threat of losing market share to competitors who offer better deals to the market. Price sensitivity is an important factor in strategic management, often dictating the necessity for the organisation to embrace price competition. The threat of backward integration among the buyers is low as most buyers are ordinary consumers who in most cases have little or no intention of venturing into the fields in question hence lowering buyer power (Rigby, 2010). However, the presence of information over the internet makes the buyers more knowledgeable and this improves on the level of buyer power. The overall assessment of the buyer power is therefore moderate.

3.3 Supplier Power

The main suppliers in the industry include ICT systems providers and the suppliers of the goods that are intended for sale online (Datamonitor, 2011). An average online retailer is spoilt for choice when it comes to choosing which supplier to procure materials from. Suppliers are therefore many and in many cases chasing after a considerably low number of buyers and this lowers the supplier power significantly. However, there are specialist commodities such as books, DVDs and other specialised equipment which can only be supplied by a limited number of suppliers (Datamonitor, 2011). Such specialised suppliers wield immense power. However, such suppliers are a vast minority and they are not likely to significantly influence the level of supplier power in the sector. On the other hand, the threat of forward integration is incredibly high. With the support of low entry costs, suppliers can easily opt to offer their products online to the end consumers and this significantly raises the supplier power considerably. The overall supplier power is therefore moderate.

3.4 Threat of entry

The entry into the sector can be done by two different kinds of organisations: existing businesses which may opt to diversify into online retail; and entirely new businesses whose primary focus is to be online retailers (Office of Fair Trading, 2010). Online retail businesses serve large markets and this enables them to turnover large volumes hence allowing them the economies of scale. When this factor is combined with the low costs of operation, it allows online retailers to significantly lower their prices. Companies without absolute cost advantages may therefore find it difficult to penetrate the market as online shoppers are extremely sensitive to price differences. On the other hand, the fixed costs for starting an online retail business are very low; and the legal requirements are equally lenient with most businessmen able to meet the set thresholds without strain (Office of Fair Trading, 2010). Most suppliers are also easily accessible and this allows new entrants to build their product portfolios with remarkable ease. On the other hand, the sensitivity of consumers to the security of online transactions make most consumers predisposed to conducting business with organisations that already have a strong brand in the market. However, this factor alone is not enough to dampen the threat of entry with many new comers finding creative ways of assuring clients of the security of their transaction systems. The threat of entry is therefore very high. A high threat of entry prompts a strategic management response that entails protecting organisations from possible loss of customers. This can be done through encouraging brand loyalty, domination of distribution networks, or even low pricing to make it difficult for new entrants to penetrate the market.

3.5 Threat of substitutes

The main substitutes to the online retail market are the traditional brick and mortar shopping as well as the catalogue retail systems (Nielson, 2008). Surveys indicate that the vast majority of consumers still prefer the traditional shopping styles with the volumes controlled by the traditional shopping models remaining over 100 times higher than the online retail volumes (Nielson, 2008). However, growth statistics indicate that the online sector is growing at least twice as fast as the traditional models. The main reason why consumers may prefer the traditional models is the security of the transactions hence heightening the threat of substitutes. The payments are made physically with little opportunity for fraud and theft of a customer’s money (Rigby, 2011). However, with the economic conditions being experienced in the UK, consumers are more inclined to making more cost effective purchases and they therefore turn to online retailers to take advantage of the deals offered. The overall threat of substitution is therefore moderate.  

3.6 Overall assessment of industry attractiveness

From the assessments above, the market rivalry, supplier power, buyer power and threat of substitutes are all moderate. The threat of entry is however very high. The overall assessment in light of the observations is that the industry is moderately attractive. This implies that new entrants have a reasonable chance of success with the application of brilliant strategic management policies and practices. 

4.0 Likely factors that could influence industry’s bases of competition

One factor of the macro environment that could easily alter the basis of competition in the online retail sector is changes in the legal requirements. The government may opt to alter online retail requirements due to the high risk posed to consumers’ money. Online transactions have always attracted intelligent fraudsters capable of hacking into online systems and conducting unauthorised transactions using clients’ credit cards (Nag, Hambrick and Chen, 2007). This is a risk that the government would need to deal with should fraudsters devise ways that make it difficult for detection. One of the likely moves would probably be to heighten requirements to include large investments that would be used to make refunds to customers affected due to the retailers’ system weaknesses (Nielson, 2008). Such a move would effectively reduce threat of entry and get many retailers to stop operations hence lowering the level of competition among the existing retailers.

Economic conditions could also significantly alter the basis for competition. As it currently stands, competition is mainly based on price and this is motivated by the hard economic times that have seen consumers have lower disposable incomes (Datamonitor, 2011). If the situation were to change significantly, consumers would be less concerned about price and start concentrating on aspects such as convenience, speed of delivery, quality assurance, and others. Actions by traditional retailers could also affect the industry’s profitability. If they were to opt to embrace cost cutting measures and reduce their prices significantly, there would be fewer incentives for consumers to opt for online retail offers.  

5.0 Sources of competitive advantage in the industry

Customers who opt for online retail are mainly people looking to make savings by using the best deals available. These consumers are adequately informed and can easily spot good deals with little effort (Datamonitor, 2011). Retailers with absolute cost advantages therefore tend to have a significant strategic advantage in the market by being able to significantly reduce their prices.

The other reason for use of this shopping model is the convenience offered. Shoppers enjoy the convenience of acquiring products from the comfort of their homes and services (Davis, 2011). Retailers who can actualise their delivery processes by ensuring swift deliveries could enjoy a competitive advantage in the market. Most shoppers who buy products physically tend to prefer immediate acquisition of what they have paid for. The only way that online retailers can reach them is by ensuring super-fast delivery systems and the retailer who can achieve that would have a competitive advantage in the sector.  

The other common attribute of online shopping is the fact that it leaves a trail that can inform the retailers of the product preferences of their clients (Johnson, Scholes and Whittington, 2008). Retailers can therefore come up with good intelligence systems that enable them to do targeted marketing that is likely to be very effective. The competitive advantage would be realised by the systems’ ability to anticipate product needs and bring communicate to the client in time before they opt to search for them from competitors.

6.0 Strategies to improve industry profitability

The best way to improve the profitability of the sector is to find ways of attracting more consumers into it. Even though the sector is on a steady growth, the absolute figures remain significantly low. With strategies to increase volumes, larger numbers of transaction could be realised hence higher profits for the industry. Given that over 90% of the population in the UK have access to the internet, this would be a comparatively achievable goal (Datamonitor, 2011). Cooperation among the industry players would be necessary with provisions for self regulation of industries done to ensure that the risk of fraud is significantly reduced.

This strategy would however be difficult to implement given the large number of players involved. With the market largely fragmented, it would be difficult getting a consensus on a common approach, especially in view of the fact that the proposed approaches could favour some retailers more than others.

7.0 Conclusion

The online retail industry in the UK is vibrant and is expected to grow with estimations being that revenues from the sector will surpass the $72 billion mark by 2015 (Datamonitor, 2011). This growth is supported by changing social preferences where more consumers are attracted to the levels of convenience offered with many more impressed by the low prices offered by online retailers. An analysis of the industry’s attractiveness reveals that the sector is moderately attractive meaning that prospects for growth among current and incoming players are reasonably impressive. This industry however faces stiff competition from the traditional shopping systems which continue to command larger sales volumes with analysts holding the view that these traditional systems will never really be fully replaced by online retail business.

References

Datamonitor, 2011. Online Retail in the United Kingdom. (Online) Available at: http://globalbb.onesource.com/Web/Reports/ReportMainIndustry.aspx?SicCodeID=220588&Report=DATAMONITORINDUSTRYPROFILE&Process=IP&Type=GetReport&FileFormat=PDF&ReportID=62458&FileName=0183-2344-2010.pdf&VendorName=Datamonitor (Accessed 21 November 2011)

Davis, G., 2011. Retail Industry Analysis- the highstreet and the superhighway.(Online) Available at: http://www.fleetstreetinvest.co.uk/economy/uk-economics-business/retail-industry-analysis.html (Accessed 21 November 2011)

Global Agricultural Information Network, 2011. UK Grocery Retail Industry. (Online) Available at: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Retail%20Foods_London_United%20Kingdom_2-3-2011.pdf (Accessed 21 November 2011)

Hitt, M. A., Duane, R., Robert, E.H., 2001. Strategic Management: Competitiveness and Globalization. 4^th Ed. Cincinnati, Ohio: South-Western College Publishing

Johnson, G., Scholes, K., Whittington, R., 2008. Exploring Corporate Strategy: Text & Cases. Englewood Cliffs: Prentice Hall

Nag, R., Hambrick, D.C., Chen, M.J., 2007. What is strategic management, really? Inductive derivation of a consensus definition of the field. Strategic Management Journal. 28 (9), pp. 935–955

Nielsen, 2008. Trends in Online Shopping: a global Nielsen consumer report. (Online) Available at: http://id.nielsen.com/news/documents/GlobalOnlineShoppingReportFeb08.pdf (Accessed 21 November 2011)

Office of Fair Trading, 2010. Findings from Customer Survey on Internet Shopping. (Online) Available at: http://www.oft.gov.uk/shared_oft/reports/Evaluating-OFTs-work/oft1079.pdf (Accessed 21 November 2011)

Retail futures, 2011. UK Retail Futures 2012: Health & Beauty. (Online) Available at: http://www.verdict.co.uk/Marketing/dmvt0442m.pdf (Accessed 21 November 2011)

Rigby, C., 2010. UK online retail will double in the next 10 years. (Online) Available at: http://www.internetretailing.net/2010/07/uk-online-retail-will-double-in-next-10-years/ (Accessed 21 November 2011)

Strategic management and employee behaviour at work

By Juma CJO

An important factor in strategic management is the appreciation of the fact that the management teams have a great influence on employee behaviour. One of the main important roles of the management is to promote the desired organisational culture which basically dictates how employees relate to each other and to the management (Hersey and Blanchard, 1972). The organisational culture also helps in defining how employees relate to their duties and responsibilities in the organisations. Managers can influence employee behaviour in a number of ways. These include the provision of leadership in the organisation, performance management, influencing of the work place conducts and others (Rowold, 2007). It must be appreciated that the management is tasked with the responsibility of ensuring that the organisation performs in accordance with the set vision and mission and the employee behaviour is part of this performance.

Why the need to control employee behaviour?

The employee is increasingly becoming the main factor in contemporary strategic management. The employee behaviour is critical to the performance of any organisation and any effective management team should be aware of this fact. The employee behaviour could lead to harmony in the work place and lead to the strengthening of a culture of cooperation and team work; or it could lead to the deterioration of working conditions where the employees are involved in unhealthy competition and even in acts of sabotage to ensure that their colleagues do not make considerable achievements (Pudelko and Harzing, 2007). The employee attitudes could also determine the level of satisfaction that the customers being served can experience. Surveys into the customer satisfaction in the UK retail industry indicated that the good treatment of customers by employees has been largely responsible for the high customer satisfaction levels among their clients (Datamonitor, 2011). The management of employee behaviour is therefore crucial to ensuring the survival and the progress of the whole organisation. It is a proven fact that the existence of a healthy working environment characterised with mutual trust and respect among the employees and the management helps in the improvement of the level of productivity in the organisations in question (Rana, 2010). Organisations whose employees are embroiled in constant strife and no respect tend to be less effective in the pursuit of their vision and strategies.  

Actions by management contribute significantly to how employees behave in the organisations. The management influences these behaviours by instituting systems and policies that regulate behaviour as desired. One of the most common tools is the use of the employee code of conducts where the management spells out the kind of behaviours that are prohibited at the work place. Most professional organisations have policies directly outlawing such habits as fighting, name calling and quarrelling at the work place (Ferner, 1997). The regulations are accompanied with information on the penalties available for the misconduct which may range from verbal warnings, written warnings, suspensions and even dismissal in the extreme cases (Ferner, 1997). However, behaviours that relate to the attitude of the employees are hard to pin point and therefore difficult to regulate through policy (Rana, 2010). This is strategic management must be applied in coming up with additional measures to ensure that the employee feelings are well taken care off.

How management regulates employee behaviour

Many of the actions that are taken by the managers impact how employees behave towards each other and towards the organisation in one way or another. The most common ways that managers use to ensure this include the provision of a healthy working environment, the emphasis on the desired communication channels, empathy towards employees and their plights, the provision of motivation incentives, and the organisation of the work in the organisation.

Communication

Communication is one of the most important strategic management aspects of any organisation and without it the organisation ceases to be one. Organisations consist of individuals who must work together to achieve the shared goals (Bisco and Schuler, 1995). Various styles of communication can be used with most organisations opting to use the different styles depending on the situations. For instance, written and communication is crucial for communicating official instructions. Informal communication on the other hand is common in scenarios where colleagues are simply consulting with each other. The style of communication chosen by managers help in determining whether or not the employees can freely air their views with most organisations striving towards the creation of a mild form of informality in order to encourage employees to feel free in the work place (Bisco and Schuler, 1995). The strength of Wal-Mart has traditionally been based on the fact that employees are free to make observations and make suggestions on the best ways of utilising arising opportunities (OneSource Information Services, 2011). The employees of the global conglomerate may be termed as the organisation’s source of strength and this is only achieved by ensuring that employees are free to air their views and that these views are taken seriously (OneSource Information Services, 2011).

The frequency with which directions and objectives are communicated to the subordinates also plays a critical role in shaping the employee behaviour in the organisations. Scanty communication can also easily lead to the generation of unnecessary negativities which may be fronted by rumourmongers. Almost all organisations have potential rumourmongers who in their quest to attract attention and the trust of their colleagues may distort the available facts into falsities of monumental proportions (Ferner, 1997). If such negativities are allowed to take root, the management may find it difficult to reverse them. Infrequent formal communication also creates room for speculation with some employees largely viewed as ‘special’ due to their perceived closeness with the management (Walonick, 1993). Such scenarios often lead to animosity and lack of teamwork hence bringing down productivity levels. Proper and frequent communication in ensuring that the views of the management remain clear and that there is no room for distortion. The management at Tesco plc is well aware of the risk associated with insufficient communication and has been keen to communicate every strategic, technical and operational decisions with remarkable speed (Tesco, 2011). Strategic management should therefore result in the generation of appropriate company policies to ensure that all the members of the organisation remain well informed of what all departments are up to and this helps in ensuring that there is little room for speculation (Tesco, 2011).     

Motivation levels

Effective strategic management yields high levels of employee motivation; especially where the best-fit approach to HRM is applied. The behaviour of employees in organisations is often closely related to their motivation levels. Highly motivated employees tend to be very positive in their work and this positivity always translates into acceptable conduct which may in turn inspire motivation on the part of their colleagues. The pursuit of employee motivation strategies is perhaps the most common approach that the management takes when trying to influence the behaviour of employees in organisations. For instance, the provision of incentives such as commissions enables employees to pursue their personal financial goals as they work for the organisations. This fit between their personal objectives and their organisation’s goals enables them to work with renewed dedication and the dedication often translates to positive behaviour on their part. Wal-Mart provides its employees with a wide range of monetary and non monetary incentives which enable the employees to relate with the organisation more meaningfully (OneSource Information Services, 2011). Other motivation methods may include the provision of challenging tasks and other motivation styles as job rotation which help boost motivation levels. A motivated employee tends to adopt the values and philosophies of their organisations with ease where many of these values define how the members of the organisation view and relate to each other. One of the defining characteristics of Wal-Mart is the apparent compatibility between their values and the personal traits of the employees. Observers attribute this to the fact that the employees may be intentionally trying to live the vision of the organisation (OneSource Information Services, 2011). The focus on the level of satisfaction of employees is also crucial with many management teams tending to reward employees who receive frequent endorsements by satisfied customers. These management actions certainly have an impact on how employees behave. 

Work organisation

The manner in which operational procedures are designed and how the performance is evaluated also contributes greatly to how employees behave in organisations (Rana, 2010). For instance, where workers are organised into teams and are evaluated as such, they tend to treat each other with decorum in order to ensure each tem member plays their role in order to ensure the team meets the targets set. This may be different where focus on individual responsibility is emphasised. Focus on individual responsibility is frowned upon by many observers who hold the opinion that the practice turns colleague who need to be working together into competitors who must outdo each other. Those in support of this style however hold that some measure of individual responsibility must be demanded to ensure everyone plays their role. Appropriate strategic management approaches must therefore consider the merits of each and apply a combination that would not only bring out the uniqueness of the organisation; but also ensure that there is sustainable competitiveness. Such an approach is well implemented at Sanofi Aventies, a top pharmaceutical company which organises its work force into teams that are answerable both individually and collectively (Sanofi, 2011). This unique approach has been useful in promoting a culture of innovation and result-driven endeavours that have seen the company develop one of the healthiest working environments in the world (Sanofi, 2011). Whatever happens, managers must remain alive to the fact that the organisation functions better as a team and they must enact policies that encourage compatible employee attitudes and behaviours (Rana, 2010). The employee behaviour is certainly affected by the work structures. 

Current trends of management and employee behaviour

The realisation that employees can make or break the organisation seems to have shaped the current trends in organisations where the decisions and practices of human resource management are increasingly being factored in the generic strategies of the organisations (Rana, 2010). Companies seem to be keen on ensuring that their employees can form their source of competitive advantage in the market and this uniqueness can be derived from a number of features. The most important feature refers to the unique employee behaviour and how it leads to the creation of the desired organisational culture, desired productivity levels, and more importantly, the satisfaction levels among customers (Rowold, 2007). Managers are increasingly being put through trainings in order to help them understand how to apply effective strategic management both at the operational and corporate levels. The focus of such trainings also extends to people management where they are trained to manage their subordinates in a manner that motivates them to conduct themselves in a certain manner. The focus of these training is taking a new direction where managers get trained on non-traditional dimensions such as psychology and human behaviour and this is an illustration of the fact that employee behaviour is of a great significance to any organisation (Pudelko and Harzing, 2007). Of course the trainings are also a manifestation of the acknowledgement that management plays a pivotal role in determining how employees behave.

Concluding remarks

The members of the organisations are human like and are likely to be influenced by the behaviour of others towards them and towards others. This is natural and it is expected that employees’ behaviour be not only influenced by the management, but also by their own colleagues. The role of the management in influencing employee behaviour is however quite pivotal in the sense that, it is the managers who are charged with the task of creating a healthy working environment. A healthy working environment must be characterised by employees and managers who treat each other with respect and with the acknowledgement of the critical role that each party plays in ensuring the delivery on the organisations’ goals. Employee behaviour at work relates to how workers communicate with each other, the seriousness with which they treat their work, their willingness to share ideas with the management and colleagues, and the adherence to the set policy regulations. The management plays a critical role in shaping these behaviours and they do so by forming policies that prohibit certain actions, implementing motivational strategies, formulation of compatible operation designs and ensuring effective communication with subordinates. From the observations made in this paper, and from the experiences of Tesco Plc, Wal-Mart and Sanofi Aventis, it must be concluded that the management indeed helps in influencing employee behaviour at work.
References

Brisco, D.R., Schuler, R.S., 1995.  International human resource management. 2nd Ed. New York: Routledge

Datamonitor, 2011. Tesco PLC. (Online) Available at: http://people.exeter.ac.uk/wl203/BEAM011/Materials/Lecture%204/TESCO%20Company%20Profile.pdf (Accessed 9 November 2011)

Ferner, A., 1997. Country of origin effects and HRM in multinational companies. Human Resource Management Journal, 7(1), 19-37.

Grabner, I., 2007. Managing Organisational Creativity: Motivational aspects of management control systems for creative employees. (Online) Available at: http://www.edamba.eu/userfiles/Isabel%20Grabner.pdf (Accessed 9 November 2011)

Hersey, P., Blanchard, K.H., 1972. Management of organisational behaviour: utilising human resources. 2nd Ed. New York: Prentice-Hall

OneSource Information Services, 2011. Wal-Mart Stores Inc. (Online) Available at: http://globalbb.onesource.com/web/Reports/ReportMain.aspx?KeyID=30257&Process=CP&Report=UNIFIEDSUMMARY (Accessed 9 November 2011)

Pudelko, M., Harzing, A.W., 2007. Country-of-Origin, Localization or Dominance Effect? An empirical investigation of HRM Practices in Foreign Subsidiaries. Human Resource Management,46 (4),

Rana, I.A., 2010. Quality Management Systems, Human Behaviour and Business Excellence. (Online) Available at: http://www.simplyquality.org/Imran-QMS-Behavior.pdf (Accessed 9 November 2011)

Rowold, J., 2007. The impact of personality on training-related aspects of motivation: Test of a Longitudinal Model. Human Resource Development Quarterly, 18, pp. 9-31

Sanofi, 2011. Our Company: Contributing with pride and passion beyond expectations. (Online) Available at: http://en.sanofi.com/our_company/our_commitment/our_commitment.aspx (Accessed 9 November 2011)

Tesco, 2011. Retailing in the 21st Century. (Online) Available at: http://www.tesco.com/talkingtesco/retailing/ (Accessed 9 November 2011)

Walonick, D.S., 1993. Organisational Theory and Behaviour. (Online) Available at: http://statpac.org/walonick/organizational-theory.htm (Accessed 9 November 2011)

Persuasion versus private communication as a tool for effective strategic management

Introduction

In addition to control of physical resources, strategic management deals with motivation and management of the human resources. Persuasion is also important in ensuring that there is effective communication between the organization and its external stakeholders. This means that it is necessary to master the art of persuasion as a tool of influencing them to act as desired for greater productivity and competitiveness of the organization. In analyzing the persuasion as an innovative study of communication and social pressure, it is important that the concepts of persuasion, private communication, and social pressure be analyzed in detail with a view to establishing the relationship between persuasion and the other elements.

Understanding persuasion

Persuasion is a central phenomenon in the daily activities of most individuals. It simply means the influencing an individual or individuals to act or think in a certain manner (Larson, 2010). The central component of persuasion is the use of words or strategic communication with the aim of appealing to people’s emotions or minds into adopting the advocated set of attitudes or beliefs. The persuasion process is therefore considered to be complete when it results in the change of mind or actions of the persons being persuaded in conformity with the wishes of the persuader (Larson, 2010). The uses of persuasion are observed on a daily basis as observed when firms advertise to influence customers to consume their products and as individuals seek consent from others to undertake certain activities. The main objective of any persuasion exercise is to get individuals or parties to conform to a given set of practices in order to satisfy the persuader’s desires.

Persuasion has been fronted by scholars as the best option when considered among other alternatives such as coercion, use of force and apathy (Johannesen, 2010). It means that effectiveness in communication can only be realized if the strategic manager embraces persuasion as its main approach. Apathy refers to a laid-back approach where individuals ignore their wants hoping that the desires will be noticed by others and acted upon in line with their wishes (Larsen, 2010). This approach is highly unproductive as it leaves individuals at the mercy of others where their needs are met only at the pleasure of other people. Individuals could also opt to use force to get others to meet their desires. This approach is potentially harmful and is bound to run into problems with the legal and ethical expectations of the society. It can also lead to half-hearted attempts at meeting the desires, negative sentiments against the persuader, and can even provoke retaliation which may result in great harm and loss to the persuader. As Perloff (2003) concurs, the best approach for obtaining conformity and cooperation of others in meeting individuals’ needs is through persuasion. Once persuaded, individuals take action on their own accord and they would tend to show full commitment to these adopted ways hence ensuring desired results. This signals the success of a persuasion process.

The persuasion process

Persuasion involves a sequence of logical steps that potentially lead to the attainment of the desires of the individual or persuader. The first step involves the identification and refining of the objectives and desires. The process of refining these desires involves rationalization to ensure that they are achievable and that they require the cooperation of others in order to be satisfied. The second stage involves the identification of the individuals that can help meet these objectives. They must be in possession of the means necessary to achieve the set goals and must as well be individuals or parties that can be reached through the various means of communication that are considered effective (McGuire, 2000). The third and perhaps the most crucial step is the formulation of the message intended at influencing the target audience to meet the persuader’s goals. This stage is the thrust of the persuasion process as it caters for the substance relevant to appeal to the audience’s emotions and interest as it seeks to get them to change their attitudes and act in a way necessary to meet the persuader’s goals.  

For effectiveness in strategic management and communication, the formulation of the message should be based on sufficient knowledge of the audience is sought (McGuire, 2000). This enables the persuader to understand their attitudes, beliefs and values that may affect the ease with which they can be persuaded to act in a certain manner. The knowledge also enables the persuader to be aware of the interests of the audience and can thereby be able to use it to suit the persuasion goals. The fourth stage involves the conveyance of the message. This means the mode of communication that the persuader would choose to relay the message formulated to the target audience. This may be through one-on-one communications, meetings, letters, phone calls, and mass media, among others. The knowledge of the target audience enables the persuader to determine which communication modes are likely to invoke the desired change of attitude effectively (Larson, 2010). The choice of the mode also determines the cost and the level of preparation required to ensure effective relaying of the messages.

Introduction to private communication

Private communication has variously been defined as electronic communication normally intended for the recipient to the exclusion of other parties (McGuire, 2000). However, in the context of this discussion, private communication must be redefined to mean communication messages formulated and channeled to a specific target audience. Effective communication bears all the elements of strategy ranging from analysis of intention, identification of the audience, designing of content and complexity of the message, and determination of the acceptable modes of communication (McGuire, 2000). These messages would normally be communicated through means that ensure maximum exposure to the target audience to the exclusion (or minimal exposure) of others. The choice of the audience is specific to the communication objectives and the message communicated as well as the channels used in the communication have the target audience in mind. Private communication brings to focus the role of ICT in effective strategic management as manifested in efficient communication between managers and subordinates and vise varsa.

How the concept of persuasion relates private communication

The main aim of any communication process is to generate meaning, promote understanding and influence attitudes and behavior. Communication requires the existence of understanding between the engaging parties in order to promote quick understanding and meaningful communication. A good communicator must be able to understand the attitudes of their audience and prepare accordingly to utilize supporting attitudes as well as countering negative attitudes with the aim of ensuring attitudinal barriers to the communication process are effectively dissolved (Albarracin, Wallace and Glasman, 2004). The understanding also requires that the communicator understands the special interests of their audience in the subject matter in order to ensure effective delivery of successful communication process. Good communication skills also require that the parties involved keep in mind the objective of the communication process and thereby select messages that can easily generate concurrence and support from the other parties.

The mode of communication chosen in private communication also needs to reflect the preferences of the parties communicating. For instance, where a party to the communication prefer meetings to written mails, the person initiating the communication is most likely to arrange for a meeting to facilitate the discussions. These aspects of communication are in essence the components of persuasion and the study of persuasion delves into the essentials of good and effective communication skills between individuals and parties. The understanding of persuasion is therefore closely linked to close understanding of the communication process. A good persuader is also a good and skilled communicator. Persuasion reinvents the art of communication by emphasizing on the importance of generating understanding, changing attitudes, and generally moving the audience in the desired direction. Unlike the concept of private communication, persuasion assumes a highly dynamic approach to communication laying emphasis on intrinsic human behavior and focusing on the essential processes necessary for reinforcing or changing these human aspects to suit the desired persuasion goals (Albarracin, Wallace and Glasman, 2004).

Understanding social pressure

Where a group of individuals make a choice on specific activities or actions, the uncertain group members tend to move in conformity with the majority of the group members. This conformity stems from social pressure. According to Larsen (2010), social pressure refers to a perceived level of expectations on an individual based on what the members of the society consider acceptable or not (societal norms). This is an element that can be exploited effectively in strategic management, especially where jobs are executed in groups. The most common example of social pressure is peer pressure. Members of various social groups tend to highly value their belonging to such groups in order to maintain the social status and well being. The question of conformity or compliance also comes into play when identifying the effects of social pressure. Compliance implies that the group members change their private beliefs and attitudes to be in line with the group norms (Orina, Wood and Simpson, 2002). It is possible for group members to conform to the group norms while privately holding on to their beliefs in certain issues. Individuals conform to group norms for two main reasons. Firstly, they do so to avoid rejection or isolation, and secondly, uncertainty on what to do in certain circumstances makes them look up to their peers for guidance. These influences can be referred to as normative and informational influences respectively.

How the concept of persuasion enhances social pressure

To ensure the success of a persuasion process, the persuader needs to understand the characteristics of the target audience including their interests (Crano and Prislin, 2006). In strategic management, understanding the link between persuasion and social pressure is key to targeting where a group of people can be communicated to in the expectation that members will be influenced to embrace the common action inspired. Where the persuader opts to target a social group to drive his agenda, the communication channels as well as the deep-seated beliefs of the group members must be taken into account. The understanding of these group norms helps the persuader to estimate the level of resistance to be expected against the ideas that the persuader intends to introduce to the group. The knowledge of the level of influence the group has on the decisions of individual members serves as a motivation for persuasion (Orina, Wood and Simpson, 2002). This is due to the fact that the social pressure ensures conformity and would be instrumental in ensuring that the members embrace new norms in case the persuasion process is successful. The knowledge of the fact that conformity does not always mean a change of private belief among members serves as an encouragement to persuaders who view the loophole as an indication that their ideas are likely to receive support from such members within the groups. To ensure successful persuasion, the persuader must also be aware of the preferred modes of communication and the channels thereof that are expected to yield the greatest results (Albarracin, 2002). Groups may either prefer informal discussions or formal meetings and the persuader must be well aware of these preferences to remain relevant.

The language of use in social groups is another important component that the persuader must be well versed with. Some of the most significant blunders in strategic management have been associated with managers being unable to understand their audience; hence unable to design effective messages and delivery approach. The use of language and non verbal communication techniques must be noted to ensure the target audience can identify with the persuader and hence hasten attitude change. The level of literacy in the social groups also determines the approach that a persuader must take when introducing their ideas (Orina, Wood and Simpson, 2002). For instance, a highly educated group would prefer intense arguments backed with verifiable facts in support of the new assertions before they even begin to take such a persuader seriously. The concept of persuasion as relates to the understanding of social groups and social pressure introduces a creative model with which to analyze these groups hence giving an exhaustive view of any targeted social group. The threshold for persuasion is so high that it requires that the characteristics of the social groups and the individual members’ values and beliefs be intensively and accurately analyzed.

Conclusion

As has been observed, the understanding of persuasion in relation to private communication and social pressure requires in-depth knowledge about the two components. In order to be persuade an individual or a group, it is crucial to understand their beliefs, interest, modes of communication, language and other aspects. The process of influencing entrenched beliefs in a given direction often requires excellent communication skills and an astute demonstration of understanding of the target audience. The pursuance of the concept of persuasion is tantamount to re-innovation of the studies relating to communication and social pressure as it stretches beyond the basic characteristics of the elements and delves deeper into the psychological and behavioral aspects of the audience. It promotes creativity in the analysis as it challenges the persuader to not only analyze the characteristics accurately, but also consider the nature and level of influence that the identified characteristics would have on any attempt to effect behavioral and psychological change in the target audience.

References

Albarracin, D. (2002). Cognition in Persuasion: An analysis of information processing in response to persuasive communications. In M.P Zanna (Ed). Advances in Experimental Social Psychology, 34, 61-130

Albarracin, D., Wallace, H. M., & Glasman, L. R. (2004). Survival and Change of attitudes and other social judgments: A model of activation and comparison. Advances in Experimental Social Psychology, 36, 252-315

Crano,W., & Prislin, R. (2006). Attitudes and Persuasion. Retrieved March 30, 2011 from: http://www.psychology.sdsu.edu/new-web/facultystaff/Prislin_pdfs/annurev.psych.57.102904.pdf

Johannesen, R.L. (2010).Perspectives on Ethics in Persuasion. Retrieved March 30, 2011 from: http://www.wadsworthmedia.com/marketing/sample_chapters/0534619029_ch02.pdf

Larson, C. (2010). Persuasion: Reception and Responsibility. Wadsworth: Cengage Learning. Retrieved from:  http://books.google.co.ke/books?id=v29XIzDKGDoC&pg=PA80&lpg=PA80&dq=what+is+persuasion+and+private+communication&source=bl&ots=dJiqTGb3o3&sig=TXhuUnJjCce4QtgPsDIWEMYBLaw&hl=en&ei=8KOTTaqxJI_tObWTwcEH&sa=X&oi=book_result&ct=result&resnum=1&ved=0CBYQ6AEwAA#v=onepage&q=what%20is%20persuasion%20and%20private%20communication&f=true

McGuire, W.J. (2000). Standing on the shoulders of ancients: Consumer research, persuasion, and rhetorical language. Journal of Consumer Research. , 27, 109-114

Orina, M.M., Wood, W., & Simpson, J.A. (2002). Strategies of influence in close relationships. Journal of Experimental Psychology, 38, 459-472

Perloff, R. M. (2003). The Dynamics of Persuasion. Communication and Attitudes in the 21^st Century. (2^nd Ed.). Mahwh, NJ: Lawrence Erlbaum Associates

Employee motivation and strategic management

Employee motivation and strategic management 

By Juma CJO

Enhancing employee productivity is one of the main goals in strategic management. Motivation may be broadly described as the inner force that drives employees to desire to achieve personal and organizational goals. The dominant theories relating to employee motivation were formed rather recently and were as a result of the analytical and descriptive skills of some of the management gurus such as Dr. Abraham Maslow in 1943, Fredrick Herzberg in 1959, Prof. Victor H. Room in 1960, John Stacey Adams in 1963, and Burrhus Fredric Skinner. These five distinguished theorists were instrumental in the development of several theories relating to employee motivation. These theories have mostly been named after the theorists as follows: Adam’s Equity theory, Maslow’s Need-Hierarchy theory, Vroom’s Expectancy theory, Herzberg’s two-factor theory, and Skinner’s reinforcement theory.  Maslow held the view that the greatest motivator for human needs is unsatisfied needs and that these needs would need to be satisfied in such a way that recognizes the hierarchy that he designed. Lower needs would have to be satisfied before the higher needs for any motivation programs to have their desired effect. He identified these needs as physiological needs (water, air, food, and sleep), safety needs (financial reserves, job security, safety of residence and medical security/ insurance), social needs (friendship, giving and receiving love, and belonging to a group), esteem needs (attention, recognition, self-respect, social status, and accomplishment), and self-actualization (meaning, wisdom, justice, and truth) respectively.

The Maslow’s need- hierarchy theory states that the needs of the employees shift to the next level upon satisfaction with one level of needs and their desire to satisfy their needs progress until they reach the level of self-actualization.  However, the self-actualization needs do net get fully satisfied unlike the other levels of needs. This is because people graduate into new psychological realms from time to time and requiring an adjustment of the actualization needs. A strategic management response to this continuous shift is to not only understand and adapt to such shifts, but also be in a position to influence the change. The most important element is therefore understanding. Experts argue that the understanding of employee’s needs by managers helps in raising their motivation levels more effectively and efficiently. The emergence of subsequent theories was as a result of the weaknesses observed in the need-hierarchy theory. These weaknesses stemmed from the inadequacy of the theory to cover cultural backgrounds where some cultures would tend to put social needs above other needs and the fact that there was little evidence to prove the need to satisfy one level of needs before attempting to satisfy the others. The Herzberg’s two factor theory can also be called the motivator-hygiene theory. It concentrates on identifying the motivating factors and the hygiene factors where the two terms refer to factors that enhance satisfaction and factors that prevent dissatisfaction respectively.

The two-factor theory identifies some of the hygiene factors as reasonable wages; offering of fringe benefits such as medical insurance; job security; flexible and reasonable administrative and company policies; safe, clean and hygienic working conditions; and recognition and retention of status within the organization. The motivating factors have been identified as recognition of employees’ achievements; responsibility and ownership of work; meaningfulness of work; and a sense of achievement promoted by the organization. Job-enrichment is the thrust of this theory. Advocates for this theory advise that an organization should ensure the promotion of motivating factors to heighten motivation levels while keeping an eye of the hygiene factors to guard against erosion of any gains that may have been achieved as a result of good application of the motivating factors. With proper application in strategic management, the two-factor theory can be used to create a workforce that is highly committed to the organisation hence higher productivity and competitiveness. Vroom’s expectancy theory states that the level of motivation a person has is dependent on their perception of how an action would lead to the attainment of a given result and their desire to realize the identified result. This theory factors in an equation which makes it easier to derive comparative analysis that would enable a management team to provide motivational factors more decisively. This theory adopts the formula: motivation = Valence x Expectancy x instrumentality, where valence refers to the level of desire for a perceived reward; expectancy refers to the probability that the action to be taken may lead to the identified reward; and instrumentality refers to the level to which an employee believes that attaining the identified task could lead to the identified reward.

This theory has received praise from many scholars as a breakthrough in identification and recognition of individual differences within the same staff clusters in an organization. This theory also tends to provide the link between the organizational goals and individual employees’ goals hence offering a platform for the harmonization of the two variables. The theory further gives the management teams to recognize the level of importance that the employees attach to the various components of their work reward systems enabling the organization to lay emphasis on the most critical areas to ensure higher productivity. Adams Equity theory advocates for a balance between the input an employee puts into an organization and the output (reward) that they get from the organization. The inputs include factors such as skills, loyalty, tolerance, determination, personal sacrifice, trust in superiors, adaptability, commitment and hard work while outputs include salaries, financial benefits, job security, growth opportunities, praise, recognition, responsibility and sense of achievement. The equity between the inputs and outputs for employees motivates the employees to work more diligently as it also raises their expectation that further inputs are likely to lead to higher levels of outputs. From the strategic management perspective, Adams Equity theory can be exploited most effectively if the HR managers are able to emphasise on the kind of inputs that are most relevant to the overall goals of the organisation. Skinner’s reinforcement theory states that humans’ actions are a function of the perceived consequences of such actions. This theory concentrates on creating understanding on how to ensure effective control over people’s behavior and completely ignores their internal states of mind.

Skinner’s reinforcement theory identifies positive reinforcement tools as the granting positive responses to an employee’s desirable behavior and negative reinforcement as giving negative responses in reaction to an employee’s undesirable behavior. The theory reinforces the role of leadership in strategic management of the organisation.This theory also advocates for punishment to discourage repetition of undesirable behaviors and possible lack of response for employees that are yet to learn their lessons. Proper understanding and application of this theory ensures that the employees learn desirable behaviors leading to higher motivation levels in the long-run. These motivation theories are critical in examining the level of employee motivation in any organization as they enable researchers to identify the critical areas for examination when carrying out the analyses.  A 2008 Study on the UAE national carrier- Etihad airways was able to reveal some of the expectations that the employees had on their organization, citing promotion and career development with an impressive 68% of the employees interviewed stating that they were impressed with their employer and were highly motivated. This had also coincided with the introduction of online training programs that had significantly ignited employee satisfaction due to the realization of their knowledge needs. However, a 32% disapproval rating among their employees indicated that there was a substantial unexploited potential that could be attained by moving the one third of the employees into a highly motivated and satisfied category. A survey of several organizations in 2010 revealed that most of the organizations surveyed continued to exhibit various symptoms that led to employee dissatisfaction in their companies (Abu Dhabi University, 2010).

These factors included a perceived lack of career growth and personal development; inadequate teamwork and collaboration or its lack thereof, inadequate performance culture, negative manager behavior, unfavorable working conditions such as unfriendly and rigid shifts, unrealistic promotion expectations, and inadequate coaching and mentoring culture. Some of the suggestions made to counter these inadequacies were as follows: placing emphasis on employees’ career development, realigning organizational practices to cultural structures considered crucial by the employees, creating clear performance indicators and management of expectations, offering mentoring and coaching support, increasing employee autonomy in execution of their duties, and encouraging open and candid communication between employees and between them and their bosses. These recommendations seem to be in consonance with the recommendations of Samuel (2001) in his article in the Journal of the American Chiropractic Association when he emphasized the importance of proper staff training, conducive and safe working environments, clarity of objectives and management of staff expectations, fair management practices, and the recognition of employees’ contributions and efforts. Griffin and Moorhead (2009) concur that fairness and adequate reward systems are crucial in ensuring employee retention and enhanced motivation in organizations. Studies have also provided ample evidence that link employee motivation with productivity levels in any organizations.

Strategy management scholars are of the view that in the increasingly competitive business environment, the idea of using human resources are a source of competitive advantage is fast becoming the most convenient card that organizations are likely to use for survival and market dominance. Employee motivation is especially critical in service-oriented organizations such as Etihad airways. Surveys have revealed that satisfied employees are ten times more likely to generate high levels of customer satisfaction than unmotivated employees. Staff motivation is therefore at the heart of any growth or survival strategies that organizations may come up with. This calls for the according of enhanced importance to the human resource management functions of the organizations which have in many cases been left out of strategy planning in many organizations. The inclusion of Human resource functions in strategic planning brings in the useful insight on how the employees can be motivated in realizing the organization goals. The fitting the motivation factors and human resource practices into the overall organizational strategies is also very critical. The motivating factors need to bear some level of synergy and sequence centered on the organizational generic strategies in order to achieve the desired results.