The franchisor, 'sells' the right to sell its branded goods to someone wishing to set up a franchise. The licence agreement allows the franchisor to insist on manufacturing or operating methods and the quality of the product. A franchise buys or leases a site and a building. The franchisee buys the fittings, the equipment and the right to operate the franchise for 20 years. To ensure uniformity throughout the world, all franchisees have to use standardised branding, menus, design layouts and administration systems.
The benefits of franchising is that it provides a service to the public they can enjoy in many different areas, meaning that it is also satisfying customers whilst making a living profit itself. It is vitally important that you keep it nice with your local community, because if you do not then this will mean that profits towards the business will go down as all your customers tend to be the local ones.
The constraints of franchising are that sometimes it may not reach to the expectations that it should. What I generally mean by this is that the service has to be up to a certain standard of top quality and if it does not reach or obtain to this level then it must not be given to customers and must be done all again. So if you do not do anything properly or to a certain level that it must be done again.
Private limited companies (2-unlimited number of shareholders):
Private limited companies are aimed for small and medium sized operations. This type of business organisation is particularly suitable for family firms and for small enterprises involving just a handful of people
Private companies tend to find it easier to attract capital due to investors having the benefit of limited liability and the access to finance making it easy for the business to expand and grow. In some highly specialised circumstances private limited companies may trade internationally. Although it is usual for this type of business to trade regionally and perhaps nationally if required.
Private limited companies:
· Cannot advertise their shares for sales.
· Do not have their share prices quoted on stock exchanges
· Always end their company name with the word limited.
· May have a single director
· Public limited companies (2-unlmited number of shareholders):
Sainsburys is a public limited company since their establishment in 1989. Let us mow look what being a public limited company means and how it benefits them. The term plc comes from- public limited company. Public limited companies have their shares quoted on the stock exchange selling them to the public. Although not all public limited companies are listed on the stock market, smaller public companies are unable to obtain a full listing on the London stock exchange.
To become a public limited company, a business must have issued share capital of at least £50,000 and the company must receive at least 25% of the nominal value of the shares. When the change was made by Sainsburys to change its ownership to a public limited company they raised finance by selling their shares to the public, and today are still selling them on the stock exchange. The reason why it was decided to change the ownership was because one of the objectives set when Sainsburys was a sole trader was to expand. If they wanted to expand and remain a sole trader then it would have been man difficulties. They would still be under the strain of unlimited liability should they have failed. Also with one main manager it would have been difficult to go to manage all stores. Due to these factors it was a wise decision for Sainsburys to expand to a public limited company and build up the organisation they have today.
Public limited companies must also:
- Be a company limited by shares.
- Have a Memorandum of Association with a separate clause stating that it is a public company.
- Have a Articles of Association.
- Publish an annual report and balance sheet.
- Ensure that shares are freely transferable that they can be bought and sold
The Advantages and Disadvantages of a Public Limited Company:
- Can gain positive publicity as a result of trading on the stock exchange.
- Stock exchange quotation offers access to large amounts of capital.
- Stock exchange rules are strict
- Suppliers will be more willing to offer credit to public companies
- Huge amounts of money can be raised from the sale of shares to the public
- Production costs may be lower as firms may gain economies of scale
- Because of the size of Sainsburys, they can dominate the market
- It becomes easier to raise finance, as financial institutions are more willing to lencd to public limited companies
- They have limited liability which is a factor needed by many businesses so as to not to lose everything put in the business
Disadvantages:
- A stock exchange listing mean emphasis is placed on short-term financial results not long-term performance.
- Public Limited companies are required to publish a great deal of financial information.
- Trading PLC can result in hefty administrative expenses.
A public limited company has its shares bought and sold on the Stock Exchange. Sainsburys have to go to the expense of having a 'full quotation' on the Stock Exchange so their share prices appear on the dealers' visual display screens.
The main advantage of selling shares through the Stock Exchange for Sainsburys is that large amounts of capital can be raised very quickly. One disadvantage is that the control of the business can be lost by the original shareholders if large quantities of shares are purchased as part of a 'take-over bid. It is also costly to have shares quoted on the Stock Exchange.
To create a public company, the directors must apply to the Stock Exchange Council, which will carefully check the accounts. A business wanting to 'go public' will then arrange for one of the merchant banks to handle the paperwork. Selling new shares is quite a risky business. The Stock Exchange has 'good days' (when a great many people want to buy shares) and 'bad days' (when a great many people want to sell). If the issue of new shares coincides with a bad day, a company can find itself in difficulties.
For example, if Sainsburys hopes to sell a million new shares at £1 each and all goes well, it will raise £1 million; but on a bad day it might be able to sell only half its shares at this price. There is quite a deal of luck involved, therefore, in getting the day just right to launch new shares because the date has to be chosen well in advance. Some companies are very unlucky, launching their shares on a day when people are gloomy about prospects in the economy.
Another common method in which public companies raise share capital is by offering new shares for sale to the general public. The company's shares are advertised in leading newspapers and the public invited to apply.
When a company is up and running, a cheaper way of selling is to write to existing shareholders inviting them to buy new shares. This is a rights issue.
By being a public limited company it helps Sainsburys with the general running of the business and helps Sainsburys work towards future objectives with money raised from shares.
We have now seen all the different types of ownership available to the public when wanting to start a business. We have also seen the advantages Sainsburys enjoy being a public limited company and how it benefits them.
Business Objectives
Before starting the complex task of business planning, it is necessary to be as clear as possible about what it is you want to do. This is not always as straightforward as it first might appear. Some business objectives or activities are simpler to define than others, such as an expansion of a specific enterprise where methods and equipment have already been proven. New business areas not previously tackled will be more difficult to define.
Business objectives provide the overall direction to Sainsburys and helps their staff focus on the rationale and its expected results. In setting a business objective you need to consider what it is you want to achieve – in other words starting at the end point.
Objectives help to provide a definition of the end point that can be used to monitor progress and to identify when success has been achieved. Good objectives are those that are clear, measurable and quantifiable. If they are not clear it is difficult to assess whether the objective has been met.
When businesses such as Sainsburys establish themselves, they are doing this for the purpose of achieving specific objectives that the success or failure can be judged. So far Sainsburys has been a success. Let us see why a business like Sainsburys need objective:
- They clarify for everyone what the Sainsburys is about as well as what they are working towards to achieve
- They help in decision making which leads to alternative choices
- They enable checks on papers and what needs to be done next
- They provide means of which performance can be measured
- They provide focus on individual rules in Sainsburys
- They can be broken down to provide targets for each department
- They can also be used to analyse performance of the business as a whole as well as individuals, identifying training needs.
Process in decision making
A useful and well-recognised method of setting objectives is to use the Formula to build up properly constructed business objectives:
Specific Clearly state what it is you want to do/achieve by way of a factual description
Measurable. Ensure that the success of your business objective can be measured against concrete criteria
Achievable. Is the objective achievable given your current operational resources and/or competence/capacity.
Realistic. Is the scope of the objective within the bounds of what is recognisable as a proper ‘business fit’.
Time Bound. Include a time scale within which the objectives should be achieved.
We can explain the process of decision making on the objectives better by using a simple diagram. Let us look at the diagram below and apply it to Sainsburys
As we can see from the diagram above there is quite a lot involved when setting the objectives. Let us apply this now to Sainsburys.
The first step they need to take is to look at their mission statement and see what it is Sainsburys is trying to achieve as a company. This way they can set the objectives correctly and look towards fulfilling the mission statement. I have found the mission statement for Sainsburys on their website and it will be a good idea to look at it so we can clarify their objectives:
Our mission is to be the consumer’s first choice for food, delivering products of outstanding quality and great service at a competitive cost through working ‘faster, simpler and together’
The second step now is to set objectives with the mission statement in mind. If we look at the mission statement then we can quite easily draw out some objectives for Sainsburys. I will now set some ojectives for Sainsburys using the mission statement.
- To become the Uk’s leading supermarket- in Sainsburys’ mission statement it states that they want to be the consumers first choice for food, hence a wise objective would be to become the Uk’s leading supermarket against its competitors Tesco who are currently the top supermarket.
- Increase sales and market share- if Sainsburys is to become the Uk’s leading supermarket then they need to increase sales and dominate the market. Sainsburys and Tesco are aware of the importance of market share and will both fight against each other to gain supremacy. Sainsburys has
- Gain excellent quality and service- this way customers will want to come back and then become loyal customers helping Sainsburys to increase sales.
- Developing staff skills- by doing this Sainsburys can avoid having to recruit new staff thus saving money and benefiting the company over a period of time
The next step in setting the objectives is for Sainsburys to be clear in what it wants each department toachieve. The objectives we set above is for the organisation of Sainsburys as a whole. Each department is set objectives which combine together to achieve the overall objectives. The objectives set must be reached within a time limit.
The next step to bring in information on whether each department was able to reach targets set and whtheer Sainsburys as a whole was able to reach the objectives. All the objectives here will be reviewed to see the progress of each. Let us look at what Sainsburys was able to achieve:
.
In the UK Sainsburys has driven a step change in sales performance resulting in five consecutive quarters of strong like-for-like sales growth.
Quality food is a priority for customers and a key component of the Sainsbury’s brand. Sainsburys has invested in food ranges and, during the year, have improved or developed over 3,200 products. Their own-label subbrands are again amongst the best in the UK.
Sainsburys has also been working to develop a stronger complementary non-food offer through Adam’s children’s clothes, Jeff & Co and a trial of a home enhancements range. They are working on developing their own health and beauty offer through up-grading the in-house capability. They have also been trialling Boots health and beauty and pharmacy shops in six of our out-of-town stores and are now extending these by a further three stores
Sainsburys rigorously monitor 10,000 lines weekly to ensure that they remain competitive. They have reinvested some cost savings in price adjustments. Alongside this they continue to run a highly attractive, sustainable promotional programme.
Delivering great service is a key objective of Sainsburys’ business transformation programme and during the year they have made great strides in retraining colleagues to serve customers better. The mystery shopper measure is now embedded in the Company; this and the customer satisfaction index demonstrates the progress made.
Now the next step for Sainsburys having gained all this information is to see what objectives have been reached and what they need to work on. Here by analysing information they may find that they need to train staff in certain areas in order to reach objectives and gain the needed skills they are lacking in.
They then need to think of how they will achieve objectives they have not been able to reach. They will then need to implement the chosen way of handling the objective not reached and set a time limit from then on in which it can be reached.
At the end of this process of setting objectives they can then measure the performance of Sainsburys as a whole and look at their current standing in market share and profits. as well as this they can monitor the performance of each department assessing where improvement could be made.
Functional Areas within the Business
There are many tasks every business needs to do if it is going to succeed. Each of these tasks is described as being a function of a business. The following is a diagram of the functional areas that exist in Sainsburys
The following is an introduction to each of these functions at Sainsburys and how they help reach objectives:
-
- ensures the business has the best staff for the job and that they are able to work effectively in a safe environment. They are concerned with the following:
- planning- here they must look at the labour needs of Sainsburys and ensure whther or not they have the right number of staff with the right skills. If no they need to recruit new staff
- recruitment and selection- here Sainsburys must ensure that when recruiting they select the best person for the job with the right skills
- training- this can be training existing staff as technology is changing
- performance management- employees are set tasks to reach and then monitored on their performance.
The human resource department is beneficial to Sainsburys and it is through this department that Sainsburys can ensure reaching the objective having the right workforce with quality customer service
-
- will keep a record of all money coming in and going out of the business. They have responsibility for securing finances for future expansion and paying staff and suppliers. There are many functions involved in the finance department and they are the following
- financial accounting function- here a record of all financial events that have taken place when they happened is kept (e.g. a balance sheet)
- management accounting function- provides managers with figures to help make decisions (e.g. relating to costing and pricing decisions)
- along with these there is cashiers department and wages department.
The finance department helps the business foresee the cash flow and make adjustments. It can also help with providing budgets over a year not to be exceeded in order to accomplish a future goal of expanding supermarkets.
-
administration- ensure the smooth running of the business on a day-to-day basis. They have responsibility for clerical duties, cleaning, computer and software support, security and health and safety. It is mainly responsible for Sainsburys’ paperwork
The administration department is not one of the biggest departments however they also contribute to the success of Sainsburys. If they did not exist then important documents could easily be lost between other departments due to the responsibilities they have. The administration departments helps to keep Sainsburys organised as a company.
-
- have the task of producing the goods or service in the most efficient way. This is done by making best use of the business’s staff, machinery, building and raw materials. In production at Sainsburys it can be broken down to five main sub functions:
- production and planning department
- the purchasing department
- the stores department
- the design and technical support department
- the works department
All of these functions helps Sainsburys to reduce costs in production because technology is advancing and machines can do the job quicker with a higher output. Also they bring out new products wich are of great quality benefiting Sainsburys and helping Sainsburys reach their objective of providing quality products
-
- will try and maximize the level of sales by carrying out market research and promoting the goods or service through a motivated sales team. They are concerned and responsible for identifying, anticipating and satisfying consumer requirements profitably. It is primarily concerned with investigating consumer needs and wants. This involves market research. It is believed that if Sainsburys does not look after customers someone else will.
Without this department Sainsburys would not be able to sell the products and make such a profit because the marketing department promotes products to the public which they know they want and need. Thus they help in the objective of profit maximisation.
-
- will help the customer before and after a sale has been made by providing information, giving advice, providing credit facilities, delivering goods and providing after-sales support.
This section can tend to come under marketing in the sense of looking after customers. However at head office there is a department devoted to customer service to deal with customer complaints. This helps providing a quality service.
-
- will help the business remain competitive by developing new goods and services and updating the existing ones
-
Use of - ICT will be used in each of these functional areas and it should assist the business in achieving its aims and objectives.
All of these departments at Sainsburys contribute to achieving the overall objectives. Each one is as beneficial as the other and without them Sainburys would not survive.
Sainsburys may identify divisions within functional areas, for example the area may be divided into recruitment, and health and safety.
It is important that the different functional areas of the business work well together. This is because many aspects of a business’s activity will involve different functional areas in order for Sainsburys to reach its objectives.
A who works on his own will be responsible for all of these functional areas. The diagram (right) shows how a one-person business has to control all of the functional areas.
This can be compared with Sainsburys where each has its own department with a specialised manager. Larger businesses like Sainsburys thus have an advantage over smaller ones as they can employ specialist managers whereas the owner of a one-person business has to be a “jack of all trades”.
Within the functions howver there will always be constraints affecting the running of the Sainsburys. These are external and internal and are as follows:
External constraints
- Political- Government legislation’s
- Economic- inflation/unemployment
- Social- culture/trends
- Technical- technological advancements
Internal constraints
- Limited resources- skilled workforce, finances, technology
- Management- personality, style
- People- skills, ability, resistance to change
.
Management Styles
Managers have to perform many roles at Sainsburys and how they handle various situations will depend on their style of management. A management style is an overall method of leadership used by a manager. There are two sharply contrasting styles that will be broken down into smaller subsets later:
Each style has its own characteristics:
Autocratic: Leader makes all decisions unilaterally.
Democratic: Leader permits subordinates to take part in decision-making and also gives them a considerable degree of autonomy in completing routine work activities.
Combining these categories with democratic (subordinates are allowed to participate in decision making) and directive (subordinates are told exactly how to do their jobs) styles gives us four distinct ways to manage:
Directive Democrat: Makes decisions participatively; closely supervises subordinates.
Directive Autocrat: Makes decisions unilaterally; closely supervises subordinates.
Permissive Democrat: Makes decisions participatively; gives subordinates latitude in carrying out their work.
Permissive Autocrat: Makes decisions unilaterally; gives subordinates latitude in carrying out their work.
Managers must also adjust their styles according to the situation that they are presented with. Below are four quadrants of situational leadership that depend on the amount of support and guidance needed:
Telling: Works best when employees are neither willing nor able to do the job (high need of support and high need of guidance).
Delegating: Works best when the employees are willing to do the job and know how to go about it (low need of support and low need of guidance).
Participating: Works best when employees have the ability to do the job, but need a high amount of support (low need of guidance but high need of support).
Selling: Works best when employees are willing to do the job, but don’t know how to do it (low need of support but high need of guidance).
The different styles depend on the situation and the relationship behavior (amount of support required) and task behaviour (amount of guidance required).
Sainsburys uses a democratic style of management and with result the employees feel that their contribution is helping Sainsburys reach its objectives. If the employees are happy then the manager is happy and it is essential that there is peace between the two.
Organisational structure and Culture
Businesses are structured in different ways with different levels of management. Some have many layers of management, while others have very few. These structures vary according to the type of market each business is operating in. below is a diagram of the organisational structure at Sainsburys. Let us look at it to disern what kind of structure Sainsburys operates under:
Sainsburys has many separate functional areas so it is wise to say that it is under a hierarchical structure. This involves many levels of management and is likely to be divided into separate departments. It relies on a strong chain of command from top to bottom and good communication channels. Orders pass down the levels and information passes up.
The importance of organisational structure is that it:
- affects morale and motivation
- influences the recruitment
- makes workers change resistant
- affects productivity
These factors all come under the structure of a business. So far we have seen that Sainsburys has a hierarchichal structure with a clear chain of command. Let us now look at the culture that exists at Sainsburys.
Every organisation has a distinct culture. Sometimes the culture is fragmented and difficult to understand, but most organisational cultures are very strong. In these organisations, you can sense a great deal about the culture by just walking into the building and observing how you are greeted by others and how employees complete their work. As a result of the changes in our nation's culture, more organisations are finding it necessary to change their cultures from being extremely people-friendly to being more secure. The organisational culture is reflected in the way that employees carry out their tasks and rely on rules and procedures. Cultures can be:
Power culture (central figure in charge of business)
The centralisation of power is the key feature of a power culture. It is frequently found in small organisations where control rests with a single individual or group of individuals. This culture is used mainly in sole traders. This type of culture is autocratic and there can be a feeling of suppression and lack of challenge.
Task culture (matrix structure)
Here there is job orientation. Also teamwork is important. Here there are few layers of hierarchy and the responsibility lie on all members of a team. Individual capability can determine the standing of the business.
Person culture (back-up for an individual)
Here individuals are central. The organisation exists only to serve the interests of those within it. In person culture hierarchy are impossible. These are more likely to be found in co-operatives.
Role culture (best for hierarchical structure)
This is the culture used by Sainsburys. The role culture is typical of bureaucracies. Bureaucracies are large organisations such as Sainsburys in which all members have a defined job. The job description of each worker leaves an impact on the behaviour of any employee. Here there is a clear chain of command and decision making is based on precedent. In the case of Sainsburys role culture is used with a hierarchical structure. This culture is bet suited to Sainsburys because they are a very large company and everyone has a job to do in order for business to go well. Every worker must look at their job description and make sure that they are working accordingly. However problems will always arise in any culture
Influences on organised culture:
- the business environment, including the level of competition, change and the culture of competitors
- the values and beliefs of people, especially those at the top of the hierarchy and other key stakeholders
- the rituals and expected behaviour
- the communication network
The structure of the business and culture all add to its success as well as management style used. Sainsburys successfully acknowledges this and does well to work as a team.
Communication
Communication is a two way process to enable information to be passed from one person or department to another. Communication at Sainsburys is very important and it must be good communication. Good communication enables Sainsnburys to achieve its objectives.
It involves the basic skills of listening, speaking and writing in order to receive, interpret and understand messages and respond accordingly. Communication is more than sending a message from one person to another, but also being understood ensuring that the message is acted upon.
The process of communication helps a business to work efficiently and achieve its objectives. Communicating is:
Providing information – relevant and correct information, flow between employees
Giving instructions – to co-ordinate different activities
Making checks and getting feedback – information flow in order to make corrections to make decisions on future actions
Confirming communication – to confirm for Sainsburys that the message sent has actually been read, understood and that a course of action is in fact going to occur
Communication is essential to Sainsbury’s and the running of the business because it:
Encourages inter departmental co operation and co ordination
- Helps understanding and therefore morale
Reduces miss-understanding and miss-interpretation
Gives the opportunity to identify and counteract dissatisfaction
Keeps employees aware of the change in Sainsburys
Enables feedback to aid management and keep them aware of attitudes
We saw earlier that Sainsburys uses a democratic style of management and we can thus add some extra points on to why communication is needed so much with a democratic style of management:
Facilitates more involvement in decision making and problem solving
Influences opinions and attitudes as well as creating better working conditions
Informs on opportunities for promotion and development
Keeps employees aware of their performance
Clarifies management and workers. Union rules
These are the reasons why communication is needed and can help Sainsburys reach its objectives.
Communication channels can be internal and external
Internal communication is within Sainsburys and can written (memo, letter, e-mail), or oral (face to face discussion, meetings, voicemail, telephone)
Communication technology is increasingly used by Sainsburys. Technology has advanced so much now that Sainsburys has great power to communicate than ever before. There are advantages and disadvantages. With technology advancing so much the internet has become a phenomenon with every business using it:
At Saisnburys the Internet is used for:
- Assessing data in the business
- Sending e-mail
- Accessing Websites
- File transfers
The Intranet is used for:
- Accessing data within the business
- Sending internet e-mail
- In-house training
A new source of communication has just been launched recently known as video-conferencing. Video-conferencing helps make management more efficient, although it can reduce the amount of social interaction and informal communication.
Mobile telephones provide great flexibility, particularly when they are linked up to the Internet.
The management style used reflects the communication. If Sainsburys used a autocratic style of management then managers set effectiveness, and demonstrate their authority, and then expect orders to be carried out. This type of communication does not help business because the workers will not be too sure what they are expected to do and have pressure to try and finish off something.
However as we said before Sainsburys uses a democratic style of management. Let us look at the process of communication below using a democratic style of management:
Democratic Style of management
Tells- manager makes decision and informs group
Sells- manager makes the decision and informs group
Consults- manager listens to suggestions, then lets the group make decision
Shares- manager defines the limits and lets the group make decision
Delegates- manager allows group members to operate within limits
As we can see communication is a vital part to Sainsburys success. The only they can reach objectives is by having good communication with workers internally as well as the public externally.
Production and Quality
Production is combining inputs to create a physical change and end up with a product. The main source of production used at Sainsburys is batch production. This is where a number of identical or similar items are produced in a set or batch. The items need not be for any specific customer but are made at regular intervals in specific quanitities. Batch production involves work being passed from one stage to another. Each stage of production is highly planned.
A key feature of batch production is that, every now and then you have to stop the production process and reset it for a different product. The reason that Sainsburys uses this production is because it is best suited to their needs. They have thousands of products in stores and need all the shelves to be stocked up because customers come back and buy all the stock. Every week they have a delivery of products, which have to go out on the shop floor. They need thousands of the same product because they simply sell quickly.
The process of batch production at Sainsburys begins with raw materials such as wheat. They then go to factories where they use batch production. The factory’s are not owned by Sainsburys and they are known as the suppliers of the products. Sainsburys buys the products at low prices and add value to the products. Let us look at the diagram below to understand this process of production.
Capital
Material
Labor
Energy
Information
Adding value and Quality
One of the main prime concerns of any business is to convert inputs into outputs to satisfy the needs of consumers. Adding value to a product simply means making it more desirable to the final customer (so the customer is willoing to buy more products, at higher prices)
Added value can be found in the difference between the cost of purchasing raw materials and the price which the finished goods are sold for. For services it is sometimes more difficult to see how value is added. Sainsburys will buy in a product from a producer or wholesaler. It will sell the product for a higher price to customers than it has paid for it. the difference in price is added value. Sainsburys is adding value because it is providing a service (making the products available in a convenient location) to the cutomer.
Quality in production
The next factor involved on production is QUALITY. This is because consumers face many goods that supermarkets supply at similar prices, and are likey to consider the quality when deciding where to shop. The importance of quality has grown in recent years and consumers are becoming more aware of this.legislations and cometition with Tesco has forced Sainsburys to improve the quality of their products.
There are three satges in development of quality:
- Quality control – this is concerned with detecting and cutting out components or products that fall below standards. In the past the final product was checked for quality. However the times have changes and the quality is checked in different stages of developpment. This helps find any products below the standard and make sure no customers buy a product which is useless.
- Quality assurance – this is a method of ensuring quality that takes into account customer’s views. Customers may be consulted about their views through marketing research before a product is manufactured or a service provided quality assuracne attempts to guarantee that quality has been maintained at all stages of production
- Total quality management – this is a method designed to prevent errors, such as poor quality products, from happening. the business is organised so that the manufacturing process is investgated at every stage. Every department, activity and individual is organised to take into account quality at all times. Yhe features of total quality management are as follwows:
- Quality chains
- Company policy and accountability
- Control
- Monitoring the process
- Team work
- Consumer views
- Zero defects