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ECONOMICS
Question 1
a)
In the modern times, organsiation focus solely on value creation rather than profit maximisation. Although the sole motive of business is to earn profit as earlier, but the same concept has evolved from merely shareholders approach to stakeholders approach. The broader definition of value for an organsiation involved development of all the stakeholders of the company including employees, customers, suppliers and the society. The organsiation aim at improving the business process and ethical business practices to ensure active contribution towards the society.
According to Tantalo and Priem (2016), the most important requirement of an organsiation is to create value for the customers of the business. If the value provided can be justified with the price charged for the product or service, the customer will be satisfied. This will lead to increase in the volume of the business, which can help in taking advantage of the economies of scale. However, the process of Value creation for the customers should not lead to negative value for other stakeholders. It has been observed that in order to reduce the cost of the offering, companies tend to adopt unethical employee practices, cheaper process, which negatively affects the society.
Value creation in being recognised as a better management goals than merely financial performance of the company. A financial stable company may not create value for all the stakeholders that will not be beneficial for the organsiation in the long run. Value creation involves improvement in prices of stock in the stock market, development of society, development of employees, optimisation of processes along with reduction in pollution and other activities that negatively affect the society. It also involves creation of a brand value, which will attract more business in the future. Large companies like Amazon, Apple and others have created a large brand value, which has been helping in doing business in large volumes across the globe.
As noted by Garcia-Castro and Aguilera (2015), analysis of the external and internal environment of a business is critical for the success or failure of a business. The most effective tools used across the globe for such analysis are PESTLE and SWOT analysis. PESTEL helps in analysis of the external environment of the business that includes Political, economic, social, technological, and legal and environment issues affecting the business. On the other hand, SWOT analysis involves analysis of the strengths, weaknesses, opportunities and threats of a business. Profits can be considered as a short-term objective of the firm. However, for long term sustenance, focus should be on the value creation. In order to create value for the stakeholders, an effective analysis of the material risk and opportunities is of prime importance.
In order to create value for the stakeholders, understanding the present position of the stakeholders is important. This helps in identifying the threats and opportunities for the stakeholders and the firm can take measure to mitigate such threats or cash such opportunities. Value creation not only ensures profit for a business, but it also ensures benefit to the stakeholders. The ethical way of doing business implies that one should return something to the society as the profits are being generated because of the resources supplied by the society. Broad definition of value creation involves contributing something towards the society for its effective development. Therefore, keeping the perspective in mind, the managers can analyse the external and internal environment and take decisions in accordance to that. As noted by Garcia-Castro and Aguilera (2015), analysis of the external and internal environment of a business is critical for the success or failure of a business
As commented by Adams (2017), a clear focus is important for creating value for the stakeholders. Profits for a business should be secondary but the primary should be value creation. For example, an organsiation involved in activities that lead to excessive pollution should be checked and be considered as a threat towards the process of value creation. Negatively impacting the society and environment can never lead to value creation. Therefore, keeping in mind the motive of value creation enables the managers to effective identify the threats and opportunities towards value creation. If the managers focus only on profit, the efforts would be towards reducing the cost of production at the cost of employee, society and environment. This would lead to short-term profits but the same would negatively affect the image of the organsiation. This will negatively affect the growth of the business in the long run. The opportunities and threats in the process of value creation are always different for different organsiation. However, the opportunities in case of value creation can includes implementation of better human resource practices, optimising the process to reduce the wastage of resource along with adopting eco-friendly practices for production of goods and services.
According to Agarwal, Kaushik and Rahman (2015), active involvement in Corporate Social Responsibility can also be an effective way to create value for the stakeholders of the company. This would involve contributing something towards the society, which can help in improving the brand image of the company. On the other hand, the threats can include negative effect of labour unions, mass protest form the society due to environment pollution, excessive wastage of natural resources, adopting unethical practices to increase short-term profits, manipulation of accounts for benefits of owners and other such issues. All these issues can lead to short-term monetary benefits, but the effect in the long run would be worse.
Therefore, the firms should think beyond monetary profit or gain and create value for al the stakeholders of the company. The list of stakeholders includes the owners of the organsiation. Therefore, benefit to the stakeholders will ultimately lead to benefit for the owners along with establishment of a superior image in the society. This will lead to the acceptance of the products of the company in the society. According to the views of Reypens, Lievens and Blazevic (2016), companies that have focused on value creation in the past are the zenith of success in the modern times like Amazon, Berkshire Hathway and others. On the other hand, organsiation like Worldcom, Enron and others that focused on short-term monetary gains have seen downfalls along with negative impact on the image of the owners. Therefore, ethical way of doing business and creating value for the stakeholders may not lead to short-term monetary benefits but will surely lead to long-term value creation for the organsiation.
b)
As noted by Coulson et al. (2015), there are six forms of capitals involved in a business and the same are Financial, manufactured, intellectual, human, social and relationship and natural. The primary purpose of an integrated report is to inform the financial capital providers about the way in which the organsiation plans to create value over time. The capital providers should be provided a view of both the qualitative and quantitative information and the best way out is to provide information about all the six type of capitals. In order to grow in this competitive market, every organsiation requires a set of strategies to be implemented for future growth.
In the recent times, there has been active depletion in the climate due to production activities, pollution and other lack of information and knowledge among the public. Excessive use of natural resources lead to depletion of the same and also lead to climatic instability. The United Nations has framed a list of 17 goals to make the world a better place to live in. The same includes Quality education, poverty eradication, no hunger and other such goals for development of the society. The integrated report provides information to the stakeholders regarding the position of the different types of capitals in the company.
According to the views of Adams (2015), multiple capitals of integrated reporting can be aligned with strategy to address climate change and contribute to UN Sustainable Goals up to a great extent. The integrated reporting provides qualitative information to the public regarding the status of different capitals in the company. In the society, organsiation play an integral role and therefore alignment of the organisational strategy can play an important role in dealing with the issues of climate change and achieving the sustainable goals of the United Nations. Nature is an important part of the integrated reporting therefore, effectively analysing the natural capital involved in the business can help in dealing with the climatic change. In the recent times, there has been active depletion in the climate due to production activities, pollution and other lack of information and knowledge among the public. The impact of the business on the environment is mentioned in the integrated report in detail. Therefore, effective analysis of the same can be helpful in framing strategies with deal with the climatic issues. Use of eco-friendly processes, lesser wastage of resources and others such steps can help in dealing with the climatic issue up to a great extent.
According to the opinion of Simnett and Huggins (2015), social and relationship capital along with human capital are also an important part of the organsiation. Identifying the benefits that a business can provide to these capitals can be an effective way in achieving the sustainable...