CHAPTER 1: INTRODUCTION
Integration of finance function and corporate strategy is the crucial task which determines the long run growth of firm in the marketplace. It integrates all business activities and enables the management to reduce cost of production so as to increase sales turnover. Also, it creates certainty for future business activities and assists management to give upward direction to business. An organization carries out various finance activities which helps in achieving the long term growth. There are different finance activities such as forecasting, financial planning and allocation of financial resources according to specified objectives (Elmassri and Harris, 2011). Along with that, utilizing funds and disposal of profit or surplus are also considered as an important activity for the organization. However, these activities are aligned with corporate strategy so that company can effectively cope up with changing scenario and ensure long run growth of the same in the marketplace.
On the other hand, every corporate strategy is followed by financial decision. It is because success of corporation highly depends on the financial capability. Owing to this, several appropriate finance activities are performed with the help of which the company can access to cost effective sources of finance. Furthermore, corporate strategies can be related to expansion, product development and market development. These strategies generate huge requirement for financial resources and for the same organization is required to take appropriate decisions in advance (Nyamori, 2009). For example, if company is planning to adopt specified strategy then management must ensure that it has available financial resources to implement the strategy in the organization. In this regard, different financial control measures are taken by the management so that companies can avail enough finance for new strategy which it wants to implement (Finance activities, 2015).
Furthermore, by lining up financial activities with corporate strategies, management of corporation should reduce the uncertainty for future business activities. With this, companies can ensure competitive edge in the marketplace by increasing the rate of return. This not only helps to ensure long run growth but also assists the management to assure about sustainability aspect of businesses. Similarly, management will be able to estimate the requirement of financial resources and accordingly effective controlling activities can be implemented for the same (Finance function insight, 2015). It depicts that proper collaboration in financial and strategic activities makes it possible for the corporation to reduce additional expenses to a great extent. It further increases scope of increased rate of return as well as customer base (Schoute and Wiersma 2011).
The current dissertation has been done on the retail industry of UK. It provides wide range of products and services to number of buyers. This provides huge employment opportunity to local community in different sectors. It consists of several sectors like customer services, visual merchandising and warehouse as well as supply chain. Apart from this, different department of retail corporations like finance, human resources as well as marketing and IT department have huge requirement of competent personnel. Further, retail sector of UK is leader in term of innovation (Vinal, Umesh and Mary, 2014). It caters need of customers by providing them with high end services and further assists in increasing their level of satisfaction to a great extent. Further, many of the international brands have opened their stores in UK in order to increase sales turnover as well as profitability. Similarly, many events are organized in UK like London Fashion weeks and Olympics which invite customers from overseas. This in turn has increased the scope of local retailers in an effectual manner. Companies operating in retail sector of UK deals in clothing, grocery and fashion products. Along with that other specific products like electronic, cosmetics are also provided by the firms.
The corporations which are undertaken for collecting primary data are Tesco, Marks & Spencer and Morrison’s. John Lewis partnership and Sainsbury have also been considered. These organizations are outperforming in the marketplace and have potential to expand itself at the global level. All these corporations formulate several corporate strategies and ensure that all financial activities are aligned with same. With this, company can effectively run their businesses and creates competitive edge in the marketplace. However, the improper management of financial resources forces the management in managing all business activities effectively. Further, managing financial activities is not only the crucial aspect for long run growth but also it creates value for the invested money (Herbert, Murphy and Wilson, 2004). It aids to meet the expectations of all stakeholders. Apart from this, value creation opportunities are assessed by proper assessment of internal or external environment. It facilitates to improve efficiency of company and expand the same at global marketplace. In this regard, efforts are also made by corporation to strengthen overall finance capabilities which give upward direction to the business. Similarly, weaknesses related to finance need to be evaluated properly which in turn enables the management to implement right strategy on the right time. It proves to be effective to achieve short as well as long term objectives. Apart from this, finance activities eliminate less important information in order to take appropriate decision for achieving long run growth. In addition to this, financial activities ensure proper control related to taxes, cash flow and working capital (Higson, 2003). It provides full support to managerial strategies and aids them to achieve specified objectives effectively.
1.2 Significance of the study
The study under investigation is important because retail industry of UK is highly innovative. Owing to this, all corporations operating in retail sector must put effort to align their finance activities with corporate strategies. It is the only mean to ensure long run growth of the firm with increased rate of return. However, the current study is helpful for all sectors like service, hospitality etc. By this, management will come to know about the issues which being faced in ensuring long run growth of the firm. Thus, current research is helpful to propose different ways through which various corporations can align their finance activities with corporate strategies. Apart from this, study lays emphasis on different finance activities employed within the company along with their role in fulfillment of corporate objectives. With this, different retail companies can come to know about the linkage of finance function with their proposed strategy so as to create competitive edge in the marketplace. It proves to be effective to meet expectations of customers and reduce the cost of production.
Furthermore, current study is also helpful for researchers who are conducting their studies in the same field. It is because prevailing study will serve as the source of data collection for them. Further, business or other industries which are facing issues in implementing their corporate strategies will also get benefits from this dissertation. It will help thew management to highlight key issues and resources constraint that can be addressed in advance. Apart from this, present study is also helpful in academic point of view as it provides critical evaluation for studies which are done previously. Thus, proposed study is helpful in resolving various issues that are faced by industry as well as other related parties. In addition to this, study will serve as the source of information for those who are conducting their thesis.
1.3 Rationale behind study
Finance and corporate strategy both are the imperative aspect of the long run growth and development of the firm. It assists management to carry out all business activities in accordance with specified objectives. The corporate strategy includes different operational activities of business which are performed to achieve the desired objectives of company. However, finance activities are also performed in the same direction so that company can achieve its specified objectives within the stipulated time span. However, retail sector of UK is developing at rapid speed but the organization operating under the same are facing intense competition. Furthermore, integration of financial activities and corporate strategy proves to be helpful in successful implementation of corporation of strategy. The reason behind alignment of these two aspects is to ensure long run growth of the firm with increased rate of return. Also, this will have positive impact on performance of a corporation because this will help the management to achieve long term objectives and reduce additional cost to a great extent. Owing to this, current study is being conducted to propose different ways through which finance function can be aligned with corporate strategies. This becomes the strength of retail industry because both finance activities and corporate strategy are handled by the upper level of management.
This way, current study will be helpful in implementing strategy on the right time and reducing cost of production to a great extent. Further, this study proves to be effective for gaining competitive edge and meeting requirement of number of customers in an appropriate manner. In addition to this, study is being conducted to ensure optimum utilization of limited resources and time so that company can achieve long term objectives effectively. The findings of study will be beneficial in managerial aspect as with the help of this they can address barriers in growth and success of companies. Other than this, study assists management of retail corporations to perform finance activities effectively and link the same with corporate objectives. In addition to this, current study focuses on strategic issues faced by retail sector. It will help to address those issues with integration of financial activities and corporate strategy.
1.4 Research, Aim & Objectives
The aim and objectives of the study have been specified as follows. It provides basic guidelines to the researcher to collect and analyze the data in an appropriate manner-
- To identify ways through which finance activities can be aligned to the corporate strategies for achieving long-term goals.
- To identify different finance activities employed within retail industry of UK.
- To evaluate role of finance activities in fulfilling corporate objectives within retail sector of UK.
- To analyze relationship between finance activities and corporate strategies for achieving long term goals.
- To recognize different ways by which finance activities can be aligned with corporate strategies.
The aforementioned objectives are helpful in conducting study in a structural manner as it develops a deep understanding regarding the topic under investigation. It enables the researcher to collect data in an appropriate manner so to draw valid outcomes from the same. It also proves to be effective in proposing valid suggestions for the retail sector.
The research questions for the proposed study have been listed as follows-
- What are different types finance activities employed within the organization in retail industry of UK?
- What is the role of finance activities in fulfillment of corporate objectives?
- What is the relation between finance activities and corporate strategies in achieving long term goals?
- What are different ways by which finance activities can be aligned with corporate strategies?
The above listed research questions are formulated according to research aim and objectives. It enables the scholar to gather large amount of data and use the same for fulfilling research aim. Furthermore, with the help of research questions, valid outcome can be drawn so that management can take corrective action at the time of implementing the corporate strategies.
1.5 Framework and analysis
Framework and analysis is the most important part of study because it includes number of tools and techniques. For the current study on identification of different ways through which finance function can be aligned, following tools and techniques have been used. These tools are appropriate in achieving specified objectives and deriving valid conclusion out of the same.
Research design- Research design is the effective means to present the report in a specified format. Here, in the present research, descriptive research design has been used in order to conduct study in a structural manner whereby readers can easily understand findings of the same.
Research type- The current research will be conducted on the basis of qualitative approach. This approach proves to be effective to analyze the data in theoretical aspect and it aids in producing valid outcome from the collected data in the direction of aim and objectives of study.
Research approach- The research under investigation will be based on inductive approach in which the study will move from general to specific direction. The research approach decides the path of study and helps the scholar to gather data in an appropriate manner. Furthermore, use of inductive approach facilitates in developing deep understanding regarding decision to be made by aligning finance activities with corporate strategies.
Research philosophy- For the current research on different ways through which finance activities can be aligned with corporate strategies, interpretivism philosophy has been used. It aids in developing deep in-sight about the topic so that valid outcome can be generated.
Data collection- For the current research, data will be collected from both primary and secondary sources. In this regard, primary sources such as questionnaire have been used in order approach respondents. On the other hand, secondary sources like journals, books and published material have been referred for creating strong database.
Data analysis- In order to analyze the collected data, qualitative method has been used. However, thematic analysis has been applied to analyze the collected data. Here, overall analysis will be done in accordance with individual themes. Furthermore, thematic analysis provides detail discussion for gathered information so that research can effectively produce fruitful outcome in the light of research aim and objectives.
1.6 Structure of the study
The structure of dissertation consists of five chapter which helps to present overall information in an appropriate manner. It also enables the readers to understand the key issues, ration of the study along with solutions of the research problem. For the current study on analysis of different ways through which finance activities can be aligned with corporate strategies are listed as follows-
Chapter 1introduction: It is the first chapter of dissertation that consists of detail information related to topic under investigation. This includes topics like background, rationale of the study as well as aim and objectives. Further, potential significance of study is also explained by which readers can understand focus and purpose of the study.
Chapter 2 Literature Review: It is the second chapter of dissertation in which the strong data base is created for the research topic. It aids to develop deep understanding among researchers so that they can propose valid suggestions. . Further, this chapter lays emphasis on studies done previously. Apart from this, critical evaluation is also done for the collected data which enables the researcher to fulfill formulated research questions effectively.
Chapter 3 Research Methodology: At the completion of literature review, research move towards next chapter which is of research methodology. It consists of different tools and techniques for data collection and analysis. Thus, this chapter will provide detail explanation of each of tools which are being used in the current study.
Chapter 4 Data findings and analysis: The chapter following the research methodology is data analysis. In this chapter evaluation of collected data is done in accordance with research aim and objectives. This in turn helps to propose valid suggestions. In addition to this, appropriate techniques will be applied to draw valid conclusion from collected data.
Chapter 5 Conclusion and Recommendations: It is the last chapter of dissertation which concludes overall study in brief. Here, emphasis is laid on secondary data and data analysis chapter. This proves to be effective in drawing valid conclusion and providing suggestions in the light of research aim and objectives. In addition to this, recommendation will provide valid suggestions in for aligning finance function with corporate strategies so that corporation can achieve their long term objectives easily.
1.7 Research limitations
Research always consists of some limitations and researcher also must take all them into considerations. For the present study on identification of different ways through which finance activities can be aligned with corporate strategies for achieving long term objectives different research limitations have been considered. These limitations are related to data collection process which creates barriers in completing study on the right time. Here, problems may be faced at the time of collecting data. At the time of collecting primary data there may be problem related to population. This is because small number of population cannot be considered for the common view points of all targets populations. However, appropriate number of respondents has been selected in order to resolve this issue. Further, some of the sites were restricted to use thereby it might be possible that some important data are left to include in the study. Although, prior information have been taken for the sites in order to access important data. Further, citation of the collected data is also done which determines the ethical conduct of overall study.
CHAPTER 2: LITERATURE REVIEW
Literature review is one of the most important chapters of dissertation because it creates strong database in which the researcher reach at the aim of the study. It includes number of secondary research conducted previously which helps in developing deep understanding on topic under investigation. The literature review is also the effective means to recognize existing gap of the present study. With this, scholar can put efforts to investigate what has not been studied yet. Further, critical evaluation is also done in the secondary research thereby scholar develop strong theoretical base in the light of research objectives. For the current research on the topic identification of different ways through which finance activities can be aligned with corporate strategy have been explained constructively. The data collected for the study will highlight main studies which have been done in the same area.
2.2 Different finance activities employed within the organization
All the organizations perform different kinds of finance function activities for effective management of all business affairs. Without performing finance activities, an organization cannot move in the upward direction. It is very important for the firm to take appropriate fiancé finance decisions for to implement corporate strategy. According to Kaplan and Norton (2006) there are number of finance activities such as investment, finance, liquidity and dividend activities. All these activities are inter-connected and related to each other and they direct aim towards achieving long term goals. It assists the corporation to secure good position at workplace and create competitive edge. He further explained that, investment decision plays vital role as it helps to acquire, modify and replace the assets which are required for carrying out business activities. At this juncture, finance manager analyses the long term investment proposal and accordingly take decision for its acceptance or rejection.
Further, Holbeche (2009) asserted that, activities covered in taking investment decisions are net present value method, internal rate of return and accounting rate of return. These all activities help the management to take right decision for selection or rejection of the project on the basis of time taken in recovery of initial investment. The aspect of investment activities are directly related to the corporate strategy. This is because organization aligns their corporate strategy with major finance function so they can implement strategy in an effectual manner. He further stated that investment decisions are made by analyzing the internal and external factor of the corporation. Apart from this, upper level management and finance department coordinate with each other to fulfill the finance requirement of the corporate strategy.
Baier, Hartmann and Moser (2008) reported that, financial decisions are taken in accordance with proposed corporate strategy. In this regard, finance department access different sources of finance which can effectively meet the requirement of business. It consists of equity shares, bank loan, leasing companies and retained profitability. However, cost and implication of different sources are considered while selecting the sources of finance. A counter argument might be that financial decisions are also taken to improve financial performance of the firm. This is considered just because to provide certainty for future business activities and increase the overall rate of return of an organization.
Chan, Sabherwal and Thatcher (2006) explained that, corporate strategies are growth, stability and renewal. All these strategies must require good amount of financial resources which determines increased rate of return. For example, if an corporation adopt growth strategy then it is required to arrange necessary resources for them same. At this juncture, company can implement strategy without any kind of barriers. He further argued that most of the time management also access to costly sources of finance. This is because it may incur cost of production at the initial stage. However, costly aspect of sources of finance gives profitability to the firm at certain point of time. Further, selection of internal and external sources of finance is followed by environmental analysis of an organization. Apart from this, recession and other significant factors also force the company to adopt appropriate strategies. Owing to this, management also needs to focus on favorable and unfavorable situation. This in result help an organization to align corporate strategy and finance function together so that long term objectives can be achieved successfully.. Similarly, finance executives coordinate with each other and prepare themselves to adjust with the prevailing conditions. This is one of the effective ways to cope up with change and put efforts in achieving long term objectives.
According to Huang and Hu (2007) dividend decisions are made according to current business situations. Here, net income after payment of dividend to preference shareholders belongs to equity shares. Furthermore, management also need to consider that there are not any legal obligations to pay dividend to equity shareholders. In this regard, decisions are taken for allocating the remaining profit in most profitable alternatives. With this, corporation can achieve long as well as short term objectives productively.
Chan, Sabherwal and Thatcher (2006) report that several factor needs to be considered at the time of taking decision for dividend. It consists of legal provision, desire of shareholders, nature of industry and taxation as well as control factors. All these factors are considered by companies at the time of declaring dividend. For example, financially weak investors tend to prefer dividend on right time rather than seeking growth of corporation. This could be challenged on the basis that other stakeholders may not be satisfied. Owing to this, management of an organization ensures well being of involved parties. It is one of the effective means to determine long run growth of the firm with increased rate of return.
According to Decoene and Bruggeman (2006) number of financial factors affects dividend decision of an organization. These factors are; dividend per share, face value, dividend payout ratio and current ratio. It enables the management to take right decision in the light of main objectives of the company. It shows that corporate policies or strategies affect dividend decision of management. In this regard these two activities are aligned together. For example, in case of expansion strategy company can allocate remaining profit in investment activity only. However, this may result in dissatisfaction of some of shareholders but will provide enough monetary benefit for the firm. This shows that coordination among all departments must be ensured so that finance activities can be performed accordingly.
According to Kearns and Sabherwal (2006) working capital decisions lies in most important finance function as it serves as the backbone of the firm. Decisions related to working capital are made for managing current assets like bills receivables, cash balance as well as inventory. Here, value creation opportunities are referred by the business because management gets necessary information for smooth flow of production. This proves to be effective for long run growth of the firm because working capital is arranged by managing cash effectively. Similarly, decisions related to credit period are taken in context of suppliers as well debtors. This makes it possible to ensure enough liquidity in the firm in which customer requirement of cash can be fulfilled without any kind of barriers. Further, short term decision is required to be taken for fulfilling the need of working capital.
Velcu (2010) states that credit policies are formulated according to the business situation. For example in case if company is running through lack of cash then it may reduce the credit period given to debtors. On the other hand, credit purchase time can also be extended so as to ensure smooth flow of production and to meet the requirement of customers effectively. Likewise, cash conversion is the effective aspect for arranging working capital on right time. It depicts that there must be enough availability of liquidity in an organization so that corporation can meet its short term obligations. Thus, decisions related to credit policy also highly depends on the corporate strategy. It facilitates in reducing cost of production and retaining large number of buyers. Further, management of financial activities consists of broad part thereby production flow can be maintained and expectations of different stakeholders can be met.
According to Al-Debei and Avison (2010) routine finance activities are the key driver of business management. These finance activities assists the organization to carry out all business activities effectively and manage other actions purposed in the direction of growht and expansion of corporation . In this regard, proper reporting is done for the financial performance of the company so that stakeholders get right information in the appropriate time. Further, safeguarding cash balance is also major activities through which corporate strategy can be implemented successfully.
Aguilera, Filatotchev, Gospel and Jackson (2008) asserted that credit management is another routine activity by which company develops relationship among suppliers and customers. This in turn proves to be effective for speeding up the flow of production. Furthermore, developing good relationship with stakeholders indicates good image of firm in the marketplace. Along with that, supervision of cash receipts and payment is the daily finance activities through which settlements are done in an effectual manner.
2.3 Role of finance activities in fulfilling corporate objectives
According to Kathuria Joshi and Porth (2007) main finance activities are helpful in giving right strategic direction to the organization. Finance activities delivers value through management of business performance. It helps in giving upward direction to business as management makes use of effective tools and techniques. However, finance is the imperative requirement of businesses where companies prepare and plan internal financial information. This information facilitates to implement effective strategy in which the company can get increased rate of return. However finance function is considered as an effective means to improve business performance of the company. This is because finance department of an organization manages different activities of the company so as to give upward direction to business. For example, finance activities consider stakeholders of the firm and try to meet their requirement effectively. In this regard, Stakeholders theory has been explained which is as follows-
According to the shareholder’s theory of organization is not merely responsible towards shareholders but also other internal as well as external parties who are associated with it. Here, internal stakeholders are basically the shareholders, employees and management. On the other hand, customers, suppliers, creditors and government as well as competitors are the external parties who are indirectly connected with the firm. According to Schuler and Cording (2006) shareholders are required to pay timely return. Also, they must be provided with information on right time by publishing annual report. Similarly, by using range of finance activities, the corporation ensures that owner's capital is being utilized effectively. The finance activity directly works towards meeting expectations of shareholders which in turn determines the long run growth of the firm.
Hu and Huang (2006) stated that employees are also the internal stakeholder who requires timely payment, fair compensation on the services which they provide for the company. They seek for job security as well as their personal growth which help them to meet their career goals effectively. At this juncture, retail industry of UK has provision of proper working conditions and equal treatment with all employees. However, employee’s law of UK is strictly followed by the sector in order to increase level of satisfaction among personnel. Likewise, retail sector is also responsible towards customers. Further, product related issues are resolved with quick response so as to increase customer satisfaction and retain them for longer time span. Also, efforts are made by retailers to build good relationship with consumers which aid to generate positive attitude among them. Hatch and Schultz (2008) stated that supplier’s expectations are fulfilled through placing regular order, payment of dues on right time and dealing on the basis of fair terms and conditions. Furthermore for creditors, the company must provide necessary information on right time and avail fair return on money invested by them. This builds confidence among creditors as they get interest and see financial stability of firm. In addition to this, competitors are also provided with good environment with ethical practices and fair trading. Moreover, retail sector is also responsible towards the government. In this regard, taxes are paid on right time by following specified rules and regulations.
Chandra (2011) reported that the main objectives of retail sectors are increasing sales turnover, expanding business and covering large market. Along with that retention of customers as well as employees, high profitability and creating goodwill of firm in the marketplace are the main objectives. In order to accomplish these objectives finance function plays vital role. For example, for retaining workforces monetary reward are designed which in turn assist in fulfilling specified objectives of firm. Further, Versteeg and Bouwman (2006) explained that by adopting different cost strategies overall cost of production is reduced to a great extent. This aspect is directly linked with profit maximization of the firm. It shows that cost strategy is also one of the most important finance function activities which affect both sales turnover as well as rate of return. With this, pricing strategies can also be changed in order to provide products and services in affordable prices. This again helps to attract buyers and helps in creating goodwill of the firm in the ma