Document 1 of 100

A corporate effort towards a sustainable business model

Author: Høgevold, Nils M

ProQuest document link

Abstract:

Purpose - The purpose of this paper is to describe a corporate effort to implement a sustainable business model. Design/methodology/approach - A Norwegian producer of office chairs, selling products across Europe, is examined in this study. Information has been collected from semi-structured interviews with top-level management, as well as available internal and external documentation. Findings - The company's efforts towards a more sustainable business model can broadly be divided into factors within the company and factors outside the company. The case study demonstrates how the carbon footprint on the Earth can be reduced by focusing and influencing factors outside the company's own production facilities. Research limitations/implications - In a highly competitive market, the case study demonstrates that focusing on the corporate impact of the natural environment can be highly profitable. Practical implications - The process towards sustainable business operations must be anchored and supported by the top-level management and owners of the company, and it has to be a long-term commitment. Originality/value - The principal contribution from the presented case study is how a more sustainable business model can be achieved even when the majority major part of the carbon footprint on the Earth is generated outside the company's production facilities. The case study illustrates how already known technologies are used to create a sustainable and profitable business. [PUBLICATION ABSTRACT]

Full text:

Sustainable Business Models

Edited by Göran Svensson and Beverley Wagner

Introduction

The UN - report [7] IPCC WGI - Fourth Assessment Report (2007) points out that global warming can lead to dramatic consequences on Earth. The report describes:

- human and natural drives of climate change;

- observed climate change;

- climate processes and attribution; and

- estimates of expected future climate change.

A consequence of the report is the urgent need for sustainable business operations. However, as Svensson points out, local practices have to be linked to global sustainability of business and other practices. This has only to a minor extent been addressed in previous research.

An important event took place in Copenhagen when political leaders from some 200 countries from around the world came together to meet discuss the challenges of climate change ([4] COP15, 2009). Unfortunately this summit did not generate any explicit commitments to care for the Earth and guide governments. It may look like as though the business world has to take the lead in solving the climate challenge.

Interestingly, many companies do believe it is necessary to achieve sustainability across the supply chain ([14] Turner, 2009). Also, a study by A.T. Kearney revealed that 60 percent of firms have adopted sustainable business practices that strengthen brand names or differentiate their products ([8] Mahler, 2007). The understanding of a brand today is no longer only linked to the product, but includes how the product is made, who the suppliers are, and how it is delivered ([10] Mulani, 2009). By investing in people, ecological impact and local communities, brand value and reputation may increase ([2] Byrne, 2007).

The interest in sustainable business operations is not a recent topic. [1] The Brundtland Report (1987) also pointed out the importance of sustainable business models and concluded that sustainable business operations, their appropriate business models and their development should meet present requirements without compromising the ability of future generations to meet their own needs. To our knowledge, research in this field is not addressing the core requirements of sustainable business operations and sustainable business models. The objective is to describe a corporate effort to implement a sustainable business model.

The case study of HÅG

The current case study is based upon HÅG (www.hag.no), which is a Norwegian brand of office chairs from Scandinavian Business Seating (www.sbseating.no). The data were collected from internal and external sources as well as semi-structured interviews with top executives of the company.

The company's headquarters are located in Oslo, while the production plant is at Røros. It is a village small town approximately 400 km north of the company's headquarters. This is where seat fittings are produced - a production process consisting of pressing steel, welding, surface treatment and assembling. The office chairs also contain aluminum, plastic, foam and textile. The assembly of office chairs is strictly based upon confirmed customer orders.

The assortment of office chairs consists of nine different collections. The current production is 350,000 office chairs annually with a turnover of 73 million generating a 5 percent profit. The European market outside Norway represents three quarters of the corporate sales. The sales in export markets are organized in daughter by subsidiary companies or agents, and distributed through local retailers.

Corporate environmental profile

HÅG's office chair has chairs have achieved considerable recognition in the market. For example, its office chairs were selected to be used during for use at the COP15 Climate Conference in 2009. COP15 in Copenhagen expressed a desire to use products with an explicit environmental profile derived from three requirements:

there should be corporate environmental awareness and consideration throughout the product's life cycle;

that the number of hazardous work processes and waste should be minimized; and

that materials used in the products should be recyclable.

HÅG was the first office chair producer worldwide complying to comply with the environmental product declaration (EPD) on all its products. The calculations of EPD are based on the guidelines of ISO 14025, which specifies the principles and procedures for developing an environmental declaration program. The ISO 14025 defines the elements to include the lifetime assessment for a product. For example, one value measured in the document is the total amount of carbon dioxide emissions caused by a product throughout its life cycle, from the extraction of raw materials, through processing, transport and production, to its use and final disposal. The company was also the first one in their product category to be granted "The Nordic Ecolabel", which evaluates a product's impact on the environment throughout its whole life cycle. HÅG chairs were also profiled by the Norwegian environmental organization Bellona as one of the 101 solutions to the climate crisis, which contains examples demonstrating that the enabling technologies for significant reductions of the carbon-footprint on Earth are in fact available today.

These recognitions are the results of the corporate environmental efforts for almost two decades and the vision, as expressed by the CEO Lars Røiri: "[...] to make the world a better place to sit [...]". It refers to the company's environmental impact on Earth as well as the ergonomic design of their office chairs to safeguard the well-being of the person sitting in the chair and to ensure a correct sitting position, HÅG chairs are designed to allow constant movement.

The structure of the case study is as follows:

- HÅG's impact on the natural environment;

- the driving forces behind HÅG's environmental profile and efforts;

- the impact on purchasing policies; and

- other aspects such as transportation and an examination of how the marketplace values a more environmentally friendly product are examined.

The natural environment

After consulting with an external research partner, Ostfold Research, HÅG started in 1994 to apply a life cycle assessment measuring its impact on the natural environment. The carbon footprint caused by the company in 2009 is about 15,000 tonnes. The production plant and sales offices generates only a minor share of 2,500 tonnes, where 95 percent is related to the production of office chairs and the rest to the headquarters, sales and daughter subsidiary companies.

Subsequently, the raw material producers, the value-adding suppliers, storage and other intermediaries of the HÅG's supply chain represent more than 80 percent of the carbon footprint on Earth. In sum, production, transports and assembly of the office chairs at Røros represent less than 20 percent as shown in Figure 1 [Figure omitted. See Article Image.].

It seems not only reasonable but crucial to look at the carbon footprint through the whole product life cycle based on the knowledge that the vast majority of the impact on the natural environment caused by the office chairs is not generated by the company itself, but is derived from other sources of carbon footprint previous to the production plant and after the assembly of the office chairs.

Driving forces

The initial seed of prompting HÅG to become more dedicated towards its impact on the natural environment came from a product developer coming back to work after pregnancy leave in the early 1990s. During the leave at home with the new born, she became strongly interested in environmental issues. Once back in the office she convinced the line manager, followed by the top-level management of the company and finally the board, that the focus on the natural environment would be the right thing to do, even though there was no demand or requirement in the market at the time.

Interestingly, the company did not undertake or conduct any explicit market analysis. Furthermore, the customers' opinions were not considered when underpinning the decision. In fact, "doing the right thing" became the driving force of for the company. Later, the top management recognized that being regarded as having an environmental profile would differentiate the company in the long run in relation to the competition, its competitors, even though it should might well take many years to achieve.

Nowadays, HÅG's environmental profile and efforts are an important element of the branding strategy. Being a manufacturer in a high-cost country, HÅG needs to offer customers additional decisions criteria beyond price. Building environmental profile and implementing environmental efforts into the products as a part of the positioning strategy has proven to be highly successful.

Purchasing policies

HÅG works systematically and continuously towards its goals of being a company minimising its carbon footprint on the Earth, not being hazardous to health and contributing to minimal amounts of waste.

To reach these goals, HÅG has strict environmental requirements for raw materials and product solutions. Value-adding suppliers must comply with these requirements and are invited into the product development process in order to contribute to better environmental solutions. To formalize the requirements, HÅG has developed a commitment agreement with all its suppliers - "environmental requirements towards suppliers" (ERS) - that all suppliers must follow.

Important elements in the ERS are the environmental goals for suppliers. They shall at all times use the sector's best practice in their own production processes. The suppliers are evaluated on their use of energy, waste, use of chemicals, and current carbon footprint. It also includes the value-adding suppliers' intentions and plans to reduce their carbon footprint. The ERS also explicitly specifies chemicals and substances that HÅG's suppliers are not allowed to use in production of their goods or services. This list could be compared with an athletes' doping list. If ingredients or substances on the list are used, the supplier will be excluded from future deliveries. Suppliers with environmental certifications such as ISO 14025 are preferred in the purchasing process.

Environmentally oriented companies tend to focus on the carbon footprint through the product life cycle, from "cradle to grave", while others go beyond. For example, HÅG is following the product and examines how recyclable raw materials can generate new products. The life cycle should be seen from "cradle-to-cradle", a phrase coined by Walter R. Stahel in the 1970s. In other words, HÅG takes a step beyond "from cradle to grave" as shown in Figure 2 [Figure omitted. See Article Image.]. Their life cycle approach starts with that the design criteria having an environmental focus that is transferred to procurement processes where recycled raw materials are preferably used in the production of chairs, thereby extending the product life into recycled parts to be used in new products.

When possible, recycled materials are purchased and used as raw materials in HÅG's business operations. For example, bottle tops, car bumpers and household waste like shampoo bottles and ketchup bottles are used. As of today, household garbage from the northern part of Germany is used as raw material. Before being used as recycled raw material, the waste is sorted, washed and melted by an intermediary company specialising in the handling and selling of recycled raw material. After a product life as a chair, one could imagine that the plastic waste from the chair could become a new plastic product (e.g. bucket). To ease the recycling and sorting process when the product life as a chair is over, all parts are clearly marked.

The company has experienced that changing existing products and reducing the impact on the natural environment can be difficult to achieve pose difficulties in achieving the current environmental goals of the company. A more appropriate way is to design new products and incorporate the environmental focus in the design process. On newly developed chairs, 95 percent of the components are recyclable. Textiles and foam are the only components not regarded as recyclable by HÅG, although they can be reused as for example insulation material. When recycled, these components are downscaled in quality and hence not regarded by HÅG's Environmental Report as recyclable components.

As of today, wool, accounting for 1 percent of the raw materials, is the only renewable raw material used in the chairs. It may look strange at first sight. However, wood, bamboo and cotton are considered renewable, but office chairs with these raw materials will not have the quality for a long product life of 15 years. To be able to use more renewable raw materials, a research program is investigating the possibility of replacing plastic with a soybean oil product.

Specifically, HÅG has developed design criteria for new products as follows:

- lower weight meaning less material;

- fewer components meaning fewer tools, less transport and simpler assembly;

- recyclable high-quality material meaning the use of recyclable products in the production process;

- facilitation for re-using the used components in the production process;

- long product life meaning a longer time before the chair has to be replaced; and

- vendors who can contribute to the design process are preferred.

Other companies, like the Swedish fast food chain Max, compensate their carbon footprint with tree-planting ([15] Wagner and Svensson, 2010). HÅG has considered compensating for their its carbon footprint on the Earth by purchasing climate quotas, but has decided not to. The reasons for this decision are:

- The focus on reducing its own carbon footprint could be lost, the management believing that being open on one's own carbon footprint and working systematically on a reduction is a alternative solution.

- Climate quotas can be bought for a reasonable price in today's market, but will probably increase in price in the future. With an increased price, the company may no longer afford to buy quotas and are no longer climate neutral.

- Finally, the management feels uncertain about the market mechanisms in the climate quota market.

Value-adding process

Focusing on environmental issues is a continuous process and under constant revision and enhancement. Customers also demand neutral documentation about the products. An environmental report is published annually including HÅG's:

- environmental policy;

- environmental goals;

- environmental aspects;

- environmental account; and

- material consumption.

Eco-management and audit scheme (EMAS) is EU's voluntary agreement for companies who wants to improve their environmental effort beyond what is regulated or demanded. To be trustworthy in the documentation and to seek new competence, external partners are engaged. For example, Det Norske Veritas (www.dnv.no) is used as an external auditor for the yearly EMAS. Ostfold Research (www. ostfoldforskning.no), a Norwegian research foundation focusing on environmental protection and regional business development, has measured the carbon footprint through the value chain. Ostfold Research is also used as a source of new competences for further developments towards sustainable business operation.

As the CEO of HÅG, Lars Røiri expresses:

[...] to be an environmental friendly company one needs to build a system and to document what is being done. This is not a communication activity, but a challenge to the whole value chain.

Seen in this aspect, external partners are important in the value-adding process by documenting and transferring knowledge.

Transportation and intermediaries

The greenhouse gas protocol for HÅG identifies that the biggest sources of the carbon footprint on the Earth come from the transportation of products from the plant to the customers, as well as employees traveling in business and going to work. Video conference equipment has been installed to reduce business travel, and employees are incurred to be conscious about their travel plans.

The plant is located in an area where the only option for transportation of the finished goods is by truck. The environmental friendlier railroad was closed several years ago and the plant is too far from the sea to view this mode of transportation as an option. Given the fact that trucks are the only alternative, a computer software is used to optimize the transportation logistics. Fully loaded trucks arriving the plant with raw materials and parts are returned with products to the customers. The product packaging and the products are designed for optimal logistics solutions by optimizing the available space on the truck. Currently, the number of office chairs conveyed by one truck has doubled compared to before focusing on this issue. As with other vendors, the transport company chosen is focusing on environmental issues and it is ability to comply with HÅG's environmental requirements for suppliers.

Retail practices

HÅG's distribution channel consists of daughter subsidiary companies or agents in the different export countries. In the local market, independent retailers are selling to the end consumer. These independent retailers cannot be controlled by HÅG, and they have less focus on an environmental perspective. However, HÅG can motivate the retailers to be environmentally concerned by being a role model and using environmental concepts like "long service life", "recycling " and "carbon footprint" in their dialog with the retailers.

Marketplace

Both in the domestic and international markets the environmental awareness is increasing. During the first decade and a half, HÅG focused on the natural environment, but at the time few customers were interested. It is not until the last few years that the environmental profile and efforts of the company have become an important and positive element in relation to the competition. Customers are becoming increasingly aware of the importance of considering the natural environment and are beginning to require documentation of products' carbon footprint. Choosing products with a low carbon footprint helps the customers reach their own environmental goals. In particular, larger customers are concerned with the environmental impact of the products to be bought, and choose products with a proven track record of environmentally friendly production. According to top-level management, the carbon footprint of the products is one of the criteria in all of the bidding competitions in Norway and is regarded by the sales organization as an important factor in the decision process in approximately 80 percent of bidding competitions. To further increase the awareness of recycling, fact sheets follow newly designed products encouraging users to hand back the chairs for re-circulation and inform by informing them how to disassemble them.

Implications and lessons learned

A number of lessons can be learned from the HÅG case. First, focusing on the corporate impact of the natural environment can be highly profitable. Customers, especially larger companies, tend to be less price sensitive when a product with lower carbon footprint is available. The carbon footprint is becoming an increasingly important criterion in the decision-making process of purchases.

Second, the process toward sustainable business operations must be anchored and supported by the top-level management and owners of the company, and it has to be a long-term commitment. As seen in this case, the development towards sustainable business operations has been an ongoing process, and resources have been allocated over time. Sustainability has been seen as a part of the long-term product development process. As the CEO of HÅG expresses: "[...] this is not about market communication, but a way of thinking [...]".

Third, the best results occur when analyzing the whole supply chain, focusing not only on the carbon footprint from the company's production facilities. In this case, we have learned the majority of the reductions of HÅG's derived carbon footprint is external and from sources upstream or downstream its supply chain.

A final lesson is to emphasize the importance of involving external expertise to measure improvements and suggest further actions. Customers are increasingly demanding neutral documentation on their suppliers' environmental impact. External and independent documentation is also crucial to evaluate actions taken.

Conclusions and suggestions for the future

The most interesting result from this case study of HÅG is that implementing a sustainable business model is not only possible, but can also be profitable. With available technology, it is possible to make substantial improvements and lower carbon footprint on the Earth. A vision, 20 years ago, of "doing the right thing" has developed to an important differentiator for HÅG in today's competitive market.

Important elements of this successful strategy are to view sustainability not as a communications task, but as a challenge for all parts of the value chain. Starting with the design of new products and making sure the environmental design criteria are satisfied, by involving and requiring more sustainable solutions from vendors, and intermediaries and motivating and educating retailers and consumers are all proven to be some of the solutions to a sustainable business operation. One result of this sustainable business effort is that chairs from HÅG have carbon dioxide emissions of 36-55 kg CO ₂ during a life time of 15 years. The best competitors have emission of 100-120 kg CO₂ .

Interestingly, customers are becoming more environmentally aware and consider the products environmentally impact in their own purchasing processes. It is reasonable to believe this development will continue, and the advantages for companies with a sustainable business model will increase. Probably, more case studies of sustainable business operations will reveal other solutions. Focus on solutions, not only on documenting the effects of the carbon footprint, will be contributing to important knowledge. Hence, a suggestion for future research is to investigate more cases of sustainable business operations.

Subject: Sustainability management; Business models; Case studies; Home furnishing industry

Location: Europe

Classification: 2310: Planning; 1540: Pollution control; 9130: Experimental/theoretical; 9175: Western Europe

Publication title: European Business Review

Volume: 23

Issue: 4

Pages: 392-400

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Emerald Group Publishing, Limited

Place of publication: Bradford

Country of publication: United Kingdom

Publication subject: Business And Economics

ISSN: 0955534X

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

DOI: http://dx.doi.org/10.1108/09555341111145771

ProQuest document ID: 875620900

Document URL: http://search.proquest.com/docview/875620900?accountid=38610

Copyright: Copyright Emerald Group Publishing Limited 2011

Last updated: 2013-09-10

Database: ABI/INFORM Complete

Document 2 of 100

Sustainable business practices in Spain: a two-case study

Author: Cambra-Fierro, Jesús; Ruiz-Benítez, Rocío

ProQuest document link

Abstract:

Purpose - This paper aims to study sustainable business practices of two Spanish small and medium enterprise (SMEs) belonging to different sectors: a winery and a paint company. Special attention is paid to the drivers of such business practices and the lessons that can be learnt from them. Design/methodology/approach - This research employs a comparative case study approach. The authors describe and compare two business cases from different industry sectors. This paper concludes with several findings that could be of interest for some other companies, as well as interesting areas of future research. Findings - A comparison of sustainable business practices and their drivers. Similarities and differences between companies lead to different approaches to sustainability. Sustainability may be understood as a strategic tool in order to achieve competitive advantages and help companies successfully operate internationally. Research limitations/implications - The main limitation of this research is the specific sectors in which it has been carried out that can limit the application of the findings. Further research in additional industry sectors needs to be done to support the implications found in this paper. Practical implications - Companies need to consider sustainability practices as a long-term investment instead of as an immediate cost. Culture is a decisive factor in the implementation of sustainable practices. Social implications - Customers can force companies to implement sustainable practices. However, it has been observed that sometimes there is a need for strict regulations in the sector to encourage companies to implement such practices since customers may not be influenced by the company's sustainable practices. Originality/value - This research studies and compares actual sustainable business practices in two SMEs based in Spain, but of international activity and belonging to different industry sectors. The main drivers and characteristics of sustainable practices are compared and general implications are drawn from the study. [PUBLICATION ABSTRACT]

Full text:

Sustainable Business Models

Edited by Göran Svensson and Beverley Wagner

1 Introduction

The implementation of sustainable business approaches is not a new issue in companies' agendas. The sustainability concept proposes an equilibrium between economic growth and environmental responsibility ([15] Wagner and Svensson, 2010; [19] Holliday et al ., 2002). In the last few years, however, the interest of these issues had increased exponentially. Clear examples of this fact are the international treaties reached in the Kyoto Protocol and the COP15-summit in Copenhagen, amongst others.

Despite the relevance of this topic, there are still several companies and governments that seem to worry about the immediate objectives and disregard that the future of their companies and economies requires sustainability. From our point of view, in spite of the importance of the "big decisions", by observing companies' actions and individual business attitudes, we can identify the ties between business and sustainability. Consequently, supply chain management (SCM) as a business management discipline cannot remain in the shadows. There are several SCM activities that can implement sustainable actions: provider's agreements, transportations modes, production systems, recycling, etc.

The literature survey has identified several gaps in the topic of sustainability in supply chains. This paper carries out a comparative case study of two companies belonging to two different industries:

food and agriculture; and

chemical.

From the comparative analysis of both companies' situations, several implications and conclusions can be drawn for the management of sustainable supply chains.

This paper begins with a review of the existing literature. This review is followed by the analysis of two cases, first individually and then in a comparative manner. The final section of this paper discusses the main implications of the study and proposes various lines of future research.

2 An approximation to the sustainability concept

[11] Savitz and Weber (2006) propose that a sustainable corporation is one that creates profits for its stakeholders while protecting the environment and improving the lives of those with whom it interacts. Sustainability and efficiency are not rival concepts ([14] Tsai and Hung, 2009). In fact, authors such as [4] Engardio (2007), [5] Esty and Wiston (2006), and [17] Zhu et al. (2005) suggest that environmentally conscious and ecologically-friendly business strategies can generate important competitive advantages and superior financial performance for companies. Additionally, [10] Lash and Wellington (2007) suggest that firms will be at a competitive disadvantage if they do not pay attention to sustainability issues.

However, [13] Sharma et al. (2010) show that the study of the sustainable link between business and environment is still in an initial stage within the B2B context, although it is in a more mature state in the B2 C context. There has been a considerable interest in the issue of environmental sustainability in business practices but, so far, discussions have been confined to disciplinary silos of management, marketing and operations and production management. From the strategic point of view, the work by [2] Baumann et al. (2002) is of great interest. These authors carry out an extensive literature analysis and propose a model that simultaneously considers the effect of the company profile and the environmental regulations. Companies should consider their negative externalities and introduce environmental principles in their strategic core. From that point onward, and thanks to the R&D efforts, it would be possible to simultaneously increase the level of environmental respect and the efficiency of the organization. The paper of [15] Wagner and Svensson (2010) proposes a model of sustainable business based on the management of concepts such as natural environment, purchasing policies, intermediaries and transport, retail practices, marketplace and value-adding processes.

Still thinking of sustainable practices, another aspect of interest is the structure of the values of the owner or the company's management team. Literature suggests that values may be understood as concepts, beliefs, conditions or behaviours that transcend specific situations and guide the selection or evaluation of situation and behaviour ([7] Fritzsche, 1995). Such values exist within an individual's overall value system, which represents the relationships between people and society and the relative importance of each value to the individual. In general, there seems to be a common view that values influence behaviour.

The individual's value system is the group of personal values, arranged hierarchically on the basis of the relative importance that each individual assigns them ([7] Fritzsche, 1995). In other words, the value system can be understood as the arranged group of preferences and standards that influence the personal decisions, actions, conflict resolution and application for social rewards and punishments. The next level is defined by corporate values, which are the extension of the owners and/or managers of the firm ([9] Hemingway and Maclagan, 2004; [8] Harris and Crane, 2002). Corporate values determine the organisational culture and the organization's behaviour ([1] Agle and Cadewell, 1999). Therefore, values may determine sustainability in firms.

However, if market and values were not enough and the nature of the activity and/or waste produced by firms had negative impacts on the environment, then public administrations would have to act through legal rules. These rules are the basics of the proposed model by [3] Cambra et al. (2008) that suggest the interaction between market, corporate values and legislation.

As a consequence of this literature review, we suggest that, as a company adequately manages the sustainability concept, it will provide competitive advantages including its image, efficiency, and international positioning.

3 Empirical study: an inter-industry comparative case study

Information was obtained, mainly, from semi-structured in-depth interviews and from direct visits to the firms. The main fieldwork was developed between March and June 2010. The following aspects served as a guideline for analysis:

- general information about the firm, interviewees' position (e.g. respect to the family), experience, and rank;

- the firm's global values system;

- how the firm understands sustainability;

- the firm's strategy in terms of provider's agreements, product stewardship, internal ethics, and sustainable operations; and

- potential influence on business and network performance.

Interviews were recorded for later transcription. Notes from each interview session were sent to key informants for subsequent discussion. Following this exchange, informants were provided with a brief summary of the main conclusions and were asked for their opinions regarding the ideas they contained prior to more exhaustive analyses. As a consequence of such interactions, we received valuable insights on our initial research.

3.1 Bodega Pirineos

3.1.1 Background

The current case study describes the interest of companies on sustainability. However, customers sometimes do not perceive such effort and, therefore, companies implementing such practices do not observe direct benefits in terms of, for example, increased levels of demand.

First of all, we should point out the importance of the wine industry in Spain. Wine production is one of the most dynamic activities in the present-day Spanish farming and foodstuffs industry, and it contributes to generating added value of extraordinary importance in the countryside.

Within this context, Bodega Pirineos (BP) Ltd produces wine under the "Protected Geographical Indication" PDO Somontano . This designation represents a wine-producing region formed by 44 municipalities located in Northeastern Spain. Its regulating authority has registered 22 wineries, 450 winegrowers, and 4,326 hectares of vineyards. Its wines enjoy a high level of recognition in both the Spanish and the international markets, placing them amongst the best known wines in Spain, together with Rioja , Ribera del Duero , Navarra , Priorato and La-Mancha PDOs, amongst others.

BP Ltd was one of the few companies that promoted the creation of the Somontano PDO, and consequently was one of the first wineries to register in the protected designation of origin Somontano in 1984. Founded in 1964, the new legal composition of BP was established in 1993. Its ownership structure is mixed, as it is shared by the partners of the former cooperative, the regional government of Aragon (public institution), financial institutions, Compañía Vitivinícola Aragonesa , Viñedos y Crianzas del Alto Aragón (the latter two are also wineries belonging to the Somontano PDO), and to a lesser extent by a farmer's association. This mixed ownership structure contributes to promoting objectives other than solely profits (e.g. social responsibility, agricultural needs, environmental respect, sustainability, and innovation) as it was observed in the company's set of actions.

This particular case study is interesting because, besides the importance of this sector in the Spanish economy, this company represents an important share of the wine market of the Somontano PDO. The winery owns 80 hectares of vineyards and can also rely on the vineyards belonging to the partners of the cooperative, which are under an agreement to sell their production to the winery. Globally, this firm is responsible for more than 1,200 hectares (around 35 per cent of the PDO total). Its workforce is made up of 53 employees distributed in the different areas into which the company is divided. With regard to the company's production and sales, in 2003 (last available data) it sold 2,520,000 bottles, which represents 27.4 per cent of the total production of 9,197,145 bottles of Somontano PDO wine sold that year (data provided by the PDO Somontano Regulating Authority and BP Ltd). For this reason, Bodegas Pirineos is considered as one of the driving forces among the PDO Somontano wineries.

3.1.2 Sustainable activities

Regarding the implementation of environmental systems and sustainability, we highlight that BP was one of the first Spanish firms that developed a sustainability report. This document is public and can be downloaded via the internet. Through the entire document, BP shows its commitment to sustainability of both the environment and the rural contexts (e.g. people).

One of the most relevant ideas is related to the environment. According to the management of BP, the environmental legislation:

[...] is not so strict as in other sectors, although there are some minimum criteria for certain waste generated along the production process. We have to bear in mind that a large part of our waste is organic matter and its biodegradable [...] although a small part corresponds to auxiliary chemicals, cleaning stuff for metal tanks [...] in those cases we have to comply with some legally established standards, but it is not the main percentage of waste. In any case, the legislation seems to be about to change soon and it will become stricter in all aspects and for all materials.

For all of these reasons, the company had always complied with the required legal standards and, in some cases, they had even been more exigent with themselves. The company's aim establishes that:

Bodega Pirineos looks for the satisfaction of all the parts: worldwide consumers, staff, shareholders' profitability and our main suppliers, grape suppliers and others, according to the principle of business excellence; and eventually, the satisfaction of the community, always with the proper ethical and social environmental behaviour.

which justifies a higher level of environmental exigency.

Furthermore, it is essential to analyse the potential influence of the management value system:

I believe that in Bodegs Pirineos many of us think that something has to be done [...] although as a company we can't do much [...] but, what if everybody did something? Don't you think so? Surely if we all made some effort the global impact would be different.

Several works ([20] Macalister, 2001; [8] Harris and Crane, 2002; [18] Forte, 2004; [9] Hemingway and Maclagan, 2004) indicate that management value systems influence corporate value systems. In this case, since several public institutions and non-profit organisations that need to transmit a certain image of environmental respect and sustainability are amongst the company's shareholders, the management group is more inclined to increase the exigency level, even at the expense of increasing their cost structure.

Nevertheless, as the commercial management of the company perceived a growing interest of the market for environmentally respectful products, they looked for a credible way of transmitting such an image:

We were more exigent with ourselves, but we were not able to transmit it to our distributors and customers [...] we needed some kind of specific sign or emblem which was credible for the market, something that made us different [...] we were doing fine but needed that guarantee [...] that's why we considered the option of implementing an environmental management system based on ISO 14000 norms.

ISO 14000 establishes, through ISO 14001, a set of international norms that can be applied by any organisation wanting to set up, document, implement, maintain and regularly improve an environmental management system. Once it has been applied, if the company wants to register its system, a registering company (authorised by the corresponding national institutions) has to be hired to certify that the environmental management system, based on ISO 14000, complies with all the requirements contained within that norm.

However, both the application of that norm and the registration required enough human resources for a proper management, a responsibility that fell on the quality manager and proved to be a wise decision; they also had to overcome an initial reluctance from the workforce, for which they decided to establish a salary system with incentives for environmental actions; finally, they had to allot more economic resources to the plan. Thus, in 1999, they were awarded the ISO 14000 certification-registration and it was included on the labels of all the wines produce by the winery, putting special emphasis on international fairs and meetings with distributors.

But in a few months, the commercial managers realised that the wine market, except for a small niche, does not particularly appreciate an environmentally respectful production system:

[...] only a few customers who are not profitable by themselves [...] the average consumer appreciates aspects related to the product presentation, price, organoleptic characteristics, tastings [...] so in the 2004 campaign we decided to continue working according to the ISO 14000 criteria but without the certification-registration, which involved two things: saving administration costs and the inspections required by the regulations; although we still work with a similar exigency level, without including the information in the label, which had proved to be not so important as we had expected.

Currently, the company produces two types of ecological wine:

Young Ecological Montesierra, elaborated with Tempranillo and Merlot from ecological farming, and Rocal 2004 in collaboration with Riet-Vell and SEO/Bird Life, both aimed at a very specific niche market that appreciates the concept of ecology and environmental responsibility.

At the same time, the company manages the waste generated by production processes according to the ISO 14000 norms, though it is not certified. Finally, we must point out that in recent years the company has been given several awards related to environmental management and environmental respect. Examples of these awards include the European Environmental Award 2004 for Management and Communication in Sustainable Development, awarded by the European Commission and the Spanish Ministry of Science and Technology; and the Validation of Sustainability Report , awarded by AENOR in 2003, thus being the first agroalimentary company in Spain to obtain such an award.

3.2 Pinturas Fierro

3.2.1 Background

Pinturas Fierro (PF) is a family company devoted to the production and distribution of paint for industry and decoration, as well as solvents and other auxiliary products. The company was created in 1930 and has always been in the hands of the same family, except for a short period (between 1934 and 1940) in which, due to the political situation in Spain, it became a collective company. Recently, the third generation runs the company while the fourth one is training in the field of chemistry and business administration in order to take control and manage the company in the future.

Since its creation, the company has been characterised by great dynamism and eagerness to grow. Initially, the company was a small local shop that sold paint, varnish, and accessories. When the founder's son took charge of the business in 1943, the location was moved to the city's commercial area and they established a provincial and regional network for the exclusive distribution of the most highly-reputed paint brands in Spain (e.g. Titán, Valentine). This period was characterised by the region-wide consolidation of the company, the first small-scale incursions into the international market (south of France) and, above all, in the early 1980s, by the idea of investing in a paint, varnish, and solvent factory. The first production activities coincided with the arrival of the third generation into the company's management in 1986. However, the contrast between high knowledge of chemistry and scarce training in business management halted the company's development. The soundness of the commercial department, however, allowed them to maintain the production activity until, once that imbalance was corrected, the business began its national and international consolidation.

Presently, the company is divided into two fundamental areas:

production and industrial distribution/wholesaler; and

commercial distribution/wholesaler and retailer.

The company has 16 employees: laboratory (3), production (6), administration and management (4), and commercial (3), distributed into the above-mentioned areas. The sales figures in 2005 amounted to [euro]4.5 million (last available data). The company mainly operates within the Spanish market, especially in Aragón, Cataluña, industrial areas of Madrid, Valencia, and Andalucía. The company has an international presence through exclusive distributors in France, northern Italy and, on a smaller scale, in Portugal and Morocco.

3.2.2 Sustainable activities

PF understands sustainability as "respect to the environment". Paint, varnish, and solvent manufacturing, according to the manager of this company, is regarded as:

[...] one of the most environmentally hostile industries due to the so many different substances harmful for health and environment which are used in formulation, manufacturing [...] and obviously the type of waste generated.

For all of these reasons, we may expect the environmental legislation for this sector to be extremely strict with the behaviour of such companies.

Nevertheless, "as the components and processes differ according to the type of paint and solvent, there are some peculiarities when it comes to industrial paint, car paint or decoration".

Currently, this sector has to comply with the European Union, national and regional norms established for chemical industries in general, and for paint and solvent manufacturers in particular. Such norms are binding on all of the sector companies and:

[...] regular inspections avoid failures to comply with the rules, although there is always someone who [...] tries [...] but on the whole nobody gets competitive advantage in the cost structure for complying or not, since the environmental legislation is the same for all.

In this sense, the market regulates the company's environmental activity.

Therefore, environmental respect is more related to legislation than to the corporate value system in this sector. Besides, in the sector of:

[...] industrial paint we often find some customers, mainly on the north of Italy, who demand additional requirements. In order to comply with their legislation we have to use only those raw materials which meet those requirements; so there is no choice if we want to sell them our products [...].

In 2004, the company's manager found out that a set of stricter laws for the sector would be passed: VOC's (regulations on organic/inorganic waste management) and REACH (registration, evaluation and authorisation of chemicals), "both in the EC context".

VOC's legislation establishes a "higher exigency level in the management of polluting waste, with special emphasis on its treatment and further storage". As for the REACH legislation, it is developed by the European Commission and its:

[...] aim is to improve the protection of human health and the environment through the better and earlier identification of the properties of chemicals. At the same time, innovative capability and competitiveness of the EU chemicals industry should be enhanced. The benefits of the REACH system will come gradually, as more and more substances are phased into REACH. The REACH proposal gives greater responsibility to industry to manage the risks from chemicals and to provide safety information on the substances. Manufacturers and importers will be required to gather information on the properties of their substances, which will help them manage them safely, and to register the information in a central database (www.area.us.es/toxicologia/buscatox.htm).

These regulations will increase the cost structure of the sector companies, but as the company's manager says:

[...] it is essential to anticipate their coming into force so that we get familiar with them, because some customers are already asking us to comply with them though they have not been passed yet, and I do think that if there is something we can do for the environment but has not been done before, it is worth doing it.

However, for those customers who are not so exigent, or are not forced to comply with such restrictive legislation, the company:

[...] is at certain competitive disadvantage in prices [...] although as we will all have to comply with the legislation sooner or later, if we have managed to implement the system before other companies, we will surely benefit much more.

Finally, the owner states that:

[...] if I have to spend resources to be better than my competitors, if I invest more and earlier in environmental protection, why not do it so that I can be different? [...] Why not use it in my communication and advertising strategy for my own benefit?

3.3 Cross-case comparisons and analysis

In the following section we discuss the main similarities and differences found in the study of both cases.

3.3.1 Market

Small firms find an opportunity to expand into international markets. Internationalisation, then, becomes an external force that drives sustainable practices into the firm's strategy. Such practices have a great influence in efficiency and image. In the case of PF, sustainable practices are mainly driven by legislation. However, it is noted that international markets also "force" the implementation of sustainable practices on companies' that wish to compete in those markets. A third driver for sustainable practices within PF is the competitive advantage that "getting ahead of the competency in sustainable business practices" may provide for the firm.

3.3.2 Consumers

BP's main driver for the implementation of sustainable practices is related to a better brand image and differentiation of the company with respect to its competitors. However, it has been shown that these sustainable practices do not influence the consumer's preferences and, therefore, this strategy does not increase customer demand. Interestingly, this fact has not stopped the company from implementing such practices since it has realised increases in the efficiency of some managerial and operational aspects of the firm.

Therefore, internal ethics of both companies are similar but, in the case of BP, the sustainability culture is more apparent and requires a greater investment in human resources.

The influence of the supply chain is another factor that needs to be taken into account. Market factors normally force into manufacturers the environmental consciousness and ecologically friendly practices ([6] Fraj and Martínez, 2007). But this influence of the market on some industries is different depending on the industry itself. In the case of the winery, the image of the company in the market and the owner's values define the sustainability culture. In the case of the paint company, in Spain, it is the legislation that forces the sustainability practices. In the case of international clients, customer certification is required (that is, the customer visits the factory to learn about the production processes).

3.3.3 Operations

Regarding the nature of the waste produced, a winery produces biodegradable waste which leads to easier recycling processes and, therefore, lower recycling costs. However, in the case of the paint production facility, the recycling cost is an extra cost that needs to be assumed by the company.

In order to implement sustainability practices, innovation and R&D investments are encouraged in order to achieve a good efficiency level. Both firms are concerned with the increase in cost; but, in the case of the winery, this cost increase is considered to be an investment in the long-term and with a more strategic focus.

Interestingly, in the case of BP, once the sustainable practices and ISO protocols had been implemented by the firm, even though no short-term benefits in terms of increase of demand had been observed, the company has continued with those practices due to the increases in the efficiency of some managerial and operational aspects of the firm.

3.3.4 Procurement

BP has established agreements with some of its providers and international distributors to pass the sustainability philosophy throughout the supply chain. However, PF does not account for any agreements with other agents of the supply chain.

3.3.5 Product stewardship

Regarding the product stewardship of PF, even though it is common in some countries to pay upfront at the moment of the product purchase for the proper disposal of the toxic waste that will occur at the end of the life cycle, the customer does not directly pay for the final disposition and this cost is assumed by either the company itself or its providers. However, there may be some returnable fees for the containers and pallets in which the product is transported in order to ensure the return of those containers and their re-utilisation. BP, however, does not implement any program to encourage the return of containers from its customers.

4 Final comments

This section introduces a set of comments about implications derived from our case studies for the sustainability of business cycles and for the management of supply chains. Some proposals for future research are also presented.

4.1 Main implications for sustainable business cycles

Based on our opinions, there are two elements of interest that people need to consider about sustainability and future management decisions. One is related to legislation while the other concerns the education of values.

First of all, we state that the nature of the process forces different regulations, with some being easier than others to implement. The set of positive and/or negatives externalities that firms generate may be observed by authorities in order to guarantee sustainability.

Additionally, it is also observed that investing in education at different levels stimulates the adoption of sustainable practices and increases the benefits obtained by such practices. For example, education of both the market and consumers to create environmental concerns and also to value the sustainability concerns of companies that make investments in improving production processes is essential for environmental friendly firms that, at the same time, wish to generate a competitive advantage. Moreover, comparing both cases, it is clear that the managers' education also plays a decisive role in the adoption of sustainability concerns for companies that value the investment not only as a cost, but also as a long-term strategy.

4.2 Key implications for SCM

In terms of procurement, it is also important that the certification of suppliers generates a downstream pressure in adopting sustainable practices. Therefore, sustainability concerns can be spread along the supply chain to make all the firms involved in the chain more efficient and, in consequence, all agents may benefit from the competitive advantages generated from such practices. How relationships between components of SCs are managed may be crucial for the successful management of sustainability practices.

It is essential that organisations consider this adoption of sustainable practices as a long-term strategy and not only as an immediate cost. Therefore, culture and internal ethics of organisations is a key part pertaining to the adoption of sustainable practices. Also important is the cost that needs to be assumed by organisations. Due to the nature of the product, some recycling processes are simpler and, therefore, the cost incurred by companies is also smaller. However, when costs are significant, why not consider the opportunity to innovate, increase efficiency, and develop a sustainable brand image?

Besides the consumer education efforts mentioned above, it is decisive to make clear and public the brand awareness and ethical consumption made by organisations. Consumers should be able to appreciate and value those practices. Consumers' attitudes are different in both sectors. In the wine market, it seems that customers do not value sustainable principles and environmental concerns of the companies. In the case of the paint market customers assume that the company has to comply with regulations even though customers are not required to do so. From the marketing perspective, literature suggests that consumers value positively an environmentally friendly behaviour of the company ([6] Fraj and Martínez, 2007). However, they have also shown that, under some circumstances (e.g. product price increasing), the market disposition of buying the product decreases, even though there exists a reduced market segment that values the effort of the company and is willing to exert a greater sacrifice. Thus, our findings are in line with the existing literature.

Consequently, if the market does not value the environmental efforts of companies, why should companies exert any effort in that respect? Issues about economic efficiency then become the drivers for sustainable activities.

Moreover, internationalisation leads to a better environmental sense of the company that considers sustainable principles as a competitive advantage and, consequently, it helps to open new markets to the company. From the analysis of both cases, it is clear that market forces may not be enough in some cases. As observed in the case of the paint industry, there is a clear need for strict regulations in the sector.

Sustainable objectives can be achieved through innovation; in which case they become a competitive advantage for the company. For this benefit to happen, companies need to consider environmental concerns as a strategic tool that will improve its performance.

4.3 Proposals for future research

Finally, there are still some gaps in this line of research that need to be covered. First, there is a clear need to study more industry cases with its corresponding inter-industry comparative analysis, which may then provide insights into the differences between various industry sectors. This current study has been focused on Spanish companies, but it will be of great interest to study the sustainability practices and challenges of international companies. In addition, this work suggests that there exist some differences between familiar and non-familiar companies in terms of the culture values implemented within the companies. It would also be interesting to take into account and compare different points of view; for example, the organisation's versus the customer's point of view.

The authors wish to express their gratitude for the financial support received from the National Science and Technology Department by means of the CICYT project (SEC2008-04704) and the project ECO2010-08822-E.

Subject: Studies; Sustainability management; Corporate responsibility; Economic growth; Equilibrium; Small & medium sized enterprises-SME

Classification: 9520: Small business; 2410: Social responsibility; 1120: Economic policy & planning; 1540: Pollution control; 9130: Experimental/theoretical

Publication title: European Business Review

Volume: 23

Issue: 4

Pages: 401-412

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Emerald Group Publishing, Limited

Place of publication: Bradford

Country of publication: United Kingdom

Publication subject: Business And Economics

ISSN: 0955534X

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

DOI: http://dx.doi.org/10.1108/09555341111145780

ProQuest document ID: 875620858

Document URL: http://search.proquest.com/docview/875620858?accountid=38610

Copyright: Copyright Emerald Group Publishing Limited 2011

Last updated: 2013-09-06

Database: ABI/INFORM Complete

Document 3 of 100

An Empirical Study Of Market Orientation In The Life Insurance Industry In South Africa

Author: Saini, Yvonne Kabeya; Mokolobate, Kenosi N

ProQuest document link

Abstract:

This paper examines the implementation of market orientation in the South African life insurance firms. A non probability sampling method was employed to select 102 respondents from life insurance organisations. Factor analysis method was used to analyse the data. Results of this study indicate that assessing market orientation practices using customer focus, competitor focus and inter-functional coordination variables is applicable to the South African life insurance industry. The findings suggest that the market orientation scale appears to capture well the construct of market orientation in the South African cultural context and confirms that market orientation is a worthwhile management goal to adopt. The findings are consistent with the literature. The results suggest that the use of sales people in measuring market orientation should be generalised with caution as this factor scored the lowest in the factor loading for customer focus. The Narver & Slatter (1990) scale was found to be reliable in measuring market orientation in the South African life insurance industry. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Research on marketing orientation concept has received increased interest in the last few decades. Marketing orientation has received this much focus of time and effort by academicians as this has been driven by the gaps in the strategic role of marketing as a discipline in the success of firms. The implementation of the marketing concept of market orientation is one of the major research streams in strategic marketing to be developed during the last two decades (Guo 2002; Sin et al. 2003). Studies suggest that a market orientation approach on the part of a firm could be "regarded as an indication of its implementation of the 'modern marketing' concept (Anwar 2008:191). Market orientation is the implementation of the marketing concept and so a market-orientated organisation is one whose actions are consistent with the marketing concept (Narver & Slater, 1990). The marketing concept is the cornerstone of the marketing discipline (Kohlika & Jaworski, 1990) and so market orientation has been widely acknowledged as important and it has been deduced that market orientation is the very heart of modern management and strategy (Narver & Slater, 1990). Since the market orientation scale was first developed in a Western culture, its applicability to other cultures has been questioned though other studies (Sin et al (2003) have shown that the Nervier & Slater's (1990) scale can be generalised across cultures. These observations are in agreement with the results of the studies conducted in low income countries (LICs) (Orelowitz 1995; Cowling 1998; Nwokah & Maclayton 2006; Burgess & Nyajeka 2007; Nwokah 2008). Despite the growing body of evidence in support of market orientation, its applicability in life insurance industry in South Africa has not been established. This paper sought to explore the extent to which marketing orientation is practiced and implemented in the life insurance industry in South Africa. Marketing orientation research has mainly been done in developed countries and in specific industries, notably the manufacturing. The study endeavoured to fill the gap in understanding the implementation and practice of marketing orientation in the South African life insurance industry. The objective of the study was to collect data in a South African Life Insurance industry to determine the extent of market orientation and see if the Narver & Slater (1990) scale was found to be reliable and valid.

BACKGROUND

Insurance is a type of service for risk management used to hedge against the risk of a possible loss. Life insurance deals with how people ensure that they remain with means to provide for themselves when they are past employment age. It includes products like life retirement funds which hold assets for benefits at resignation, retirement, dismissal or retrenchment. It is important in studying market orientation in that life insurance products are bought and not consumed immediately but has a long time span before consumption and so the risks for life insurance products are higher than for fast moving consumer goods for example. Life insurance services are high in credence attributes than search goods which can be evaluated before purchase. Due to the nature of the service offered, it is of great value to explore how market orientation is regarded and implemented in this industry.

South Africa has a well developed insurance industry and it provides substantial investment capital for the country. The overall average insurance penetration for emerging markets is 3.9% whereas for South Africa the figure is 14%. The insurance sector in general provides significant employment opportunities. Finance, Insurance and real estate contributes to over 20% of the GDP in South Africa in comparison to manufacturing's contribution of 17%, wholesale, retail and accommodation 15% and transport, storage and communication of 10.7%. In 2007, the life insurance industry in South Africa generated approximately R255 billion in revenue from R163.6 billion in 2005 employed close to about 90,000 people. In June 2010, the total assets for the long term insurance industry were Rl. 14 trillion (Association for Savings and Investment Africa, 2011)

There are over 20 life insurance companies in South Africa. The major ones are Sage Life Ltd, Sanlam Life Insurance Ltd, Liberty Group, Old Mutual, Discovery Life, and Outsurance. The insurance sector in South Africa has traditionally operated subject to strict regulation and strong protection from international competition. But due to the globalisation process that has occurred over the past few decades, the competition in the life insurance industry has become intense. This competition has provoked major restructuring of the insurance companies. The long-term survival of a Life Insurance firms in such an increasingly competitive environment depends on its ability to satisfy customers' demands efficiently and effectively and hence the importance of understanding the implementation of market orientation.

Theoretical Frameworks

There has been limited in-depth empirical research into how far marketing principles and practices are applied in the financial services industry (Lado, Maydeu-Olivares et al. 1998). Baker (1993) has strongly criticised the insurance industry for a failure to adopt the marketing concept. He cites a case study of the implementation of a change programme in ATB by Bourke (1992) as an example that proved that marketing techniques were transferable into the financial sector as well. But Baker (1993) suggested that this is the exception rather than the rale and concluded that generally there is much evidence over a long period that the banking profession had largely failed in the development of a genuine marketing orientation. In South Africa, Cowling's (1998) and Orelowitz's (1995) study confirmed Baker's (1993) assertions. They demonstrated that market orientation in the South African insurance industry was less prevalent in the companies they studied. Baker (1993) noted that bank marketing was more a myth than reality, consisting of the trappings rather than the substance of marketing. Often market orientation was incorrectly interchanged with advertising; restricting this concept to only being a function of the marketing department. Market orientation is a term used when referring to the implementation of the marketing concept (McCarthy and Perreault 1984; Agarwal, Erramilli et al. 2003). Consequently, a market-orientated organisation is one whose actions are consistent with the marketing concept.

Market orientation consists of three conceptually closely related and equally important behavioural constituents; customer orientation, competitor and inter-functional coordination (Naver & Slater, 1990; De Luca et al, 2010; Sin et al., (2003)) and the constructs have been found to be the robust measure of market orientation (Conduit J and Mavondo, 2001). In other words, market orientation reflects the extent to which a firm internalises the marketing concept as a primary organising principle of the firm (De Luca et al, 2010). Market orientation is a term used when referring to the implementation of the marketing concept (McCarthy & Perreault 1984; Agarwal et al., 2003). Consequently, a market-orientated organisation is the one whose actions are consistent with the marketing concept. It defines the set of activities where a variety of departments within an organisation would participate in generating market intelligence, such as a growing competition, disseminating it, and taking actions in response to it (Maydeu-Olivares and Lado 2003). Several studies have identified that market orientation is a strong source of a sustainable competitive advantage (Slater and Narver 1994; Pelham and Wilson 1996; Pelham 2000)

Further, market orientation has been linked to product innovation performance and that is it positively linked to the firm's ability to innovate (De Luca et al, 2010). The benefits of market orientation is theoretically supported as it provides an unifying focus and clear vision to an organisation's strategy centred around creating superior value for customer (Kohli & Jaworski, 1990). Marketing concept is the management philosophy that recognises that the customer should be the focal point of all activity in the organisation (Leyland and Pitt 2001). According to Walker (2001), until the mid-1950s, the traditional view of marketing held that the key to profitability was greater sales volume. Therefore it was marketing responsibility to sell whatever the factory could produce (Webster 1998).The short-term tactical sales approach was replaced by a long term strategic orientation (Webster 1998) that encouraged businesses to look at customer needs rather than at transient products (McGee and Spiro 1988). This was referred to as "market orientation" and hence a market-orientated organisation aims at creating value for customers (Osuagwa 2006)..

Marketing Concept

Marketing concept is a management philosophy that recognises that the customer should be the focal point of all activity in the organisation (Leyland and Pitt 2001). The literature reveals diverse definitions of the marketing concept. Felton (1959) defined the marketing concept as a corporate state of mind that insists on the integration and coordination of all the marketing functions, for the basic purpose of producing maximum long-range corporate profits. Houston (1986) defined the concept as a willingness to recognise and understand customers' needs and wants and the willingness to adjust any of the marketing mix elements to satisfy these needs and wants. In contrast, the marketing concept was viewed broadly and defined as the construct as a philosophy of business management (Lavidge 1966; Bell & Emory 1971; Konopa and Calabro 1971; Levitt 1976; Stampfl 1978). They recognised that marketing concept was based on "...a company-wide acceptance of the need for customer orientation, profit orientation and recognition of the important role of marketing in communicating the needs of the market to all corporate departments" (Kohli & Jaworski 1990). Marketing concept forms a cornerstone of the marketing discipline. It is essentially a business ideal or a policy statement (Barksdale and Darden 1971; McNamara 1972).

Market Orientation: The Construct

Previous studies have considered market orientation as the central ingrethent of a successful organisation's culture (Kohli and Jaworski 1990; Slater and Narver 1995). Most of the relevant studies that have been carried out on market orientation have been based on different perspectives developed by Kotier and Clarke (1987), Shapiro (1988), Narver and Slater (1990), Kohli and Jaworski (1990), and Deshpande et al (1993) among others.

Market orientation is a tendency "to determine the needs and wants of target markets and satisfy them through the design, communication, pricing, and delivery of appropriate and competitive viable products and services" (Kotier and Clarke 1987:31).

Rivera (1995) described market orientation as a strategy used to reach a sustainable competitive advantage (SGA). Competitive advantage resulted from the use of resources and capabilities to generate differential satisfaction in profitable market. Sustainability was achieved because the performance of the market orientation's behaviours required complex organisational knowledge that could not easily be duplicated by competitors. Sin et al (2003) noted that Narver and Slater's (1990) study, hypothesised that market orientation was a one-dimensional construct consisting of three components, having equal importance, namely; customer, competitor and interfunctional coordination focus.

Firstly, customer orientation; the collection of data regarding the market and market potential. Customer orientation includes the active encouragement of customer comments, complaints, and after-sale service emphasis. It also includes regular evaluation of ways to create superior products /value and the regular measurement of customer satisfaction. Customer orientation is the sufficient understanding of one's target buyers to be able to create superior value for them continuously (Narver & Slater 1990).

Secondly, competitor orientation entails the regular monitoring of competitor activity or in other words deals with generating competitive intelligence, periodic review of competitor's patenting activity. It is made up of the collection and use of market information on competitors to develop marketing plans and using the sales force to monitor and report competitor activity. Competitor orientation means that a seller understands the short-term strengths and weaknesses as well as long-term capabilities and strategies of both current and potential competitors of their business (Day & Wensley 1988).Therefore, customer orientation and competitor orientation include all of the activities involved in acquiring information about the buyers and competitors in the target market and disseminating it throughout the business (Narver & Slater 1990).

Thirdly, inter-functional coordination. This deals with communicating between scientists and business development and sharing project goals and responsibilities Inter-functional coordination relates to how well marketing information is shared between departments (Narver & Slater 1990). It requires the involvement of all departments in the preparation of business plans and strategies and the integration of the activities between departments. It also needs the interaction of marketing personnel with other departments and regular interdepartmental meetings to discuss market trends, development and customer needs.

Pelham and Wilson (1996) asserted that a market-orientated organisational culture may work as a critical driver of various aspects of superior performance including product quality, new product success, and profitability not only for large firms (Kohli & Jaworski 1990; Narver & Slater 1990; Deshpande et al., 1993; Jaworski & Kohli 1993; Slater & Narver 1994; Morgan & Strong 1998; Huit & Ketchen 2001; Noble, Sinha et al. 2002) but also small and medium enterprises (Pelham and Wilson 1996; Appiah-Adu and Singh 1998; Pelham 1999; Pelham 2000).

Huit & Ketchen (2001) study found more factors in measuring market orientation, namely, customer orientation, competitor orientation, inter-functional coordination, entrepreneurship, innovativeness and organisational learning. In Huit & Ketchen's (2001) study all factors were found to be significant at the 0.05 significance level. The latter three factors were derived from the innovativeness scale, (Hurley and Huit 1998), organisational learning scale Hurley & Huit 1998) and entrepreneurship scale (Naman & Slevin 1993). Liu's (1995) study on market orientation results indicated that large and extra-large firms were more market orientated than medium size firms, and hardly any difference existed between large and extra-large firms.

Therefore, a model that provides a better fit of the data is a model comprising of three correlated scores underlying all measurements, based on the original MKTOR scale (Narver and Slater 1990) of customer orientation, competitor orientation and inter-functional coordination. For the purposes of understanding the practice and implementation of marketing orientation in South Africa, the study used the three constructs of market orientation, customer, competitor and interfunctional orientation.

METHODOLOGY

The study used the constructs as developed by Narver & Slater (1990) and adapted the questionnaire from Nwokah (2008). The questionnaire had 20 questions. The questionnaire was administered to middle and senior managers in the Life Insurance companies operating in South Africa. Different individuals from the Life Insurance companies were targeted. The respondents were broken in this category, 35 from senior marketing directors, middle manager, marketing managers, sales manager and financial managers respectively.

Section A of the questionnaire contained demographic details. Section B consists of 20 MKTOR scale items used to measure customer orientation, competitor orientation, and inter-functional coordination. Respondents were asked to rate the 20 questions on a 7-point scale. Specifically, the respondents were asked to indicate the extent to which their business does engage in the practice of market orientation or does not, i.e. the scale ranges from "very high extent" (7), to "no extent at all" (1). The number of scale points has been increased to 7 as this helps with the scale reliability (Churchill 1999).These statements measured manager's opinion of the degree to which his or her organisation was market orientated. A copy of the questionnaire can be found in Appendix A.

Pilot Study

A pilot study was conducted on a group of MBA students and 5 marketing practitioners in order to establish whether the instrument could be used in a South African context. Based on the pilot study no adjustments needed to be made on the questionnaire before final administration. This reinforced the questionnaire's validity and also addressed possible ambiguities in the questions.

Procedure For Data Collection

A list of the South African Life Insurance companies was obtained from the Life Offices Association of South Africa (LOA). These candidates were approached telephonically and requested to participate in the study, Questionnaires with completion instructions were either hand delivered, where possible, or faxed to respondents to overcome geographical dispersion. Receipt of the questionnaire was confirmed telephonically and deadlines were agreed with the respondents. This was followed up with an email indicating appreciation for their participation.

Data Analysis And Interpretation

The responses from the first part of the questionnaire were factor analysed using the principal components method. NCSS (Number Cruncher Statistical System) statistical software was chosen to perform the analysis. Raw data was captured in the NCSS spreadsheet and later transformed to obtain the sum of the values of market orientation.

RESULTS

Demographic Profile Of Respondents

A total of 113 completed questionnaires were collected, representing a response rate of 71%. Only 1 1 of the completed questionnaires were found to be invalid as they had either missing or extreme values and were thus discarded. In total, 102 questionnaires were used in the analysis representing a 64.5% response rate. In this study the sample consisted of a slightly higher percentage of females than was previously anticipated, the percentage being 59%. Males on the other hand made up the remaining 41% percent of the respondents in the sample. The largest age category, from the sample, fell in the 35 to 49 age group. This was followed by the respondents in the 25 to 34 age group category making 32% of the respondents. Females occupied 60% of senior marketing positions compared to only 40% of males.

Factor Analysis Results

Looking at the results in Table 1, the 3 factors, customer orientation, competitor and inter-functional coordination orientations explained 48.22%, 11.63% and 7.45% respectively, together representing 67.30% of the item variance. In order to understand the underlying structure Varimax with rotation was used in the analysis. The overall Cronbach's a for the scale was 0.935813, which was greater than the value of 0.7 suggested by Nunnally (1978). Customer orientation had the highest overall mean 'rating score' suggesting that as a factor or basic dimension of market orientation, it may be relatively more important than the others, at least according to the respondents in this study.

Construct Validity Analysis

To determine construct validity, the market orientation scale was tested for both convergent and discriminant validity. "Convergent validity refers to the degree of agreement between two or more measures of the same construct" (Tse, Sin et al. 2003:569). Evidence of convergent validity of the market orientation scale was examined through simple correlations among the three components of the scale. The results reported in the study show that correlations among the three components of market orientation ranged from 0.881 to 0.970, and all correlations were significant at p < 0.07.

Each of the components was highly correlated (0.881 and above) with each other. The correlation between customer orientation-competitor orientation was found to be (0.881, p< 0.01) and significant at p< 0.05.The correlation of customer orientation-inter-functional coordination was found to be (0.970, p< 0.01) and significant at p< 0.01. As for the correlation of competitor orientation-inter-functional coordination was found to be (0.959, p< 0.01) and significant at p< 0.01. Therefore, the pattern of correlations indicated that three components were convergent on a common construct, thereby providing evidence of convergent validity. These results were comparable to the results achieved by Narver and Slater (1990). "Discriminant validity concerns the degree to which measures of conceptually distinct constructs differ" (Tse et al. , 2003).

Rotated Factor Analysis Solution

In order to choose the number of factors to retain from the analysis the cumulative percentage and the scree test results in the eigenvalues after Varimax Rotation section were analysed. It was observed that 18.61% of the data were captured in the first factor, 25.99% in the second and 22.81% in the third factor. This can also be evidenced in the scree test as well as the cumulative percentage that 67.81% of the data is contained in the first three eigenvalues, see Table 3, below.

Customer Orientations

In the analysis, when analysing the solution, only variables with factor loadings of 0.40 and above were considered significant in interpreting the factors. The Cronbach a for customer orientation was 0.871. Examining the factor loadings and absolute factor loadings after Varimax rotation section, of the principle component analysis, it can be seen that statement 7 is the weakest on Factor 1, customer orientation with factor loading < 0.5. (See Table 4 and Appendix 2). With the exception of statement 7, statement one to eight had the highest loadings (>0.60) on the first factor which accounted for 18.61% of the variance on all factors. The finding that loaded onto this factor are the same as that of Narver & Slater (1990) and Cowling (1998) and Nwokah (2008). The factors together under the heading Customer Orientation were reliable with the Cronbach a of 0.871 surpassing the 0.7 threshold recommended by Nunnally (1978) for the test of scale reliability.

Competitor Orientation

The Cronbach a for competitor orientation was 0.929. Examining the factor loadings and absolute factor loadings after Varimax rotation section, of the principle component analysis, it can be seen that statement 9 is the weakest on the second factor. Statement 10 to 14 had the highest loadings (>0.70) on the second factor which accounted for 25.99% of the variance. The statements that loaded onto this factor are the same as the Narver & Slater's (1990), Cowling's (1998) and Nwokah's (2008) statements grouped together under the heading Competitor Orientation and were reliable with the Cronbach a of 0.929 greater than 0.7.

Inter-Functional Coordination

Cronbach a for Factor 3, for Inter-functional coordination is 0.905. Exaniining the factor loadings and absolute factor loadings after Varimax rotation section, of the principle component analysis, it can be seen that statements 15 to 20 had the highest loadings (>0.50) on the third factor which accounted for 23.21% of the variance. The statements that loaded onto this factor are the same as the Narver & Slater's (1990) statements, Cowling's (1998) and Nwokah's (2008) statements that group together under the heading inter-functional coordination and were found to be reliable with the Cronbach a of 0.905 greater than 0.7. Therefore, it could be concluded that the three factors were associated with the hypothesised three factor model first proposed by Narver and Slater (1990)

The results of this study indicated that there were three factors of market orientation practices in the context of South African life insurance companies. They were market orientation, competitor orientation and interfunctional coordination. These factors explained a percentage total variance of 67.81%. (See Appendix 1, 3 & 4). The results were based on the factor loadings of the items on the individual factors. A higher degree of ordering under each factor was shown by all items with factor loadings greater than 0.50. Cronbach's a yields the best lower bound to the reliability of these constructs. Items in the factorial groups were found to be reliable and valid according to Cronbach a, with the whole scale value of 0.936. They were also shown to fit a three-factor model consisting of market orientation, competitor orientation and inter-functional coordination.

In this study the South African Life Insurance industry seems to be an exception as they have adopted market orientation principles. It seems that Life Insurance companies acknowledge the importance of implementing market orientation within their organisations. Market-orientated Life Insurance organisations have similar characteristics to those identified in market-orientated food and beverage organisations in Nigeria (Nwokah 2008) and retail outlets in Zimbabwe (Burgess & Nyajeka 2007).

One statement with a low factor loading of less than 0.50 was "Our firm would be a lot better off if the sales force worked a bit harder". A possible reason for the low factor loading is that most sales forces were perceived to work hard in their respective firms as they were paid commission based on the amount of business they brought in. Overall, the results strongly supported the construct validity of the Narver & Slater's (1990) scale in the Life Insurance industry in South Africa. The study brought out an interesting result in that the contribution of the sales force is not important in the South Africa life insurance industry. The construct 7 was stated as follows; "our firm would be a lot better off if the sales force worked a bit harder". The factor loading for this was 0.181 suggesting that whether the sales force worked harder or not, their contribution to being customer focus is negligible. Equally, the construct 20 which read "the marketing people regularly interact with other departments on a formal basis, was one of the lower scores with the factor loading of 0.588. On the other hand, the construct on item 15 which was stated as follows; "In our firm the marketing people have a strong input into developing new products /services had a score of 0.54, this was the lowest. Construct 15 and 20 have implication on the role marketing plays in this industry. (See appendix 2).

Discussion

The results indicate that three components converged on a common construct. The results of the principle component analysis of the factor analysis support the Narver and Slater (1990) findings of the three component model of marketing orientation, i.e. consists of customer orientation, competitor orientation and inter-functional coordination. These factors explain a percentage total of 67.3%. Although the market orientation scale was originally developed in the US at the strategic business unit (SBU) level of a manufacturing firm, the findings in this study appears to suggest that the scale captures well the construct of market orientation in the South African Life Insurance industry.

The resulting factors from this study, in conjunction with the above discussion, leads to an acceptance of Market orientation factors are customer orientation, competitor orientation and inter-functional coordination as derived from Narver & Slater's (1990), Orelowitz's (1995) and Cowling's (1998) studies.

Only those factors that are found in the Narver and Slater (1990) were found to be reliable, valid and could be used across a variety of boundaries, companies, industries and cultures as has been found in this study. Therefore, the findings suggest that the market orientation of Life Insurance companies in South Africa is high relative to other studies (Moerdyk 2001). They seem to be an exception as they have adopted market orientation principles.

This study has examined the extent of market orientation in the South African Life Insurance industry. The role of marketing both as a specialist function and dominant organisational culture in the Life Insurance industry in South Africa has grown, as life insurers have become more concentrated and face intensive competition.

Our findings suggest that Narver and Slater's scale is a reliable and valid scale that can be used in the South African insurance industry. Although the scale was originally developed in the US at the strategic business unit (SBU) level, our findings suggest that the scale appears to capture well the construct of market orientation in a South African cultural context. The results confirm that market orientation is a worthwhile management goal to adopt.

The findings suggest that Life Insurance companies in South Africa implement market orientation. It seems that Life Insurance companies acknowledge the importance of implementing market orientation within their organisations. Findings are also consistent with the literature that is based on the Narver and Slater's (1990) definition of market orientation. They also support the notion that market orientation is an important determinant of a firm's performance. Therefore, South African Life insurance managers have to consider their underlying business philosophy and become more customer and competitor oriented at the corporate level, in branches as well as across the different functional departments.

From a managerial perspective, this study invalidates the long held belief that market orientation, in South African Life Insurance companies, is not prevalent. Life Insurance companies all over the world are under growing pressures from governments, investors, lobbies, and general public to be efficient and to remain competitive to help them achieve these objectives, the results of the present study suggests that managers in such organisations should adopt market orientation, a kind of philosophy that seeks to identify potential problems while they can still be managed and then to solve them in the time before they become too big, or ideally before they even occur or take place.

Furthermore, Life Insurance companies wishing to satisfy their customers better and outperform their competitors need to constantly monitor their behaviour and internal processes. Narver and Slater's(1990) market orientation scale could be used as a diagnostic tool to identify areas where specific improvements are needed, and to pinpoint aspects of a firm's market orientation that require work. In addition, periodic measurement of a firm's market orientation can help South African Life Insurance managers track changes over time. The three components of the market orientation can be used to develop appropriate training programs that can improve the staff's understanding of the activities involved in developing market orientation. Functional managers can also use the market orientation framework to set policies that develop and consider market orientation as a necessary and essential business process. One issue to be explored further and considered is the role of sales people as its loading was very low.

Other South African non-insurance companies may benefit from this research as it empirically addresses the issue of whether all businesses should focus on market orientation or not. This is important as devoting resources to develop a market orientation is considered useful as it does lead to higher performance in the business environment. Management should also work in collaboration with other workers in the company and share information about customers and competitors with these workers. Ideally as part of having a market orientation, cross-functional teams can investigate problems that occur across the organisation not just in single departments, and can suggest possible improvements in response to changing customer needs. The instrument used in the research is available as a checklist for management to measure their company's market orientation. Given that the current study draws data from South African Life Insurance industry, the findings of this study cannot be generalised for all business environments. Future research will attempt to extend this to other business sectors of the South African economy.

CONCLUSION

The results suggest that measuring market orientation using customer, competitor and inter-functional focus is applicable. The factor loading fitted the market orientation model except for one construct in the customer focus. The importance of including the sales force in being customer focus had the lowest factor loading and so it use is not conclusive. Other studies did not have the same results and concluded that the model for measuring market orientation fitted well. It is there therefore important to explore why the sales force construct contributed minimal to the customer focus of market orientation in the South African life insurance industry. This is calls for further studies as life insurance companies' utilities large numbers of sales force to promote and sell its varied products. The results should therefore carefully be generalised.

Subject: Market orientation; Life insurance; Discriminant analysis; Risk management; Case studies

Location: South Africa

Classification: 3300: Risk management; 8210: Life & health insurance; 7000: Marketing; 9130: Experiment/theoretical treatment; 9177: Africa

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 4

Pages: 61-72

Number of pages: 12

Publication year: 2011

Publication date: Jul/Aug 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables References

ProQuest document ID: 878893974

Document URL: http://search.proquest.com/docview/878893974?accountid=38610

Copyright: Copyright Clute Institute for Academic Research Jul/Aug 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 4 of 100

Michael Bianco Inc. - Immigrant Workers To Save Costs

Author: Ruggieri, Lynn

ProQuest document link

Abstract:

Michael Bianco Inc. was a relatively small manufacturing firm employing 85 people in 2001. By 2004, the company was awarded several multimillion dollar government contracts from the Department of Defense making backpacks for troops serving in Iraq. The company increased its workforce to over 500 to accommodate the contracts. The workers, however, were illegal aliens. The Department of Homeland Security raided the manufacturing facility, found and detained over 300 illegal workers for deportation. Further investigation revealed deplorable and unfair working conditions, including lack of heat and docking workers' pay for talking. Employees worked double shifts and instead of being paid overtime, they were paid straight time out of two separate companies. Humanitarian groups defended the workers and some later filed suit for backpay. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Francesco Insolia entered District Court located on the majestic Boston Harbor and paused at the inscription which read, "Justice is the great interest of man on earth; it is the ligament which holds civilized beings and civilized nations together."1 As he walked the corridors of this symbol of the American judicial system as old as the country itself, the walls seemed to echo with the hopes and struggles of the founding fathers and the immigrants mat sought to call this county home.

The courthouse stood for everything he dreamed of when he emigrated from his native Italy to pursue me American dream. He had risked so much for a start at a new life. He worked hard and long hours and rose to own his own company, but was that rise too quick and at what cost? Francesco Insolia continued to reflect on me events of the last several years as he stood with the others in the courtroom and vaguely heard the words "all persons having anything to do before the Honorable Justice of the District Court, draw near, give your attendance, and you shall be heard. God save the Commonwealth of Massachusetts. The Court is now in session; please be seated."2

BACKGROUND

Michael Bianco Inc. was established by Francesco Insolia in 1985 as a privately held corporation in the state of Massachusetts. Located in New Bedford, Massachusetts, Michael Bianco Inc. manufactured high quality leather goods, including its own line of quality handbags and learner goods. Its product line included handbags, travel bags, back packs, business cases, as well as travel, and business and golf accessories for retailers.

The company expanded rapidly between 2001 and 2005 as it was awarded contracts from the U.S. Department of Defense. The company grew from 85 employees to more than 500. The enormous influx of workers needed to be trained and trained quickly. The company applied for and received approximately $100,000 in state grants through the Massachusetts Department of Work force Development to hire and train new stitchers and machine operators, and to develop an in-house training program for entry-level workers as part of the company's expansion. The grant was awarded by the state on the promise that the company would hire additional workers. The state did not inquire as to whether the workers included illegal immigrants before it issued the grant.

The company also received a five-year tax break from the city of New Bedford in 2004 which amounted to $50,000 for the first two years. The tax relief required that half of the new jobs generated would be awarded to city residents in exchange for $80,000 in savings by the year 2010. Neither the state nor city grants noted any restrictions on the type of workers that would be hired.

The city of New Bedford is located approximately 50 miles south of Boston and is the seventh largest city in the state of Massachusetts. New Bedford, located on the coast of Massachusetts, was known as The Whaling City because it was, at one time, a prominent port for the whaling industry. In 1841, Herman Melville shipped out aboard the whale ship, Acushnet, and his experiences inspired him to write Moby-Dick, in which he describes New Bedford in great detail.

The major industries of New Bedford, at the time, were whaling, manufacturing of fine cotton goods, and the general fisheries. By the early 1900's, New Bedford became one of the largest producers of cotton yarns and textiles in the country. New Bedford was also home to many large-scale factory operations for a variety of products, including rubber, metal, and glass manufacturing faculties. In recent years, New Bedford has seen most of the textile and manufacturing industries leave the state due to foreign competition. Exhibit 1 provides Census Bureau demographic information on the population, median household income, and unemployment rate for New Bedford, Massachusetts.

A NEW DIRECTION FOR MICHAEL BIANCO INC.

Michael Bianco Inc. was originally a producer of leather products but saw the opportunity for expansion in the area of much-needed military products by the Federal government. Michael Bianco Inc. was awarded several Department of Defense contracts:

* April 2005 - a maximum $36,138,154 firm-fixed-price, indefinite quantity contract for MOLLE equipment for the U.S. Army with a performance completion date of August 31, 2006

* Aug. 8, 2006 - a delivery order amount of $21,000,141 as part of a $138,562,131 firm-fixed-price contract with the Army Research, Development, and Engineering Command for the modular lightweight loadcarrying equipment systems expected to be completed by August 7, 2010

MOLLE is an abbreviation for Modular Lightweight Load-carrying Equipment. It is used to define the load-bearing equipment and rucksacks utilized by the United States Army and Marine troops serving in Afghanistan and Iraq. The system's modularity is derived from the use of pouch attachment webbing which consists of rows of heavy-duty nylon stitched onto the vest and allows for attachment of various MOLLE-compatible pouches and accessories. The soldiers use the backpacks to carry weapons, ammunition, and supplies.

A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor's costs in performing the contract. This type of contract places upon the contractor the risk and full responsibility for all costs and resulting profit or loss. It provides maximum incentive for the contractor to control costs and perform effectively. In contrast, a cost-plus contract is one in which the selling price is based on the total cost of production plus a percentage or fixed dollar amount.

THE RAID

On March 6, 2007, immigration agents executed a search warrant on the Michael Bianco Inc. production facility in New Bedford, Massachusetts. The raid on the manufacturing plant, known as Operation United Front, was conducted by the Department of Homeland Security and the U.S. Immigration and Customs Enforcement (ICE) in conjunction with Massachusetts state officials. The raid was the culmination of a long undercover criminal investigation by the U.S. Attorney's office in Boston, Massachusetts. The investigation centered on whether the owner of M. Bianco Inc., Francesco Insolia, knowingly and actively recruited illegal aliens.

The investigation was based on information provided to law enforcement by a cooperating witness, as well as an undercover investigation in which an ICE agent posed as an illegal alien and obtained work at Michael Bianco Inc. (MBI). It is alleged that Insolia and other MBI employees working on his behalf have knowingly and actively been hiring illegal aliens to fill their expanding work force. It is alleged that although MBI requires all prospective employees to produce proof of their identity and their eligibility to work, the company is aware that many employees have obtained fraudulent Alien Registration cards, commonly known as green cards, and Social Security cards. It is alleged that MBI management has even instructed prospective employees, including the undercover ICE agent, on how to obtain such fraudulent documents.3

According to the affidavits, it is alleged that the undercover ICE agent informed several MBI management level employees, including Insolia, she had come to the United States illegally from Mexico without papers. It is alleged that Ana Figueroa (MBI payroll manager) was one of two managers who informed the undercover ICE agent as to how she could purchase a fraudulent Social Security card. According to the affidavits, one fraudulent document source to whom the undercover ICE agent was directed, was Luis Torres. It is alleged that Torres, an MBI employee, supplied the undercover ICE agent with a fraudulent Alien Registration card and Social Security card for a fee of $ 120. 4

On the day of me raid, workers described people bumping into sewing machines and tables in an effort to escape arrest and almost certain deportation.5 Workers stomped over fellow workers in the rush for the door and many were injured. The initial numbers were difficult to determine, but Immigration and Customs Enforcement detained hundreds of workers. The employees that did not have proper documentation were brought to Fort Devens, a military facility about 90 miles to the north, near Boston, for deportation processing, if applicable. At the scene of the raid, Richard Rocha of ICE stated, "We want to make sure that employers know that hiring people who are illegal is not something ICE will tolerate. We also want to make a point that these illegal workers are taking jobs away from people in New Bedford." Rosalina Jovel, a Salvadoran immigrant, countered, "People are working here. They are not stealing or doing drugs. They are not doing anything bad to the country. There are so many drug dealers around; why don 't they go hunt them?"6

The Department of Defense maintains an office on site at Michael Bianco Inc. to oversee the work on products that are used by the Armed Forces. The representative at the facility inspects the gear used by the military; however, 'the contract language spells out that it is the manufacturer's responsibility, not the Army's, to ensure that undocumented immigrants are not employed at the plant' 7

HUMANITARIAN OBJECTIONS

Social service advocates and officials have decried a humanitarian crisis that has torn families apart and left dozens of children adrift while their parents remain in federal detention. Immigrant and social-service advocates said the raid left dozens of young children in the care of relatives, friends or volunteers. "These mothers need to be with their children. This is not a legal issue; this is a humanitarian issue", said Bethany Toure of the New Bedford Community Connections Agency. 8

According to Paula Grenier, spokeswoman for the ICE, 60 detainees were released on humanitarian grounds, such as being a primary family caregiver, pregnancy, or medical/health issues. The spokeswoman additionally stated that no children were stranded and that the agency had coordinated with state officials so that those in custody were given the option of letting their children stay with a guardian or putting them in state care.

"Should the mothers not be returned, we will mobilize as a community for their release", Toure said at a news conference held at the Our Lady of Guadalupe at St. James Church. Carlos Miranda, 24, a construction worker from Honduras, was among those who spoke at the news conference. Miranda said his nine-month old daughter is so confused by her mother's absence. "My daughter is suffering a lot and will die without her mother at her side", said Miranda. He added that his girlfriend, Marisela Inestroza - who is the child's mother - remained with the other detainees at the Fort Devens detention center in central Massachusetts for not having proper work documents.9

WORKING CONDITIONS

Soon after the raid, workers who were released on humanitarian reasons began to speak out about the conditions in the facility. "The emergency door at the back was always locked. If the workers wiped their hands with toilet paper, owner Francesco Insolia fined them $20. If they stayed too long in the bathroom, he came and got them. If they were a minute late, he charged them $20. If they had a headache, he charged them 25 cents per Tylenol. We worked with no heat. He 'd only turn it on for five minutes and there was cold air coming out; then he 'd turn it off', said Norma Urbina, a worker at the textile company who was released on humanitarian grounds.10

The conditions allegedly include docking of pay by 15 minutes for every minute an employee is late; fining employees for spending more than two minutes in the restroom and firing for a subsequent infraction; providing one roll of toilet paper per restroom stall per day; fining employees $20 for leaving the work area before the break bell sounds; and fining employees $20 for talking while working and firing for a subsequent infraction.11

Cubias de Varels stated that she was injured on the job three months ago when a needle pierced her eyelid. "They sent me to the clinic and told me to report back to work the next day." Vilma Inestroza said that a Department of Defense inspector, who maintained an office at the factory, expressed sympathy for their working conditions and said that he would say he worked for the government, not Francesco.12 The inspector was responsible for ensuring that work at the manufacturing plant met federal standards.

ANOTHER CORPORATE ENTITY

As federal investigators continued, investigations records revealed a second corporate entity in Massachusetts, named Front Line Defense. The principals, listed per the Massachusetts Secretary of State, were Suzanne Thompson (Francesco Insolia' s wife) as President, Secretary, and Treasurer and Marguerite Insolia as Director. According to a federal affidavit, Front Line appears to exist for internal accounting purposes at the Bianco plant.

A special agent described the time card system as, "MBI (Michael Bianco Inc.) employees submit MBI time cards for all work performed between 7:30 am and 5 pm."n Workers testified that they clocked in using a fingerprint recognition device. "They placed their hands in the Bianco machines at 7:30 am and at 5 pm when they clocked out."14 The workers that worked more than one shift continued to explain, "At 5:15, we punched in the other one (referring to the Front Line Defense time clock) and worked until 11 pm." Workers continued to testify that they would punch out of one time clock and into another and that they received two separate paychecks. Tejas said she performed the same job in her same seat for both shifts, but her paychecks showed she worked straight time for two companies - Michael Bianco Inc. and Front Line Defense Inc. - one work station; same work; two paychecks; no overtime.15 Exhibit 2 provides the federal law regarding payment of overtime hours worked.

WHY TOLERATE THE CONDITIONS

The interviewed workers stated that they received $7.50 an hour and for a 40-hour week earned a paycheck of $279. Workers did receive overtime for working on Saturday, but the separate checks received from MBI and Front Line Defense reflected straight time. Several workers were asked why they tolerated the conditions and they replied they were aware of the sweatshop conditions at the plant, but say they were treated far worse at a sweater factory in El Salvador.16 In El Salvador, the average wage rate per hour is $1.51. In 2004, while 48% of the El Salvadorans lived in poverty, 19% lived in extreme poverty.

Gross payroll is the amount of wages earned per hour for the number of hours worked - in this case, $300.00. The amount of net wages that a worker receives is gross wages less applicable Federal and State payroll taxes.

Payroll taxes are the State and Federal taxes employers are required to withhold and/or to pay on behalf of employees. Employers are required to withhold State and Federal income taxes as well as Social Security and Medicare taxes. In addition, an employer is required to pay a matching amount of Social Security and Medicare taxes for employees and to pay State and Federal Unemployment tax. Exhibit 3 provides the applicable taxes and rates for the payroll taxes due by an employer.

Massachusetts' Workers' Compensation law provides that if a company has one or more employees, or the business is a corporation, the company must have Workers' Compensation insurance before employees begin.

FIXING THE PROBLEM

Six Michael Bianco Inc. workers from New Bedford filed a federal class-action lawsuit against Michael Bianco Inc. alleging they regularly worked 16-hour days - up to 80 hours a week - without being paid overtime. The class-action suit will cover more than 500 Bianco workers over a period of two years and will include former and current workers.

"Federal and state labor laws are enforceable whether the worker is legal or illegar, said Ms. Richardson, an attorney with Greater Boston Legal Services, which filed the suit on behalf of the workers. Ms. Richardson, however, would not comment on whether the workers were legal or illegal. "Michael Bianco Inc. withheld hundreds of thousands of dollars from low-wage workers, padding its profits at the expense of these workers and their families", said Phillip Kasssel, Advocacy Director for South Coastal Counties Legal Services.18

The civil suit filed in Federal District Court states that the company regularly and deliberately failed to pay workers their regular wages as required by federal and state law. The company illegally and deliberately failed to pay workers overtime by creating separate corporations to minimize the appearance of overtime worked. The company illegally failed to pay for all working time by making deductions from working time. The company failed to pay workers after the end of their shifts, even though they were required to stay longer at the factory. The workers request a jury trial and actual damages, multiple damages, punitive damages and reasonable attorney fees and costs.19

CURRENT IMMIGRATION LAW

The congressionally mandated Immigration Reform and Control Act (IRCA) reformed the United States Immigration Law. The Act made it illegal to knowingly hire or recruit illegal immigrants (immigrants who do not possess lawful work authorization), required employers to attest to their employees' immigration status, and granted amnesty to certain illegal immigrants who entered the United States before January 1, 1982 and had resided there continuously. The law criminalized the act of knowingly hiring an illegal immigrant and established financial and other penalties for those employing illegal aliens. The congressional intent was to reduce illegal immigration by reducing the prospects for employment for illegal immigrants. Employers were required to complete form 1-9 in order to ensure that all employees presented documentary proof of their legal eligibility to accept employment in the United States.

Since 1986, under the Immigration Reform and Control Act (IRCA), employers may hire only persons who may legally work in the U.S.; i.e., citizens and nationals of the U.S., and aliens authorized to work in the U.S. The employer must verify the identity and employment eligibility of anyone to be hired.

THE NEED FOR ADDITIONAL LEGISLATION

On a Federal level, the U.S. Senate voted unanimously to bar companies that hire illegal immigrants from receiving federal contracts. The ban would last for seven years and would last 10 years if the company was caught hiring illegal immigrants while it held a federal contract. The ban could be lifted if the government decided that doing so was in the interest of national security.20

Representative Brenda Landwehr (R- Wichita) introduced illegal immigration reform legislation in the 2008 session. This legislation included revoking the business license of and imposing civil penalties on any business found to have knowingly employed an illegal alien or failing to comply with Federal law regarding verification of an employee's legal citizenship/work status.21

On a state level, several states, such as North Carolina, have enacted legislation penalizing companies by disallowing economic development incentives to companies that employ unauthorized aliens, and prohibiting state and local government contracts with contractors who employ illegal immigrants.22 Representative Landwehr states, "I am a strong supporter and advocate of legal immigrants who choose to make Kansas their new home. I welcome them with open arms. They have come to this country through proper means and have followed our country and state 's laws to do so. However, Kansas cannot continue to be a safe harbor for illegal immigrants."23

Colorado signed HB 1343 on 6/6/2006 which prohibits state agencies from entering into contract agreements with contractors who knowingly employ illegal immigrants and requires prospective contractors to verify legal work status of all employees.24

PENALTIES

As Francesco Insolia sat quietly waiting for the court proceedings to commence, he knew the harshness of the penalties. If convicted, Insolia could face a maximum sentence of six months in prison and a $3,000 fine for each illegal alien hired by MBI on the conspiracy to hire illegal aliens charge and ten years in prison, to be followed by three years of supervised release and a $250,000 fine on the conspiracy to encourage illegal aliens to reside in the United States charge. Torres faces a maximum sentence of 15 years in prison, to be followed by three years of supervised release and a $250,000 fine.

In addition, the company faces $45,000 in proposed fines, according to the U.S. Occupational Safety and Health Administration, for possible violations of workplace health and safety standards. "Among other violations, the company allegedly had failed to determine what protective equipment was needed for employees whose duties exposed mem to hazardous chemicals and flying particles; failed to supply its workers with the required eye, face and hand protection; failed to provide hazardous material information and training; and failed safeguard against the accidental startup of machinery during maintenance. In addition, OSHA said the inspection found unguarded machinery and improperly used or guarded electrical wiring and equipment.25

CONCLUSION

The owner of the company, Francesco Insolia, and three managers (Ana Figueroa, Delia Costa, and Gloria Melo) were arrested on charges in connection with alleged hiring of illegal aliens. The criminal complaints included conspiring to encourage or induce illegal aliens to reside in the United States and conspiring to hire illegal aliens. Luis Torres was charged in a separate complaint with the knowing transfer of fraudulent identification documents. As a result of the arrests, hundreds of MBI employees will be interviewed to determine their immigration status. Aliens who were unlawfully in the United States were charged administratively and placed in removal proceedings.

According to the affidavits, it is alleged that Insolia maintains a work force of whom the majority are illegal aliens. It is norther alleged that he intentionally seeks out illegal aliens because they are more desperate to find employment and are thus more likely to endure severe workplace conditions he has imposed. It is alleged that these conditions include docking of pay by 15 minutes for every minute an employee is late; fining employees $20 for spending more than two minutes in the restroom and firing for a subsequent infraction; providing one roll of toilet paper per restroom stall per day, typically resulting in the absence of toilet paper after only 40 minutes each day; fining employees $20 for leaving their work area before the break bell sounds; and fining employees $20 for talking while working and firing for a subsequent infraction.

Francesco Insolia and Michael Bianco Inc. (MBI) were sentenced for various charges alleging they hired illegal aliens, helped to shield them from detection, failed to pay them full overtime, and fraudulently misled the government, all in an effort to maximize profits on a series of lucrative military contracts. MBI was ordered to pay a fine of $ 1 .5 1 million dollars and restitution of $460,000 for overtime owed to employees. Its president and principal shareholder, Francesco Insolia, was sentenced to 12 months and one day imprisonment, to be followed by three years of supervised release and a $30,000 fine.

MBI previously pled guilty to 18 counts of knowingly hiring illegal aliens on various dates between early 2004 and late 2006, a time during which the company grew from less than 100 to 500 employees; helping to harbor and shield illegal aliens from detection from authorities between 2004 and 2007; fraudulently misrepresenting Social Security numbers; committing mail fraud when it submitted Social Security numbers to the IRS and Social Security Administration knowing that many of the numbers had to be false given that many of the company's employees were illegal aliens; and failing to pay many employees overtime from 2005 to 2007. Insolia pled guilty to helping harbor and conceal aliens by allowing the company to submit false Social Security numbers for employees to the government as if they were real.26

Subject: Case studies; Backpacks; Defense contracts; Aliens; Unfair labor practices; Small business

Location: United States--US

Company / organization: Name: Michael Bianco Inc; NAICS: 316993

Classification: 6300: Labor relations; 9550: Public sector; 8600: Manufacturing industries not elsewhere classified; 9110: Company specific; 9190: United States

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 4

Pages: 91-104

Number of pages: 14

Publication year: 2011

Publication date: Jul/Aug 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables References

ProQuest document ID: 878893982

Document URL: http://search.proquest.com/docview/878893982?accountid=38610

Copyright: Copyright Clute Institute for Academic Research Jul/Aug 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 5 of 100

Beijing Olympics: Games of epic proportion

Author: Hamakawa, Curt; Elam, Elizabeth

ProQuest document link

Abstract:

This paper is a real-world case based on the corporate sponsorship program of the 2008 Olympic Games, and is intended for use in management, sport management, or marketing courses. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Sponsored by Visa, brought to you by GE and made possible, in part, by Coca-Cola, the Beijing 2008 Olympic Games floated in a sea of corporate sponsorships. The Olympic Games have long been a valuable marketing platform for multinational companies, but commercialization around the Beijing 2008 Olympics reached a whole new level as virtually every facet of the Games was auctioned off to the highest bidder (Wedeskind, 2008).

The Games of the XXIX Olympiad, held August 8-24, 2008, in Beijing, China, marked an unprecedented opportunity for marketers to showcase their companies' brand image in association with the world's largest sporting event that took place for the first time in the world's most-populous country. According to Nick Griffith, director for Olympics consulting at Octagon, an international sports and entertainment marketing company, the Beijing Olympics attracted more international brands than previous games (Hilgers, 2008). Twelve global sponsors were joined by 51 domestic sponsors in the most successful Olympic revenuegenerating program to date. Coverage of the Olympic Games was broadcast in every country, to an estimated television audience of 4.3 billion people, and in the United States, NBC provided more coverage for these games than all the previous Olympic Games combined (Marketing Report, 2008).

In the months following the 2008 Beijing Olympic Games, the people who market the rights to the Olympic brand sought to assess the impact of the recently concluded Olympic corporate sponsorship program. Micaela Smith (fictitious name), the marketing director of the International Olympic Committee (IOC), summoned her Chinese marketing colleague, Diane Yuan (fictitious name) of the Beijing Organizing Committee for the Olympic Games (BOCOG), as well as her counterpart from the London Organizing Committee for the Olympic Games (LOCOG), Kylie Hamilton (fictitious name), to a marketing strategy meeting at IOC headquarters in Lausanne, Switzerland.

At about the same time, corporate marketing executives who spend princely sums out of their companies' advertising and promotions budget, independently analyzed the mountain of data to determine the value of their association with the IOC and its trademark five interlocking rings (see Graphic A, Appendix). The French aristocrat who is credited with re-establishing the Olympic Games in the modern era, Baron Pierre de Coubertin, was also the genius who devised the brand symbol (Elam and Hamakawa, 2008). While the Olympic rings comprise one of the most recognized symbols in the world, leveraging their companies' sponsorship to demonstrably benefit from this association has proven to be one of the marketers' greatest challenges.

Of the IOC's 12 global sponsors (referred to as TOP, for The Olympic Partners) for the 2005-2008 sponsorship cycle, longtime Olympic sponsor Kodak and first-time sponsor Lenovo previously signaled their decision to discontinue their sponsorship after 2008. In addition, Johnson & Johnson and Manulife have not renewed their sponsorships, although computer maker Acer has replaced Lenovo in the computer technology equipment category, putting the current number of TOP sponsors for the 2009-2012 quadrennium at nine. Table 1 lists the dozen Olympic global sponsors for the recently concluded sponsorship period (from Olympic Marketing Fact File, 2009). See Table 1 in the Appendix.

Thus, while BOCOG's Yuan is appreciably less concerned about revenue for the now-inthe- books Beijing Olympics, the IOC's Smith and LOCOG's Hamilton are anxious to understand the reasons for the three TOP sponsors' defections.

BACKGROUND

The Olympic Games - which take place once every four years in various cities throughout the world - are a sporting spectacle that consists of some 10,500 athletes from more than 200 countries who compete in 28 sports over a period of 17 days. It is the largest and most prestigious sporting event of its kind, and draws the attendance of presidents, prime ministers, and members of royal families, in addition to millions of ordinary citizens from around the world.

Given the unquestioned power of the Olympic Games to bring together to the same place and at the same time competitors from every country to participate in sporting contests of international goodwill, the IOC has for many years claimed for itself the mantle of an important social cause, which it refers to in lofty terms as the "Olympic Movement." Former IOC Vice President Dick Pound defines the Olympic Movement as "the aggregation of the IOC, international sports federations, national Olympic committees, athletes, officials, and organizers" (Pound, 2004), which comprises the constituent parts of this global enterprise. The IOC, of course, owns the worldwide rights to the Olympic Games, including their organization, broadcasting, and exploitation of any related intellectual property (Olympic Charter, 2009), and in recent decades has become more sophisticated in reaping significant financial gain from its marketing efforts. According to the IOC's Olympic Marketing Fact File (2009), the objectives of its marketing program are to:

* Ensure the independent financial stability of the Olympic Movement, and thereby to assist in the worldwide promotion of Olympism.

* Create and maintain long-term marketing programs, and thereby to ensure the future of the Olympic Movement and the Olympic Games.

* Build on the successful activities developed by each Organizing Committee for the Olympic Games, and thereby to eliminate the need to recreate the marketing structure with each Olympic Games.

* Ensure equitable revenue distribution throughout the entire Olympic Movement - including the Organizing Committees for the Olympic Games, the National Olympic Committees and their continental associations, the International Federations, and other recognized international sport organizations - and to provide financial support for sport in emerging nations.

* Ensure that the Olympic Games can be experienced by the maximum number of people throughout the world principally via television coverage.

* Control and limit the commercialization of the Olympic Games.

* Protect the equity that is inherent in the Olympic image and ideal.

* Enlist the support of Olympic marketing partners in the promotion of the Olympic ideals.

When the IOC awards an Olympic Games to a host city, the city creates a corporate entity called an Organizing Committee for the Olympic Games (OCOG) that is tasked with preparing for and staging the Olympic Games seven years hence. The IOC and OCOG enter into a joint-marketing agreement, which generates the funding necessary to sustain the worldwide Olympic Movement. In the case of Beijing, the OCOG was denominated "BOCOG," for Beijing Organizing Committee for the Olympic Games, whose logo (games emblem) incorporating the Olympic rings is shown as Graphic B (Appendix).

Among the marketing rights enjoyed by Olympic sponsors is the ability to use the Olympic logo and games emblem in sponsorship-related programs and activities. One need only recall a handful of the Olympic sponsors to visualize the logos emblazoned on their myriad products and collateral material. For example, McDonald's - one of the largest corporate sponsors in the world - views its Olympic sponsorship as a way to tap into something that consumers feel passionately about (Klayman, 2009a) and incorporates the Olympic rings into its advertising campaign, including on its paper placemats, cups, and sandwich wrappers.

Table 2 (Appendix) shows cause-related revenue generated by the IOC and respective OCOG over the past four quadrenniums (from Olympic Marketing Fact File, 2009). It is important to note that the broadcast rights and sponsorship fees paid by corporations for the privilege of associating with the fabled five rings are exclusive of activation costs. In other words, broadcasters incur significant production costs and sponsors must create and deploy multimedia advertising campaigns, the expenses of which are above and beyond the fees paid to the IOC.

It is obvious that broadcast rights fees provide far and away the largest share of Olympic marketing income, consistently accounting for roughly one half of all revenue. The sharpest increases, however, are seen in global and domestic sponsorships, with gains of 210% and 191% respectively, over this four-cycle period. While the steady growth of the Olympic marketing program through the quadrenniums is readily apparent, it is all the more fascinating when one realizes that as recently as 1977-1980, total Olympic revenue amounted to a mere $350 million (Puig, 2006).

Media Rights

Media coverage of the Olympic Games began with newspaper accounts at the inaugural Olympics in Athens in 1896, followed by radio broadcasts in the 1920s, and Germany's experimental in-country telecasts of the 1936 winter games in Garmisch-Partenkirchen and summer games in Berlin, respectively (Barney et al., 2004). But the dawn of truly international television broadcasts, which went a long way toward assuring the Olympics' continued viability and growth, did not occur until the 1960s (Senn, 1999). With television - and particularly American network broadcasters - taking a greater interest in the Olympic Games, the broadcast rights fee for successive Olympics has grown exponentially. For example, while CBS paid $445,000 in U.S. rights fees for both the 1960 winter and summer games, NBC will pay a whopping $2 billion to broadcast the 2010 Olympic Winter Games in Vancouver and 2012 Olympic Games in London (Martzke, 2003). Table 2 illustrates the nearly 50-year evolution of worldwide Olympic broadcast revenue (from Olympic Marketing Fact File, 2009). See Table 3 in the Appendix.

Micaela Smith, the IOC marketing director, is confident that television rights fees will continue to increase in the foreseeable future, owing to the universal popularity of the Olympic Games and the penchant of the relatively few broadcasters to fiercely compete in a bidding war over this prize. But corporate sponsors form the backbone of the Olympic marketing program, and in order for the Olympic coffers to remain flush, Smith and Kylie Hamilton, her LOCOG colleague, must succeed in not only renewing their existing sponsors, but attracting new sponsors to the lineup as well.

Global Sponsorship

The IOC's TOP - The Olympic Partners - program is a novel marketing initiative because it sells sponsorship rights on an international basis (Pound, 2004), allowing these global sponsors to automatically exercise their rights in virtually every country, versus having to negotiate with each country's National Olympic Committee (NOC) one by one. The TOP program consists of exclusive product or service categories that are sold in four-year sponsorship cycles and include one Olympic Winter Games and one Olympic (summer) Games. TOP sponsors are protected against competitor encroachment and market confusion because the OCOGs and NOCs are not permitted to sign other companies in the same product or service line. Since TOP's creation in 1985, this elite group of sponsors has not exceeded 12. Table 4 (Appendix) shows the evolution of TOP over six sponsorship cycles (from Olympic Marketing Fact File, 2009).

Domestic Sponsorship

Domestic sponsorships are sold to companies that are interested in supporting the OCOG and the respective Olympic Games, and thus marketing rights are limited to activation in the host country. For the 2008 Olympic Games, the Beijing Organizing Committee for the Olympic Games (BOCOG), under the direction of the IOC, signed 51 companies in what was the most comprehensive domestic sponsorship program ever, generating a record $1.218 billion (Olympic Marketing Fact File, 2009). In addition to many Chinese companies, BOCOG's domestic sponsorship stable included such notable brands as Volkswagen, Adidas, UPS, Budweiser, Snickers, and Staples.

BOCOG's Diane Yuan will be able to lend her expertise to her fellow global marketers Smith and Hamilton on how BOCOG was able to capitalize on the corporate feeding frenzy at the trough that was the Beijing Olympic Games. But the 2012 Olympic Games in London will present a different set of dynamics because the U.K. is not a virgin territory for multinational corporations and does not present the kind of fertile opportunities as were present in China.

Ticketing

The event ticketing program for the Beijing Olympics, which was managed by BOCOG, resulted in the sale of 6.5 million tickets that generated revenue of $274 million (Olympic Marketing Fact File, 2009). On the occasion of China's first hosting of an Olympic Games and owing to the host country's desire to make attendance at these Olympic Games accessible to the relatively poor Chinese citizenry of 1.33 billion people, the average ticket price was just $23, with 14% of all tickets priced between 75¢ and $1.50 (Marketing Report, 2008). Consequently, ticket revenue for the Beijing Olympics experienced a precipitous drop from previous Olympic Games (see Table 2) despite having sold more than 95% of available tickets, an all-time record (Olympic Marketing Fact file, 2009).

Licensing

Licensing allows companies to associate their product with the Olympic marks (for example, the Olympic and BOCOG logos) in order to spur sales, and results in revenue splits between the Olympic-licensor and the distributor-licensee. In addition, Olympic licensing agreements are intended to generate excitement for the Olympic Games through the sale of games-related merchandise and souvenirs. As with the ticketing program, the Olympic licensing program was directed by the IOC but managed by BOCOG. For the Beijing Olympics, there were 68 official licensees in 13 categories that produced over 8,000 items of merchandise, which generated revenue of $185 million (Marketing Report, 2008).

MARKETING CHALLENGES

Ambush Marketing

In exchange for payment of a sponsorship fee (for 2005-2008, TOP sponsors paid an average of $72 million each), Olympic sponsors obtain the right to fully exploit this relationship by incorporating Olympic themes, terminology, and marks into their marketing programs. Importantly, sponsors expect that they will be protected from third-party, non-sponsor marketers, who pay nothing to bask in the aura of the Olympic Movement. So-called ambush marketing threatens both the Olympic brand and sponsorship value, and so the IOC and its OCOG and NOC partners have teamed up to form aggressive anti-ambush campaigns (Marketing Report, 2008). Some prominent examples of ambush marketing during past Winter Olympics include fast-food restaurant chain Wendy's winter-sport themed commercials and an American Express ad campaign poking fun at Olympic sponsor Visa's claim that Visa is the only credit card accepted at the Olympics, by intoning "So if you're traveling to Norway, you'll need a passport but you don't need a visa." At the 2006 Torino Winter Olympics, American big-box department store and non-Olympic sponsor, Target - which did not even do business in Italy - managed to get its red-and-white bull's eye logo plastered all over the sides of the trains that ferried locals and tourists alike to and from the competition venues, which created a moving billboard of sorts and a prominent backdrop for many a photo-op.

Olympic officials take seriously any attempt by non-sponsors to encroach on sponsors' marketing rights and engage in robust public awareness campaigns designed to educate consumers that official sponsors are true heroes for their support of the Olympic Games and participating athletes, while at the same time implying that non-sponsor companies that insinuate a sponsor relationship to the Olympics are nothing more than shameless villains and parasites.

Brand Devaluation

There always exists, of course, the potential for a brand to lose value owing to calamitous events. For example, the Tour de France in recent years faced numerous defections from corporate sponsors after a series of doping incidents that brought cycling's premier event to its knees (Mattheis, 2008; Carvajal, 2007), and we have seen any number of athletes who either forfeited existing deals or lost the opportunity for future endorsements due to personal mishaps. Most recently we have witnessed the virtual meltdown of the iconic Tiger Woods brand following a domestic incident and his admission of having had multiple adulterous affairs. While the Beijing Olympics averted the loss of top-line sponsors over controversies surrounding China's human rights record, crackdown in Tibet, and backing of the Sudan government's violent control of the Darfur region, there is always the looming possibility that one or more countries would again boycott an Olympic Games - as happened in 1976, 1980, and 1984 - over differences with the host country's government policies. And lest it be forgotten, the IOC itself was caught up in a bribery scandal relating to the Salt Lake City bid campaign that rocked the organization to its core and for a time raised questions about its continued viability.

Economic Downturn

Global recessions undoubtedly impact the ability of would-be corporate sponsors to join the fray, or at least at a premium price point demanded by the Olympic rights holders. With an estimated price increase of more than 10% every four years, the $100 million benchmark for a single TOP sponsorship is not far in the offing. In the midst of the 2008-2009 financial crisis that required a federal bailout of several of the United States' largest banks and automobile manufacturers, close scrutiny understandably was given over the propriety of some of these companies' spending on sport marketing. In addition to spiraling sponsorship fees, rates for Olympic-related advertising have increased twenty-fold since 1984 (Shaw, 2008), putting even more pressure on the sponsor industry to justify its value to shareholders.

Return on Investment

Harvard Business School marketing professor John Quelch says that global brands attach themselves to big-time international sporting events to "boost brand awareness, preference and sales over competitors who cannot afford the global sponsorship prices set the International Olympic Committee" (Quelch, 2008). In the aftermath of what was in many respects an Olympic Games like no other, the corporate sponsors that collectively shelled out $2.4 billion over the four-year period must ask themselves whether it was worth it. The answer, it seems, is yes for some and no for others. Four TOP sponsors - Kodak, Lenovo, Manulife, and Johnson & Johnson - have declined to renew their sponsorships, while three others - Visa, Coca-Cola, and Omega - have already extended their contracts to 2020 (Klayman, 2009b). In some cases, the return on investment (ROI) is not so much about a short-term increase in sales and revenue, but about enhancing brand identity. McDonald's has signed through 2016, and its chairman and chief executive officer, Jim Cantalupo, explained that his company's long-term sponsorship commitment parallels the Olympics' core principles of teamwork and excellence (Marketing Matters, 2004).

CONCLUSION

The IOC's Micaela Smith knew that the 2008 Olympic Games presented a special case because ever since Beijing was awarded the games in 2001, countless businesses have been clamoring to gain a toe hold in the Chinese market that represented the world's largest singlecountry consumer base. Unequivocally, for many of these companies the global platform that the Beijing Olympics provided was an unparalleled showcase opportunity. Now, in the period preceding the 2012 Olympic Games in London and the 2016 Olympic Games in Rio de Janeiro, Smith must persuade current and prospective sponsors that the Olympic brand remains a powerful, viable, and valuable force in the marketplace. She knows from the IOC's own market research that the Olympic Games enjoy extraordinary visibility and appeal among consumers worldwide (Marketing Report, 2008) that she hopes will help push the TOP sponsorships above the $1 billion mark (about a 15% increase) for the first time; but she must also reconcile the fact that at the present moment, the IOC's TOP sponsorship stable has only nine out of 12 categories filled.

While the Olympic sponsorship program has climbed to unprecedented heights since its inception, Smith is convinced that revenue has not peaked and that there is still room for growth. Sponsors, on the other hand, are wary - if not weary - of ever-increasing fees and the seemingly tenuous relationship to ROI. Smith is emphatic in her insistence that the Beijing Olympics, which heralded China's arrival as a full-fledged first-world economic power, was not a marketing trend outlier but rather an historically unique condition (Barney, 1986, 1991) that will set the stage for a new generation of unbridled corporate enthusiasm and support.

Smith is anxious to meet in her office overlooking Lake Geneva with her Olympic marketing colleagues, Diane Yuan of BOCOG and Kylie Hamilton of LOCOG, to glean critical success factors and other key learnings from the IOC's 2005-2008 sponsorship program, as well as to finalize the marketing plan for 2009-2012.

At this stage of the four-year Olympic marketing cycle, the glaring missing piece to the TOP puzzle is the lingering unfilled sponsorship categories; and among the Olympic marketers' highest priorities is to sign sponsors to these three open categories. Alternatively, if Smith and her colleagues conclude that this is not feasible in the current environment, they should consider reconstituting the TOP program - including possibly eliminating the unfilled categories - because of the negative effects of carrying "unsold property" in inventory long term. Smith and her team must research and identify the leading companies in the open product categories (health care products, reprography/imaging, and life insurance) and send out requests for proposals. Then, depending on the level of interest, she would proceed to meet with prospective sponsors to discuss and understand the marketing goals of the respective parties and finally, negotiate the price of the sponsorship. Ideally, there would be two or more potential sponsors for each category so that Smith could leverage the competitive bidding to her favor, but failing that she should seriously consider withdrawing the category for the time being. At the end of the day, Smith must decide which course of action will result not only in an immediate and short-term gain, but also protecting the long-term interests and viability of the IOC's marketing program.

Subject: Olympic games-2008; Corporate sponsorship; Sports marketing; Case studies

Location: Beijing China

Classification: 9130: Experiment/theoretical treatment; 8307: Arts, entertainment & recreation; 7200: Advertising; 9179: Asia & the Pacific

Publication title: Journal of Business Cases and Applications

Volume: 3

Pages: 1-11

Number of pages: 11

Publication year: 2011

Publication date: Jul 2011

Year: 2011

Publisher: Academic and Business Research Institute (AABRI)

Place of publication: Jacksonville

Country of publication: United States

Publication subject: Business And Economics

Source type: Scholarly Journals

Language of publication: English

Document type: Feature, Business Case

Document feature: References Illustrations Tables

ProQuest document ID: 887907238

Document URL: http://search.proquest.com/docview/887907238?accountid=38610

Copyright: Copyright Academic and Business Research Institute (AABRI) Jul 2011

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 6 of 100

What do MBA, MLB, and AT&T have in common? a dynamic off-campus application

Author: Goldgehn, Leslie A; Jentzen, Kristen

ProQuest document link

Abstract:

This Application was designed for undergraduate and graduate marketing management classes. Its premise is to ensure that students receive not only sufficient grounding in theory, but also an opportunity to apply their classroom learning in a marketing rich business environment. AT&T Park, home of the San Francisco Giants, a Major League Baseball (MLB) team, provides one forum for experiencing the marketing concepts that are taught to MBA and BA marketing students. From the branded cup holders in the stadium seats, to the corporate sponsored luxury suites, to the advertisements on the Jumbotron scoreboard, the students are inundated with branding, logos, advertising, public relations, pricing schemes and countless other examples of marketing. This off-campus Application brings marketing to life in a way that cannot be accomplished through lectures, case discussions and projects. There are several goals for this Application. The first is to anchor the key marketing concepts discussed throughout the course. The second is to apply those concepts in a real world environment. The third goal is to provide the experience for students to synthesize what they have learned into a well organized and analytical deliverable in the form of a reflection and research paper. As the marketing industry continues to evolve and reinvent itself, it is important to prepare marketing students to effectively use and understand the tactics, strategies and ideas that comprise this discipline. This Application successfully provides students with an integrative experience for their Marketing Management or Principles of Marketing classes. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

This Application, based around a field site visit to AT&T Park, was designed for undergraduate Principles of Marketing and graduate level Marketing Management classes. The premise behind this Application is to ensure that students receive not only sufficient grounding in theory, but also an opportunity to apply their classroom learning in a marketing rich business environment.

Textbooks, readings, and in-class lectures, traditionally cover marketing theory, for undergraduate and graduate students. Students often have the opportunity to practice what they learn through participating in a variety of in-class exercises, analyzing mini cases, or, for MBA students, Harvard Business School cases or the equivalent. The challenge for professors is to find methods that bring the marketing material to life beyond the scope of the classroom. A number of useful approaches include: bringing in guest speakers from industry, creating experiential exercises, and developing a marketing plan for a real organization. These methods are effective, but are restricted by the physical limitations of the university classroom. However, by providing students the opportunity to go into a stimulating business environment brings marketing to life in a way that cannot be accomplished in the classroom.

There are several goals for this Application. The first is to anchor the key marketing concepts from lectures, textbook readings, and cases. The second is to apply those concepts in a real world environment. The third goal is to provide the experience for students to synthesize what they have learned into a well organized and analytical deliverable. Finally, the student deliverable provides the instructor with an excellent measurement tool for accessing what the students have learned throughout the semester.

The Application can be used for a variety of marketing courses, including:

* Marketing Management

* Principles of Marketing

* Branding

* Advertising

* Strategic Management

* Consumer Behavior

* Sales Management

* Specialized Elective

LITERATURE REVIEW

The breadth and depth of marketing is often difficult for students to fully embrace before they complete a marketing course. This lack of knowledge is often based on students viewing the most visible aspects of marketing, advertising and sales, as the whole of what marketing entails. It is important for students to learn the language of marketing, the various components of marketing, and how marketing interacts with the other functional areas within an organization. Furthermore, marketing, as a dynamic and changing discipline, is best learned through grounding in the classroom and experienced in the world of business.

An additional challenge is that marketing is a required cognate for an undergraduate degree in business and for the MBA. As such, non-marketing majors may lack enthusiasm and genuine interest in the topic. Typically, marketing majors are in the minority. As such, some students may believe that the subject matter does not warrant purchasing textbooks or that power point slides and lectures will suffice (Ferrell and Gonzalez, 2004). Even though the students make the minimal investment in the class and yet are still demanding as consumers of the class and higher education in general.

Despite this apathetic attitude towards marketing, students expect to be entertained in order to learn. They also demand more than lectures and power point slides alone from the professor (Ferrell and Gonzalez, 2004). In fact, students are much more willing to challenge and question the professor. In order to engage this somewhat disinterested yet challenging student, professors must keep their lessons relevant, sophisticated and entertaining. For instance, to fully engross the students, case studies must be up-to-date (within the last three years) and readily applicable to students' work lives. Guest lecturers must be leaders in their industries and engaging speakers. PowerPoint presentations cannot be expected to take the place of robust classroom projects and discussions. More than ever before, the professor is challenged with keeping the classroom lessons and experiences fresh and engrossing.

Through lectures, readings, discussions, in-class exercises, and this Application, a marketing course can be designed to:

* Introduce students to essential marketing concepts and theories

* Help students understand decisions associated with the marketing mix

* Enhance students' capabilities to apply marketing concepts and theories

* Improve students' skills for diagnosing, analyzing, and making marketing decisions

* Excite students about the field of marketing

Based on the continuing demands to make the marketing curriculum more challenging and relevant to today's students, the development of this Application is based on the following approach to the class:

* Presenting theory through lectures, in class projects and class discussions

* Practicing marketing techniques and strategies through case analysis

* Applying concepts and theories through a field site visit

* Reflecting and analyzing what was learned through writing a reflection/research paper

This approach is well grounded in theories of learning and the literature about creating an effective learning environment. In Mark Smith's article, "David A. Kolb on Experiential Learning", he describes Kolb's model of experiential education saying that "deeper learning runs through a cycle of concrete experiences, reflective observation, abstract conceptualization and active experimentation" (Smith 2001).

According to Smith, KOLB'S Model can be described as follows:

* "Experiencing - these are activities from which a student may learn (readings, field work, lab work, problem sets, observations, simulations/games).

* Reflecting - the student thinks about the experience (what was seen, felt, thought about) and integrates the new experience with past experiences. (Keeping a journal or log through your work term will help with this process.)

* Generalizing - the student develops questions and theories and attaches meaning to the experience.

* Applying - the student tests out new ideas, attitudes and behaviors and the cycle continues" (Smith 2001).

The Application described in this article, allows students to experience all four of Kolb's Elements of Experiential Learning. Furthermore, Kolb's model of experiential learning can be combined with the works of Gonzalez, Ingram et al. who state that more and more faculty members are moving away from the standard model of teaching and embracing a "learning oriented perspective" (Gonzalez, Ingram et al. 2004).

"In a teaching oriented perspective the focal point of the class is the teacher while the student passively receives the information presented by the teacher. A learning oriented perspective requires a shift in focus to the student and the active acquisition of knowledge and understanding and the development skills of the student. In contrasting these two approaches, the teaching oriented perspective casts the teacher as the "sage on the stage" or the "provider of knowledge" "knowledge expert", while the learning oriented professor fulfills the role of "guide by the side" or "facilitator of learning" or "learning coach" (Gonzalez, Ingram et al. 2004).

As such, faculty members may wish to develop learning goals from a student-centered perspective. The professors may rethink how they structure and teach the class to include the following learning objectives for the students. Learning as such is:

* Fundamentally about making and maintaining connections.

* Enhanced by taking place in the context of a compelling situation, allowing for contemplation and reflection.

* An active search for meaning by the learner by constructing knowledge shaped by experience.

* A cumulative and developmental process involving the whole person.

* Strongly affected by the educational climate in which it takes place.

* Dependent on frequent feedback to be sustained, practice to be nourished, and opportunities to use what has been learned.

* Often takes place beyond the classroom.

* About transferring knowledge and skills to new and different contexts.

In fact, subject-matter knowledge is gained and enhanced through a broad range of experiences and associations applied to real world problems. Gonzalez and Ingram et al. refers to this as "building social capital" in the classroom. They contend that given the professors' objectives, "they must build a compelling context in which the students can learn in a creative and, what has been a nontraditional environment." They believe that the professor can create a learning environment and build social capital in the classroom by: "creating active connections among students; building trust with students; establishing shared value with students; and providing equitable opportunities for students."

In this environment, the role of the professor "goes from being an expert who imparts knowledge to individual students to a facilitator of action to assist students in developing important skills and capabilities" (Gonzalez and Ingram et al. 2001). Providing equitable opportunities for students is especially important and relevant to this Application since students learn in a variety of ways. The experience of getting out of the classroom to feel, see, touch, and perhaps, taste a different business environment not only enhances the learning experience but imprints the learning in the students' minds. This creates an equitable learning environment for students to learn in a variety of ways.

Studies show that all aspects of our environment contribute to the learning process and thus a total learning environment would place equal value on the students, faculty and physical environment. This is known as the "holistic" learning process (Adrian & Palmer, 1999). In order for students to fully understand the concepts presented in the Principles of Marketing and Marketing Management classes, it is important that the students experience marketing in action. Experiencing all of the richness that marketing entails requires the professor to take the students out of the classroom and see the marketing implemented in the business world. Developments in the ever-changing field of marketing can often make traditional classroom lessons seem stagnant.

Students who participate in a "holistic" learning process are said to think beyond memorization, and can make improved links between theory and practice as taught by the professor. In-line with the "holistic" learning process, the AT&T Application explains how the field site visit helps to synthesize the Marketing Management course or Principles of Marketing course materials for the students. The nature of the field site visit, allows for lessons to be that much more effective and stronger than if taught within the classroom (Adrian & Palmer, 1999). Incorporating a field site visit into the curriculum of a course excites and helps students be more engaged and, theoretically, learn more.

APPLICATION

Observing the integration of marketing theory and practices within an organization is extremely valuable. One of the main challenges of preparing the Application was to find a venue where marketing was prevalent, exciting and well executed. As such, certain criteria were considered when choosing an organization. For example, the organization had to be relevant to the students and, if possible, an established institution in the city or town. The chosen organization had to provide a strong brand image and numerous examples of marketing at work.

Listed below are venues that have been used in the past for this Application:

* Museums

* Wineries

* Community based clinic or blood banks

* Municipal organizations

* Sports venues

* High-tech companies

* Theatres

The location should also be easily accessible for the students so that they may either drive or take public transportation. It is also important that the Application be completed within four to eight hours in a single day. The organization should provide not only a behind-the-scenes tour, but a presentation from either a CEO, someone at the VP level or a marketing director. It is imperative that the speaker is prepared to give a high level presentation and be able to engage students in a quality Q&A session.

LEARNING OBJECTIVES

The specific learning objectives for the Application are the following:

* Secure greater engagement of students in the topics covered in the course.

* Offer students the opportunity to experience marketing in action.

* Provide marketing experts to discuss the specific marketing tactics and strategies of their organization.

* Make students more aware of the importance of marketing within an organization.

* Broaden the students' perspective of marketing elements and how they play out within a marketing oriented organization.

* Create excitement about marketing for those students who may have had a limited or negative view of marketing.

Why AT&T Park?

AT&T Park, home of the San Francisco Giants Major League Baseball (MLB) team, was chosen for the location of the Application because it fit the above criteria. Furthermore, baseball and the Park itself represent an industry, which is familiar and relatable to almost all students. The venue also provides the opportunity for baseball fans, those students at least familiar with baseball, and students with no baseball knowledge, such as foreign students, to experience a San Francisco landmark as well as an American tradition.

The Giants are one of the oldest teams in the MLB and have been in California since 1957, after moving west from New York City. The MLB is the organization that oversees all Major League Baseball teams. The MLB operates under two divisions, the American League and the National League, which includes the Giants.

AT&T Park provides the optimal forum for experiencing the marketing principles and strategies that are taught to MBA and BA marketing students. The AT&T Park Marketing Department, as well as that of Giants, Inc., has managed to brand both the team and the stadium as separate entities. For example, students learn that AT&T Park is more than just the home of the San Francisco Giants, but rather an entertainment venue that has hosted everything from motor cross-sporting events to the San Francisco Opera.

PREPARATION

Undertaking an off-campus Application requires a great deal of upfront preparation on the part of the professor and the chosen organization. Ideally, the professor should contact the organization at least a semester in advance of the site visit. Sometimes it requires making multiple contacts before an appropriate venue can be found, the right speakers lined up and a date agreed upon that matches the organization and students' availability.

The following describes the preparation required by the faculty, students and organization.

Faculty

There are numerous steps that the professor needs to perform in order to prepare for an Application of this nature. The first step is meeting with the legal department at the university to learn if any waivers are needed due to the off-campus aspect of the Application. The next step is establishing contact and developing a relationship with the organization of choice.

The professor should then meet with someone within the chosen organization to determine the following:

* Will a student visit to the organization support the learning objectives of the course?

* Can the organization provide someone at a high-level to give a presentation to the students?

* Does the organization have well trained tour guides who can answer student questions?

* Will the organization provide a behind-the-scenes tour and not just a standard visitors tour?

* What, if any, charge there will be for the tour and speaker?

* How many hours is the organization willing to have the students on-site?

The professor needs to inform the students of the following prior to the Application:

* The students need to make their own transportation arrangements, such as carpooling or public transit to the venue.

* Any students who cannot attend will be asked to complete an alternative assignment.

* Any student who cannot afford the Application should speak to the professor privately, who will make arrangements for them.

* The students are expected to participate for the entire Application and cannot use their communication devices while on-site.

* The trip will be scheduled on a non-class day.

* Professional behavior is expected of the students.

* Students should be prepared to take notes on the visit.

* Students should develop four marketing related questions they would like answered on the visit and email to the professor a week in advance.

* The professor will consolidate these questions into a manageable list of 10 to 15 questions and email them to the organizational contact.

The professor can decide which topics to discuss in class prior to the Application depending upon the specific goals for the Application and the course. Based on the AT&T Park Application, the following topics were discussed prior to the trip:

* Marketing Mix

* Branding

* Marketing research

* Segmentation, targeting and positioning

* Integrated marketing communication

* Customer relationship management

* Customer service

* Pricing models, such as dynamic pricing

* Corporate sponsorship

Students

Students should complete the following prior to the Application:

* Visit the Giants, MLB, and AT&T Park websites and familiarize them with each one.

* Read assigned articles about sports and event marketing.

* Prepare four marketing related questions and email to the professor.

Organization

The organization should be prepared to provide the following:

* A speaker at the CEO, VP or marketing director level to give a presentation to the students.

* Tour guides who have been prepped with the student questions.

* A behind-the-scenes tour and not just a standard visitors tour.

* Information regarding costs, for the tour, lunch or other amenities.

* The optimal number of hours spent on-site in order to meet the learning objectives.

MEASURING THE LEARNING OUTCOMES

The objective behind creating this Application was to secure greater engagement from the students on topics covered in class by providing real world marketing examples. A trip of this nature, allows students to learn from the experience and apply their knowledge. Students are also able to demonstrate how well they've mastered the subject matter covered in the course. By taking students out of the classroom and into a more dynamic marketing environment, they become more aware of, and recognize the use of, marketing strategies by organizations.

There are several metrics utilized to determine whether the learning objectives were met. During the Q & A sessions, there is always a distinct added level of sophistication to the questions over those that were originally submitted. Student questions become much more detailed, strategically based and analytical. Throughout the trip, students are active and fully participative in all aspects of the tour, discussion and Q&A session. Their enthusiasm is evident by the depth of their questions, attention, and professional behavior when dealing with the tour guides and guest speakers.

As a post trip evaluation, students are required to complete a six to eight page reflection and research paper incorporating their visit to the venue and associated marketing strategies. The range of the students analytical analysis include the use of marketing terms, strategies and tactics as well as insights about the venue and marketing in general. As part of the paper, students are asked to conduct research about an area that particularly piqued their interest during the visit. For the AT&T Park Application, students have performed in-depth analysis on topics, including: ballpark financing, dynamic pricing, player contracts, ballpark advertising revenues, operations, and comparisons with other ballparks.

Sample Paper Format

For professors, the deliverable can be tailored in any fashion that they deem appropriate. The format for the AT&T Park Application paper is displayed below:

* Introduction: Student's previous experience with baseball, AT&T Park, sports marketing, or sports in the U.S. or home country as appropriate. (Set the stage.)

* Summary: First reaction to the Park if first visit. List reactions to what the student saw, heard, experienced and learned even if a regular visitor to the park. Any surprises? What else would the student have liked to learn?

* Marketing: This can also be incorporated in section above. What evidence of marketing did was experienced? What did the student learn? What class, text, case, article or book material came through at AT&T Park? Does this make the student more or less interested in sports marketing? What specific evidence did of marketing strategies and tactics was displayed at the venue?

* Area of Strong Interest: What was the most interesting? Why? Conduct in-depth research and write about the importance of this particular aspect, strategy or marketing tactic. Be sure to cite references.

* Some possible paper topics include, but in no way are limited to:

* Advertising

* Giants brand

* AT&T brand

* Cross promotions

* Partner marketing

* Vendors

* Use of new media

* Marketing strategies and techniques specific to sports marketing

* New pricing methods

* Co-branding

* CRM: Customer Relationship Management

* Conclusion: What was the biggest take-away from the tour and guest speaker(s)? What about from the Park itself? How did this field trip support or reinforce learnings from class? What are some marketing concepts, tactics, strategies, and nuances that the student will pay attention to in the future?

After submitting their papers to the professor, it is recommended that the class engage in a debriefing of the experience. Discussions tend to be analytical, tactical, and enthusiastic.

CONCLUSION

Marketing is a discipline that requires action. Often, it is difficult for students to completely grasp the complexity and importance of marketing strategies without actually seeing them applied in the business world. The primary objective of this Application was to secure greater engagement of the students in various marketing strategies and tactics by providing an opportunity for the students to see them in action.

While this Application afforded the students an opportunity for greater engagement, it also made the students more aware of the prevalence and difference among the marketing strategies that businesses utilize daily.

AT&T Park, as a venue for this Application, exposed students to multiple examples of marketing principles at work. From the branded cup holders in the stadium seats, to the corporate sponsored luxury suites, to the advertisements on the Jumbotron scoreboard, the students were inundated with branding, logos, advertising, public relations, pricing schemes and more.

As the marketing industry as a whole continues to evolve and reinvent itself, it is important to prepare marketing students to effectively use and understand the tactics, strategies and ideas that comprise this industry. This Application successfully provides the students with an integrative experience for their marketing management class, broadens the students' perspective of marketing elements, and creates excitement about the field of marketing. What do MBA, MLB and AT&T Park have in Common? A dynamic off-campus Application!

Subject: Professional baseball; MBA programs & graduates; Sports marketing; Market strategy; Case studies

Location: United States--US

Classification: 9190: United States; 8307: Arts, entertainment & recreation; 7200: Advertising; 8306: Schools and educational services; 9130: Experiment/theoretical treatment

Publication title: Journal of Business Cases and Applications

Volume: 3

Pages: 1-11

Number of pages: 11

Publication year: 2011

Publication date: Jul 2011

Year: 2011

Publisher: Academic and Business Research Institute (AABRI)

Place of publication: Jacksonville

Country of publication: United States

Publication subject: Business And Economics

Source type: Scholarly Journals

Language of publication: English

Document type: Feature, Business Case

Document feature: References

ProQuest document ID: 887907241

Document URL: http://search.proquest.com/docview/887907241?accountid=38610

Copyright: Copyright Academic and Business Research Institute (AABRI) Jul 2011

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 7 of 100

Jill Pelabur learns how to develop her own estimate of a company's stock value

Author: Richardson, Keith

ProQuest document link

Abstract:

This fictitious teaching case integrates accounting and finance concepts through an understanding of equity valuation using the weighted average cost of capital (WACC) and the capital asset pricing model (CAPM). For undergraduates in the first intermediate accounting course and for MBAs in the financial management course this case exposes students to how investors use accounting information to value a company's stock. A second objective is to provide students with a valuation tool early in their programs. For both groups, this often results in dramatically increased interest in learning the basics of accounting and finance that are needed to fully understand and utilize the WACC/CAPM model and to be a successful financial manager. [PUBLICATION ABSTRACT]

Full text:

Jill Pelabur is a twenty-nine year old young woman who has been working in the marketing department of her Uncle Bill's business since graduating with a psychology degree from a very good liberal arts college seven years ago. Her uncle is sixty-six years old and has started grooming Jill to take over management of the company in the next five or so years. Unfortunately, Uncle Bill just learned that he must retire now due to a serious heart condition. Uncle Bill's prognosis for a long life is very good, if he eliminates the stress of running the business. Jill will take full control of the business starting now.

Jill believes she can manage the day to day operations of the business, with the help of her experienced and dedicated employees. However, she has no financial business experience. The company has a good relationship with a CPA firm which will insure good financial reporting and will help her learn to read and interpret financial statements. The Company has done very well for a number of years and has gradually accumulated a substantial amount of investment funds, which are being held for future expansion. The investments now account for approximately 20% of the Company's balance sheet. Uncle Bill had an undergraduate degree in finance and had worked as an investment advisor and as a CPA prior to starting the family business, thirty years ago. He handled all the investment decisions personally and most of his investments had turned out very well.

Uncle Bill suggested that Jill contact several brokers that he worked with in the past. These brokers have good reputations and Uncle Bill trusts them. Uncle Bill cautioned Jill that she must fully understand any investments the brokers recommend, however. It is imperative that she quickly learn how to independently estimate the value of a company's stock. This will put her in a position to ask the brokers intelligent questions and to properly evaluate their recommendations. Uncle Bill told Jill that he liked to use the WACC and CAPM model to estimate stock value and that with a bit of study and practice she could learn the basics of the model and begin to use it. It will take a great deal of study and experience before she makes investment decisions independently, but this will be a start toward that goal.

When Jill was in college she had toyed with the idea of a business major and, so, had taken a few introductory courses before changing her mind. Because of those courses, she knew basic business terminology and could, for instance, read and understand basic financial statements and the stock listings in the newspaper.

JILL'S RAPID-FIRE RESEARCH AND SELF-EDUCATION

Jill knew that business managers and investors, in general, need to understand how to evaluate investment opportunities. She certainly knew how to look up stock prices in the financial pages of newspapers, or find those prices on financial web sites. Like most of us, she also understood that stock prices represent the market's overall estimate of the company's current equity value. But, as we consider a company's stock price, how many managers and potential investors know how to determine if a company is undervalued or overvalued or valued just right?

She already knew what the current market value of a publicly traded stock is: it is the most recently traded price. What she wants to know is: will the value go up, down, or be unchanged in the future? That is: is the stock undervalued, overvalued, or priced correctly. Jill thought: if you do not know how to develop your own estimate of value, you are dependent on the advice of brokers and other advisors. Wouldn't it be valuable to herself and her company if she could make her own estimate for comparison to market prices and advisors' recommendations?

She recalled her Uncle Bill's suggestion that she start with the WACC/CAPM model, whatever that is? Jill did a great deal of reading on the topic and then decided to contact a couple of her now very old business professors for advice on how to proceed. Two of her professors, one in finance and one in accounting, agreed to sit down with her and discuss the WACC/CAPM model and answer her questions. Hopefully, this will allow Jill to develop a basic understanding of how the weighted average cost of capital (WACC) and the capital asset pricing model (CAPM) can be used to estimate a company's equity value. One of the professors also gave her a one page case that will allow her to use the model to value a simple hypothetical company. After completing this case, she will be ready to start practicing valuing real, publicly traded companies. Jill's review of her readings, and her conversations, and the simple valuation case follow.

JILL LEARNS HOW TO VALUE THE STOCK OF PUBLICLY-TRADED COMPANIES1

It didn't take Jill long to determine the basic question faced by all stock investors: "How does the current market price of a company's stock compare to its underlying value?" Jill obviously would not want to invest in companies currently being overvalued by the market. Just as obviously, Jill probably would want to invest in companies currently undervalued. But how to tell which is which?

During her research, Jill discovered a very interesting concept. Finance theory suggests that the value of any asset is the discounted present value of its future cash flows. By extension, this certainly is true for the value of a share of a company's stock. For Jill to answer her investment question, she only needs to use finance theory to determine the value of a share of a company's stock. Further reading revealed that this approach required three steps:

1. Determine the total value of the company by computing the discounted present value of its future cash flows.

2. Since the accounting equation states that Assets (Value) = Liabilities (Debt) + Equity (Stock), compute the total value of debt and subtract it from the company's value to determine total equity value.

3. Divide the total equity value by the number of shares of stock to compute the value of a share of the company's stock.

How Can Jill Estimate Future Annual Cash Flows and Compute their Present Value?

Jill discovered that the required computation for the first step might be easier said than done. In order to calculate the discounted present value of a company's future cash flows you need to know three things:

1. The projected (future) annual cash flows of the company.

2. The time horizon over which the company will earn those future cash flows.

3. An interest rate appropriate for discounting the cash flows to their present value.

For the first bit of data needed, Jill learned that absent information suggesting differently2, the best estimate of a company's future cash flows is its current cash flows. But which current cash flows? Cash dividends paid to stockholders? The change in cash from last year to this year? The cash flows from operating activities?

Because the point was to measure the total value of the company, Jill found that she needed a measure of cash flows that represents the cash generated by the company's productive assets available to meet the needs of all resource providers (both debt and equity). A good measure of this value is the company's income from operations before tax multiplied by one minus its tax rate and adding depreciation expense.

Projected Annual Cash Flows = [Income from Operations before Tax * (1 - Tax rate)] + Depreciation

Once future cash flows have been measured, an appropriate time horizon also must be determined. But what time horizon should be used? A relatively short term of 5 to 10 years? A longer term of 20 to 50 years? Indefinitely?

Jill knew that the answer to this question was an underlying assumption of the valuation method she planned to use. The purchase of a company's stock is the ownership of all of its future cash flows in existence as the time of the purchase. Likewise, the sale of a company's stock relinquishes the ownership of all of its future cash flows in existence at the time of the sale. Both of those events suggest an indefinite time period.

A benefit of an indefinite time period is that the present value of the cash flows can be based on an economic perpetual bond, which is the recurring payment to be received divided by the interest rate used to discount those cash flows. This makes sense intuitively: Assume cash flows of $10 million and a 10% interest rate. The present value of the future cash flows will be $100 million ($10 / 10% = $100). Reversing the math: if you have $100 million invested at 10% interest, the investment will yield $10 million in perpetuity.

Present Value of Future Cash Flows = Projected Annual Cash Flows / Interest Rate

What Interest Rate Should Jill Use?

That left Jill with the question: what interest rate to use? She remembered, projected annual cash flows were defined as the cash generated ... to meet the needs of all resource providers (both debt and equity). This suggests that the interest rate should be a blended rate that includes the return on investment required by both debt providers and equity holders. Jill learned the weighted average cost of capital (WACC) is such a blended interest rate. Thus, the value of a company (the present value of its future cash flows) is equal to the company's projected annual cash flows divided by WACC.

Company Value = Projected Annual Cash Flows / WACC

Jill was feeling pleased with her efforts. She had learned that to make good investment decisions she needed to compare the current market value of a company with its underlying valuation. She also learned, for the company's underlying valuation, she needed to project the company's future cash flows and compute its weighted average cost of capital (WACC).

During her research, Jill discovered another interesting issue about her chosen valuation method. The general form of the valuation model assumes no growth. But, she knew, for many of the companies she might invest in, some level of growth would be expected. So, how to adjust the valuation method for growth?

Jill found that a (constant) growth rate can be easily incorporated in the model by adjusting both the projected annual cash flows and WACC. The cash flows are increased for the expected growth, and WACC is decreased by the growth rate. This will result in a higher asset value. Jill saw that this makes sense intuitively: If cash flows are increasing due to growth, the required return from earnings can be reduced by the amount of that growth. Jill also noted that growth in cash flows can be positive or negative, and a negative growth rate will result in lower projected cash flows, a higher discount rate and a resulting lower asset value.

Company Value = (Projected Annual Cash Flows * (1 + Growth Rate)) / (WACC - Growth Rate)

Jill realizes that she needs to learn how to compute the weighted average cost of capital (WACC) needed for her valuation model:

Company Value = Projected Annual Cash Flows / WACC

JILL LEARNS HOW TO COMPUTE WACC3

Jill returns to her research and discovers that the weighted average cost of capital is the return on investment that will satisfy both debt providers and equity holders. That is, it is the rate of return that allows debt providers to earn their agreed upon rate of interest and equity holders to earn an appropriate risk-adjusted return. Jill was pleased to learn that, at its heart, the WACC4 calculation is quite simple. It is the percent of debt held by the company times the cost of that debt plus the percent of equity in the company times the cost of equity.

WACC = (Debt % * Cost of Debt) + (Equity % * Cost of Equity)

Jill Learns How to Determine the Weight of Debt and the Weight of Equity

The relative weight of debt and equity is represented by the accounting equation: Assets = Liabilities + Equity. The percent of debt is simply Total Liabilities divided by Total Assets, and the percent of equity is Total Equity divided by Total Assets. Jill clearly saw that the weights should be based on the market value of each of the components - the market values for the assets, for liabilities, and for equity.

Because it was the reason for her investment research, Jill knew the best measure of current market value for a publicly-traded company is its current stock price times the number of shares outstanding. She also recalled that the outstanding shares are those that have been issued by the company and have not been reacquired as treasury stock. This value of equity, also known as the company's market capitalization, should be used to determine the percent of equity in the WACC calculation. For non-public companies, the share price of recent stock issuances or trades may be used as a proxy for market value. In cases where there has been no stock activity, a subjective estimate of stock value or historical values may be used.

Market Value of Equity = Market Price per Share * Number of Shares Outstanding

For debt, Jill learned that the best measure of current value would be the discounted present value of future payments due (both interest and principal) at current interest rates (using the company's current bond rating to adjust for risk). Her research showed that it may be necessary to consider this approach under certain conditions (e.g.: companies in financial distress). However, for most companies, this (more accurate) calculation of the market value of debt produces a result very close to the current book value of debt. Thus, absent unusual conditions and for ease of computation, the book value of total liabilities5 is most often used as a proxy for the market value of debt in the WACC calculation.

Market Value of Debt = Book Value of Total Liabilities

Thus, the market value of total assets used in the WACC calculation is equal to total debt plus total equity.

WACC Market Value of Assets = Book Value of Total Liabilities + Market Value of Equity

The debt percentage and equity percentage can be computed as follows.

Debt % = Book Value of Total Liabilities / Market Value of Assets

Equity % = Market Value of Equity / Market Value of Assets

To finish the WACC calculation, once the appropriate percentages for debt and equity have been determined, it is necessary for Jill to determine the cost of debt and the cost of equity.

How Can Jill Estimate the Cost of Debt?

From her research, Jill found that the cost of debt represents the net interest expense to the company for its borrowed resources. Since interest expense is tax deductible, the cost of debt is the company's after-tax interest expense, which is the total interest expense times one minus the company's tax rate. For example: Assume a company has a 5% average interest rate before tax and is in a 40% tax bracket. If the average debt is $100 million, interest expense will be $5 million. Deducting the interest from taxable income will result in a tax savings of $2 million (40%). The after-tax cost of financing is$3 million or 3%.

Cost of Debt = Interest Rate * (1 - Tax Rate)

Jill thought that the above example was clear and understandable. She also understood that, when computing the cost of debt, two issues must be addressed: what interest rate and what tax rate should be used? As to interest rate, one approach would be to determine the company's marginal interest rate - the rate it would pay if additional debt was incurred. While this may be appropriate to evaluate whether the company should make additional capital investments, it does not capture the current debt relationship for the company as a whole. Another approach would be to compute a weighted average rate based on the stated interest rate for each of the interestbearing debt instruments. However, this approach does not recognize the benefit from the use of non-interest-bearing debt.

Jill learned an effective and simple way to address both of those issues. It would be easy to estimate the interest rate as total interest expense divided by total liabilities. For most companies, this will yield an interest rate which appears to be very low, because it factors in both interest bearing and non-interest bearing debt.

Interest Rate = Total Interest Expense / Total Liabilities

Similarly the marginal tax rate could be used to evaluate whether the company should make additional capital investments. But, thought Jill, does this really meet our needs? Since WACC will be to compute the value of the company as a whole, the tax rate used should represent the tax cost to the company as a whole. This is the company's average tax rate, which is most easily computed as the company's tax expense divided by its reported income before taxes.

Tax Rate = Total Tax Expense / Income before Tax

How Can Jill Estimate the Cost of Equity?

That last item to be determined, to compute WACC, is the cost of equity. For that, Jill needed to learn about the Capital Asset Pricing Model (CAPM). This model states that the expected return to a company's equity holders is equal to the risk-free rate of return plus the risk premium for the market as a whole adjusted for the company's individual riskiness. The company's individual riskiness is measured by the beta coefficient in the CAPM regression model (more fully explained below).

Expected Return (Cost of Equity) = Risk-Free Return + (Beta * Market Risk Premium)

Historically, U.S. Treasury securities have had the lowest risk of default of any securities available for investment. Thus, U.S. Treasury bond rates typically are used to measure the riskfree return. The bond's term is should be matched to the investment holding period. Since valuation models assume an indefinite holding period, we use the longest available term bond rates, 30-year. The risk-free rate is, in theory, composed of a "fair" or "true" return plus expected inflation.

Risk-Free Return = 30-Year U.S. Treasury Bond Rate

The market risk premium is the expected return on the market as a whole less the risk-free return. It is a measure of the additional return that equity holders require because of the higher riskiness of the market as compared to a risk-free investment. Historically, the market risk premium has been 5% - 7%.

Market Risk Premium = Market Return - Risk-Free Return

The beta coefficient is the covariance of a company's stock returns over time relative to the market as a whole. That is, it is the regression coefficient from a linear regression of the company's stock returns on an appropriate market index (the S&P 500 Index or the NYSE Composite Index are often used). Beta is a proxy for the company's individual riskiness relative to the market. Since a regression of a market index to the same market index produces a beta of 1.0, then a beta of 1.0 indicates that a company has the same level of riskiness as the market. A beta greater than 1.0 indicates a higher level of risk, and a beta less than 1.0 indicates a lower level of risk - as compared to the market as a whole. Beta for any particular company is available from a variety of public sources, such as Yahoo Finance or MSN Finance.

Beta = Proxy for Individual Company's Riskiness Relative to the Market

The weighted average cost of capital (WACC) is the rate that this company must earn on its assets in order to satisfy the expectations of both debtors and investors. If the Company earns this return on assets, the stock value will not be expected to change. Earnings in excess of WACC would be expected to increase share value and earnings below WACC would be expected to decrease share value.

Jill Learns How to Estimate the Stock Value per Share

Having worked through the first step in her quest to make good investment decisions, Jill now knew how to compute the total value of a company based on its future cash flows. She now needed to relate that valuation to the company's current stock price. Jill already knew that the accounting equation defined the relationship between assets and liabilities and equity:

Assets = Liabilities + Equity

From the accounting equation, Jill could confidently state that the company's market value equals the market value of its debt plus the market value of its equity.

Company Value = Debt Value + Equity Value

Since Jill knew how to make an independent estimate of the value of the company assets, she can easily compute the value of its equity as the company's asset value less its debt value.

Equity Value = Company Value - Debt Value

Once equity value is determined, it can be divided by the number of shares of stock outstanding to compute the per share value of the company's stock.

Stock Value per Share = Equity Value / Number of Shares Outstanding

This estimated value per share can be compared to the current market value of the company's stock to determine if the company is appropriately valued, undervalued, or overvalued. This is Jill's final goal - to be able to make an informed decision about her possible investment choices.

JILL PULLS IT ALL TOGETHER

Jill sat back, mentally tired, but pleased with what she had accomplished. She learned that company value was based on the discounted present value of its future cash flows. She found out that future cash flows could be estimated based on current earnings from operations:

Projected Annual Cash Flows = [Income from Operations before Tax * (1 - Tax rate)] + Depreciation

and that the company's WACC could be used for the discount rate. This produced a very simple formula:

Company Value = Projected Annual Cash Flows / WACC

Further, Jill learned that WACC is a simple computation based on a company's cost of debt and cost of equity and how much debt and equity it had:

WACC = (Debt % * Cost of Debt) + (Equity % * Cost of Equity)

The percentages of debt and equity were easy; they came directly from the accounting equation. Jill could see that the cost of debt was not difficult to determine:

Cost of Debt = Interest Rate * (1 - Tax Rate)

Particularly since theory suggested a simplified approach to compute the needed interest and tax rates:

Interest Rate = Total Interest Expense / Total Liabilities

Tax Rate = Total Tax Expense / Income before Tax

and the cost of equity is based on the capital asset pricing model (CAPM):

Expected Return (Cost of Equity) = Risk-Free Return + (Beta * Market Risk Premium)

With these tools in hand, Jill felt confident that she could compute the information she needed to properly evaluate stocks, and she looked forward to working closely with her stock brokers.

Subject: Value stocks; CAPM; Cost of capital; Accounting; Valuation methods; Case studies

Classification: 4120: Accounting policies & procedures; 3400: Investment analysis & personal finance; 9130: Experiment/theoretical treatment

Publication title: Journal of Business Cases and Applications

Volume: 3

Pages: 1-14

Number of pages: 14

Publication year: 2011

Publication date: Jul 2011

Year: 2011

Publisher: Academic and Business Research Institute (AABRI)

Place of publication: Jacksonville

Country of publication: United States

Publication subject: Business And Economics

Source type: Scholarly Journals

Language of publication: English

Document type: Feature, Business Case

Document feature: References Tables

ProQuest document ID: 887907250

Document URL: http://search.proquest.com/docview/887907250?accountid=38610

Copyright: Copyright Academic and Business Research Institute (AABRI) Jul 2011

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 8 of 100

Forecasting an income statement and balance sheet: a case exercise for beginners

Author: Whited, Hsin-hui I H; Regassa, Hailu

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Abstract:

This hypothetical finance case requires students to use various ratios and assumptions to forecast an income statement and balance sheet. The stock price for the company and new issues of common stock are then projected based on these statements. [PUBLICATION ABSTRACT]

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TARGETED STUDENTS OF THIS CASE

This case allows instructors to introduce a simple forecasting technique for a stock price, this introduction coming right after students have an elementary understanding of the relationship between income statements and balance sheets. Since the required understanding of accounting is quite basic for solving this case, the targeted students of this case are beginners in finance. The most appropriate course to adopt this case will be Principles of Finance. This case demonstrates how to forecast an income statement and balance sheet. In addition, by employing the P/E ratio and a confidence interval, this case also displays how to project a stock price based on the forecasted income statement and balance sheet.

ABC PLUMBING CORPORATION

ABC Plumbing (ABC), an Atlanta-based corporation, has been installing plumbing systems in residential construction sites for an extended number of years. All through these years, the ABC did not implement an integrated short- and long-term financial plan to guide its operations and assess potential bottlenecks. To begin with, Ann Smith, the newly hired CFO, is keenly interested to mobilize all departments and resources to come up with a well coordinated financial forecast for this coming year. She believes that the experience gained from annual short-term forecast will help her implement a much thought out long-term financial planning in the upcoming year.

Smith figured out that revenue for the current year is $3 billion, and the marketing department projects a 10% increase in sales for next year. Some estimates of selected ratios and the balance sheet and income statement for the current year are given in Table 1 and 2, respectively. Smith was also informed that the company is currently operating at full capacity, but is not quite sure about it. Armed with the accounting data made available to her, Smith initiated a meeting with the CEO and other top executives to discuss her plans to implement an annual financial forecast for the following year. They all expressed their desire to get this plan completed and agreed to cooperate with her. Together, they were able to review these ratios and compare them with industry standards. They all agreed that significant step must be taken to improve the financial performance of the firm in coming year. Smith made it clear to everyone in the meeting that lack of coordination and integrated financial plans may trigger a potential takeover of the firm whereby they could all lose their jobs.

As a recent graduate from a business school, suppose you are recently hired as Smith's assistant to help her develop financial forecast for the upcoming year. Smith asks you to begin your task by first obtaining updated information from the various departments regarding production, inventory, receivable, and payables. Through your inquiry, you are able to gather the following valuable information from the department managers and the CFO:

(a) Due to the recent change in credit terms granted to clients, ABC's current level of average collection period or Days' Sales Outstanding (DSO) will be reduced to 35 in line with the industry average of 32.41. By offering discount incentives to encourage prompt payment and through favorable credit terms the receivables manger expects to meet this targeted goal.

(b) A relatively new inventory management system that rearranged the orderly flow of plumbing parts has begun to yield positive improvement. This efficiency gain is expected to increase inventory turnover to 6 times annually.

(c) Most ABC's construction workers belong to the labor union and their wages are contractually pegged to COLA (Cost-Of-Living-Adjustment). The recent deflation resulting from the current recession has produced a negative COLA figure. This will take effect when its workers sign ABC's new wage contracts at the beginning of the year. According to payables manager, this reduction of wages is estimated to yield a lower operating costs-to-sales ratio of 90% for the coming year.

(d) ABC has a good credit in the past. With prevailing interest rates currently at a historically low level, Smith has decided to redeem ABC's high-rate bonds issued six years ago with a new low rate. This will reduce ABC's interest-bearing debt and result in a lower liability-to-asset ratio of 30%.

(e) ABC's current dividend payout ratio is 28.99% while the average payout ratio for the plumbing industry is 22%. Smith has planned to cut down this ratio to 25% of retained earnings to make room for potential growth. As shareholders have in the past favored capital gains over cash dividends, Smith projects that the dividend reduction will not have much of a negative impact on the value of the firm.

REQUIREMENTS

1. Incorporate and update the information given in Table 1 to reflect the changes for the upcoming year.

2. Prepare the income statement and balance sheet for next year based on these assumptions: (a) cash, fixed assets, payables and accruals will grow with sales; (b) the current composition of interestbearing debts, which includes short-term bank loans and long term bonds, will be maintained for next year; (c) a tax rate of 40%; (d) 10% interest rate on all interest-bearing debts; (e) 50 million common shares outstanding.

3. The current market price of ABC's common stocks is at $23.05. If all assumptions are realized, what is your estimate for ABC's stock a year from now based on today's P/E ratio?

4. If the growth rate of ABC next year is only 6%, but all other assumptions are maintained, what will ABC's stock price be? If this growth rate turns out to be a better-than-expected rate of 12%, how much will this stock be worth a year from now based on this model?

5. You believe that there is a 50% probability for ABC to grow at 10% next year, a 30% probability at 6%, and a 20% probability of attaining a maximum growth rate of 12%. Based on these three scenarios, what is your expected stock price of ABC next year? What is the standard deviation of your estimate? What will the price range be like if you place a 95% confidence interval?

INSTRUCTOR'S MANUAL

1. Days Sales Outstanding (DSO) is, by its definition, equal to Accounts Receivable/Daily Sales. This implies that the projected (Accounts Receivable/Sales) ratio to be equal to DSO/365. Employing this mathematical relationship generates a projected (Accounts Receivable/Sales) ratio of 9.589% (=35/365= 9.589%) when a DSO of 35 is applied. The inventory turnover ratio is the reciprocal of the (Inventories/Sales) ratio. As the inventory turnover ratio is projected to be 6x, the (Inventory/Sales) ratio becomes 16.67% (= 1/6 = 16.67%). The remaining ratios are also updated in Table 3 based on the new projections made by the various departments.

2. Projected income statements and balance sheets for the current as well as the upcoming year are compiled in Table 4. Abbreviated notes of reasoning are listed under the column "Changes." Specific details of the rationale for the projected statements are provided, as is required, in the order in which they are presented in this section. All dollar values are expressed in millions, except for earnings per share (EPS), ratios, stock prices, and shares outstanding.

(1) Sales:

As Sales is expected to increase by 10%, Sales of next year will amount to [arrow right] $3,000 *(1+ 10%) = $3,300.

(2) Operating Cost (including Deprecation):

Operating Costs is expected to be 90% of projected Sales [arrow right] 90% * $3, 300 = $2, 970.

(3) Earnings before Interest and Taxes (EBIT):

EBIT = Sales minus Operating Costs [arrow right] $3,300 -$2,970 = $330.

(4) Cash:

Based on the assumption made in this case, Cash increases at the same rate as the growth in Sales, which amounts to [arrow right] $50*(1+10%) = $55.

The above calculation implies that the ratio of Cash to Sales remains constant despite the growth in sales. The same could also be said regarding the line items Fixed Assets and (Payables + Accruals). As these two items are also growing with sales, ratios of Fixed Assets/Sales and (Payables + Accruals)/Sales, are implicitly assumed unchanged despite the growth in revenue. However, if the instructor does not wish to adhere to these assumptions, these three ratios could then be specified at some predetermined target levels to get around these implicit assumptions.

(5) Accounts Receivable (AR):

Accounts Receivable for next year is based on the projected AR/Sales ratio of 9.589% and is calculated as follows [arrow right] (9.589%)*($3,300) = $316.44 = $316 (rounded)

(6) Inventories:

Inventory is projected to be 16.67% of sales [arrow right] (16.67% =1/6) *($3,300) = $550.00 = $550 (rounded).

(7) Fixed Assets (FA):

Based on the assumptions given in this case, ABC's Fixed Assets increase at the same rate as Sales do and is equal to current Fixed Assets * (1+ 10%) = $1,000 *1.1 = $1,100.

(8) Total Assets (TA):

Projected Total Assets = Sum of Cash, AR, Inventory and FA = $55 + $316.44 + $550 + $1,100 = $2, 021.44 = $2,021(rounded).

(9) Total Liabilities (TL):

Once Total Assets is determined, given Liabilities/Assets target ratio of 30%, Total Liabilities (TL) = 30% * $2,021.44 = $606.43 = $606 (rounded).

(10) Total Common Equity (E):

The company has not issued preferred stock. Total equity (E) in this case = Total Assets - Total Liability = $2, 021.44 - $606.43 = $1,415.01= $$1,415 (rounded)

(11) Payables + Accruals:

(Payables + Accruals) are assumed to grow in proportion to Sales which is = $200*(1+10%) =$220.

(12) Interest-Bearing Debts (IBD):

Although these is no line item of interest-bearing debt (IBD), it could be calculated by subtracting non-interest bearing liabilities (Payables + Accruals) from Total Liabilities [arrow right] = TL - (Payables + Accruals) = $606.43 - $220 = $386.43= $386 (rounded).

(13) Interest Expense (IE):

In this case, interest is assumed to be 10% of interest-bearing debts. Therefore, Interest Expense = 10% * Interest-Bearing Debts = 10% * $386.43 = $38.64 = $39 (rounded).

(14) Short-Term Bank Loans (STBL):

In this case, as the portion of Short-Term Bank Loans to total Interest-Bearing Debts is assumed to remain unchanged, we could determine this ratio from the current year's balance sheet and then multiply this ratio by the projected Interest-Bearing Debts. The ratio of (STBL/IBD) for the current year = $100/$850. Multiplying this ratio by the projected IBD yields ($100/$850)* $386.43 = $45.46 = $45 (rounded).

(15) Long-Term Bonds (LTB):

As projected Interests-Bearing Debts comprises of Short-Term Banks Loans and Long-Term Bonds, LTB then equals projected IBD minus projected STBL = $386.43 - $45.46 = $340.97 =$341 (rounded).

(16) Earnings before Taxes (EBT):

EBT is equal to EBIT . Interest Expense and is = $330 - $38.64 = $291.36 = $291(rounded).

(17) Taxes:

40% of EBT (=$291.36) = $116.54 = $117(rounded).

(18) Net Income (NI):

Net Income = Earnings Before Taxes - Taxes = $291.36 - $116.54 = $175 (rounded).

(19) Dividend:

The CFO plans to reduce ABC's dividend payout ratio to 25% for next year. Total dividend is then projected to be 25% of Net Income [arrow right] 25% * $174.81 = $43.70 = $44 (rounded).

(20) Addition to Retained Earnings:

Addition to Retained Earnings = Net Income . Dividend = $175(rounded) - $44 (rounded) = $131.11= $131.

(21) Retained Earnings:

Projected Retained Earnings next year = Retained Earnings (current year) + Addition to Retained Earnings (next year) [arrow right] = $800 + $131.11 = $931.11 = $931 (rounded).

(22) Common Stock:

Projected Common Stock = Projected Total Common Equity .Projected Retained Earnings = $1,415.01 . $931.11 = $483.90 = $484 (rounded).

3. In order to project the stock price based on the current P/E ratio, we need to know (a) Earnings Per Share (EPS) at the current year, (b) P/E ratio at the current year and (c) the projected EPS for next year. After (b) and (c) are found, multiplying (b) by (c) will yield the forecast for the stock price next year. Current EPS = Net Income at current year/number of outstanding common share = $69 million/50 million= $1.38 per share; (b) Current P/E = $23.05/$1.38 =16.70; (c) Projected EPS for next year is determined as follows. As projected common stock increases to $483.9 million from $150 million from the current -year level, an additional $334 million (rounded) worth of stocks must be sold to the public. With the current stock valued at $23.05 per share, ABC will need to issue additional 14.49 (rounded) million shares (= $333.90 million/$23.05 per share). Adding these 14.49 million new shares to the existing 50 million shares gives us a total of 64.49 (rounded) million shares outstanding for next year. Therefore the projected EPS = projected Net Income of 174.82 million divided by 64.49 million shares = $2.71. Multiplying $2.71 (rounded) by the current P/E ratio of 16.70 results in a projected stock price of $45.28 (see Table 5).

4. Applying the same method, if ABC's growth rate turns out to be 6%, assuming all other assumptions hold, the stock price of ABC will be reduced to $45.05. If the growth rate increases to 12%, the forecasted price will then be as high as $45.39. Refer to Table 6 and 7 for the calculations of projected prices under the growth-rate assumptions of 6% and 12%, respectively.

5. Use stated probabilities for this scenario analysis, the expected stock price of ABC is projected at $45.23 (Table 8). In order to find out the standard deviation of this estimate, we first obtain the variance under this scenarios analysis, and then take a square-root of this variance to determine its standard deviation (σ). The variance is the sum of the squared deviation under each scenario multiplied by the respective probabilities of a scenario. This deviation is measured by the distance between the projected stock price under a specific scenario and the expected mean of 45.23. This procedure will result in an estimated variance of 0.01628 (refer to the column D in Table 9). The square-root of the variance yields a standard deviation (σ) of $0.1276. Subtracting 1.96* standard deviation (σ) from the expected price of $45.23, will generate a lower bound estimate of $44.98 for a 95% confidence interval. Adding 1.96* standard deviation (σ) to the expected price will generate an upper bound estimate of $45.48 for this interval.

Subject: Forecasting; Income statements; Balance sheets; Stock prices; Price earnings ratio; Case studies

Location: United States--US

Classification: 9190: United States; 3400: Investment analysis & personal finance; 4120: Accounting policies & procedures; 9130: Experiment/theoretical treatment

Publication title: Journal of Business Cases and Applications

Volume: 3

Pages: 1-12

Number of pages: 12

Publication year: 2011

Publication date: Jul 2011

Year: 2011

Publisher: Academic and Business Research Institute (AABRI)

Place of publication: Jacksonville

Country of publication: United States

Publication subject: Business And Economics

Source type: Scholarly Journals

Language of publication: English

Document type: Feature, Business Case

Document feature: References Tables

ProQuest document ID: 887907112

Document URL: http://search.proquest.com/docview/887907112?accountid=38610

Copyright: Copyright Academic and Business Research Institute (AABRI) Jul 2011

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 9 of 100

MIA MOTORS: THE ARRIVAL OF A FOREIGN MULTINATIONAL FIRM INTO THE U.S. AUTOMOBILE MARKET

Author: Brent, William; Jeong, Jin-Gil

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Abstract:

This case affords students an opportunity -- from both strategic and financial points of view -- to evaluate Mia Motors' decision to expand its operations outside Korea to the US.; to provide or obtain the funding necessary to establish and continue operations in US. public markets while simultaneously maintaining home country relationships and further consideration of expanding its assembly and manufacturing operations world-wide from a growth perspective. The approach of the case hinges on the analysis of two key areas: the internal decisions made by the home office of Mia Motors located in Korea to assist its international subsidiary to obtain operational funding to enhance the unit's successful US market entry and to better enable the operational rigors faced by the firm in a market composed of major players in the industry and the effect and influence of multinational banking firms in providing the necessary operating capital for similar firms like Mia Motors, who may also be entering fully-integrated industries with a primary product.

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INTRODUCTION

In August 2003, the Board of Directors of Mia Motors Incorporated faced the decision threshold concerning several issues facing the "coming to America plan" for the firm including: (1) how does this firm survive in an international automobile industry market where it is but a small dot on the industry horizon, (2) which international market would best "fit" the mission and direction of the firm; and (3) how would the firm fund its domestic and international plans, and in that vein, could the Korean offices of its long-term financial partner, J.P. Morgan Chase, be called upon for assistance with funding sources available to satisfy its needs. As the firm was deliberating the issues, several pertinent factors conclusively indicated that it must expand its operations to a more profitable area. Mia had historically made several foreign direct investments in the U.S., South America, Europe and China. These corporate decisions were based upon 1) a strategic motive of mitigating its operating exposure evident in unexpected changes in exchange rates, and 2) a financial motive, to enhance its profitability by diversifying its operational markets and monetary sourcing. The first of several internal Korean issues affecting the firm's decision noted by Mia' s expansion planners was that the price of domestic land was prohibitively expensive. Thus, it would make sense for the firm to go outside of Korea to obtain access to more reasonably priced or free sources for construction of its assembly plant. Next, the domestic regulation in Korea for expansion of assembly plant operations was extremely difficult to overcome at the current period and showed very little chance of changing in the near term. Finally, within Korea, the firm had to deal with labor unions which would present the real potential for much higher contract costs, increased labor costs and other unionspecific elements, reducing the profits derived from operations. The choice for movement to the U.S. was also affected by the firm's determination that land prices in the U.S. were reasonable, if not free, that local and federal governments there were very business friendly, and that labor costs were low because it would be hiring non-union employees in its U.S. plant. (Alvis, 2009)

COMPANY BACKGROUND

James ("Jim") Cheng is the firm's founder, Chairman of the Board, and CEO of Mia Motors International. After earning his BS in mechanical engineering from Korea University, in Seoul, he worked with various firms in the industry for several years, during which time the idea for Mia as an international firm began to develop. He later enrolled in Stanford University where he earned his MBA in business and marketing. While at Stanford he worked with the university's Small Business Development Center where he continued developing his ideas, establishing a home business in Korea, and, then, once the homeland business was stabilized, transforming a fledgling subsidiary of the firm into an international auto firm that could compete with Hyundai, Mitsubishi and other more reputable firms that were also implementing their own marketing plans or already moving internationally into European markets while attempting to fully extended themselves into the U.S. auto market. Jim Cheng was fully aware of and subscribed to the sound Confucian beliefs of hierarchy and respect for elders that would enable his firm to provide the speed and efficiency necessary to succeed internationally. At first, all manufacturing for both the domestic and international markets would be done in Korea. Mia, unlike other international firms, did not at this point have assembly plants in the U.S. Thus, Mr. Cheng desired to fulfill his dream by initially establishing assembly plants in the U.S. and then moving forward with the full development of manufacturing, assembly, and sales activities within the U.S.

Mia Motors was incorporated in May 1995 by Jim Cheng upon his graduation from Stanford. Ten years previously, the South Korean government formulated a plan to enhance development and manufacturing for Korean firms. Hyundai, Daewoo, and SSangyong took advantages of the legislation and applied funding and technology into their corporate infrastructure. Mia submitted its plan in January 1995 for the formulation of a new plant with a capacity of producing 50,000 cars each year (with 300,000 units to be produced in 2000), with expansion of up to 15 subsidiary firms in 5 countries for assembly and/or foreign manufacturing and sales.

* 5 firms in Japan and Italy for car design and development

* 2 firms in Japan and the UK for stamping equipment

* 3 firms in the UK and Germany for casting and forging equipment

* 3 firms in Japan and the UK for engine production and development

* 2 firms in the U.S. and the UK for auto parts, assembly and final production.

Initially, in 1995, the firm's primary activities included developing, producing, marketing, and sales of its smaller sized cars. The production of small, gas-efficient automobiles was done in conjunction with other manufacturers such as the co-production with the British Ley land Motor Corp and Hyundai for car parts and Mitsubishi for the engines. Two years later, in 1997, Mia established its Japanese and UK subsidiaries. This move began the real expansion into the international markets and paved the way for its ultimate move into the U.S. market. The European and Japanese operations also allowed Mia to introduce its new K-3 EVO hybrid sports car for the younger, environmentally-conscious, upscale consumers, which could provide the impetus for the firm's U.S. operations when and if the firm matured to that level. As the gas and oil crisis in the western world became more significant, the company believed that its product would be increasingly used by Asian and European consumers, and perhaps ultimately by individuals in the U.S.

Coincidentally, in 1997, the Asian financial crisis caused the firm to retreat from much of its expansion, but, with its public funding, funds raised from various company ventures, and some of Mr. Cheng's own funds, along with funds from family, friends and even one of his college professors, Mia Motors was able to continue toward its quest. He next expanded the firm's management team of very talented individuals that were committed to the firm's vision to include managers of R&D/production, marketing, and finance. The Board was composed of some of the early investors in the firm, including one of Jim's professors, representatives of a local venture capital firm, and Jim.

Jim viewed the firm's core competencies, i.e., its ability to efficiently design and produce high quality, reasonably priced, fuel-efficient, well-constructed automobiles would help it to continue to survive and prosper. By the end of 1999, the firm had stabilized and begun to benefit from synergies in its research and manufacturing. With the confidence in its product and its growth from dependency on and dependability of its product in domestic and international markets, the firm found itself better prepared to expand into further international markets.

THE TARGET MARKET & STRATEGY

The firm's primary customers since inception had been the environmentally-conscious drivers of small, gas-efficient vehicles in the Korean market. That approach would not change for the U.S. market because of the spiraling cost of oil, gasoline and their derivatives and would allow the firm to afford investment, R&D and growth to enhance the firm's business operations. Since the consumer was not required to depend totally on the dealers for support for their car, and because of its modular design and easy consumer-maintenance, the firm offered large costsavings to its customers. In addition, in each of its selected markets, the company provided customers with a promise to have servicing completed within two hours. Customer satisfaction was therefore maximized because service and repair delays were minimized, generating higher return purchases from those same customers. So Mia Motors' core values of providing its customers significant cost savings, optimal revenue flow, and predictability are to be included in the firm's predictive future growth and firm value.

In Japanese and European markets, the firm provided the products and services through local assembly and service centers. It is believed that this would work well in U.S. markets such as New York, Atlanta, and San Francisco, and, although these markets may be difficult for the firm to penetrate, they were on the firm's marketing and production wish list.

To accelerate acceptance of its products and services and to further diffuse competitors in the domestic and international marketplace, Mia entered into agreements with other auto firms who maintained facilities for manufacturing and sales within targeted areas. In essence, Mia would share its parts, engines and services in support of such dealerships as Honda, Toyota and rivals like Hyundai and Kia. The acceptance of this joint effort was said to be in line with current business leveraging and collaborative practices, i.e., establishing and expanding markets through the servicing and support of others domestically and internationally. Mia believed that it could continue to increase its market share in this growing US market.

GLOBAL MARKET SHARE; CURRENT AND FUTURE

In 1998, Mia Motors exported almost 50% of its domestic production into overseas markets. Almost 150,000 vehicles were sold in markets from Norway to South Africa, countries as large as China and as small as Trinidad. The U.S. market accounted for nearly 10% of Mia Motor's exports, with Europe and Canada buying much of the remainder. It was somewhat amazing how well the firm's automobile had been accepted by upper and middle-income customers internationally. It is anticipated that, if the firm could move its operations to the U.S. and enhance its access to U.S. consumers, that sales could be doubled or tripled. Foreign assembly plants had grown over the years and production was increasing. Mia had regularly invited staff from foreign assembly plants such as Japan, China, and the UK to Korea to learn the company's advanced engineering technologies and manufacturing systems. This had been used to pave the way for Mia to increase the scale of its assembly operations and prepare the firm for what it hoped to be a move into the U.S. automobile market. One international advantage Mia must explore is that Korea joined the World Trade Organization (WTO) in 1995 and the Organization for Economic Cooperation and Development (OECD) in 1996. This essentially meant that trade barriers for member countries would be non-existent. Conversely, Ford and GM tended to use Korea as important assembly sites for their Asia and exports to Japan, China, and Europe. Thus, the trade barrier issue would be non-existent because of the very stringent standard held by WTO and OECD, basically removing barriers to capital flow and foreign direct investment.

The company had been exploring opportunities in the international marketplace which would better prepare it for operating in the US. In the markets in Africa, Asia, and South America, there were still expansion opportunities, but none that could exceed those available within the U.S. In many of these markets the company could be negatively affected by existing and potential new government controls, laws, and policies such as: (1) pricing, characteristics, and quality of products and service; (2) property ownership and (3) controls on repatriation and currency conversion.

According to Jim, it was critically important for Mia Motors to use governmental assistance and trade barrier advantages to establish its presence in North America, preferably in the U.S., in five of the top EU markets, and in Japan. He was sure that competitors would soon be targeting their markets, and he wanted to be there to welcome them when they arrived. Mia' s initial foray into the international markets had been through the use of parts distribution and assembly. However, the goal was to obtain the resources necessary to establish sales offices initially in each of these markets, with regional R&D production facilities to follow. At the same time, Jim heard the beckoning call of full manufacturing and sales in the U.S. automobile market. The firm estimated that to make a successful entry it needed a minimum of $10-$ 15 million, which would be obtained from public offerings in the host country, in this case the American stock markets.

However, there was a minor problem of compliance with U.S. exchange requirements, which prevented many smaller country firms from accumulating wealth through U.S. markets. How does the firm acquire the capital for the venture when they may be affected by existing and potential stock market government controls, laws, and policies such as: (1) pricing, characteristics, and reliability of the shares; (2) protection of U.S. investors from the firm's exchange products and servicing of Mia' s shares, and (3) controls on repatriation and currency conversion. Mr. Cheng contacted his friend Mr. Lee at the Seoul branch of J.P. Morgan Chase's International Unit Subsidiary for assistance in preparing an ADR issue of Mia' s shares. Mr. Lee had promised to assist Jim last year when the expansion idea was in its infancy planning stage. Jim was not sure of how this process worked but was fully aware of its return if executed correctly. He assumed that you could assist him in valuing his shares and the ADRs relating to them. Jim remembered the concepts he had been taught while attending college relevant to foreign exchange, including the purchasing power parity, Fisher's Theory of Interest Effect, and interest rate parity theories. He has requested that you use these models when valuing the exchange and equity recommendations.

FINANCIAL INFORMATION

The company revenues were derived from manufacturing, assembly and sales of the firm's K-3 EVO sedan and convertible automobiles. Over the two years ending December 31, 2002, the company earned revenues of $706,000 annually. In their dominant positions, the firm's competitors were able to successfully thwart the competitive efforts of new entrants, and this would possibly be what Mia would experience: that usual access to sales revenues would affect the company's operations. However, plans for overseas expansion were being developed to further penetrate the European and Japanese markets, along with the desired expansion in America. Consolidated financial information is available in Exhibits 1 and 2. Noteworthy was the fact that the company's expenditures were, to a large extent, based on its apparent sales growth and expansion in the future. Revenues and operating results were dependent on the volume of, timing of, and ability to fulfill sales expectations, which proved difficult to predict. The firm would be exposed to foreign currency changes and value adjustments in both outstanding Korean stock prices and U.S. sponsored ADR values. In light of this heavy dependence and the constraints on cash flows which may result, the company might be unable to adjust spending to compensate for any shortfall in revenues, which would severely impact the company's operating position. Moreover, with plans of expansion afoot and other capital ventures, the company may be in need of the flexibility that additional financing could provide. Theoretically, the principal purposes of the ADR issue would not only be to obtain additional financing but also to create a public market for the company's common stock and to facilitate future access to public equity markets. The firm has approached its long-time U.S. financial intermediary and investment bank, J.P. Morgan Chase for support of an issue of seasoned Korean stock which, if they agree to sponsor, can be issued simultaneously in the U.S and listed in the over-the-counter market. Mia' s parent corporation could request the bank to create a market for them and hold the ADRs, but that would not allow them to be listed on any U.S. exchange and could mean a significant price difference to the cash-needy firm.

The decision facing the Board was a tricky one. There were risks associated with international investment of the firm, under-pricing or overpricing the firm's ADR or stock issue, proper management of the firm's foreign exchange transactions, and repatriation. Given the high risks associated with the company, the industry and the technology, an overpriced issue would surely result in an under-subscribed offer. Not only would the underwriting team have to absorb these shares and risk eventual damage to its reputation, but the company's need for financing would go unresolved, thereby exposing it to potential downturns in the market and risk of potential decline in operations. An underpriced issue might ensure sale of the company's stock, but J.P. Morgan Chase and associates would be criticized for failing to obtain the maximum value for Mia.

Despite the uncertainty surrounding this expansion to the U.S. auto industry, the country appeared to be ready to accept the firm's type and style of gas-efficient, compact automobile. The use of this type of conveyance appeared to be growing as gas prices increased and supply and demand for gas, oil and petroleum derivatives would be sure to receive more government support. However, there was cause for caution with the controversy surrounding the balancing of the budget and the conflict raging between the White House, the financially-concerned House of Representatives and American public produced by the U.S. inability to create a unified energy policy. As the firm approached issue, the market would hopefully be fairly stable, and perhaps it would be in the best interests of all concerned to act quickly and take full advantage of the market optimism.

In consideration of the appropriate price, the Mia' s underwriters should review comparable initial issues made by companies in the industry. It might be difficult for Mia to secure debt financing with its outlook. The Mia underwriters should also test comparable methods of accurately valuing Mia, its domestic Korean shares, and the potentially sponsored ADRs, through traditionally accepted equity and equity derivative valuation methods. The firm needs $10-15 million in expansion funding which is to support the building and implementation of its Alabama manufacturing operations. Note Mia's planned sales and production breakdown which its senior management feel closely approximates the firm's expansion strategy (See Appendix A)

The firm's Board and Mr. Cheng were busying themselves preparing for their management decision to expand to America, facing the challenge of competing with established firms within the U.S. automobile industry, determining an investment bank access for thenneeded funding into a potentially unfriendly, possibly economically-depressed industry. Finally, from your forecast of Mia's future growth, what do you think this multinational auto maker should do to ensure a successful transition into the U. S. market? You are being compensated as the firm's international expansion consultant, and your task is to assist them with the analysis necessary to make that decision.

Subject: Automobile industry; Multinational corporations; Market entry; Case studies

Location: United States--US

Classification: 7000: Marketing; 9510: Multinational corporations; 9190: United States; 8680: Transportation equipment industry; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 5

Pages: 123-130

Number of pages: 8

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: References Tables

ProQuest document ID: 886530117

Document URL: http://search.proquest.com/docview/886530117?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 10 of 100

From Training Programs to the Creation of a Corporate Education System: The Case of a Russian Industrial Company

Author: Latuha, Marina O, Professor

ProQuest document link

Abstract:

Marina O. Latuha describes the gradual development of training system within a large manufacturing company based in Russia. After having implemented training programs in several of its major departments, the company saw a need to centralize its staff training processes and to develop a new system focusing on the teaching of shared corporate values, training integrity and knowledge sharing. By notably developing and rigorously following up on the basic principles of its training program, including the creation of organizational structures, the company is able to establish strategic advantages. [PUBLICATION ABSTRACT]

Full text:

In the summer of 2007, the chief executive of a leading construction company in Russia kicked off a strategic workshop for the management team with the following statement:

Dear colleagues. We are running a large number of training programs for different specialists and in different areas - from technical training to programs on modern management concepts, marketing and individual professional growth. The organization's strategic development is now aimed at geographic expansion, opening new offices and starting new production lines. To achieve this, we need to establish corporate information processes and speak one business language among our uncoordinated offices, to create and convey common corporate values, and to ensure orientation training integrity. We need a structure that will allow us to accumulate knowledge in various fields and convey it to different regions. I invite you to discuss and develop a new staff training and development concept that will help us to take account of all our strategic objectives.

The chief executive's speech gave rise to a heated discussion among the directors, but in the end the team decided to improve the staff training system. One question remained: What should be done to create a new system?

Ingri Flooring: Creation and Growth

It took the company some time to develop from a small construction firm to a large holding company. Compared to 1996, when the firm only provided decorative concrete flooring, it is now a large-scale enterprise with a widespread network of offices throughout Russia. In 1996, no more than 20 people worked for the firm, including a director, two managers, two builders, an accountant, a personal assistant, and a few other employees. From that year on, the company began to grow. At the time, the company's main growth objective was to increase its business area by means of product and service line expansion, as well as to open regional offices. This period of development lasted from 1996 until 2006.

Also, at the end of 1999, the company began actively collaborating with well-known German companies Blastrac, Kreber and Weber, creating its own equipment pool as well as selling equipment. Around that time, a decision was also made to expand the company's market representation in the regions. As a result, the sales office was opened in Moscow.

In 2006, the company established its own production line for the manufacturing of industrial flooring products. In order to embark on this new project, it was decided to attract investments. What's more, the company had applied to receive ISO 9001 certification, which required the creation of a well-defined structure, a rationalization of business processes, and the identification of the most promising business areas. In order to accommodate these changes, in the same year, the company underwent a large-scale restructuring.

Today, Ingri Flooring is a leader in the industrial flooring market. The company focuses its efforts on providing end-to-end solutions in the industrial flooring sector. In 2007, it was decided to develop the building area and to set up a new Flobus company (specializing in polymer flooring installations). Also in 2007, the company continued the expansion of its regional network of sales offices throughout Russia. It planned to expand into the CIS market. The first step towards this involved setting up a regional office in Kazakhstan and having regional representatives in the other CIS states.

Today, thanks to offices in Moscow, St. Petersburg, Yekaterinburg, Samara, Novosibirsk, Rostov-on-Don, Ufa and Irkutsk, as well as a regional network in the Povolzhsky, Siberian and Urals regions, in the South of Russia and the CIS states, the company is able to promote its products regionally.

Human Resource Management System at Ingri

By providing modern equipment to employees and guaranteeing competitive wages, Ingri aspires to create the industry's best working conditions in order to help each employee realize their full potential. The HR department consists of the director and seven managers, who are responsible for hiring, training and development, job assessment and compensation. The director focuses on strategic tasks and the objectives of the human resource management policy, as well as on staff selection in regions. Currently, the total number of employees is around 500.

The company has qualified experts in the field of chemistry and construction work. Employment with the company requires the continuous development of professional competencies. There are two basic categories of personnel at the company: the engineers, who perform difficult technical tasks, and the sales staff. That's why one of the most significant tasks of the HR department is to attract highly professional workers possessing the necessary skills, knowledge, abilities and commitment to achieve the best professional results. With a view to attracting the best candidates and strengthening its reputation as a reliable employer, the company aspires to the highest professional standards in personnel selection. When vacant positions need to be filled, priority is given to employees already working in the company, in keeping with principles of objectivity and impartiality in the selection process. One of the basic priorities is to ensure the conformity of candidates' professional and personal qualities with the requirements of the work as well as with the corporate culture. Employees participate in weekly meetings and workshops to discuss operational problems and tasks in each department. Participants in the meetings and workshops are asked to share their experience and day-to-day operational objectives.

The company also regards orientation as a vital element of human resource management. Skilled colleagues represent a rich source of experience and knowledge for employees. Ingri believes that receiving coaching in the orientation process and taking part in different teams helps to fuel employees' development, while offering them the opportunity to share ideas and create new knowledge.

The reward system is based on results achievement and supports innovation and creativity. Results obtained through consistent performance and proven, relevant competencies are rewarded. With regard to the personnel as a whole, Ingri's base salary is aimed at raising efficiency, improving quality, increasing loyalty, developing a knowledge-sharing system, and stimulating creativity. In keeping with the goals of the reward system, the following bonuses exist: for non-smoking, length of service, tutoring, innovations, substitution, overlapping positions, new development, necessary skills, and monthly, quarterly and yearly results. For sales staff, the reward system is primarily based on sales volumes. For engineers and technical experts, rewards are based on quality, production volumes and meeting deadlines. Managers are subject to an annual performance appraisal procedure to assess their competencies.

The reward system is tied in with employee promotion and career development. Employees are encouraged to create their own development plans. Given the shortage of technical experts in the labour market, the company makes efforts to retain its experts by paying attention to their career preferences. A career development plan is drawn up for each employee annually and the company tracks loyalty levels, career plans and job satisfaction in each division. With the rapid growth of the company, updating available competencies and acquiring new competencies, along with training and development have been the main operational tasks of the HR department.

Staff Training and Development Processes: The Beginning

The expansion strategy, which covered all business areas - sales network, construction and manufacturing companies - led to the recruitment and training of many new employees as well as the training of existing personnel.

From the very beginning, the company has paid special attention to staff training. Recruited specialists are often unfamiliar with industrial flooring technology, for it is not taught in Russian colleges. However, all major Western companies involved in building shopping malls, retail chain stores, industrial complexes, etc. require this technology in their projects. Often, potential Russian clients have to be trained in this method before the products can be sold. There is a term in the company - "sales through consulting" or construction solutions sales. Due to its complexity, sales of construction services, materials and equipment can be made only by well-qualified specialists. The company's rapid growth - broad geographical coverage, opening of sales offices from St. Petersburg to Novosibirsk (the company plans to open at least one subsidiary annually), several building firms - requires the recruitment of more and more specialists. As a result, it must ensure the development and high-quality transfer of professional knowledge for more effective "cloning" and functioning of the group of companies. The training scheme includes lectures, seminars, on-the-job training (instruction, doubling, rotation, supervision and feedback), as well as tutoring, consulting and coaching. By the end of 2006, several training programs were under way in each of the group's companies.

Orientation training. Orientation training in the group of companies is an integral and compulsory part of the adaptation program for all of the following employees: engineers, specialists, sales managers, concreters/steel fixers. At the end of the orientation training, a compulsory certification test is carried out. Beginners are permitted to work without assistance only after having successfully passed this test. This training consists of three parts:

1. organizational awareness;

2. ideological portion (understanding corporate principles and values);

3. job-related training.

Each target group has different training formats, ranging from lectures given by leading specialists, to visits to plants and construction sites, introduction to the company's documentation and software, etc. Sales managers undergo sales training and take part in case discussions led by the company's specialists. During the orientation training, new employees are supervised by either a key specialist or an immediate supervisor. Concreters/steel fixers receive on-the-job orientation training (instruction and supervision with feedback).

Back-up training includes two different types of training - internal and external (attracting external providers). External training is based on technical training and includes programs prescribed by RosTekhNadzor (the Russian Federal Service for Ecological, Technical and Atomic Supervision) or mandatory programs for certain types of work (safety rules, work permits for electricians, mechanical engineers, concreters, machine operators, etc.). The objective of technical training is to instruct workers in safety standards and to meet the requirements of the state regulatory authorities. Training is compulsory for certain kinds of specialists and is provided in compliance with the state's workplace safety control requirements. The Human Resources (HR) department plans the budget and training time according to governmental standards.

Seminars for specialists take the form of external training for an employee (or a group of employees). People working in the company attend external seminars, training courses and conferences. These employees represent the company at regional and all-Russian training events (seminars, conferences) in order to do benchmarking, monitor the market situation and promote the company's image. The line managers gather requests at the local level and draw up plans for a given time period, before having them approved by the corresponding company's director. These requests are compiled by the company's HR department. Then the HR managers arrange visits according to the confirmed schedule. Certificates and diplomas conferred by external training establishments attest that the employees have acquired certain skills and knowledge. Internal training is the company's responsibility.

Seminars by functional area are regular meetings that include training for employees in one functional area from different regional offices - HR departments, production (different areas), financial managers, directors, and so on. The objectives of such meetings are to formulate a holistic concept of work in the geographically diversified company, to improve the average level of employee competence in specific functional areas, to share perspectives on problems and to find possible solutions. The initiator of such meetings is usually a manager of a functional area in a regional office or from corporate headquarters. Such events are organized by employees in one functional area and/or HR managers working for the initiating office with the logistic assistance of the central HR department. Also, regular seminars for sales managers on material science and technology became especially important after the implementation of the company's production line and the introduction of new materials to the product range. An important part of this training involves applying new materials in a manner that allows employees to monitor the process as well as participate in it. Such seminars also provide case discussions on business situations arising from contacts with clients. Engineering seminars held for section managers and foremen impart new knowledge as well as consolidating the experience gained on building sites. These seminars are run by the company's top managers, engineers and department heads.

Problem-oriented training consists in different training programs for top and middle managers. One of the most popular formats is strategic workshops. Since 2004, the company's shareholders and top managers have been meeting in strategic workshops at least once every six months. The workshops are led by invited independent consultants who serve as trainers, moderators and facilitators of topical training/seminars. These sessions are followed by discussions on recently obtained results, new tasks, and long- and short-term strategic plans. Based on the organizers' belief that they are important for the development of a mutual understanding and a shared language, these training schemes, which actively involve the whole group of managers, are a priority. They serve to develop new skills, a strategic vision, system planning and the study of reengineering principles, advanced experience, business processes analysis and modern concepts of human resources management. In 2006, the company's shareholders and top managers mapped out a plan for a large-scale restructuring. In order to achieve this objective, a corporate "mini MBA" program was developed and implemented. According to the stakeholders, this program encouraged top and middle managers, as well as key employees, to participate in the restructuring process.

The objective of the mini MBA program was to increase the company's leadership potential, to study new forms of organizational and business development, to master cutting-edge techniques in group decision-making, and to develop a management model and a management team model. The mini MBA program was mainly intended for board members, top managers and employees who would be taking on managerial positions in the near future. The final decision as to who would make up the group was made by the shareholders. During the program's implementation period, the group's members remained unchanged. The program was based on five sessions, two of which - a strategic workshop and management training at the end of the program for the shareholders, board of directors and other participants - were held separately. Three workshops were held together. The program lasted 12 months. The main modules of the program included organizational design, HRM, sales, finance, company value management, etc. The main partner in the program's implementation was an external provider, a leading business school. It provided the program with techniques and data, managed and organized the program and attracted specialists. Independent consultants and trainers were also involved in the program. The organizers anticipated that a change in the mentality of the program's participants would encourage them to go about changing the company's business processes by adjusting them to their acquired knowledge and skills.

Seminars for clients on industrial flooring technologies, materials, and equipment. These are regular seminars whereby leading company specialists train their clients, thus instructing the representatives of companies planning to have industrial flooring installations carried out with a surface-hardening technology. The seminars include both theoretical and practical components with a view to providing a comprehensive understanding of the hardening technology, the materials offered by the holding, and the equipment range.

Training Concept for 2008: New Ideas

The HR director understood that new organizational development required a new training system. As she was very well versed in HRM files and experienced in personnel training, besides having significant working experience, her thoughts in the beginning of 2007 were focused on the internal environment at Ingri. She was sure that, sooner or later, the board of directors would definitely bring up the question of staff training. She knew that the need for a new company-wide program, the business development dynamics, and the broad geographical scope required the development of a multi-faceted and centralized training program. Her intuition was right and, in July 2007, the time had come. According to the company's leaders, it had to improve training quality due to the high congruence of required programs and skills, as well as to the necessity of reducing costs. Top management believed that a restructuring would help to manage the processes of knowledge accumulation and sharing in the group and to establish and maintain common standards for interaction between internal and external clients and the holding's employees, all of which were particularly important at that stage in the company's development. The existing training system allowed the company to accumulate and organize knowledge provided by different specialists and to keep pace with current trends in human resources management. However, many problems remained unsolved.

In October 2007, the HR director offered a new pilot concept at the board of directors' strategic workshop. The idea was to create a system of knowledge and competence accumulation and transfer. The project developers had chosen three main areas of study:

* Material science and building technology;

* Communication skills (sales techniques, principles of work with clients, social conventions accepted within the corporation);

* The company's business processes (data flow paths in different processes, corporate programs, awareness of internal rules and regulations).

Two training schemes covered these areas:

* New employee training (orientation training held within adaptation (socialization) programs);

* Employee training for innovation and change (within technical back-up training).

According to the training scheme for innovation and change, when innovative products or technologies are developed in the R&D department, a presentation date is set. One or two specialists (the general manager, the head of the sales department) from each office are expected in St. Petersburg by this date. The R&D department employees present the innovative products and technologies, and provide the required documents, as needed (technical, technological and marketing specifications). Then these specialists return to their offices and make a presentation to the other employees. In order to improve communication skills, employee training is held based on the needs of each office. The training subjects and programs are agreed upon with the office general manager. Throughout the company's activity period, business processes change and new trends emerge. These changes and innovations must be described and documented, and interested employees must be kept informed and tested if these advances are to succeed.

For the new sales department employees, the training consists of several stages. In the first week, they have on-the-job orientation (in the regional offices) and the supervisor or manager tells them about the company's history, materials and technologies, the market (suppliers, clients, and competitors), the company's internal rules and the corporate programs, duties, rights and privileges (according to the job description). A new employee is also provided with all the necessary documents and visits building sites along with a supervisor. The supervisor is the most qualified specialist in the office (the head manager or head of the sales department), who instructs new employees, introduces them to the work and helps them acquire the necessary basic qualifications (to know how to sell). He or she is responsible for their training. After one to three months, a new employee might be sent to St. Petersburg for practical training in order to broaden the knowledge gained. There, he or she studies all the technologies, regulations and corporate programs in practice. After the practical training and probation period, he or she writes an appraisal test.

To improve the assimilation of knowledge, the company introduced an e-learning system with multiple-choice questions on different topics. An employee completes a test from his/her work station, which is then sent to the training centre, where it is processed and the scores are then returned to the employee. If the score is low, the employee must retake the test within a set time period until he/she obtains the necessary score. The test results are given to the immediate supervisor. In order to determine the overall level of knowledge, all the employees in the sales department (and all company employees) can take the test. A St. Petersburg specialist arrives at the regional office, where he or she offers employee training for five days, visits construction sites with the employees, and, if possible, provides practical training.

What Next?

The concept, as put forth in 2007, was returned for revision, since the board of directors decided that the proposed training system would not be able to fully accomplish its stated objectives. The new concept cast aside the current, tried and tested forms of training and did not provide the necessary programs for increased company development. The training areas proposed by the HR director did not cover all the target groups of company employees, who, in the opinion of the shareholders and the board of directors, required training. Moreover, the aim of the new training system was to convey a shared vision of the policies and ideology of the group of companies to employees, to create a common corporate culture at all levels of the company and to develop its business potential. The concept failed to offer any clear suggestions on how to establish training in subsidiaries, how to organize communication between headquarters and subsidiaries, and how to control the content and costs of training programs. The HR director was told that the new concept was merely based on slight modifications to the target groups of training and to the training program, as opposed to offering a comprehensive and unified approach to supporting and developing both the corporate culture and a common understanding of organizational tasks and objectives.

Based on its main strategic development priorities and guided by its aim to improve business efficiency, profitability and capitalization, as well as to establish communication channels between different departments, the company began to seriously consider what training system would allow it to meet all its stated objectives. What form should be chosen for the training system and how it should be organized? What were the alternatives? How to maintain "the old elements," while at the same time implementing innovative new ideas to help attain the company's strategic objectives? What should be taken into account in the creation of the new system? In the eyes of the company's management, all these questions had to be answered quickly.

2011-05-19

Subject: Leadership training; Occupational training; Manufacturing; Strategic planning; Organizational behavior; Case studies

Location: Russia

Classification: 2310: Planning; 9176: Eastern Europe; 8600: Manufacturing industries not elsewhere classified; 6200: Training & development; 2500: Organizational behavior; 9130: Experimental/theoretical

Publication title: International Journal of Case Studies in Management (Online)

Volume: 9

Issue: 2

Pages: 1-8

Number of pages: 8

Publication year: 2011

Publication date: Jun 2011

Year: 2011

Publisher: HEC Montréal

Place of publication: Montréal

Country of publication: Canada

Publication subject: Business And Economics--Management

ISSN: 1911-2599

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 874574140

Document URL: http://search.proquest.com/docview/874574140?accountid=38610

Copyright: Copyright HEC Montréal Jun 2011

Last updated: 2013-09-26

Database: ABI/INFORM Complete

Document 11 of 100

Entrepreneurship in the Chesapeake Bay Oyster Industry

Author: Wilbon, Anthony, Professor; Bundy, Mark, Professor; Clark, Kelton, Professor

ProQuest document link

Abstract:

This case by Anthony Wilbon, Mark Bundy and Kelton Clark is designed to illustrate issues and problems in sustainability-driven entrepreneurship in the Maryland oyster industry. This once-thriving industry has been decimated in recent years by the degradation of the Chesapeake Bay's water quality, which has all but destroyed the oyster population. Small businesses must find solutions to ensure their survival. The case examines economic concepts related to environmental management. [PUB ABSTRACT]

Full text:

Introduction

In the summer of 2007, Bill Handeford was facing pressures from several forces threatening his family's business. For generations, the Handefords have been considered watermen in Calvert County, Maryland, making their primary living harvesting oysters in the Chesapeake Bay. After majoring in agribusiness and working in a medium-sized firm as a salesman for 10 years, he has decided to follow in his retiring father's footsteps and also become a waterman. However, the business has changed dramatically since he left for college. What was once a thriving industry with a plentiful supply has become barren. Many times when his employees drag the mesh metal bag in the water or stand on boats with their tongs hoping to find oyster shells, they come up with trash and empty bottles. He is finding it tough to harvest enough to make any money and is searching for innovative ways to make his business thrive again. The biggest problem, and one beyond his control, is the degradation of the body of water he depends on to make his living.

The Chesapeake Bay is the largest estuary in the United States and spans several eastern states covering over 64,000 miles. State legislators and activists have decried the water quality in the Bay for years and many ideas have been floated about how to resolve the problem. Most agree that restoring oyster stocks is one of the first steps because they contribute to the water system in so many ways. Not only do they provide habitat for other species, but their most significant contribution is that they act as a filtering system for the water. Some estimate that one oyster can filter as much as 50 gallons of water a day. Restoring them to previous levels would do wonders for cleaning up the waterways. However, little consistent action has been taken and the stock of oysters has continued to diminish dramatically. In addition, the demand for oysters has not waned, with the result that the entire habitat has experienced overharvesting, hastening the rate of decimation.

Faced with the steady decline in his primary product line, Mr. Handeford is concerned that his family business faces an uphill climb to survive. He is also saddened by the environmental impact his community is facing due to people's disrespect for the Bay. Although the State of Maryland understands the problem and has taken steps to reverse the trend, their response may not come fast enough to help his business. The government has established several million dollars in support funds to help struggling watermen survive, but Mr. Handeford would rather be more proactive and independent.

He recently had a conversation with a representative of the Chesapeake Bay Foundation, a nonprofit organization dedicated to restoring and protecting the Chesapeake Bay and its tributary rivers, about how to address his concerns. The representative pointed him to a recent article on oyster farming reporting that some researchers have grown millions of oysters in a controlled laboratory setting. The scientist's goal was to eventually take these farmed oysters and introduce them into a sanctuary to help replenish the population and eventually increase the overall health of the watershed. However, these oysters were not meant for harvesting.

Thinking back to an entrepreneurship class he took in college, Mr. Handeford is intrigued by the idea of an oyster farm and wonders if it is feasible to create one that could raise them for sale in the market. He has begun researching the concept and reaching out to other scientists in the community to see if his idea of establishing an oyster farming system as a business model is feasible. If successful, this would certainly be an opportunity to take his business in another direction and possibly thrive. He could also make his own contribution to the environmental sustainability of oysters by not harvesting them from the Bay, but growing them himself.

Overview of the Oyster Industry

The U.S. seafood industry ranks sixth in the world behind China, Peru, India, Indonesia, and Chile, with 3.6% of total seafood production.1 This supply of shellfish and other species has been relatively stable since 1900, at about five to six metric tons per year. Although oyster production overall has declined over the years, the U.S. has maintained a leadership role in this subcategory of the seafood industry as well.

The U.S. is heavily dependent on imports for its seafood. In 2005, 86% of the country's edible seafood came from imports.2 For oysters, the country imports both farmed and wild oysters from China and South Korea and they come packaged live, fresh, frozen, dried, salted, brined, canned smoked and canned. The latter two are the major forms of U.S. oyster products. Due to shortages from hurricane damage in the Gulf Coast region and from continued diseases in the Chesapeake Bay region, oyster imports as well as their value are expected to keep increasing.

In the U.S., there are five major market distribution groups in the oyster industry: the North East Region, the Atlantic Region, the Gulf South Region, the Pacific Region, and the Mid Atlantic Region. The Eastern oyster, found in both the Gulf Coast region and the Chesapeake Bay region (see map in Figure 1), historically accounts for roughly 75% of total U.S. harvests.1 The Gulf of Mexico region includes the states of Texas, Louisiana, Mississippi, Alabama and Florida, which are major players in the oyster culture business. Louisiana and Texas together produced approximately 12 million and 5 million pounds respectively in 2007. In that year, the value of Eastern oysters produced in the entire Gulf region totaled over $68 million.2 Most of these are either shucked for meat or presented in frozen half-shell form for the foodservice trade. The quality of the Gulf oyster is not considered to be as high as that of oysters produced in the northern states and prices are generally much lower.

In 2007, over 24 million pounds of Eastern oysters were harvested in the U.S., with a value of $94.3 million.3 In the Chesapeake region, which includes Maryland and Virginia, over 470,000 pounds were produced in 2007. This volume has decreased steadily over the years, from over 2.5 million pounds in 1975. In addition to overharvesting, disease has nearly decimated oyster stocks in the region, jeopardizing the supply. In the Bay, oysters are susceptible to Haplosporidium nelsoni, which causes a parasitic disease known as MSX, and Perkinsus marinus, which causes Dermo disease. Both stunt the growth of the species. As a result, North East and Atlantic state governments have invested heavily in environmental programs to help replenish the supply. As Figure 2 shows, the dockside value, although not currently at its lowest point, has also decreased to about $4.1 million from its highs at the beginning of the decade.1 The increases that occurred in 2005 were the result of an effort by the Chesapeake Bay Foundation, a watchdog group of scientists and citizens established to restore and protect the Bay. The foundation set a goal in 1999 to achieve a 10-fold increase in oysters by 2005 by building reefs of up to an acre each on top of old oyster shells and 12 feet above the floor sediment at a cost of $100,000 each. The oysters were then set in place by volunteers who nurtured and transplanted them by hand to the reefs. The result was the 2007 increase noted in Figure 2. Further similar efforts have been undertaken, but progress in reaching previously high levels has been slow.

Generally, many agreed that there was a need for increases in seafood production in the U.S.2 According to the United Nations' Food and Agriculture Organization, this is the fastest-growing food production sector and accounts for 43% of seafood consumed by humans.3 In particular, there is a need for more support and development of innovative strategies to develop the oyster aquaculture industry. For example, some believe that the only way to meet the projected increases in demand is through aquaculture, or the process of cultivation of animals in water. According to the NOAA Aquaculture Program:4

* The majority of U.S. marine aquaculture is shellfish - oysters, clams and mussels;

* 81% of the seafood consumed in the U.S. is imported and 40% of those imports are farmed;

* Global wild harvest is 95 million tons and likely cannot be sustained;

* To meet increased demand for seafood, the world will need 40 million tons, valued at $70 billion (70% of this is produced in China, 22% in the rest of Asia; 2.3% is from Latin America and the Caribbean and 1.3% is from North America);

* The U.S. needs both wild and farmed seafood products to meet seafood demand;

* U.S. marine aquaculture accounts for 1.5% of U.S. seafood supply;

* U.S. marine aquaculture is 20% of a $1-billion U.S. aquaculture industry;

* Based on demand and population growth projections in the U.S., the projected domestic seafood gap in 2025 is 2-4 million tons.

The main criteria for marketable aquaculture products are price, freshness, consistency in quality, and supply. The latter two are particularly challenging for the seafood industry, especially in the culturing business. Oysters go through a natural life cycle that includes a two-month spawning season during the summer. During this time, the quality of the meat is substantially reduced. This lengthy phenomenon automatically creates a void in the availability of quality oysters. To counteract this, the Canadian and U.S. west coast farmers have introduced sterile oysters better known as triploids. Through techniques used in hatcheries, they are able to genetically alter the reproduction cycle of the oyster, thus creating an oyster that does not spawn and maintains consistent meat quality year round.

Maryland Chesapeake Bay Oyster

The Chesapeake Bay is renowned the world over for its seafood, and this reputation has created an inherent market. Historically, the Chesapeake Bay oyster has been in demand for a very long time. As noted by Tarnowski,1 the first European colonists to arrive on the eastern shore of the U.S. marveled at the mounds of oyster shells found near Native American sites. In the 1800s, the oyster reefs were so massive that they often presented navigational risks for ships in many bays. Although oysters had been consumed for centuries, the commercial fishery market did not develop until the early 19th century. At the time, New Englanders in the northeastern U.S. had depleted their oyster beds and began traveling to the lower Chesapeake to meet market demands. This resulted in increased harvesting by Maryland watermen to take advantage of wider markets.

Consequently, over the years a niche market has evolved for fresh oyster meat. This product, typically packaged in half pints or small ounce tubs, is suitable for the shell market because of shape and appearance. Prices range from $15 to $20 for half pints and are convenient for restaurant use in soups, chowders and other types of appetizers or entrées. Table1 shows other oyster products:

Although demand has always been plentiful, the major crisis in Maryland in recent years felt so severely by Bill Handeford, is related to supply. Figure 3 summarizes Maryland's oyster harvest in bushels.1 The data shows a downward trend due to variations in disease mortality, lower water quality and overharvesting. These issues have contributed to the oyster population in the Bay declining to about 1% of its previous high levels in the 1970s. The result is that oyster production in the Chesapeake Bay has reached the point where the industry has essentially collapsed.

Distribution Channels and Product Overview

The oyster distribution network is similar to that of other fresh seafood products. The industry stakeholders are divided into four sectors: harvesters, wholesalers, processors and retailers (see Figure 4 for an overview of the process). Harvesting has traditionally been carried out by selfemployed watermen engaged in a hunt and gathering process. This is the approach taken by Bill Handeford and other small businessmen like him in Maryland, where many have harvested, marketed and distributed oysters in a mostly unstructured business for generations.

If the tide is low and oyster reefs are exposed, Mr. Handeford's watermen will hand-pick the oysters. In other cases, tongs, similar to a large pair of post-hole diggers with 10-feet long handles, are used. They may also use boats that dredge or scrape the reefs using metal baskets. Harvesting occurs throughout the year, but meat from the oyster varies seasonally. For example, in winter, the oyster generally has two pounds more meat than in summer. Due to their lack of business acumen, these watermen rely on a healthy natural setting for oysters to flourish so they can make a living harvesting. They make no effort to exert any influence on the market.

Once the oysters are harvested, most are delivered to wholesalers or to a federally approved processing plant. Occasionally, some oysters are delivered directly from the harvesters to restaurants or other retail outlets. But often, wholesalers sell the packaged products to restaurants or other retail outlets in dozens or by the bushel. The wholesalers repack them for sale to other wholesalers or to processors. Processors will sell oysters as raw shucked products or package them for resale in smoked, canned, breaded or some other form. The products reach the consumer through either retail direct sale or a combination of brokers, or distributors. Retailers place a great deal of emphasis on quality and supply, which drives the wholesaler and processors to ensure supply is consistent.

When targeting consumers, it is critical to understand buying patterns and behavior. According to the National Marine Fisheries Service Office of Science and Technology, 65% of U.S. households consumed seafood at home and 83% purchased it in a restaurant.1 This includes a healthy consumption of oysters as well. Oysters are often preferred fresh, raw and in their shell. In the home, most people prefer steamed cooked oysters, but when dining out people will eat them raw as well. Interestingly, oysters are preferred by those who have higher education level.2

The price of oysters varies depending on the location, size, quality and availability. Every level of the distribution network adds a cost that impacts the final suggested retail price.

Competition

There are other ways to farm oysters and manage the spread of disease and water quality problems. Examples of efforts to address these issues include moving shells from areas of high salinity and disease prevalence to areas less prone to these effects. Other methods include growing oysters in cages or bags and suspending them in the water to avoid the siltation occurring from bottom growing. As mentioned earlier, declining water quality, disease and harvesting pressures are a few of the factors that have led to an overall decrease in oyster reef population and distribution of Eastern oysters. While some areas have significant oyster recruitment through natural spawning, others have limited populations of viable adult oysters that are not able to produce enough larvae to overcome both natural and human-induced forces.

One reason oysters are grown in a hatchery is to meet the objective of growing them much faster and harvesting them before they are exposed to disease. Oysters are safe to eat with certain diseases, but disease can prevent them from growing efficiently. For some years, mostly as a result of tradition and a reluctance to embrace new technology, Maryland commercial harvesters were reluctant to accept hatcheries as a meaningful tool for producing oyster seed for repletion efforts.

While the Horn Point hatchery at the University of Maryland Center for Environmental Science (UMCES) is one of the largest in Maryland, it was not designed to produce the volume necessary for large-scale outplantings. In the last several years, the Horn Point hatchery has been overhauled, with production-scale culture tanks, setting tanks, and a 1,800 square-foot greenhouse to provide additional production. In addition, a major setting facility at the Horn Point pier is capable of producing more than 40 million spat on shells in a good production season.1

These efforts and those of the Maryland Oyster Recovery Partnership, which works hand-in-hand with the UMCES and Sea Grant Extension efforts, have succeeded in minimizing the bottlenecks that previously existed in the Horn Point hatchery. As a result, production has increased dramatically over the years. This production capability has enabled the use of hatchery spat in sizeable outplantings in several Bay tributaries in recent years. Local watermen have also assisted in these operations. They have witnessed the impressive numbers of seed oysters planted from a relatively small amount of shell material. Many are becoming aware that hatcheries can be useful for producing oyster spat for both private aquaculture and reef restoration. Such efforts can directly benefit the commercial fishery and, in the long run, the overall health of the Chesapeake Bay.

However, although Horn Point is a public hatchery and may have the capacity to provide spat and larvae to the waterman, this is not their main purpose. The major objective is to restore the oyster population in the Bay, not harvest them for sale. Therefore, Bill Handeford, thinking entrepreneurially, saw an opportunity to develop a private hatchery with the goal of providing spat and larvae that can be grown out for retail purposes.

Environmental and Regulatory Issues

Many coastal and marine ecosystems have been badly degraded because they lie in areas that have been heavily colonized and exploited by humans for centuries. To deal with emerging threats to the marine environment, states have developed innovative ways to protect its rich resources. Today, only a handful of strategies for marine conservation have been used successfully. Traditionally, management agencies and environmentally friendly organizations have assumed that strategies for marine conservation must differ substantially from those used in land conservation, in part because it is not possible to "buy the bottom" of the publicly owned oceans. This misconception has not been accepted in many places in the United States, where submerged lands are available for lease and ownership for other purposes. In fact, such leases have often been used by business interests for activities such as oil exploration.

The Chesapeake Bay traditionally has operated as either a public or leased bottom fishery. This means that oysters are harvested from any area that has not been either set aside as a reserve by the government or closed because of public health concerns. There are a variety of leasing options for shellfish grounds because: 1) most state leasing programs have specific provisions for shellfish development and harvest; 2) shellfish habitats are among the few types of submerged lands readily available for lease that are amenable to restoration, conservation and management of native species in natural environments; and 3) the restoration and conservation of shellfish encourage stakeholders and local communities to take a strong interest in water quality and the link between estuaries and their watersheds.

There are four main ways in which the leasing of submerged lands and shellfish restoration can contribute to conservation strategies. Once leased, they can be: 1) simply protected from extractive activities; 2) restored with ecologically functional shellfish communities, and then protected; 3) restored with shellfish, and then sustainably harvested; or 4) restored with shellfish, and then unsustainably harvested. If conservation is a goal, then unsustainable harvesting is not a viable option. Although some stakeholders may consider outright protection preferable, many conservation benefits can be derived from limited and sustainable harvesting, making the third option above an attractive outcome.

However, the Maryland state legislature presents a number of regulatory issues that could hinder the development of a cooperative strategy to improve oyster harvest production. All coastal states allow leasing in some portion of their waters. The allowance of such leases is in keeping with the states' responsibility to manage these public trust lands for the benefit of the people. These concepts have been incorporated into state legislation to varying degrees. Coastal states recognize the importance of these areas to their economic and environmental wellbeing, and leasing has been used historically as a tool to manage activities and maximize benefits to the public.

As it relates specifically to Maryland, ownership or common property rights to resources on leased land are critical to the development of any restoration plan. Common property means that any member of the community has the right to harvest the seafood stock. In practice, however, the government right may be constrained by enforced conservation policies such as size limitations. The problem with common property rights is that they lead to over-exploitation of seafood stocks and, ultimately, extinction of the species.

The states have exercised their jurisdiction over the oyster resource in similar ways. In general, natural oyster beds have been set aside as a common fishery for state residents, whereas other submerged land parcels are available for private leasing. Regardless of how a state arrives at the determination of which lands are natural oyster beds and which are available for leasing, each state makes a clear demarcation for both. However, there is great variation among the states in the proportion of area and quality of land set aside for public or common use versus private use, depending on how broadly administrators define the term "natural oyster bed."

Most states also set certain gear restrictions. The oyster harvesting industry is largely comprised of many small businesses. Harvesting technique is a crucial determinant of the size of the firm. In the case of the tonging technique, a single individual using a small boat is the typical enterprise, whereas the dredging technique requires a larger boat with a multiple crew. The choice of technique is usually constrained. Most states impose restrictions on harvesting techniques in order to conserve the resource stock. As a general rule, states prohibit dredging on common property.

Handeford's Position

Bill Handeford's business is of average size relative to other watermen. His father has harvested many species of seafood in different seasons. In the summer months, his focus was on blue crabs and in the winter sometimes he would fish for perch or even catfish. He spent most of fall harvesting oysters, but would prefer to do it all year round because it is more profitable. Although aging, he has all of the equipment and gear necessary to carry out all of the activities mentioned above and employs seasonal workers to minimize his payroll expenses.

His office is staffed by himself and his father's longtime assistant Lisa, who helps with the paperwork and financial statements. All other functions of his business, including payroll and accounting, are subcontracted to other local small businesses. His father, Harold, is not a skilled businessman and often did just enough to pay the bills and sustain his living. Before his retirement, the business created enough revenue to pay all expenses and give him a small salary. However, the revenue trend has been declining for some time. As with most small businessmen, Harold lacked the ability to focus on broad strategic planning. Often times, the task of simply keeping the business funded required so much immediate attention that long-term visions were overlooked and minimized. So even if he had had the skills to think strategically about growing the business, the tremendous pressure of dealing with daily issues prevented him from doing so. After all, the elder Handeford was more of a waterman than a businessman.

However, Bill Handeford knows that there is room for growth in this business and he is eager to find ways to make this happen. He believes that his several years of experience can help him create a successful business model. As a saleman for an agricultural chemical company, he has previously worked closely with small farming businesses to determine their needs. This has given him tremendous insight on the challenges facing small businesses and how to overcome them. He has established very close relationships with many of his clients and consulted them on developing strategies to acquire bank funding and manage their budgets. Learning from their mistakes has made him a wiser businessman as he approaches his own problems on a daily basis.

Bill Handeford considers his situation. He believes that the failing oyster market offers an excellent entrepreneurial opportunity and he wants to pursue the idea of developing an oyster farm. Using his own savings, he has paid $25,000 to hire a consultant who prepared a feasibility study that investigated the idea of creating a viable oyster hatchery to produce commercial products for sale.

The consultant's report looked at the economic value of the market and also included costs for material (e.g., oyster seed, cages, cleaners, etc.), labour costs, and production costs (e.g., site preparation, harvesting, transportation, etc.). It evaluated the market for hatchery products in Virginia and Maryland. The report concluded that a contained harvesting system showed promising return on investment. Further, demand is rising considerably for hatchery-produced oyster seed, which could provide a supplemental business opportunity for others wanting to pursue the same strategy.

However, the consultant cautioned him that, while certainly doable, the idea would prove very difficult to implement. Considering the alternative of going out of business, Mr. Handeford believes that the risks are worth exploring further.

2011-05-18

Subject: Sustainability management; Entrepreneurship; Oysters; Fishing industry; Environmental protection; Organizational behavior; Case studies

Location: United States--US

Classification: 2500: Organizational behavior; 8610: Food processing industry; 1540: Pollution control; 9190: United States; 9520: Small business; 9130: Experimental/theoretical

Publication title: International Journal of Case Studies in Management (Online)

Volume: 9

Issue: 2

Pages: 1-15

Number of pages: 15

Publication year: 2011

Publication date: Jun 2011

Year: 2011

Publisher: HEC Montréal

Place of publication: Montréal

Country of publication: Canada

Publication subject: Business And Economics--Management

ISSN: 1911-2599

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Diagrams Graphs Maps References Tables

ProQuest document ID: 874574143

Document URL: http://search.proquest.com/docview/874574143?accountid=38610

Copyright: Copyright HEC Montréal Jun 2011

Last updated: 2013-09-25

Database: ABI/INFORM Complete

Document 12 of 100

Energy, Poverty and the Market: The CSR Strategy of Coelce in Brazil

Author: Barin-Cruz, Luciano, Professor; Colombo, Jonathan

ProQuest document link

Abstract:

The authors of this case, Luciano Brain-Cruz and Jonathan Colombo, describe how a company in the energy sector - a sector in which sustainable development plays a particularly important role - successfully adopted a strategic approach to social responsibility in the emerging country of Brazil. The firm at the centre of the case is Coelce, a subsidiary of Spanish multinational Endesa. [PUB ABSTRACT]

Full text:

Introduction

Rodrigo,2 the Manager of the Innovation Management and Research Projects Department (IMRPD) enjoys the view of the beautiful sea and the coconut trees on Beira Mar Street in Fortaleza; it is the beginning of 2010. He knows that Coelce, the electricity distribution company he works for, is in the middle of a tropical paradise, but at the same time, it is also in a region with great environmental and social challenges and an economic growth divided between the informal and formal economies.

Rodrigo knows that the only way to be profitable and responsible in this region is through a deep and long-term engagement of building trust and partnership with local communities. For the last few years, his department has been performing important projects that address poverty and making the local population aware of the importance of preserving the local environment. He ponders the benefits of these projects to the deprived local communities and to the visibility of Coelce's Corporate Social Responsibility (CSR) approach.

The sun is still rising on the horizon, and Rodrigo remembers that some important decisions must be made to go on with the Ecoelce Project, one of the most successful projects developed by his department (Appendix 1). In short, Ecoelce encourages consumers' responsible waste management in Fortaleza by exchanging waste for discounts on consumer electrical bills. Because waste management is not Coelce's core competence, it was necessary to establish partnerships with local government, local community associations and recycling companies to ensure that the large amount of recyclable waste is stored, manipulated and transported correctly.

Since 2008, Coelce has been managing 66 collection sites. However, in recent months, Rodrigo has become aware that almost half of the collection sites are not performing well. He remembers that Paulo, Ecoelce's Project Manager, mentioned in one of their meetings that "the amount of material that is delivered by the community at some collection sites is not sufficient to cover its operating costs ... Ecoelce depends on a recycling company going to the collection site, collecting the material and then delivering it to a recycling industry. If there is not enough material, the company does not collect it." On the one hand, Rodrigo knows that because many collection sites are near businesses and restaurants, they cannot have waste material piling up. On the other hand, Rodrigo also knows that if a collection site has to be closed, his department has to figure out an alternative to ensure that the project maintains adequate geographic coverage. It is important to guarantee that Coelce's customers can continue to dump waste properly and benefit from credits on their electrical bills, even if they no longer have a collection site near their home.

With this dilemma in his mind, Rodrigo calls Paulo and organizes a meeting for the following week to discuss how to go on with the Ecoelce project. Particularly, they must decide how they can improve Ecoelce's contribution to local economic and social development while obtaining new clients and remaining profitable.

Coelce: An International-Local Company

Coelce (Appendix 2), a subsidiary of Endesa Brasil (Appendix 3), provides electricity distribution and transmission services for the state of Ceará. In 2008, the company's net income was 338.5 million reais1 (146.25 million dollars).2

Coelce's concession area covers the whole state of Ceará (Appendix 4): 149 thousand square kilometers over 184 counties with more than eight million inhabitants. Similar to other states in Brazil, Ceará's economy is composed of an important informal market (Appendix 5) that employs mostly people who live in poverty. Despite the efforts of local governments to bring this part of the market into the formal economy, the informal market3 still plays a central role in the state's economic and social development because it employs more than half of the local employed population of Fortaleza, the capital of Ceará.

Ecoelce

Coelce has 2.7 million clients, who consume, on average, 90 kWh per month. The local and national context in which Coelce operates has been compelling the company to innovate and develop projects that can respond to social, environmental and economic needs.

From the perspective of the Brazilian federal government, Coelce is required to increase its geographical coverage to the most impoverished areas, including the multiple slums in the big cities. Through the federal program "Luz para Todos"4 (Appendix 6), the Brazilian government provides incentives to local electricity providers to expand the electrical system to populations in uncovered areas.

From the company's point of view, Coelce has been developing multiple environmental and social projects in the last few years to set a CSR strategy (Appendix 7) that can be aligned with the Endesa headquarters' international orientation (Appendix 3). Particularly, from the commercial point of view, Coelce has found that the high rate of default and theft of electricity occurs in low-income communities due to customers' difficulties in paying their bills. Furthermore, the company noticed that there was a close relationship between this low-income population and the large volume of solid waste that was being improperly dumped into the environment.

Based on this context, Coelce developed the Ecoelce program to recapture the value of the wasted resources and return it to the local population. The driving principle of the program is to encourage responsible waste management by "paying" clients who adopt good practices with credits that can be used to pay electrical bills. The idea of the program is to link: response to the federal government's enforcement of electricity inclusion, the company's core business practice (provide electricity), its need to reduce corporate losses related to unpaid bills, and its commitment to local community development.

The project's infrastructure

Paulo remembers that in the beginning the idea was simple: "we wanted something that could be done in a small square. Once a week, we would go to this square, make a presentation about the importance of preserving the local environment and helping the inhabitants to gather recyclable waste." Paulo adds that since 2006, "this concept has been improved and optimized [...] today, Ecoelce has 66 fixed collection sites in the city of Fortaleza and in several municipalities that collect more than 2,000 tons of waste per year." The Ecoelce program was launched in August 2006 as a pilot project in four low-income communities in the metropolitan region of Fortaleza, operating weekly or bi-weekly. To participate in the Ecoelce Project and receive a discount on an energy bill, a person must be a client of Coelce and request his/her Ecoelce card. The request can be made at one of the collection sites or online through an Ecoelce "hotsite," and the card will be mailed to the client with the client's next energy bill.

With the card, the customer takes waste that is already separated to one of the collection sites. There, each category of waste is weighed and appraised according to the market price of each material. The values are transferred to Endesa Brasil's billing system and credited to the client's card. At the end of every billing period, the system adds the bonus earned by each consumer and subtracts it from the customer's energy bill (Appendix 8). If there are still some credits left, these extra credits are automatically transferred to the customer's following bill, avoiding any loss to the client. When the waste is weighed, the system also calculates, based on accepted scientific standards by Endesa Brasil, the equivalent in terms of energy saved and carbon emissions avoided.

From the beginning of the project until December 2009, Coelce collected 7,200 tons of recyclable waste, which is equivalent to saving 26.4 GWh (the same as the energy consumed by 294,000 families in one month).

Donate the credits earned

In addition to individual consumers, commercial entities such as restaurants and hotels can also participate in the project and contribute to its environmental cause. They can even expand their sustainable development contribution by donating their credits to non-governmental organizations (NGOs).

After the waste has been weighed and the bonus has been calculated, the customer can choose to donate his/her credits to any customer who is registered in the Ecoelce program. Paulo explains, "At the collection sites, we have a list of NGOs that the person can choose from. [...] He/she just has to type on the scale the reference code of one of these NGOs or any other customer of his/her choice, and the bonuses will be automatically credited to this customer."

Coelce manages the collection sites in collaboration with the local government, local community associations and in partnership with local recycling companies, which are responsible for delivering the collected material to the recycling plants. At the collection site, the consumer can also attend lectures not only on the importance of recycling and environmental issues but also on how to separate waste into the six categories that are collected at the collection sites:

* Paper

* Iron

* Glass

* Plastic

* Tetra Pak

* Cooking oil

Recycling companies

The structure of the Ecoelce program depends on the recycling companies. Coelce is an electricity distribution company and thus does not have the expertise to manipulate and transport large amounts of recyclable waste correctly. Rodrigo highlights that "to enable the Ecoelce project, we have signed agreements with local recycling companies. They are responsible for removing the waste and taking it to recycling plants that manufacture new products with the recycled material."

Coelce manages the collection sites and provides the scales and equipment that send the data to the company's billing system; the rest of the operation is conducted by one of the nine recycling companies that are partners of Coelce on this project. Paulo emphasizes that Coelce only partners with recycling companies that have a certification for the environmental management of collected waste: "these partners are responsible for the operation of the collection sites and must have an environmental license and a permit to operate [...] We do not want partners who only look for profit. We look for partners who are concerned with the seriousness of their operation."

Moreover, all of the sites that the waste is sent to also are required to have environmental licenses. "All the stages of the process are controlled, from collection to the final destination. We have to ensure that all of the waste brought to the collection sites by our customers will receive appropriate treatment by a certified recycling plant."

In the agreements with the recycling companies, Coelce also negotiates to be paid the market value for the recyclable materials. By doing so, Coelce is able to transfer the whole revenue amount directly to its customers as credits and discounts on their electricity bills.

'Catadores' and non-certified recycling companies

Of major concern to Ecoelce's development plan are "catadores" and recycling companies that are not certified. "Catador" in Portuguese means "human scavenger," or "rubbish collector." The "catadores" are largely found in the larger cities of Brazil; they are informal collectors that pick up recyclable materials and make a living by selling them to recycling companies.

The project faces competition from recycling companies who pay in cash to these collectors. According to Paulo, "The 'catadores, who survive by collecting recyclable waste, always look for the best prices [...] They prefer to receive money so they can use it for things such as rent and food [...] In some cases, there are some 'catadores' that take the collected waste to one of Ecoelce's collection sites until their bonus matches the expected value of their electricity bill. The rest of the collected material they sell to another recycler that pays them cash."

This situation increases Coelce's environmental concern because the majority of recycling companies are not certified and do not always give the best destination to the waste that they buy from the "catadores." Paulo states, "Coelce just looks for certified and licensed partners [...], and this generates an extra cost to the recycling company that participates in Ecoelce's process chain."

The company and the community

From the company's perspective

For Coelce, as for Endesa, the Ecoelce program is not considered a philanthropic or charitable activity. It is a part of a business plan because the company benefits from both the increased consumption and significant reduction in losses from illegal connections or customers who fail to pay their electricity bills (Appendix 9).

According to Coelce,1 greater than 57% of the customers who were debtors in 2006 and participated in the Ecoelce program in 2007 were able to reduce their debts with the company. There was also a reduction in the number of illegal connections, which encourages the efficient consumption of electricity.

In 2008, in comparison with the previous year, Coelce showed a growth of 5% (+ 330 GWh) in sales in its concession area. However, part of this evolution is due to the natural growth of the market. The greater relevance is consumption per capita, which increased by 1.1% as a result of improvements in family income and greater access to credit. In the same year, the distribution company had a 6% increase in the number of consumers and a consequent increase of 5% of energy billed.

Ecoelce also contributes to the economic development of the community because it provides 52 direct jobs and 200 indirect jobs related to its partners at the recycling companies and to the management of the collection sites.

In sum, the program increases Coelce's legitimacy to operate in its concession area and helps the company build a positive image among its customers and the general public.

From the community's perspective

According to research conducted in 2004 by Universidade de Fortaleza (UNIFOR), the city of Fortaleza generates over 41,000 tons of solid waste per month, and even though 36.4% can be recycled, only 3,009 tons (equivalent to 7.3%) are actually treated in this manner.

One of the program's objectives is to increase the percentage of recycled waste and decrease the use of raw materials. During the first 24 months of this program, Coelce's customers were able to collect waste that enabled them to save 143 million liters of water, 44,000 trees, 995 tons of iron ore, 715 tons of sand, and 6.14 tons of cooking oil, as well as recording a potential electricity savings of over 13.21 GWh.1

One of the greatest social contributions of the program is related to its capacity to educate the population about the importance of recycling. The environmental education component of the program - which includes presentations, lectures, brochures and publicity materials at the collection sites, on the Internet, television and radio - contributes to making the people aware of the inefficient use of some resources. Since taking part in waste management, the community has started to understand the relationship between competitiveness and the environment, that is, they must pay for the cost of pollution.

Over time, Coelce noticed that its customers were becoming more concerned about the environmental benefits of the Ecoelce project. There are customers who take waste materials to one of Ecoelce's collection sites simply because they care about their environment. One of these customers said, "It's more a question of awareness than a question of the money itself."2

The removal of garbage from communities has a direct result on people's living standards. Reducing the volume of waste deposited on the streets contributes to the reduction of the spread of diseases, such as dengue fever, and flood levels during the rainy season. One customer applauds this initiative by stating, "This project is excellent because it takes the garbage from our streets; it does not harm the environment, and it benefits the whole world."

Exchanging recyclable waste for credits that are used to reduce or even pay electricity bills contribute to improving people's standard of living. The program allows Coelce's customers not only to save money but also to spend or invest it elsewhere. This alternative source of income is also important because it reduces the number of illegal connections that people create. Simply by being able to pay their electricity bills, a person becomes a customer. This ensures his/her citizenship because the public service bill confirms the customer's residency, one of the pre-requisites for having access to credit. A customer reports happily, "It has been a wonderful experience; it has been five months since I last needed to pay my electricity bill. I want to keep it this way, and I'll always continue to bring more recyclable material to ensure that my bill continues being paid by the recyclable material that I am able to collect."

Even three years after the project's launch, Coelce continues to receive requests from customers to expand its operations by implementing new collection sites. Paulo states, "Some community leaders called to congratulate us and ask us to open new collection sites in their neighborhoods [...] These are people who want and need an alternative way to pay their bills and remove trash from their streets."

Some community leaders justify illicit means of obtaining electricity, such as clandestine cabling, saying that the community members do this exclusively because they cannot afford to pay their electricity bills. However, if they were able to pay their bills with the recyclable materials that they collected, they would prefer to have a proper and safe connection to their homes. "The community itself understands the need to correct these illegal connections and increase the number of security devices," says Paulo.

Aside from these economic and environmental benefits, there are also a series of social issues that the Ecoelce project contributes to. According to Paulo: "Some customers tell us cases that we didn't think about when we conceived the project [...] We ended up helping them in ways we would have never imagined."

The most incredible story is from a community in which recyclable waste that had monetary value was being exchanged for drugs. After implementing a collection site in this area, the recyclable waste could only be exchanged for bonuses on electricity bills, and there was a reduction in drug consumption.

The Future of Ecoelce

Rodrigo arrives for his meeting with Paulo. Both know that an important decision must be made about the future development of Ecoelce. The program currently has 66 collection sites and people from many different areas continue to call Coelce asking for a new collection site in their neighborhood. On the one hand, Rodrigo and Paulo want to increase the program's coverage and keep earning the reputation benefits of a successful CSR strategy. On the other hand, they know that many current collection sites are not financially self-sufficient and adding new ones may represent an unsustainable investment for the company. Rodrigo and Paulo have a coffee and start the meeting.

2011-05-18

Subject: Sustainable development; Energy economics; Strategic planning; Social responsibility; Organizational behavior; Case studies

Location: Brazil

Classification: 1510: Energy resources; 2310: Planning; 2410: Social responsibility; 9173: Latin America; 2500: Organizational behavior; 9130: Experimental/theoretical

Publication title: International Journal of Case Studies in Management (Online)

Volume: 9

Issue: 2

Pages: 1-20

Number of pages: 20

Publication year: 2011

Publication date: Jun 2011

Year: 2011

Publisher: HEC Montréal

Place of publication: Montréal

Country of publication: Canada

Publication subject: Business And Economics--Management

ISSN: 1911-2599

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Charts Tables Graphs References

ProQuest document ID: 874574145

Document URL: http://search.proquest.com/docview/874574145?accountid=38610

Copyright: Copyright HEC Montréal Jun 2011

Last updated: 2013-09-25

Database: ABI/INFORM Complete

Document 13 of 100

AUDIT VERSUS REVIEW: A CASE STUDY OF A CHAMBER OF COMMERCE

Author: Elam, Dennis

ProQuest document link

Abstract:

The passage of Sarbanes Oxley specified greater transparency for public companies. In the process, demands for governance and assurance have spread to other non-public entities. The bar for assurance to stakeholders has been raised for non-profits as well. This case study examines a real world Chamber of Commerce (all names have been changed to a fictional Our City). The External Auditor requests a move to accrual accounting as well as an elevation from a review to an audit. The case challenges students to examine the current environment of assurance expectations, the qualitative difference between an audit and a review, use of statistical data to aid in the determination and finally a writing assignment in defense of a conclusive recommendation. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTORS' NOTES

This case requires the student to examine the assurance level provided by an Audit versus a Review. The cost considerations of each must be balanced against the assurance levels now suggested by Sarbanes Oxley and demanded by today's stakeholders.

The overall objective is for the students to study the information available and then write a proper conclusions, supported by their own calculations and research, that supports that recommendation to Ramon Vasquez.

The target student population would be those that will be working in smaller practice units with a more local focus. Large, national CPA firms do not perform as many reviews in the experience of this author as smaller local or regional firms. From that standpoint the case would have relevance and value as CPE inclusion in a forum for regional or local practice.

Subject: Chambers of commerce; Accrual basis accounting; Auditing; Review engagements; Case studies

Classification: 9130: Experiment/theoretical treatment; 4120: Accounting policies & procedures; 9540: Non-profit institutions

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 4

Pages: 1

Number of pages: 1

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

ProQuest document ID: 1401479641

Document URL: http://search.proquest.com/docview/1401479641?accountid=38610

Copyright: Copyright Jordan Whitney Enterprises, Inc 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 14 of 100

THE NOT-SO-SUBTLE ART OF PERSUASION: THE CASE OF ATLANTIS SPA PRODUCTS

Author: Sigmar, Lucia S; Lee, Renée Gravois

ProQuest document link

Abstract:

While shopping at a local mall, Lana Thompson is approached by a young woman dressed in a white dress shirt, black slacks and black apron, who offers Lana a slice of colorful soap wrapped in tissue paper. Lana slows her pace, accepts the gift, smells the soap fragrance, then turns toward the kiosk that features a variety of skin and nail products. The sales associate, Salima, selects another colorful soap sample from her tray and offers it to Lana who stops to accept it. This "hook," effective in its appeal to the senses, entices the customer, and the ensuing sales exchange focuses on the exclusive, mineral-rich beauty products from the Dead Sea. The sales call also demonstrates a number of other classic persuasive appeals, including scientific, emotional, rational, character, comparative, vanity, and sensory. The dialogue also stimulates class discussion of selling techniques including the hook, non-verbal and verbal selling techniques, features and benefits, customer care, responding to objections, and closing the deal. [PUBLICATION ABSTRACT]

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CASE DESCRIPTION

The primary subject matter for this case involves the sales approach of a kiosk vendor, selling nail and skin care products, in a suburban American mall. The dialogue contains diverse persuasive appeals and customer responses. This case was designed for use in undergraduate business communication, marketing, or personal selling courses, particularly courses that address analysis of persuasive appeals and/or personal selling techniques, and development of persuasive communications.

The dialogue format is central to the case. Through the various ways the sales representative presents the product information and approaches the sales call, and the various ways the buyer responds, the dialogue is ripe with analytical opportunities for the students.

The case could be taught in two 50-minute or one 75-minute session(s) and is expected to require two hours of outside preparation by students. It can be used as a follow-up to class discussion of persuasive appeals or a range of personal selling techniques, or as a preliminary assignment to a written persuasive appeal or persuasive role play.

CASE SYNOPSIS

While shopping at a local mall, Lana Thompson is approached by a young woman dressed in a white dress shirt, black slacks and black apron, who offers Lana a slice of colorful soap wrapped in tissue paper. Lana slows her pace, accepts the gift, smells the soap fragrance, then turns toward the kiosk that features a variety of skin and nail products. The sales associate, Salima, selects another colorful soap sample from her tray and offers it to Lana who stops to accept it. This "hook," effective in its appeal to the senses, entices the customer, and the ensuing sales exchange focuses on the exclusive, mineral-rich beauty products from the Dead Sea. The sales call also demonstrates a number of other classic persuasive appeals, including scientific, emotional, rational, character, comparative, vanity, and sensory. The dialogue also stimulates class discussion of selling techniques including the hook, non-verbal and verbal selling techniques, features and benefits, customer care, responding to objections, and closing the deal.

Subject: Skin care products; Personal selling; Case studies; Closing the sale

Location: United States--US

Classification: 9130: Experiment/theoretical treatment; 7300: Sales & selling; 8642: Cosmetics industry; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 4

Pages: 13

Number of pages: 1

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

ProQuest document ID: 1401479655

Document URL: http://search.proquest.com/docview/1401479655?accountid=38610

Copyright: Copyright Jordan Whitney Enterprises, Inc 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 15 of 100

CHANGING THE GAME AT CHEROKEE NATION ENTERTAINMENT

Author: Carlin, Jason; Dean, Anthony; Kern, David; Searcy, Robert; Stanley, J W

ProQuest document link

Abstract:

The case opens with Cherokee Nation Entertainment ("CNE") engaged in the process of evolving from a collection of low impact retail and bingo operations to a dynamic, growth oriented business employing current marketing and management concepts. Dave Stewart, CEO, is building a vision for CNE that embraces innovation and change in driving a transformation of the business' strategy and culture. The change in Oklahoma gaming laws provides the external opportunity. Stewart's vision encompasses a dramatic change in the basic philosophy of the business in attempting to integrate the edgy Hard Rock "culture" with the very traditional culture of the Cherokee Nation. The case follows Stewart and a Team of 8 key managers who navigate through multiple challenges and obstacles often encountered in transformational change in organizations. The vision and strategy provide the direction for change; however, the extent of the change provide significant challenges for Stewart and the Team of 8 in overcoming resistance to change, and building a sense of urgency so important to implementation. The case demonstrates one approach to building and implementing a vision and new strategy, and provides opportunities for students to analyze the key stages of organizational/strategic change. The case ends with the opening of the Hard Rock Hotel and Casino Tulsa; however, the change process is not complete. There are still important issues for students to ponder about the future of the Hard Rock brand and CNE. [PUBLICATION ABSTRACT]

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INSTRUCTORS' NOTES

Discussion Questions

This is a complex case that can be viewed primarily from an organizational change perspective and leadership perspective. There are a variety of resources for developing understanding of organizational change; however, this review employs John Kotter's Eight Phases (Kotter, 1995; 2007). The article noted is available through Harvard University Press. Additionally, summaries of Kotter's concepts are readily available on the internet. A review and discussion of the eight phases in class prior to assigning the case will prepare the students for the Organizational Change questions presented in this case.

Directions:

Analyze the case employing John Kotter's eight phases of change. Students should focus on the transformation to the Hard Rock brand in their analysis, but should integrate relevant facts from the background and the 2002-2006 period of growth at CNE. Although the questions are relatively simple and straight-forward, the eight phases provide the structure for a comprehensive analysis. More advanced analyses will integrate the discussion of the different phases where they overlap. The 8 phases include:

1. Establish a Sense of Urgency.

2. Form a Powerful Guiding Coalition

3. Create a Vision

4. Communicate the Vision

5. Empower Others to Act on the Vision

6. Plan For and Create Short-Term Wins

7. Consolidate Improvements and Sustain the Momentum for Change

8. Institutionalize the New Approaches

For the first 6 phases:

* Identify the key players, the actions they took, and the result - positive and negative.

* Did Stewart and CNE follow the same order as Kotter's model? For those that were in a different order or overlapped, explain why Stewart and/or the Team of 8 varied from Kotter's sequence.

* Each of the phases may be addressed in order; however, a deeper understanding of the case suggests that some of the phases overlap, warranting an integrated approach. For example, establishing a sense of urgency overlaps with several of 3. Identify and challenge 2-5 potential change leaders who could serve in rolls similar to that which Dave Stewart served as the organization identifies new opportunities and takes on new change projects. At least two should be assigned to the teams identified in points 1 and 2. This approach ties to Kotter's guidelines in phase 8, where developing new leadership is critical to institutionalizing the commitment to change.

Subject: Casinos; Organizational change; Management of change; Case studies

Location: United States--US

Company / organization: Name: Cherokee Nation Entertainment; NAICS: 713290, 721120

Classification: 2310: Planning; 8307: Arts, entertainment & recreation; 9190: United States; 9130: Experiment/theoretical treatment

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 4

Pages: 23-24,32

Number of pages: 3

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: References

ProQuest document ID: 1401479999

Document URL: http://search.proquest.com/docview/1401479999?accountid=38610

Copyright: Copyright Jordan Whitney Enterprises, Inc 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 16 of 100

SOMETIMES A SIMPLE CHANGE ISN'T SO SIMPLE

Author: Jernigan, Edward; Beggs, Joyce M

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Abstract:

Integrated Health was a large private, nonprofit health care system located in Tempe, Arizona. A year ago, the decision was made to implement a computerized medication administration record (MAR) at Integrated Health. During the first year, the MAR system would be implemented at Central Hospital of Tempe. After the "bugs" were worked out, the computerized MAR would be implemented system-wide. The MIS department at Central Hospital was designated as the initiator and direction setter for the project. Art Smith, the Chief Information Officer at Central Hospital assigned Kate Cohen, a programmer/analyst, as project leader. Kate had the responsibility for developing and implementing the MAR project at Central. Kate did the programming work for the MAR and assembled a team from Pharmacy Services, Nursing Services, and Internal Auditing. Members of the project team provided feedback on the software, made suggestions related to user training, and worked on an implementation schedule. Both team members and outside observers recognized the difficulty in developing and implementing the MAR in one year. Nurses ' antagonism toward the project surfaced after their suggestions and recommendations were rejected without explanation. The MAR project was also affected when a management "shakeup" occurred during the project development phase. The MAR was implemented and immediately failed. By 10:00 a.m. on the first day of the implementation, users complained that the system did not work and was too complicated. After hearing nurses' complaints, physicians expressed concern about patient safety. At 1:30 p.m., Central Hospital's computer system crashed, and the MAR project was suspended. Early the next morning, we find Kate contemplating what she is going to say when she meets with Central Hospital's management group later in the afternoon. [PUBLICATION ABSTRACT]

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RECOMMENDATIONS FOR TEACHING APPROACHES

This case describes the handling of a change project in a hospital setting. The primary objective of the case is the introduction to issues associated with planning, managing, and implementing complex change. Other objectives are to provide students the opportunity: to illustrate the impact of political behavior on change implementation; to demonstrate the Based on the evidence available in the case, the management team hasn't really kept up with the MAR project.

As a relatively junior staff person, Kate probably doesn't have a base of political support independent from the CIO, Art Smith.

Subject: Health care industry; Management of change; Organizational change; Case studies

Location: United States--US

Classification: 9130: Experiment/theoretical treatment; 2310: Planning; 8320: Health care industry; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 4

Pages: 33,39

Number of pages: 2

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: References

ProQuest document ID: 1401479996

Document URL: http://search.proquest.com/docview/1401479996?accountid=38610

Copyright: Copyright Jordan Whitney Enterprises, Inc 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 17 of 100

MODINE MANUFACTURING: PRICING STRATEGIES FOR A GLOBAL OEM MARKET

Author: Rintelman, Tim; Finch, James E

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Abstract:

No one can ever truly be considered an expert in pricing ... at least that's the opinion offered by a consultant who was hired to help Tinya Meeker solve a particularly challenging pricing dilemma. It is clear that Modine Manufacturing needs to migrate from its dependence on cost-plus pricing policies to strategies that will effectively communicate their products' superior value. However, Tinya is relatively new to the position of divisional sales manager and this is without question the most important decision she's ever been asked to make. She's narrowed her choices down to product-cost unbundling and value-based pricing as the two primary options. Modine employs more than 7,000 people worldwide and the consequences of her final decision could be far-reaching. [PUBLICATION ABSTRACT]

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(ProQuest: Text stops here in original.)

INSTRUCTORS' NOTES

RECOMMENDED TEACHING METHOD

One or two class periods prior to discussing this case in class, advise students to set aside two hours to read and prepare answers for the questions. The instructor may suggest that students have a 'study partner' for this preparation step. On the day the case is reviewed in class, ask students to form groups of three or four people to compare answers and to develop group responses to the questions. Have all groups focus on Question #1 for 10 minutes, then call on a ...

Subject: Multinational corporations; Pricing policies; OEM; Heat transfer; Case studies

Location: United States--US

Company / organization: Name: Modine Manufacturing Co; NAICS: 336310, 336330

Classification: 8670: Machinery industry; 9190: United States; 7000: Marketing; 9510: Multinational corporations; 9130: Experiment/theoretical treatment

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 4

Pages: 49

Number of pages: 1

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

ProQuest document ID: 1401479669

Document URL: http://search.proquest.com/docview/1401479669?accountid=38610

Copyright: Copyright Jordan Whitney Enterprises, Inc 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 18 of 100

BRIGHT-AID PHARMACY: HUMAN RESOURCE FORECASTING AND STAFF BUDGETING

Author: Welker, Jan; Berardino, Lisa

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Abstract:

Bright-Aid Pharmacy faces a challenge typical to retail environments: staffing the long hours of operations (9AM - 9PM every day of the week). In order for the pharmacy to operate, the store manager must staff several jobs: a pharmacist must be on duty, pharmacy technicians assist the pharmacist, and a cashier is needed. An exercise is embedded in the case to guide the analysis of this HR forecasting and staffing. Essential informational elements are provided to set the stage for designing, budgeting and implementing a staffing plan for a retail pharmacy of a large national drug store chain. The exercise and case questions require selection of appropriate informational elements to address the case components; calculation of production, full time equivalents of three levels of staff (pharmacists, pharmacy technicians and cashiers) and labor costs; and use of methods for monitoring performance in preparation for business growth due to such things as technology advances or national health insurance policy changes. [PUBLICATION ABSTRACT]

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CASE DESCRIPTION

The context of this case is a retail pharmacy in a large national drug store chain and requires students to forecast a staffing plan and calculate a labor budget to fit an operating schedule. It is specifically written for students learning about the management of Human Resources (HR) in any field of study. This case offers a step-by-step exercise (embedded within the case) to guide the student through the basic calculations required for planning the staffing of any operation. It addresses two of the three challenges (staffing and budgeting) presented by the tight labor market in one healthcare profession. Suggestions for the instructor related to variations on the case address the third challenge (scheduling) defined as the actual assignment of staff to certain days of the week or hours of the day. This case has a difficulty level of three on a scale of one to five and is appropriate for upper division, undergraduate students or graduate students. It is designed to be delivered in portions of two classroom periods with completion of the embedded exercise as homework between the two sessions or online in one learning module. When combined with a reading assignment, the exercise is expected to require one to two hours of student preparation.

CASE SYNOPSIS

Bright-Aid Pharmacy faces a challenge typical to retail environments: staffing the long hours of operations (9AM - 9PM every day of the week). In order for the pharmacy to operate, the store manager must staff several jobs: a pharmacist must be on duty, pharmacy technicians assist the pharmacist, and a cashier is needed. An exercise is embedded in the case to guide the analysis of this HR forecasting and staffing. Essential informational elements are provided to set the stage for designing, budgeting and implementing a staffing plan for a retail pharmacy of a large national drug store chain. The exercise and case questions require selection of appropriate informational elements to address the case components; calculation of production, full time equivalents of three levels of staff (pharmacists, pharmacy technicians and cashiers) and labor costs; and use of methods for monitoring performance in preparation for business growth due to such things as technology advances or national health insurance policy changes.

Subject: Drug stores; Human resource management; Forecasting; Budgeting; Case studies

Location: United States--US

Classification: 9190: United States; 6100: Human resource planning; 9130: Experiment/theoretical treatment; 8390: Retailing industry

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 4

Pages: 55

Number of pages: 1

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

ProQuest document ID: 1401479670

Document URL: http://search.proquest.com/docview/1401479670?accountid=38610

Copyright: Copyright Jordan Whitney Enterprises, Inc 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 19 of 100

LINEAR SYSTEMS: THE RE-INVENTION OF AN ORGANIZATION-THE DIGITAL IMAGING FUTURE

Author: Ghazzawi, Issam A; Marshall, Kevin

ProQuest document link

Abstract:

From the time of its inception in 1988 until June 1992, Linear Systems' business focused exclusively on reselling computers and digital photographic equipment. Given the competitive and saturated nature of the market, Chris Parsons (founder and CEO) recognized the need for change. He commenced transforming Linear Systems, making it a leader in digital imaging technology. By September 1998, Parsons had reinvented Linear Systems' principal business purpose-digital photography and software. By leveraging Linear Systems' success in the digital imaging hardware market, Linear Systems has re-invented itself into both a software developer and a builder/integrator of computer hardware, the integration of which transformed Linear Systems into a full service digital-data management company which provided data management solutions to business and government agencies. While the re-invention process started more than 10 years ago, the breakthrough came in 2005 when several large law enforcement agencies collaborated with Linear to develop its Digital Information Management System known as DIMS Image Server. [PUBLICATION ABSTRACT]

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Content and Grading

Students' answers and presentations should clearly and concisely demonstrate their knowledge and comprehension of the subject concepts learned in the class, as well as the individual or the group's ability to apply knowledge learned in class and through research-synthesize, analyze, and evaluate his/her/their work). Students will be graded based on the following criteria: a. Use of innovative and creative ideas; b. Application of concepts learned in the case; and c. Use of outside research to support the case. It is recommended that this case study constitutes 10-15% of the student's participation grade.

Analysis

Since this case is an application of topics covered in the subjects of Organizational Behavior, Organizational Theory and Behavior, Organizational Development, and Strategic Management, students' understanding of the topics of organizational lifecycle and organizational change and development will be essential.

Recommended Outline

The structure of the written report is critical. In the first part of the case written report, students need to outline briefly what the organization does, how it developed historically, what problems it is experiencing, and how they are going to approach the issues in the case write-up. It is important for students to start by providing a synopsis of the case, discussing the environment of the organization, its goals, challenges, and provide recommendations for taking the organization to the next level.

In the second part of the case write-up, the strategic analysis section, students are supposed to analyze and discuss the nature and specific problems facing the organization as outlined in the questions.

Students are supposed to break up information by means of headings and subheadings. Chapter format is preferred (e.g. Chapter 1: Organization Mission Statement, Goals, and Strategies; Chapter 2: "The Diagnostic Process; etc.).

In the third part of the case write-up, present your solutions and recommendations. Be comprehensive, and make sure that they are in line with the previous analysis so that the recommendations fit together and move logically from one to the next.

RESEARCH METHODOLOGY AND EXPERIENCE TEACHING WITH THE CASE

Research Methodology

This research is based on primary data obtained by the authors from direct interviews and consultations with Linear Systems' executive management team. The authors also obtained data from the review of firm documents, census bureau data, and other public records.

The name of the organization (i.e. Linear Systems), its location, the names of its officers, and the very nature of the business are all real.

In addition to teaching, it is important to mention that Dr. Issam Ghazzawi is a management consultant to IT organizations. He has over 25 years of organizational experience and served on the channel advisory board for Microsoft, Lexmark, Lenovo USA, and Targus.

Additionally, Dr. Marshall has over 20 years experience as a business law consultant and is an expert in the field of competitive market analysis.

Experience Teaching with the Case

I have used "Linear Systems: The Re-invention of an Organization- the Digital Imaging Future" as a case since the fall of 2008 in my graduate course "Designing Effective Organizations". I teach this case after covering the subjects of organizational transformation (Birth, Growth, Decline, and Death) and managing organizational environments and inter-organizational relations. It is important to point out that the case was well received by the students.

Subject: Organizational change; Organization development; Life cycles; Strategic management; Case studies

Location: United States--US

Company / organization: Name: Linear Systems; NAICS: 334413

Classification: 9190: United States; 2310: Planning; 2500: Organizational behavior; 9130: Experiment/theoretical treatment

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 4

Pages: 63,79-82

Number of pages: 5

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: References

ProQuest document ID: 1401479618

Document URL: http://search.proquest.com/docview/1401479618?accountid=38610

Copyright: Copyright Jordan Whitney Enterprises, Inc 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 20 of 100

WHICH RETIREMENT PLAN IS BEST FOR ANN SMITH?

Author: Gupta, Sanjay; Moore, W Kent

ProQuest document link

Abstract:

Ann Smith had just started a new position as a junior executive at Fowler Inc. five weeks ago. She was finally well settled into her new job and was now focused on sifting through all the details of the retirement plan options available to her through her employer. The plan choices available differed considerably in their characteristics and the variables that affected possible retirement income. Complicating the decision was the fact that the retirement income under the available choices was a function of how many years Ann will work with her current employer, at what age she decides to retire, how many years she spends in retirement, how risk averse she is, and what the expected return of investment is. Answers for these issues would result in big differences in the retirement benefits. Time was of the essence since a retirement plan had to be chosen within the first 60 days of employment. Otherwise it would result in a default selection of the ERS. Moreover, once a retirement plan was chosen it would be irrevocable. Ann could not delay her retirement choice any longer. She had only three weeks left in the 60-day window allowed for making a decision. She and her husband Frank were in the process of gathering as much relevant information as possible. They would then put their heads together to make the best decision about this critical financial choice that would have a significant impact during their time in retirement. [PUBLICATION ABSTRACT]

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BACKGROUND

Ann Smith had just started a new position as a junior executive at Fowler Inc. five weeks ago. She was finally well settled into her new job and was now focused on sifting through all the details of the retirement plan options available to her through her employer. The plan choices available differed considerably in their characteristics and the variables that affected possible retirement income. Complicating the decision was the fact that the retirement income under the available choices was a function of how many years Ann will work with her current employer, at what age she decides to retire, how many years she spends in retirement, how risk averse she is, and what the expected return of investment is. Answers for these issues would result in big differences in the retirement benefits. Time was of the essence since a retirement plan had to be chosen within the first 60 days of employment. Otherwise it would result in a default selection of the ERS. Moreover, once a retirement plan was chosen it would be irrevocable.

Ann could not delay her retirement choice any longer. She had only three weeks left in the 60-day window allowed for making a decision. She and her husband Frank were in the process of gathering as much relevant information as possible. They would then put their heads together to make the best decision about this critical financial choice that would have a significant impact during their time in retirement.

CLASSROOM USAGE

This case provides an opportunity to examine one of life's important decisions - which retirement plan option works best for me? With increased life expectancies, it is not uncommon for people to spend 20 years or more in retirement. This combined with the fact that the selection of a retirement option plan is often irrevocable underscores the need to make a good choice.

The case is appropriate for assignment in both undergraduate and graduate accounting and finance classes. Several possible teaching approaches can be used to present this case. In its simplest form, by covering just the basic fundamentals, the case would be an introduction to retirement plan decisions in general while also serving as an exercise to enhance spreadsheet skills. In a more advanced setting, the requirements in the case can be used to motivate class discussion of the relevant individual variables, such as age, life-expectancy, time value of money, net present value, expected return on investment, and cost-of-living adjustments, that affect retirement plan choice.

Subject: Retirement planning; Deadlines; Selection; Case studies

Location: United States--US

Classification: 9130: Experiment/theoretical treatment; 9190: United States; 3400: Investment analysis & personal finance

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 4

Pages: 83

Number of pages: 1

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

ProQuest document ID: 1401479622

Document URL: http://search.proquest.com/docview/1401479622?accountid=38610

Copyright: Copyright Jordan Whitney Enterprises, Inc 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 21 of 100

A DAY AT THE SPA

Author: Rymsza, Leonard; Johnson, Gordon; Saunders, Kurt

ProQuest document link

Abstract:

Students are faced with a factual setting that presents practical business and ethical issues. After learning from his doctor that he was a prime candidate for a heart attack, the victim in this case considers a regimen of diet and exercise. The exercise aspect of the plan involved possible membership at a local gym, of which his wife was already a member. Following a discussion with his wife, it was decided that the victim would drive his wife to the gym and return to pick her up when her exercise session was completed. When the victim returned to the gym to pick up his wife, he waited for her in the gym lobby. While waiting for his wife, the victim suffered a cardiac arrest. Although medical assistance was immediately administered by a gym employee, and later by emergency medical technicians and trauma center personnel, the victim did not survive. Following the victim's death, it was learned that he had suffered a sudden cardiac arrest. Individuals who suffer a sudden cardiac arrest generally survive if heart rhythm is restored using a defibrillator. The gym did not have a defibrillator on the premises. Was the gym negligent in failing to have a defibrillator on the premises? If the gym had had a defibrillator on the premises would the victim have survived? Since the victim was a prime candidate for a heart attack did the victim contribute to his own death? In answering these questions, the case is divided into three major parts. The first part of the case requires students to utilize their understanding of several statistical issues. They are required to: use linear regression to predict age at death given a specific cholesterol level; determine the expected cost of owning a defibrillator; calculate the age at which the average person will experience their first cardiac incident; and estimate the number of lives that are saved if a defibrillator is available for use. The second part requires students to analyze a possible negligence claim against the gym with respect to its failure to have a defibrillator on the premises. Students are required to address the following negligence concepts; duty; breach of duty; negligence per se; actual (cause in fact) causation; damages; and defenses to negligence (i.e., contributory vs. comparative negligence). The last part of the case enables the students to propose strategies regarding settlement and ethical issues raised by the gym's refusal to assume responsibility for its actions. [PUBLICATION ABSTRACT]

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INSTRUCTORS' NOTES

RECOMMENDATIONS FOR TEACHING APPROACHES

This case is designed for use in an upper division inter-disciplinary business course. The purpose of the course is to enable students to utilize knowledge they have gained in their lower division core business courses. In addition, the course also aims to improve a student's communication, written and oral, and teamwork skills. Student teams prepare the answers to questions presented in the case with coaching from faculty. The faculty coaching is intended to provide answers to team questions. All teams submit a formal written business report containing an analysis of the issues presented in the case. One team of students formally presents their case solution to the class. A second team of students acts as a "discussion team " by asking the presenting team for further explanation or clarification of its case solution. Following the discussion team's exchange with the presenters, the entire class is welcome to participate in an active question and answer session.

Although this case is designed to be used in an upper division inter-disciplinary business course, the case can be easily modified for use as an in-class or take-home assignment in an introductory business law course by eliminating the Case A Questions on statistics.

CASE A QUESTIONS - STATISTICAL

1. Using the data set in Table 1, use linear regression to obtain an equation to predict age at death given a specific cholesterol level. Predict the age at which Tommy will die given his cholesterol level is 290 mg/dL. Interpret the slope in the context of this problem. Interpret the coefficient of determination.

Statistical linear regression analysis provides an algebraic relationship between two variables: χ = independent variable, y = dependent variable = a + bx, where a = y-intercept and b

Subject: Commercial law; Negligence; Case studies; Professional liability

Location: United States--US

Classification: 9130: Experiment/theoretical treatment; 9190: United States; 4300: Law

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 4

Pages: 95-96

Number of pages: 2

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

ProQuest document ID: 1401479642

Document URL: http://search.proquest.com/docview/1401479642?accountid=38610

Copyright: Copyright Jordan Whitney Enterprises, Inc 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 22 of 100

WATER WORLD INSTRUCTIONAL CASE : INTEGRATING FINANCIAL AND MANAGERIAL ACCOUNTING WITH STRATEGIC PLANNING

Author: Montondon, Lucille M; Butler, Janet B

ProQuest document link

Abstract:

Much has been published about integration of accounting content and breaking down of silos created within colleges of business. Introductory accounting courses generally are still divided between managerial and financial accounting or, if there is only one course, the highlights of each are presented separately. Further, business strategy is often considered only as part of a capstone class, and the use of accounting information to support strategic decision making is often overlooked. The purpose of this case is to provide related financial and managerial accounting projects which culminate in a strategic plan. The projects are simplified but provide a discernable thread from raw materials and direct labor to plans to expand the firm. These projects are suitable for a blended financial and managerial introductory course for undergraduates or for MBA students and have been used effectively in an online teaching environment. The modular nature of the projects means that instructors can easily customize case materials. [PUBLICATION ABSTRACT]

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(ProQuest: ... denotes text missing in the original.)

BACKGROUND

This case provides multiple related projects that can be started during the first week of class, and which culminate in a strategic plan to expand the firm. The individual projects deal with financial and managerial topics but extend the typical problems and journal entries into an integrated project that requires critical thinking, research and analysis. This project was created for an internet based course in introductory accounting. The case provides an opportunity for the ...

Project 5 SOLUTION: Proposal

Required: Using all Otter Land and Water World data from the earlier projects, propose ways for the company to expand.

This portion of the case is less structured than the previous projects, and the acceptable responses will vary widely. Students who have completed this project in the past have proposed everything from a simple marketing campaign to the addition of businesses or product lines designed to smooth the cyclical nature of the Water World revenues. One of the more creative proposals was to locate a sister park in Australia to take advantage of the fact that summer in Australia is winter in North America.

Regardless of the nature of the responses, this project provides an opportunity for students to experience using accounting-related information to gain insights into relatively unstructured problems.

Subject: Integration; Strategic planning; Management accounting; Case studies

Classification: 4120: Accounting policies & procedures; 2310: Planning; 9130: Experiment/theoretical treatment

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 4

Pages: 109,120

Number of pages: 2

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: References

ProQuest document ID: 1401480001

Document URL: http://search.proquest.com/docview/1401480001?accountid=38610

Copyright: Copyright Jordan Whitney Enterprises, Inc 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 23 of 100

Supreme Court Guns Down State Firearm Restrictions, The Chicago Way

Author: Reville, Patrick J

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Abstract:

It was February 14, 1929. The United States was still experiencing the "Roaring Twenties". The stock market had not yet crashed, and Prohibition, that 'noble experiment", was nearing the end of a tumultuous decade. A group of five apparent law enforcement personnel, some in uniform, some not, paid a visit to a warehouse on the north side of Chicago. Illegal/bootlegged booze trafficking was the ostensible target. When the "visit" was over, 6 men lay dead, and the apparent lone survivor, rushed to the hospital where he declined to elaborate on the incident, promptly passed away. The departed were part of the George "Bugs" Moran organization, while the visiting "police" contingent was actually made up of members of the Al "Scarface" Capone mob. The event would go down in history as The St. Valentine's Day Massacre, and the main method of communication at the warehouse was the Thompson submachine gun. In the aftermath of that notorious gangland rubout, and other instances of outlaw use of machine guns, the automatic weapon was virtually taxed and legislated out of legal existence. Along with the abolishment of legal automatic weapons, restrictions on all types of firearms became a cause and a reality. Yet, in 2008, a group of five black-robed members of a Washington, D.C., organization took aim at the outright restriction on handguns in the District of Columbia. The result was a rubout of the D.C. restrictions.(1) Then, two years later, the same Gang of Five donned their black robes, and, in essence, paid the City of Chicago a "visit" regarding its ban of firearms. The outcome was a bloodbath that may end up being remembered by Gun Control enthusiasts on the same level as the St. Valentine's Day Massacre.(2) [PUBLICATION ABSTRACT]

Full text:

UNITED STATES CONSTITUTION - AMENDMENT II

"A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear arms, shall not be infringed." (3)

HISTORIC BACKGROUND OF GUNS IN AMERICA

As was pointed out by this author in a prior writing (4), and by author Brian Doherty in his 2008 book Gun Control On Trial (S), many of America's legal underpinnings can be traced to English history. "A proximate ancestor of the Second Amendment is this clause from the English Declaration of Rights of 1689, stating that among the "true, ancient, and indubitable rights" secured by it was "that the Subjects which are Protestant, may have Arms for their Defense suitable to their Condition, and as are allowed by Laws." (6) In analyzing the writings of historian Joyce Malcolm, Doherty observes that "Even during times when Catholics were otherwise oppressed (out of fear that they intended to overthrow or subvert the Protestant kingdom), the Papists were still generally allowed to keep weapons sufficient for home defense." (7) It is clear that guns played a role in the lives of the early settlers, and, of course, during the revolutionary era. In the early years after ratification of the Second Amendment, many States' Constitutions included similar protections. While the first half of the 19th century found many State court cases upholding the right to bear arms (8), the latter part would show a shift in direction.

PRIOR CASE LAW UNDER THE SECOND AMENDMENT

When the Fourteenth Amendment was ratified in 1868, many thought that this provision would guarantee that the States would be brought into Une as far as compliance with constitutional protections were concerned. Sometimes: yes; sometimes: no. Although not actually a Second Amendment case, the language in United States v. Cruikshank (9), sewed the seeds of doubt as to whether the Fourteenth Amendment incorporated a requirement on the states to honor the Second Amendment, as the claim was that the Second Amendment was ? federal protection. In Presser ?. Illinois (10), a state statute barring public parades of armed parties without permission was held not a violation of the Second Amendment, in that the Second Amendment did not apply to the states. Although the Supreme Court after Presser seemed generally uninterested in Second Amendment issues, in United States v. Miller (1 1), the transportation of a sawed-off shotgun across state lines, and neglecting to pay a tax that was required by the newly enacted (1934) National Firearms Act, got one Frank Layton into deep trouble. The statute did not outright ban certain weapons, but attempted to tax them out of existence and use (a strategy that was ultimately successful). The federal statute was held constitutional, and there was language in the decision that a sawed off shotgun had no relation to the militia. The seeds had thereby been deeply planted for the position that the Second Amendment did not apply to an individual 's rights, but to the rights of a militia. In 200 1 , The Fifth Circuit Court Of Appeals found that the Second Amendment did in fact encompass an individual's right under the Second Amendment. (12) Shortly after that decision, then U.S. Attorney General John Ashcroft re-affirmed his prior stated position that the Second Amendment rights applied to individuals in a memo to all U.S. attorneys. (13)

DISTRICT OF COLUMBIA v. HELLER

The Statute. At issue in the Heller case was a Washington D.C. Code that made it illegal to possess a handgun without registration, and you could not register one if you did not already one before the law was passed in 1976. The statute also made possession of long guns in your home illegal, unless unloaded and trigger-locked or disassembled. Penalties ranged from up to one (1) year in jail and/or a $1 ,000 fine.

The Plaintiffs. The strategy was to cherry-pick a field of worthy plaintiffs that could survive typical jurisdictional pitfalls and personal prejudices. The decision was to go with six "qualified, sympathetic plaintiffs" as opposed to "some guy who carjacked somebody or just shot up a McDonald's". (14)

Shelly Parker, a black woman, was the original lead plaintiff. She was a former nurse, working in software design, who moved to a neighborhood in D.C. that was rampant with drug gangs. Trying to help "clean up the neighborhood" of the drug traffickers, she received numerous death threats. She was introduced to the legal team by Kenn Blanchard, who referred to himself on his website as: "Black Man With A Gun". He was a personal firearms instructor, trainer and speaker, and occasional NRA representative.

Tom Palmer was a senior editor at The Cato Institute. Palmer had years earlier been accosted by a gang of street toughs in California, and but for his possession and display of his handgun, might not have made it to the "gang of six" in the case.

George Lyon was a communications attorney with extensive experience in the use of weapons. The team of attorneys putting the case together found his expertise of great value.

Gillian St. Lawrence lived in Georgetown, and owned a long gun for protection. She felt that the restrictions of the D.C. law (unloaded, disassembled, trigger lock) rendered her weapon useless for protection.

Tracey Hanson was a black woman who was an employee of the Department Of Agriculture. She did not have any particular "horror story" to tell; she just felt strongly about the Second Amendment issue.

Dick Anthony Heller, who became the lead plaintiff in the case when it went before the Supreme Court, ended up being the only member of the "gang of six" to have his case adjudicated, due to procedural and jurisdictional issues. If he had not been added to the team at the early stages of planning, the case likely would not have become the landmark that it has. Further, as Doherty notes: "The best hook about Heller for the press was his day job: a trained and licensed special police officer for the District. He even carried a gun in a federal office building where he'd sometimes see Supreme Court justices and staff... Yet, at the end of the day, he had to... turn in his gun and bullets and go home, defenseless." (15)

The District Court Case. (Then lead) Plaintiff Shelly Parker sued in Federal District Court to block the enforcement of the D.C. statute. Her case was dismissed by that Court. (16) The Circuit Court for the D.C. Circuit reversed. (17)

THE SUPREME COURT CASE AND DECISION (18)

The Supreme Court decided 5-4 in favor of (then sole remaining) plaintiff Dick Heller. Mr. Justice Scalia delivered the opinion of the Court, with Chief Justice Roberts and Justices Kennedy, Thomas and Alito concurring. Justices Stevens and Breyer filed dissenting opinions. The four Justices opposed joined in each of the dissenting opinions.

Decision: 5 votes for Heller, 4 votes against

Legal provision: Rights Of Individuals Under Second Amendment

Full Opinion by Justice Antonin Scalia

KEY POINTS MADE BY JUSTICE SCALIA

1. The Second Amendment protects an individual's right to possess a firearm unconnected with the service in a militia.

2. The Second Amendment right is not unlimited. 3. The (total) handgun ban and trigger-lock requirement violate the Second Amendment, as well as the requirement that any lawful firearm be disassembled or bound by a trigger lock making it impossible to use arms for their lawful purpose of self-defense.

REACTION TO THE HELLER DECISION

Understandably, the plaintiffs and counsel were elated, as were Second Amendment enthusiasts. The reaction from D.C. Police Chief Cathy L. Lanier and D.C. Mayor Adrian M. Fenty was quite the opposite. "When a federal appeals court ruled in March 2007, that the Second Amendment protects an individual's right to keep and bear arms, Mayor Fenty told reporters he was "outraged" by the decision." (19) Dick Heller's first attempt at firearm registration after the case was decided was turned away in July of 2008. He thereafter returned the next day and began the registration process. On August 18, 2008, Dick Heller was issued his license to carry in D.C.

THE CHICAGO CASE

Attorney Alan Gura from the Heller case became the lead attorney in McDonald v. Chicago, challenging Chicago's handgun law. Lead plaintiff Otis McDonald and others were Chicago residents that were prohibited from keeping handguns in their homes for self defense by the Chicago City ordinance(s). Threats of violence from drug dealers and other similar issues that surface in high crime neighborhoods were part of the background for the plaintiffs' lawsuit(s). In briefs filed in support of the plaintiffs' case, it was noted that since Chicago's ban on handguns, the City's handgun murder rate had actually increased, and that Chicago had one of the highest murder rates in the country.(20) The issue is "whether the Second Amendment will be held to apply to localities, through incorporation via the Fourteenth Amendment."(21) The District Court had ruled against the plaintiffs (22); the Circuit Court Of Appeals weighed in, affirming the District Court (23); the Supreme Court heard oral argument in the Winter of 2010.

THE SUPREME COURT CASE AND DECISION (24)

The Supreme Court decided 5-4 in favor of plaintiff Otis McDonald. Mr. Justice Alito delivered the opinion of the Court, joined by Chief Justice Roberts and Associate Justices Scalia, Kennedy and Thomas. The concurring Justices split their agreement to the outcome on varied arguments and grounds.

Decision: 5 votes for McDonald, 4 votes against

Legal provision: Rights Of Second Amendment Applied to States and Cities

Full Opinion by Justice Samuel Alito

KEY POINTS MADE BY JUSTICE ALITO

1. The Fourteenth Amendment makes the right to keep and bear arms as set forth in the Second Amendment applicable to the States.

2. The Due Process clause of the Fourteenth Amendment is the vehicle for his finding.

3. The decision in Heller, that individual self defense, being the central component of the Second Amendment, must be applied to the States.

REACTION TO THE MCDONALD DECISION

The initial reaction to the McDonald decision was similar to the reaction to the Heller decision two years earlier: gun rights activists were most pleased, and municipal government officials were fuming. Shortly after the McDonald case was announced, the City Of Chicago enacted one of the most restrictive firearm ordinances in the country, that, although it did not ban licensed firearms outright, made it perfectly clear that the City would (continue to) do everything in its power to discourage individuals from owning and possessing firearms in its City limits.

CONCLUSIONS

1. The Second Amendment has been reset in stone as one of the foundation blocks of United States law.

2. The debate over Gun Control, despite the decisions in Heller and McDonald, continues to rage on, and will likely continue as the implementation of those decisions works its way down to the sometimes mean streets of America.

3. The thin five vote majority of the Court, although triumphant in both the Heller and McDonald cases, is a further indication of how evenly divided the country is, not only in areas of jurisprudence.

Subject: Amendments; Supreme Court decisions; Restrictions; Firearm laws & regulations; Case studies; Social activism

Location: United States--US, Chicago Illinois

Classification: 9190: United States; 4330: Litigation

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 3

Pages: 1-5

Number of pages: 5

Publication year: 2011

Publication date: May/Jun 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: References

ProQuest document ID: 868724586

Document URL: http://search.proquest.com/docview/868724586?accountid=38610

Copyright: Copyright Clute Institute for Academic Research May/Jun 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 24 of 100

Six Sigma For Sustainability In Multinational Organizations

Author: AlSagheer, Abdullah

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Abstract:

The Six Sigma model provides various kinds of sustainability to companies in terms of quality enhancement, zero defect level, market share enhancement, optimal production level and financial returns. Multinational companies are more orientated toward implementation of Six Sigma than small scale locally held companies. Numerous larger companies have so far implemented Six Sigma including 3M, Caterpillar, Merrill Lynch, Bank of America, Amazon.com, DHL, SGL group, Dell, Ford Motor Company, DuPont, McGraw Hill Companies and HSBC group. Implementation of Six Sigma requires considerable cost and effort in terms of human resource training and reformulation of business processes. This study is an attempt to find what kind of sustainability motivates multinational companies to invest in Six Sigma. Sustainability identified includes social sustainability, environmental sustainability, and economic sustainability. With the aid of interviews, a constant comparison study is conducted in order to find the most prevalent type of sustainability offered by Six Sigma. A sample is drawn from multinational companies which have already implemented Six Sigma in their operations. The findings suggest that multinational companies implement Six Sigma in order to attain economic sustainability through various means such as market share, customer base, and social sustainability. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

The world is witnessing a reformed shape of business, an approach more focused on quality and customer care. The traditional concept of supplier orientation has shifted to customer orientation and traditional meaning of quality has also changed. Quality management, total quality management, zero defect level, lean management, continuous improvement and Six Sigma have evolved over the period of time to meet quality requirements of customers. Each having a slighter different and updated focus of quality, Sk Sigma is the most advance approach. Six Sigma is a quality management initiative that takes the methodological approach based on data attempting to eliminate the defects to minimize standard deviation to desired level of quality (Six Sigma, 2010). The study is focused to find sustainability that Sk Sigma brings in multinationals. Small businesses, due to their small scale and low organized processes confront difficulties while implementing six sigma processes. Present study finds the sustainability that sk sigma provides to larger multinational organizations in terms of society, environment and financial return.

Background Of Study

Initiated by Motorola, Sk Sigma has largely been adopted by number of multinational, larger scale companies. A few to mentioned includes 3M, Merrill Lynch, Bank of America, Amazon.com, DHL, SGL group, Dell, Ford Motor company, DuPont, McGraw Hill Companies, HSBC group, United States Army and many others (Gupta, 2005). It is pertinent to notice that mostly multinational and larger companies have adopted Sk Sigma (Wiele, Iwaarden and Power, 2010). Literature and actual implementation of Six Sigma largely reflects the fact that multinational companies are more inclined towards adoption of Sk Sigma as it produces multifaceted sustainability. Core reasons of this adoption is that multinational afford higher cost of training, higher technical expertise requirement and more advance processes (Gupta, 2005).

Statement Of The Research Problem

Multinational organizations adopts six sigma as it offer them sustainability and diversity however, it is important to learn what type of sustainability does six sigma provide to the companies. The core research question to be addressed is what kind of sustainability is largely provided by Six Sigma in multinational companies. The core question is supported by several secondary questions such as is it in terms of financial success, corporate social responsibility, market share or business's repute for best practices? Does the core objective of Six Sigma is to bring financial success? How companies define sustainability and what do they want to achieve through Six Sigma?

Purpose And Significance Of The Study

The study is aimed to drill down into concept of sustainability provided by Six Sigma. It is important to learn how quality management and advanced quality approaches are helping companies to improve their performance and efficiency. The study is a guideline for companies that have not ventured for Six Sigma. Many multinational companies such as IBM, Microsoft and Royal Dutch Shell are using their customized quality approach (Schwandt and Marquardt, 2000). The study will ardently provide a basis of comparison between Six Sigma companies and customized quality approaches for nature research. Moreover, it is significant from Six Sigma companies view point by looking into possible sustainability that Six Sigma can add to their businesses.

Review Of The Literature

A wide variety of literature is present which draws on Six Sigma, sustainability and sustainability brought by Six Sigma in multinational companies in different perspectives. Six Sigma has a history of twenty four years and theorists have widely discussed its different aspects. The literature initially defines how Six Sigma works for multinational companies and what the term sustainability ideally reflects. In later part, the literature reviews the sustainability actually brought by Six Sigma in companies and the core aim of adopting Six Sigma in different companies.

Six Sigma For Quality Management

Six Sigma is highly effective implementation of proven quality principles and techniques. The approach works for virtually error free business performance. In Six Sigma, the company's performance is measured by the sigma level of businesses process (Pyzdek and Keller, 2009). An approach focused on establishing world class performance bench marks provides road map for attaining zero error level. Apparently Six Sigma is associated with the enhancing quality of good and services, nevertheless, it brings efficiency and effectiveness in processes throughout the organization (Truscott, 2003).

Six Sigma approach marvelously improves quality as it objectively looks into quality measurement. Henderson and Evans (2000) McCarty and Fisher (2007) stated that Six Sigma make measurement possible through its multi dimensional statistical model. The model is primarily focused on three aspects i-e sigma statistics, sigma measure and performance benchmark however no element specifically identifies the level of sustainability (Truscott, 2009). Turscott (2009) further exemplifies the Six Sigma implementation by looking at following daily life examples:

Six Sigma works on principles of continuous improvement; Coronado and Antony (2002) resembles the Six Sigma as a loop which begins with defining the goals of improvement activity i-e benchmarking of quality services and leads to measuring of existing system. In Six Sigma, measuring the existing system is often termed as gap analysis (Antony, 2006). The next component of Six Sigma loop works with identifying the ways to remove the gap and improving the present system (Thareja, 2006). If Six Sigma loop stops at continuous improvement, it will more likely consider as total quality management (Khan, 2003).

Sustainability

The other core element of Six Sigma implementation is the sustainability which it brings to the organization. Generally understanding sustainability, sustainability is best defined by world commission on environment and development (1987) stating that sustainable development is development that meets the need of present without compromising the ability of future generation to meet their own needs. Flicker (1998) defined sustainability as vision of future that provides a road map while focusing on certain set of ethical and moral values which may guide the actions of an entity. Looking sustainability in details, it mainly focuses on three aspects i-e economic growth, social progress and environmental protection (Munier, 2006).

Sustainability involves people, capital resources, natural resources, environment and institution. Fricker (1998) further added that sustainability is not merely an end result of processes rather it continuous seeking of quality behavior. An organization is said to be sustainable if its people are willing to bring a change and embrace the change ultimately leading toward sustainable organizational design (Shrivastava and Director, 1995).

In an organizational perspective particularly, sustainability refers to the value addition from Six Sigma. The dimension of sustainability includes variation elimination, control on new processes, statistical controls, reduced complexity, precision, accuracy and effectiveness in business process (Giardina, 2006). An addition in traditional Six Sigma is lean Six Sigma which primarily focuses on improved process flow (Reiling, 2008). Due to difference of focus, the perspective for sustainability also varies. In Six Sigma, the sustainability refers to utmost standardization with zero defects whereas lean Six Sigma emphasize sustainability as identification of value, defining value stream, determining flow, defining pull and improving process in every business function such as marketing, finance and management (Taghizadegan, 2006).

Sustainability Achieved Through Six Sigma

Multinational companies have adopted Sk Sigma for variety of purposes however, the core goal was to attain financial sustainability through improved processes and better work flow (Poudlove, Moxham and Boaden, 2008) however, the financial success is achieved through multidimensional quality improvements (Mahadevan, 2010). General Motors reduced its disposal costs by $12 million through kanban system; an integral part of Six Sigma. Similar to this, Robins Air Force Base, C-130 paint shop reduced tools material and equipment by 39% and $373,800 in direct operating savings (Giardina, 2006).

3M was among few companies which initiated to adopt Six Sigma. 3M upgraded to lean Six Sigma and its purpose was to attain environmental stability. The company is pioneer in use of lean Six Sigma methods and tools to improve operations and quality. In first step, the company trained its 100,000 employees for Six Sigma in order to attain the operational sustainability. 3M achieved multi facet results such as improvement in energy efficiency from 20% to 27% and reduction in waste index to net sales from 25% to 30%. All these achievements are aimed toward attaining environmental sustainability and operational sustainability. Till 2005, savings from the lean Six Sigma project was amounted to $1 billion which was made possible by reducing pollution, improving workflow, equipment redesign, process ramification and product reformulation (3M Lean Six-Sigma and Sustainability, 2010).

Byrne (2007) also asserts that companies implement Six Sigma to drive the innovation. The first five years of lean Six Sigma helped many companies to improve their results such as attained by Caterpillar. Weber (2004) also quotes Caterpillar as achiever from Six Sigma. In September 2004, Caterpillar was $20 billion Company and Caterpillar was aimed to increase the revenues by $10 billion in first decade of lean Six Sigma implementation. Weber (2004) contrasts with Byrne (2007) in the context that caterpillar wanted to attain the innovation sustainability. According to Weber (2004), caterpillar was focused on achieving financial stability. The company's top management has highlighted that Caterpillar management such as CEO has claimed that Six Sigma was the important contribution toward increase in sales of caterpillar. Six Sigma is also driving the continuous improvement culture in the company and business is gaining efficiency in all respects (Weber, 2004).

Hilton (2008) identifies several companies such as Motorola, General Electric, Dell Computer, Dow Chemicals, Wal-Mart and Honeywell who implemented Six Sigma and attained measurable results. General electric saved $8 billion after implementing Six Sigma in three years and Wall-Marts is looking for savings of $1 billion from lean Six Sigma (Leahy, 2000).

RESEARCH METHODOLOGY

Study Design

Decision to implement of Six Sigma comes from organizational leaders. Since every organization is unique and has its own requirements, therefore company's internal management can determine the potential benefits to be achieved by the Six Sigma (Bertels, Rath & Strong, 2003). Defining objectives for the company and preparing employees to accept change occurred through Six Sigma is responsibility of top management and leaders. According to Pande (2003), Six Sigma lies in the vision of top management and only they can decide what sustainability they want from Six Sigma.

On these grounds, the study seeks direct interaction with top management about sustainability desired from Six Sigma. The survey method provides researcher with an ease of open communication and allows sharing of ideas and thoughts. Surveys are considered best when opinion and ideas of people are important in shaping a conclusion (Groves, Fowler, Couper, Lepkowski and Eleanor, 2009). The study adopted cross section survey method as its core research methodology. In survey, interview tool was used to collect data directly from top management of multinational companies. Cross sectional survey are used to collect information at a single point in time and helps to establish the relationship between two entities (Babbie, 1990). Brief structured interviews were conducted to collect the data from participants.

Participants

Participants were selected using purposive sampling. Purposive sampling provides an opportunity to select participants on a specific criterion which fits to the purpose of study (Teddlie and Tashakkori, 2009). For present study, interviewees were selected on number of criteria such as listed below:

* The participants belong to a multinational company which has already implemented Six Sigma.

* The participant works on multinational on any key managerial position directly associated with decision making. Such participants include chief operating officers, chief executive officers, senior finance managers, chief information manager, information technology head, information technology specialist and senior management.

* Participant has been working in the organization before the Six Sigma was implemented in the company.

Data Collection And Data Analysis

Since it was difficult to visit such participants personally due to geographical constraints, interviews were conducted on telephone where personal visit was not possible. After getting the list of multinational companies who have implemented the Six Sigma, the information tentative participants were collected using official websites and Chamber of Commerce websites. The contact information, permission and appointment for an interview were also obtained via telephone. The interviews could not be recorded as permission was not granted however; notes were taken during the interview and were later converted into text manually. The text was later analyzed using software Weft QDA and patterns were obtained. Constant comparison approach was used to compare the interview transcript and to obtain the patterns. According to Glaser and Strauss (1967), constant comparison approach helps to develop a theory about the phenomenon. The constant comparison is made through development of codes and subsequently, a theory is developed.

The interviews were structured and comprised of 15-20 twenty minute each. In all, forty two participants from different companies were interviewed. The participants includes senior finance managers, chief executive officers, IT managers, chief operating officers and in some cases directors of companies also. The participants companies include Maple Lead Foods, Pakistan International Airlines, Pakistan State Oil, Starwood Hotels and Resorts Worldwide, Deere and Company, Bank of Montreal, McGraw Hill Companies and Vodafone.

Findings And Analysis

Telephonic and face to face interviews were conducted to collect the data from participants. In all forty two participants were interviewed which included executives and managers. The stratification of participants on basis of their designation is provided below:

The interviews were brief and structured (Appendix A). Primarily the interviews were focused to know what type of sustainability motivates the multinational companies to invest in Six Sigma. Using the constant comparison approach, the interviews text was analyzed for patterns. Two level coding was performed using Weft QDA as the purpose was to find which type of sustainability is acquired through Six Sigma. Several codes were found which were emerged. Redundant codes were merged to derive constant flow of information. Primary and secondary research questions are addressed through several themes discussed heere

Core Objective Of Six Sigma

Secondary research questions inquiring core objectives of Six Sigma were addressed through themes such as competition, zero defect level and financial success. As reflected by most of the, Six Sigma is implemented to stay competitive with other companies. Participants concluded that multinational companies needs to build corporate repute which increases their market share and Six Sigma is nowadays used as tool to reflect that company is taking endeavors for improving quality. This at first hands improves the competitive position of the company. Regional Finance Manager of Vodafone asserted that "The impacts of Six Sigma are long term and may be seen afterwards however; the company instantly start attaining repute after implementation of advance quality modeF'. COO of Maple Lead Foods was also of the view that "To remain competitive in market, continuous improvement in every aspect is necessary. Six-Sigma is also aimed to help us in enhancement in our market image in eyes of competitors" Vice President (Finance) of Bank of Montreal endorsed the same by stating "Other larger banks have already implemented similar models which has raised customers ' expectation. We are aimed to attain better market position by implementing an optimal service quality model".

Second prevailing theme for core objectives of Sk Sigma was quality improvement. "Six-Sigma really helps to improve quality, we can see the difference. Processes are now more efficient and speedy" stated by IT manager of Starwood Hotels. CEO of Pakistan International Airlines asserted that "The model has helped to stay efficient and had reduced our effort in day to day activities. We are now more competent for offering quality solutions to our passengers and to our suppliers ". COO of Pakistan State Oil stated the fact "Six Sigma has reduce our effective time to market and we had a desire to attain so from this model implementation ".

Third objective as extracted from most of interviews was the ability of Six Sigma to improve financial position of the company. It is evolved from the interviews that almost all companies are highly profit oriented and Six Sigma is adopted as a tool to attain financial success. Most of the company's executives reflected that Six Sigma is not merely adopted for financial success however, the responses can be considered as attempt to act in socially desirable manner. Executives of large multinational companies may not always admit that their specific endeavor is merely for profits. Reflection about company's high concern toward profits can harm its repute as socially responsible company (Stocké, 2003). CEO of Pakistan State Oil endorsed that" We understand Six-Sigma reduces material wastage and improves supply chain activities. Ultimately, it leads to overall cost reduction ". COO of Maple Leaf Foods also asserted that "Six-Sigma do cost to use however, we expect a positive return in terms of market repute ultimately translated in financial success". Senior Vice President (Finance) of Deere and Company stated, "It is important to look all projects from financial perspective. We considered the cost and benefit analysis of Six Sigma as fundamental step for deciding on the project".

How Companies Understand Sustainability

Secondary question pertaining to sustainability was explained with themes such as financial stability, improvement in quality, optimal productivity, social responsibility, environmental protection and value addition to the company. The most prevalent theme emerged for sustainability is financial success and optimal productivity. As reflected by all participants, the primary meaning of sustainability is financial success and optimal production with minimum defects. Multinational companies consider financial success as the foremost sustainability to be achieved through zero defect level. In opinion of CEO of Pakistan International Airline "A company can only be socially responsible when it is financial sustainable. For me, sustainability is the financial success which enables PIA to be sustainable in other areas too ". IT Manager of McGraw Hill Companies highlighted the fact that "when I think of sustainability, I think of higher financial return earned on investments of shareholders. Finance manger of John Deer and Company however, considered value addition as true sustainability by stating "We are sustainable when our products are able to generate value for our company". Endorsed by director of Starwood Hotels, "We are sustainable when are able to offer highest with the lowest sources, this means Starwood is sustainable in terms of services and in its corporate framework".

The other prevalent theme about sustainability was environmental protection and corporate social responsibility. Director of Deere and Company defined sustainability as "We are sustainable when we are harmless to society and its stakeholders ". IT manager of Bank of Montreal highlighted the same fact "Sustainability is an attempt to be productive for the society and for its members ".

Sustainability Attained Through Six Sigma

The literal meaning of sustainability identified by participants is different from the sustainability desired to be attained through Six Sigma. While analyzing the interviews, the most prevalent theme of sustainability attained through Six Sigma was zero defect level, optimal production and financial success. The primary research questions of study i-e what kind of sustainability is largely provided by Six Sigma in multinational companies. The multinational companies mostly reflected that Six Sigma has helped them in improving production and services ultimately translated into financial success. The primary research question was aimed to find what kind of sustainability has actually been provided by implementing Six Sigma. This has further been identified by secondary research question about core aim of Six Sigma and understanding of sustainability by multinational companies.

"Six Sigma has helped us achieve financial success" identified by CEO of Deere and Company. Further elaborated by CEO of Deere and Company, Six Sigma has helped us in improving human resource functions, customer services and low cost. Ultimately, all these types of sustainability are translated into financial success. "Our employee satisfaction has increases which have helped to reduce material wastage and become process efficient. Reduced employee turnover and reduced manufacturing cost. Due to Six-Sigma implementation has considerably helped out to increase financial viability". Finance Manger of Vodafone highlights the sustainability achieved through implementation of Six Sigma "Vodafone market share has increased as well as its financial returns. Six-Sigma has offered us financial sustainability as well as market sustainability ".

As revealed in the present study, Six Sigma sustainability bears a multifaceted concept for organizations. Sustainability is primarily offered by Six Sigma however, every company takes the Six Sigma from a different perspective. It is not only the perspective which differs, rather the organizations adopts several ways to reach to a single sustainable point which is common in all organizations. Organizations' understanding of sustainability is contrasting with the requirements of Commission on Environment and Development (1987) definition of sustainability. Multinational organizations are working for material sustainability instead of focusing on developing sustainability for creating conductive environment for future changes (Ethier, 1986). Sustainability as defined by Shrivastava and Director (1995) has not been addressed by multinational companies in its fullest. Multinational organizations' core aim to adopt Six Sigma was either to remain competitive with the other companies or to attain zero defect level along with financial sustainability. In addition, the sustainability is taken by multinational companies in terms of effectiveness in business process which are capable enough to be translated into financial success (Giardina, 2006). The concept of Giardina (2006) and Taghizadegan (2006) are closely aligned and both fit to the present understanding of organizational sustainability to be achieved through Six Sigma. Sustainability as identified by organizations holds multiple meaning and multinational organization use Six Sigma to escalate from one sustainability to other such as optimal production to higher market share and ultimately into financial success (Muneir 2006). Actual sustainability as reflected by 3M experience and Robins Air Force Base attained financial sustainability through Six Sigma. 3M saved $1 billion by implementing Six Sigma by the way of product reformulation, process ramification and equipment redesign (Giardina, 2006).

Amalgamating secondary and prime research question about sustainability provided by Six Sigma, it is evident from the study that multinational companies are more concerned with multidimensional sustainability however; the financial sustainability is mostly desired sustainability. Multinational companies are focused on achieving financial stability using different sustainability routes such as value addition, process improvement, human resource process improvement and market sustainability. The financial sustainability is the ultimate goal however, achieved through various type of sustainability.

SUMMARY AND CONCLUSIONS

Six Sigma is a multidimensional approach for improving process efficiency and attaining sustainability. Six Sigma has traditionally been adopted by multinational companies due to several reasons such as higher concern for quality, higher availability to resources and competitive business environment. Initially Six Sigma was introduced by Motorola however; soon it became an advance model for improving quality. Larger companies such as 3M, Deere and Company, Caterpillar, Bank of America and McGraw Hill Companies are already sustainability through Six Sigma. The study has an aim to find what kind of sustainability is being obtained by implementation of Six Sigma. Several theorists have identified several types of sustainability few including process improvement, financial sustainability, market share, value addition, corporate reputation- all broadly covered under social repute, environment protection and economic growth. The study directly interacts with participants and adopts qualitative research methodology to address the subject matter. Under qualitative study, survey design and interview tools are used for making constant comparison analysis of all interviews. With constant comparison, several themes were emerged to address the primary and secondary research question.

Primarily, Six Sigma is multifaceted and holds several aspects variably been considered by multinational companies. Organizations are less concerned with environment protection, moderately concerned with social repute such as competitive position in eyes of competitors and highly concerned with economic growth. The economic growth widely covers financial returns attained through different routes such as increase in market share, economies of scale production, minimum input cost and low employee turnover. Multinational companies' ultimate objective is to increase financial returns by identifying market share increase, customer base enhancement, zero defect level and competition as secondary objectives. For multinational companies, aim and sustainability of Six Sigma varies as most of companies considers Six Sigma as a way to meet competition however, sustainability is associated with financial success. The combination of sustainability and Six Sigma ultimately translated into sustainable financial return which helps the company to increase its market competitiveness.

Implications For Future Research

Six Sigma is not a new issue nevertheless; the issue has mainly been addressed by developed counties. Mostly, the organizations that have implemented Six Sigma belong to developed nations. In few cases, companies of small underdeveloped countries have implemented Six Sigma and have reaped significant benefits from implementation of Six Sigma. The study identifies such companies and reflects on sustainability provided such as financial returns; markets share increase, environmental protection, zero defect level and others. In this way, it is a guide for small companies which have still not implemented Six Sigma considering it as an expensive way to quality. The study provides a guide to companies about the benefits attained through Six Sigma and serve as guidelines for companies who have not yet implemented Six Sigma.

Present study is an initial research on sustainability provided to multinational companies. The study is under limited scope as it collects data from CEOs of only few companies. A large number of companies and their top executives are still untapped to describe several types of sustainability provided. In addition to this, sustainability with respect to industry and type of business can also be identified to customize the Six Sigma for specific businesses. The study is a subject measurement of sustainability generally drawn on all type nevertheless, leaving a significant margin to calculate financial sustainability provided to these companies.

The study is a base for future studies as first step of identification of top most sustainability provided by Six Sigma has been completed. The base study can be utilized for identification and statically measurement of market, financial, environmental and social sustainability provided. In addition, a comparison can be made between multinational and domestic or small vs. larger scale companies for the financial return improvement or customer base enhancement.

Subject: Six Sigma; Market shares; Sustainable development; Multinational corporations; Case studies

Classification: 5320: Quality control; 1540: Pollution control; 9510: Multinational corporations; 9130: Experiment/theoretical treatment

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 3

Pages: 7-15

Number of pages: 9

Publication year: 2011

Publication date: May/Jun 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables References

ProQuest document ID: 868724929

Document URL: http://search.proquest.com/docview/868724929?accountid=38610

Copyright: Copyright Clute Institute for Academic Research May/Jun 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 25 of 100

Global Financial Crisis And Its Impact On Textile Industry In Pakistan

Author: Shaikh, Faiz M; Gopang, Nazir Ahmed; Shafiq, Kamran

ProQuest document link

Abstract:

This research investigates the impact of Global Financial Crisis on textile industry clusters in Pakistan. A cross sectional data were collected from 25 textile industries by using simple random technique and data were analysis by using E-Views software. Structural questionnaire was the basic tool for measures the performance of textile industry in financial recession in Pakistan. It was revealed that the industry is in urgent need of financial and technological investments. It was revealed that Global financial crisis has negative impact on the export of textile industry in Pakistan. The export of textile related products has decreased by 20 percent due to decrease in textile demand. It was further revealed that textile industry facing problems such as electricity and high taxes. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Global Financial Crisis hit many economies of the world including Pakistan. It now appears that the financial crises that have gripped America and Europe and also affect the real economies of tibíese countries like Pakistan. Most experts now believe that America and Europe at this time stand at the threshold of deep recessions. The first signs of these have already begun to appear. In September, Americans lost 160,000 jobs; it is expected that by the end of the year there will be a reduction of one million jobs in the United States. Job losses result in declines in spending. Trade, hi other words, will transmit to many developing countries the shocks of the current financial crisis in the western world. Global financial crisis has negative impact on the rural poverty in Sindh (F.M.Shaikh et, al 2009)

COUNTRY ANALYSIS

Background

The population of Pakistan is approximately 181 million people and it is the sixth most-populous country. Geographically, it is situated hi south Asia with its borders with India in the East and Afghanistan in the West. About 20 % of the population lives below the international poverty line of US$1.25 a day (Economic Survey of Pakistan-2008-09).

Pakistan Export Situation

The main export items of Pakistan are rice, furniture, cotton fiber, textiles, leather etc (Textile Vision 2005, 2000). Exports were targeted at $ 19.0 billion or 6.9% lower than last year. Exports started to face global financial crisis since November 2008 and the contraction of world over demand has exacerbated export contraction. The manufacturing sector contributes to around half of the total exports and textile sector contributes around 46% of the manufacturing sector's contribution. Exports shrank from $16.4 billion to $16.0 billion or a 2.6% decline. In terms of export clusters, Pakistan's economy is mostly concentrated in textile & apparel, leather goods, agricultural products, construction material, logistics, transportation, fruits, row cotton, fish, vegetables and sports good. Out of which Textile & apparel are the biggest and the fastest growing clusters. The challenge for Pakistan is thus to develop other emerging clusters to expand its portfolio.

Business Environment Of Pakistan

Pakistan's national business environment is characterized by abundance of semi-skilled and low wage labor, moderate natural resources, poor infrastructure, high rates of corruption, poor governance, moderate level of university-industry collaboration and low scientific research on the factor side. American Business Council of Pakistan (ABC), a formal association of American Multinationals operating in Pakistan conducts informal business survey annually to assess how their members view investment climate in Pakistan. The survey conducted in July - August, 2002, shows that Pakistan's economy is picking up and the investment environment is improving (sheikh, 2005).

Key Results Of The Survey

* 85% of respondents indicated improvement in Pakistan's overall economic prospects while 73% indicated improvement in Domestic Economy.

* 83% reported increase in their revenues in Rupees while 78% in US $ terms.

* 79% observed that the policies were more consistent than before while 68% felt that the Government was positively impacting business.

* 75% indicated increase in their pre-tax profits.

* 63% indicated improvement in implementation of policies by the Government.

* 51% of the respondents reported that they were planning to expand investment in Pakistan.

Data Collection Methodology

A cross sectional Data were collected from 25 textile industries by using simple random technique and data were analysis by using E- Views software. A structural questionnaire was developed as basic tool of measurement of textile industry in Pakistan.

CLUSTER ANALYSIS

Importance Of The Textile Cluster

The Textiles and Apparels is the backbone of Pakistan's economy. In 2005, textile's contribution to overall GDP was 10% while its share in the exports was at a high of 60%. Moreover, it is the biggest source of employment in the country providing employment to more than 1.3 million people. About 38% of the manufacturing sector employment is in textile sector.

Strengths

Pakistan is the fourth largest producer of cotton (9% world share) and is endowed with fertile lands and extensive irrigation network (USDA 2007; UNU 2007). The Global financial crisis has negative impact in the textile industry specially the cotton made garments. Major strengths are quality, innovation, timely supply, designing.

CONCLUSIONS

Pakistan is the fourth largest producer of cotton and cotton made garments in the world. Pakistan is exporting cotton made garments to the western as well as Asian countries. The export of textile related products has decreased by 20 percent due to decrease in textile demand. It was further revealed that textile industry facing problems of like electricity and issues like high taxes. Keywords: Textile, Clusters, Empirical analysis, Pakistan. Government should focus on the issues related to textile industry to develop this textile sector in Pakistan.

Subject: Textile industry; Exports; Economic crisis; Economic impact; Case studies

Location: Pakistan

Classification: 9179: Asia & the Pacific; 8620: Textile & apparel industries; 1300: International trade & foreign investment; 1110: Economic conditions & forecasts; 9130: Experiment/theoretical treatment

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 3

Pages: 17-21

Number of pages: 5

Publication year: 2011

Publication date: May/Jun 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Diagrams References

ProQuest document ID: 868724939

Document URL: http://search.proquest.com/docview/868724939?accountid=38610

Copyright: Copyright Clute Institute for Academic Research May/Jun 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 26 of 100

Transformational Decision Making: A Corporate Success Story In Purchasing

Author: Galbraith, Diane D; Webb, Fred L

ProQuest document link

Abstract:

The purpose of this case study is to provide a pedagogical teaching tool for undergraduate business students to fully comprehend the importance of the business management functions of planning, organizing, leading and controlling businesses. This case is inspired by events in the history of Rockwell International Corporation. As a major conglomerate struggles to transform itself over a period of eight decades, Rockwell provided a challenging problem for students to solve. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

For decades Rockwell International Corporation was a leader in the aerospace industry and commercial businesses. RockwelPs background encompasses 82 years of many mergers, name changes, and changes in business focus. Since 2001 the operations split resulting in two independent companies sharing the same identity, Rockwell Automation and Rockwell Collins. Thus, Rockwell International Corporation ceased to exist.

This case study chronicles the vigorous undertaking of merging two purchasing management styles: (1) a distinguished defense contractor (2) a leader in commercial businesses. There is often conflict between new commercially oriented attitudes and mature military minded attitudes. At times traditional roles, as well as traditional attitudes require yielding to utilizing people, values and systems to continuously change and improve performance based upon where the greatest value is to be realized.

HISTORY

Rockwell International Corporation has a long history of being one of the United States' true business success stories. In 1888 Willard Frederick Rockwell was born in Boston, MA and in 1978 he died and is buried in Homewood Cemetery, Pittsburgh, PA. Willard Rockwell was trained in engineering, a graduate of Massachusetts Institute of Technology (MIT), and served as a Colonel during World War I. His humble entrepreneurial hard work would begin an 82 year long account of what someday would be defined as a major American manufacturing conglomerate (Soylent, 2011).

In 1915, Willard Rockwell managed the Torbensen Gear and Axle Company, Cleveland, OH. Colonel Rockwell had developed a new bearing system for truck axles and in 1919 purchased Hayes Machine Company, Oshkosh, WI. The firm was renamed Wisconsin Axle. However, in 1921 the recession hit and the company had an oversupply of axles due to a major contract being cancelled. Colonel Rockwell vowed to diversify and never again be at the mercy of one industry, or one customer. In 1928 Wisconsin Axle Company merged with the TimkenDetroit Axle Company.

The Wisconsin Axle Company merged with the Standard Steel Spring Company in 1953, forming the Rockwell Spring and Axle Company. This company was renamed Rockwell-Standard Corporation five years later, after mergers with numerous automotive suppliers in the U.S. and Canada (Rockwell International CorporationCompany History, 2010).

Colpnel Rockwell 's entrepreneurial efforts had evolved into being a leading maker of automotive components. During these years he also acquired the Pittsburgh Equitable Meter and Manufacturing Company and renamed it Rockwell Manufacturing Company.

In 1967 Pittsburgh, PA based Rockwell-Standard Corporation purchased and merged with a major U.S. defense contractor Los Angeles, CA based North American Aviation. The company had earned a distinguished record for product success. In support of President Kennedy's challenge to land a man on the moon by 1970, North American Aviation built the Apollo space capsule. During testing the Apollo space capsule was destroyed resulting from a flash fire killing three astronauts. North American Aviation suffered financial losses that threatened it with bankruptcy or a prime candidate for a takeover. When Rockwell-Standard purchased North American Aviation the company was four times the size of Rockwell-Standard Corporation. The new company was named North American Rockwell Corporation (Rockwell International Corporation-Company History, 2010).

Rockwell Manufacturing Company and North American Rockwell Corporation merged in 1973, to become Rockwell International Corporation with their corporate headquarters in Pittsburgh. Robert Anderson became Chairman and Chief Executive officer in 1979 and was widely known for his strong leadership in the aerospace and defense and commercial businesses (News Release, 2010). In the same year Donald R. Beali became President and Chief Operating Officer and a valued compliment to Anderson' s management style. Don Beali has been described by associates as a tough, but fair visionary leader with an acute memory for details and a quick mind (Miller, 1996).

Under Andersen's and Beall's leadership Rockwell progressed in the aerospace business by becoming the major contractor for the Space Shuttle, the BlB bomber and various aerospace components, defense electronics, Peacekeeper missiles and the Navstar Global Positioning System satellites.

In the commercial businesses Rockwell acquired the Miehle-Goss-Dexter printing press business, the Alien-Bradley Company, Sprecher and Schuh (a Swiss automation company), Reliance Electric, and expanded their commercial electronics and telecommunications. Combined with the existing Automotive and Truck business, the Valve and Meter business Rockwell International Corporation grew to approximately $12 billion in sales with assets over $8 billion. During the 1980s RockwelFs workforce exceeded 100,000 employees, organized into seven major divisions and the corporation was #27 on the Fortune 500 list (Miller, 1996).

THE PROBLEM

Rockwell International Corporation was an extremely diversified Corporation creating complex management challenges. Now they are faced with the process of transitioning from being two separate companies to merging the defense focused organization and the commercial business focused organization. Along with the balance between government and commercial businesses, this new change has a profound impact on the daily purchasing operations.

What are the objectives needed to bring about a successful transition while the conflicts inherent in such a significant merger are beyond measure? The corporate staff purchasing function is now located in Pittsburgh and consist mainly of line managers from the former North American Aviation, which was located in Los Angeles. The culture of North American Aviation was driven by the military defense contracting systems of tight controls based upon the government's Defense Acquisition Regulations System (DARS).

The corporate staff purchasing function in Rockwell became one of the major bottle-necks for the operating divisions. Divisional purchasing directors from both the government and commercial businesses were constantly expressing concerns about the time delays for corporate purchasing staff to approve divisional purchasing decisions. The corporate purchasing staff was over-whelmed by the daily quantity of divisional request for approvals.

The corporate purchasing policy and procedure book was in excess of 600 pages. The procedure book was based upon the North American Aviation's government DARS requirements and a corporate Pittsburgh's staff delegation of authority that provided little leeway for decisions by the operating divisions. The operating divisions were developing "work-a-round" procedures to expedite the purchasing functions. These management challenges were recognized and were slowly being dealt with to bring about the balance between the corporate purchasing staff and the diverse divisional purchasing management responsibilities (McCarty, 1983).

To address some of these management issues, Rockwell conducted a management search to hire an individual with the skills, ability and experience to develop the purchasing function at the corporate office. The corporate Vice President of Purchasing was J. B. Sayer, a respected former North American Aviation executive well versed in the government DARS policies and procedures. However, Mr. Sayer had announced his intentions to retire and at a time when Rockwell was emerging as a major diversified conglomerate in both government and commercial businesses.

The executive search resulted in the hiring of Bruce L. Hoover, an executive with the General Motors Corporation, Detroit, MI. Mr. Hoover was an experienced operations line and staff manager both in the domestic and international arenas. He was an Alfred P. Sloan Scholar and graduate of the Sloan School of Management at Massachusetts Institute of Technology (MIT). Rockwell appointed him corporate Vice President of Materials Management having staff responsibilities for procurement, logistics, and material control and planning.

A strategic management study was conducted of the corporate staff and the divisions. All of the corporate purchasing policies and procedures were reviewed. A plan was required to address the needs of the operating divisions respecting the needs of government contracting, commercial businesses and the roles of the corporate purchasing staff and operating divisions.

A philosophical evolution towards a more "entrepreneurial leadership" not only for purchasing, but for the total concept of materials management was needed at the corporate purchasing staff and the division operating levels. Most U.S. corporations were placing a focus upon materials management, not just the purchasing function. This was necessary because Rockwell's businesses were mature for the most part with good personnel.

The first step was to take a fresh look at the role of the corporate purchasing staff organization. What were they doing and why? The divisional purchasing organizations were required to send all purchase orders in excess of $1,000 to corporate office for approval regardless of the type of purchase. Rockwell's total purchases amounted to over $3 billion per year and forecasted to reach over $5 billion per year.

The amount of paperwork generated and number of signatures required just to fulfill this procedure was beyond the scope of the corporate purchasing staff. Purchases generally averaged about 44% of sales. To avoid this requirement and to meet the lead time needs divisional purchasing staff was issuing purchase orders for less than $1,000. These actions created increased paperwork and lead time delays at a tremendous cost (McCarty, 1983).

The principal objective of the purchasing function is to procure required goods and services in a manner that will: (1) contribute substantially to divisional and corporate earnings (2) perpetuate its reputation for honest, fair and ethical dealings throughout industry. Purchasing obligations extend beyond the regular responsibilities to secure adequate supplies of the proper quality, quantity, at the right place and time. This is accomplished by purchasing value: quality, quantity, reliability, and service commensurate with cost (McCarty, 1983).

RESULTS

The new corporate materials management staff for Rockwell was an improved approach given Rockwell's current growth status. The corporate materials management staff focused upon a more loosely structured approach of advising and suggesting with fewer tightly established procedures. The role of corporate materials management staff became one of making recommendations, a more advisory approach with the line or divisional personnel and not being directly involved in making decisions concerning the day to day operations of the divisions (Greenberg, 2011). This provided the divisions with opportunities to be creative and more entrepreneurial in conducting their daily materials management activities. Following are a few of the benefits, occurring in the first year, as a result of this realignment:

* A corporate wide team of materials management personnel was established to coordinate common material purchases obtaining volume discounts for all divisions resulting cost reduction of $10 million.

* A corporate wide logistics study resulted in eliminating the Rockwell private interstate tracking fleet. By sub-contracting with local tracking firms under the new deregulated interstate tracking laws, the corporation cost reduction amounted to $22 million. An additional cost reduction of $6.3 million resulted from competitive bidding of divisional transportation activities.

* Commercial divisions established international procurements resulting in $353.4 million in worldwide expenditures for cost reductions of $25 million.

* An additional $13 million in cost reductions from miscellaneous procurement activities.

* Strategic guidelines were established for commercial divisional manufacture or purchase decisions. This policy was designed to insure that capital expenditures were being utilized efficiently.

* A Director of Government Contracts position was established in the Rockwell Los Angeles office to insure proper controls, quality and lead time management for government contracts. This was beneficial in providing effective and efficient performance in completing the BlB bomber program under budget and ahead of schedule for the U.S. Air Force.

* The realignment of materials management staff and line responsibilities created an opportunity for improving the personnel planning, recruiting and selection of materials management personnel to assist Rockwell in building a better, faster, and more competitive organization. Materials management personnel were recognized for corporate wide promotional opportunities. This exposure resulted in promotions to general management positions for the high performing personnel.

In addition to the benefits listed previously, a materials management advisory council was formed with a goal of identifying key issues affecting the corporation's materials management. How do we improve performance in managing our external manufacturing and our supply base? We want to make our personnel professional managers of external manufacturing. We strive to have managers that offer value-added inputs to our manufacturing divisions, improving the value-added to the end use product and service for our customers.

Likewise, the materials management team must work in synergy with the other business disciplines by being fully engaged in the strategic and operational planning processes. The council works to improve lead times or thru-put management, thus, acquiring the right materials at the right times within the cost budget targets. The BlB program managers, as well as the high technology electronics divisions, implemented the basic concepts of improving lead times resulting in creating shorter and shorter build and buy cycles for over-all productivity improvements (McCarty, 1983).

CONCLUSION

In 1988, Robert Anderson retired and Don Beali became Rockwell's Chairman and Chief Executive Officer. The completion of the Space Shuttle program and the final production of the BlB bomber led to a major decline in Rockwell's revenues. Don Beali was faced with developing a new business strategy, one that would diversify the company and take it in a different direction, away from government contracts (Donlon, 1996).

The end of the cold war and deteriorating economic conditions added emphasis to accelerating the new strategy. Rockwell International Corporation, as a highly diversified conglomerate, did not fall prey to the issues of size and life cycle during its 82 year history. Research indicates that organizations tend to become more bureaucratic as they grow in size and consequently have more difficulty adapting to the changing environments (Schermerhorn, 2002).

Rockwell 's management was historically known for planning strategically being keenly aware of its opportunities, threats, strengths, and areas for improvements. Don Beali emphasized: "We are not a holding company or a conglomerate in the traditional sense. We feel Rockwell works better as an organic whole, rather than a collection of independent companies". Beali goes on to point out that understanding Rockwell's "core competencies" is critical and that the common thread now uniting the company is "technology," a key to the divestitures, or shedding of business segments (Miller, 1996).

Obviously, the end of the cold war and a forecasted decline in defense and aerospace programs provided the threats that needed to be offset by new opportunities to sustain growth, even if the corporation had to become smaller. Consequently, Rockwell's management keeping with basic precepts that the corporation's businesses must be market leaders and have growth potential, embarked upon a "sorting out" resulting in 27 divestitures and 46 acquisitions (Donlon, 1996).

What is Rockwell today? Rockwell International Corporation, a truly American management success story. . .does not exist. . .being replaced by Rockwell Automation and Rockwell Collins.

This case is an excellent model of a real world example of applying business strategy principles that transform distinctly different cultures and businesses into a value-added successful decentralized purchasing function.

DISCUSSION QUESTIONS

Students are to research this company in advance and prepare to discuss in class the basic principles of management that correlates with this Rockwell International Corporation case study. They are to locate three management references on the web and include them in their typed responses to the following questions:

1. Why does the phrase: "Structure follows Strategy" become so important in organizational design?

2. Explain the concepts of centralization and decentralization of business structures. What are the benefits and risks associated with these organizational concepts? Develop examples from the case and explain each.

3. The "Loose-Tight" principle of management is an appropriate focus for doing business. Explain how this principle applies or does not apply to the Rockwell case.

4. List and explain some of the management issues related to a diversified conglomerate corporation like Rockwell International Corporation.

The goal is to engage the students, after their assignment preparations, in quality discussions concerning business organizational trends that are changing the workplace. As a learning experience, students are encouraged to work in teams and brain storm ideas for preparing their individual reports.

Subject: Decision making; Conglomerates; Decentralization; Management styles; Success factors; Case studies

Location: United States--US

Company / organization: Name: Rockwell International Corp; NAICS: 333922, 334210, 336399, 336414

Classification: 9530: Diversified companies; 2200: Managerial skills; 9130: Experiment/theoretical treatment; 9190: United States

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 3

Pages: 23-30

Number of pages: 8

Publication year: 2011

Publication date: May/Jun 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables Diagrams References

ProQuest document ID: 868724943

Document URL: http://search.proquest.com/docview/868724943?accountid=38610

Copyright: Copyright Clute Institute for Academic Research May/Jun 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 27 of 100

Changes In The Development Process Of Mobile Phone Applications Bring Opportunities For Developers And More Options To Consumers

Author: Maceli, Kristen M

ProQuest document link

Abstract:

Consumers are becoming increasingly comfortable with technology. As their knowledge and use of technology has increased, so too have their expectations and roles in the technology environment. New technology brings about new products, and the process of developing new products is ongoing. Research and development, turnaround times, product introduction timing, and development efforts of the competition all influence the process. The race to move new technology to the market as quickly as possible has significantly changed the development process. Individuals now have development opportunities that generally belonged to corporations years ago. As Smartphones become more mainstream, the race to create applications (apps) for the devices has presented entrepreneurial opportunities for companies and individuals alike. Not only is the demand for apps increasing, but the power of apps is also increasing. Apps have the ability to affect consumer demands and, ultimately, impact what is available in the marketplace. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

"Since the development of the Internet, we have witnessed technological advancements at lightning speed, unparalleled to any in our history. And, we are now unable to keep up with these new apps, phones, softwares, etc. Computers are taking over when we cannot quickly digest the newness. . .As of June 30, 2010, there are 1,966,514,816 Internet users worldwide, penetrating 28.7% of the population (6,845,609,960). The growth rate between 2000 and 2010 is 444.8%. In 2014, the Internet will be four times larger than it was in 2009" (Colado, September 2010).

Consumers are becoming increasingly comfortable with technology. As the marketplace for technology based products continues to grow, more than "tech savvy" consumers are considered target markets. Many people not only have mobile phones, but also have Internet access through their handheld devices. Consumers' expectations of technology providers have increased as well.

THE CHANGING RELATIONSHIP OF SERVICE PROVTOERS AND CONSUMERS

According to the International Telecommunicating Union's (ITU) "The World in 2010" report, there was an estimated 5.3 billion mobile cellular subscriptions worldwide at the end of 2010 (Shein, 2010). And, 90% of the world's population has access to mobile networks (Shein). As the cellular market in developed areas reaches near saturation levels, consumer demands will shift from simply wanting coverage and devices, to wanting worldwide converged mobile devices (Smartphones) and new, enticing applications.

Consumers have been gaining power in their relationship with cell phone carriers. This shift comes in part due to increasing familiarity with the industry, and because consumers simply enjoy more choices. Carriers have more competition among themselves, while they are also faced with shorter product life cycles and increasing costs of research and development.

Carriers want to offer the technology that meets consumer demands, and preferably have it quicker and with less investment. Apps offer a way for companies to be competitive and meet consumer needs. The Pew Internet Project conducted a study to determine how quickly consumers are embracing the use of applications on their mobile devices. "Of the 82% of U.S. adults who are now active cell phone users, 43% now have apps on their phones, and more than two-thirds of them use those apps regularly. In other words, 24% of the U.S. adult population actively uses apps, the study estimates" (Indvik, 2010). This is perhaps even more surprising considering that until several years ago, applications were not even available.

"Of the 82% of Americans using mobile devices, nearly one-third of them have downloaded apps, and 13% said they have paid for one or more of those apps. More than half of those who said they had downloaded an app claimed they had done so within the last 30 days, and one-third had in the last week" (Indvik). Consumers who shop for apps seem to do it regularly. This provides significant opportunities for developers, as they can continually be creating apps to meet consumer needs and tap into trends. Of those consumers who downloaded apps in the last month, 60% have downloaded games, 52% downloaded news/weather, 51% downloaded maps/navigation, and 47% social networking. Other categories frequented included, entertainment/food, sports and shopping/retail (Indvik).

Internet shopping has become increasingly popular. Many consumers have Internet capabilities on their mobile phones, and are using their phones for shopping. Mobile shopping peaked during 2010; eBay led the way by becoming the go-to-shopping destination for mobile shopping (BusinessWire, December 2010). "With more than 30 million downloads of eBay' s mobile apps worldwide, eBay is clearly a barometer for mobile shopping trends. We see people buying everything from designer apparel to cars and trucks on their phones regularly, and purchases being made through eBay mobile every second" (BusinessWire, December 2010).

The use of apps to shop presents opportunities for both consumers and developers. Consumers have more information readily available to them. Apps engage them in the purchasing process at times when they normally would not be shopping. Apps can be part of the search and purchase process or may be used to facilitate the entire process. Developers have an opportunity to create an increasing array of potential apps - the breadth of app categories can increase just as can the depth of the categories. Developers can view consumer feedback regarding their apps and either publish updates or design new products. Companies can make sure apps are available that create differential benefits for the consumers, and, ultimately, themselves.

As the use of apps increases, the target market for apps also grows. At year end 2010, mobile app users tended to be younger, male, and more affluent relative to the general population (Indvik). This is not unlike the characteristics of many technology products' target markets in the early stages of introduction and adoption. As consumers become more knowledgeable and comfortable with technology, the demographics and psychographics of these users are expected to change. Simply stated, app users will increasingly be from the general population, as well as the tech-sawy consumers. Just as many consumers adjusted to having mobile phones, they will begin utilizing their phones for informational purposes as well. It is conceivable that consumers will begin to fully utilize and somewhat depend on their mobile phone's apps, just as many now use texting and Internet access on their phones.

DEVELOPING AN APPLICATION

The process of developing applications is changing, and indicates a shift of power. In the past, software companies and mobile carriers invested time and money in the development of new products. When app development first began, individual developers had little opportunity to move their products to market. It often took six to nine months just for the developers to get a meeting with carriers. "Developers had to pitch their app, it had to be accepted, often modified and ported across all handsets, and a business model had to be worked out. In traditional carrier environments, there were no options for pricing outside of a few pre-determined price points. And there was no choice of handsets. It had to span their entire portfolio" (Reedy, 2009).

The development of applications is now different. Anyone can develop an application and place it in an app marketplace. The app stores can then sell the applications to consumers or they can make the applications free and sell advertising that will appear in the apps. In 2010, "Angry Birds" became one of the most popular free apps. Users see a variety of advertisements pop up as they play the game, though they never have to pay to play.

Developers have many options when seeking to move their apps to market. There are two dominant operating systems in the app market place - the Google Android system and the Apple system. Google's Android application market reached about 200,000 available apps by the end of 2010. This benchmark is nearly twice the available apps available just months ago (Rey, 2010). Despite this achievement by Google, the Apple App Store still wins with over 300,000 apps available for download (Rey). Apple could exceed the 500,000 app mark by June of 2011, if every app is approved (Electronista). Apple sees over 25,400 apps submitted per month (Electronista). There are other portals for apps, though they are trailing Android and Apple. BlackBerry App World reached 15,000 titles fall of 2010. Palm App Catalog and Windows Phone Marketplace reached 5,000 by the end of 2010 (Electronista).

Apple apps can only be used on Apple products (iPhones and iPads), while Android apps can operate on a number of manufacturers' systems. Many view Apple as a "closed" system, while Androids are considered "open" because of this ability to be utilized by multiple manufacturers of Smartphones and tablets, and by multiple carriers.

Apple more tightly controls their apps in a way that the Android marketplace does not. Apps submitted to Apple go through an acceptance process before they are made available to consumers. Though this usually takes only a week or two, it is more time than with the Android system. Android apps can be posted immediately. Google can exert control and remove the app if wanted. Generally, removal of apps is done if the developer did not comply with the terms of service. Apple's control is designed to ensure the development of high quality apps (representative of Apple) and manage the user experience (Rey, 2010). But, Android can hurt Apple, and Apple's efforts to save their market share have led to many legal battles.

Developers experience other considerations when deciding on an operating system (see Table 1). Initial investment is an issue. Apple has many requirements necessary to develop for them; Android does not. If a developer does not already have the equipment, it may not be worthwhile to develop for Apple. Anyone with a PC can develop for Android. Android has a slight advantage in that it provides development tools and can be used by many forms.

Apple's marketplace is a bit more user-friendly regarding consumer payment than Android's. Google is working to remedy this; however, this could be an area of consideration to developers since they are sometimes compensated through downloads. Developers are compensated for their products through either Google or Apple. They sign an agreement with the companies regarding the structure of compensation. If the app is free to consumers, revenue is generated through advertising. If the app is not free, a different agreement is signed where the proceeds are split according to a pre-determined amount. Google pays their app developers after they generate revenues. Apple waits until the app has generated enough money that the developers' share is $250, to pay the developer.

The growth of the computer tablet market is expected to influence the availability of apps. Apple was somewhat ahead of the competition with the iPad, which made for an increase in app usage as well. As more tablets become available that utilize the Android system, the need for Android apps will increase (Electronista). It is expected that tablets will be gaining in popularity, and many manufacturers will be making them available. Thus, while Apple captured an early market share lead in the tablet category, the company will face increasing competition in the coming years.

TEACHING THE CASE

This case is designed to look at the methods of taking cell phone applications to market, which presents increasing opportunities for small developers. Most Americans own a cell phone, which makes the market somewhat saturated. Because of this, further development of options for phones is an area that companies can use to increase revenues and product offerings to their customers. Applications are becoming used more widely by more types of consumers.

The development process of products has changed. Small developers can move their applications to market, instead of the industry be dominated by large corporations as in the past. It also looks at how consumer demand and trends control what is available in the marketplace. Many students will be familiar with apps, perhaps very familiar. Most Smartphones come equipped with apps, so it is not new to many students.

It would be interesting to lead classroom discussions regarding:

1. How and why they would choose which operating system (Apple or Android) to take their apps to market if they were developers?

2. What issues need to be considered in the development process?

3. What is their preference as a consumer - Apple or Android - and why?

4. Students' opinions of and use of apps. (What makes them interested in certain apps? How many apps do they download regularly? Are they willing to buy apps, and, if so, why? )

5. Where do the students see the direction of the app market going?

6. What ideas do students have for apps?

The following are questions and answers that students could respond to individually or working in small groups:

QUESTIONS/ANSWERS

Question 1#: How does one go about taking an app idea to market (turning an idea into a product)?

Answer: Student answer will vary, though they should mention that developers must first decide which operating system they are going to make their app available through. If the developer uses the Android operating system, their app can be used with variety of manufacturers' products. If the developer chooses to sell to Apple, then the product can only be used on Apple products. Developers sign an agreement with an operating system and then the app becomes available as agreed upon.

Question #2: What are different considerations regarding control if a developer goes through the Google Android system or tries to sell their product to Apple?

Answer: Answers should contain information found in Table 1, as they are development considerations. Initial investment, time for approval, and development tools available should be discussed. The developer will have less control when they sell their product through Apple, and possibly face greater delays in getting their product out. Their product may have a sense of quality among some consumers since it is an Apple product. Android gives the developer more control, even though Google can pull the app if necessary. Android could provide more creative freedom for the developer, and possibly be quicker to get to market. Trends could be tapped into more easily, especially trends that may not fit with Apple and their corporate identity.

Question #3: What are considerations for consumers regarding use of the Android operating system versus the Apple?

Answer: Students are probably familiar with the Android vs. Apple battle, and many will have personal preferences. Many consumers do not want to be part of a "closed" system, while others believe the Apple system has benefits that outweigh the negative aspects of the system. It is a matter of personal preference. Students should expand on the different systems and the advantages and disadvantages of both.

Question #4: In your opinion, what will motivate consumers to find and download applications? How can developers make their apps appealing to consumers in the future?

Answer: Students answers will vary. They should either discuss price, availability, product features, or product offerings. The apps will have to possess qualities that attract consumers. They need to be timely and show some differential benefit compared to other apps. Developers need to be in touch with trends and the competition.

CONCLUSION

Customer expectations will continue to grow and affect the app market place. Trends can be started, or strengthened through an app, even the lifespan of a product extended. It can be another method to show consumers the value and potential benefits of products and the benefits of the app itself. Consumers will continue to want more apps that make their lives easier. From personal to business purposes, the use and growth of apps appears endless. Companies are facing how to develop meaningful apps that can pay for themselves, and set them apart from the competition.

Subject: Cellular telephones; Product development; Technological change; Internet access; Case studies

Location: United States--US

Company / organization: Name: Apple Inc; NAICS: 334111, 334220, 511210

Classification: 7500: Product planning & development; 8330: Broadcasting & telecommunications industry; 9190: United States; 9130: Experiment/theoretical treatment

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 3

Pages: 31-36

Number of pages: 6

Publication year: 2011

Publication date: May/Jun 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables References

ProQuest document ID: 868724568

Document URL: http://search.proquest.com/docview/868724568?accountid=38610

Copyright: Copyright Clute Institute for Academic Research May/Jun 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 28 of 100

Water and Wastewater Utility Affordability - The Cape Coral Florida Experience

Author: Forrer, Donald A; Ehart, Charles; Forrer, Acie S

ProQuest document link

Abstract:

This study describes the trials and tribulations of a growing city involved in maintaining utility rates at an affordable level while completing a one billion dollar utility expansion. Emphasis is on the political and financial issues faced by management. This research deals exclusively with utility rate issues within the City of Cape Coral Florida during rapid growth and utility expansion. The analysis alludes to issues with affordability when the expansion is stopped, but bonds for a new water plant must be paid. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

The City of Cape Coral Florida provides a unique challenge. Less than fifty (50) years old, the City was truly swamp land in Florida that became a beautiful city with approximately 400 miles of both saltwater and freshwater canals. In fact, there is a book written about the City titled: "The lie that came true." This case study describes the trials and tribulations of a growing city involved in a massive utility expansion program. Emphasis is on financial issues faced by management This research deals exclusively with utility rate issues within the City of Cape Coral Florida.

The original developers platted the City into 10,000 square foot building sites. These sites were marketed world-wide. Although there are limited properties with larger square footage, economic development is difficult due to the problem of accumulating land. Available land is held by a few individuals. For many reasons, the City of cape Coral is a unique case study.

The overall purpose of this research is to analyze the development of a water and wastewater rate study for a publicly operated municipality. According to Gerasimos and Wang (2003), an effective utility rate model must address four issues; 1) revenues must cover costs, 2) price structure should encourage conservation, 3) revenue must be stable, and 4) administrative costs associated with collecting the revenue should be as low as possible. Building a solid model that addresses these four issues will enable governmental agencies to maintain confidence of consumers and provide a service to the public.

As indicated in this research, the purpose of a utility rate study is to allocate costs according to the classification of customers. It is imperative that entities are treated fairly. Commercial property, single-family homes, apartments, condos, use services differently. It is important to ensure that rates are fairly distributed among user classes. A successful rate study provides the municipality with the ability to base charges for services on the true cost to each user classification.

LITERATURE REVIEW - UTILITY RATES EV GENERAL

Rajah and Smith (1993) studied pricing models in Great Britian and suggested that municipalities select from five fiscal models to determine pricing. England utilizes similar variables as those utilized in the United States. Capacity and commodity charges are levied and charges are based on usage in most cases. Rajad and Smith emphasize that efficiency in pricing and administration is an important element when managing water utilities. Their five models include: 1) a license fee where all users pay exactly the same amount, 2) metered charges based on consumption, 3) banded charges based on the number of people in'the household, 4) banded charges based on the type of property, and 5) banded charges based on property value. Research indicates that most successful rate models take variables from all five.

Discrete pricing in the form of block rate schedules are a popular methodology for utility rates. According to Taylor (1975), price is associated with the block where consumption as a marginal price and an average price. Block rate pricing allows municipalities to adjust utility rates for issues such as conservation or poverty.

In 1976, Nordin defined a linear demand function for water which included consideration of consumer income. In this case the difference between the marginal price and the price typically charges becomes a tariff for the community. However, this method is necessary to reduce costs on those who cannot afford to pay. At the same time an inclining block rate for conservation places a burden on those who utilize the most water in an effort to encourage reduce usage. Research indicates that most block models are dependent upon available data and can be biased or inconsistent (Deller, Chicoine, & Ramamurthy, 1986). Their research suggests, although not conclusively, that instrumentation introduced by Judge, etal, in 1986. This methodology provides a proxy for troublesome variables and reduces inconsistency in the data. Two specific instruments are suggested to remove data error bias in the 1986 study. Regardless of the demand model selected, care must be taken to remove bias due to inaccurate data.

Rate models are complex and there is no true cookie cutter model that fits all situations. To accomplish the four issues listed there are many considerations including conservation incentives, number of meters, size of meters, commercial and residential customers, administrative considerations, age of facilities, capital improvements, etc. Many of these issues include trade-offs for political or economic reasons. Building the most efficient and cost effective system is the municipalities goal, but strategic planning for future use must also be considered. A true decision support rate model will provide managers with options for each element of the model and support the mission of the organization.

A successful rate model must meet requirements of the political, financial, environmental, and strategic plan for the,,municipality it supports. It is extremely important that the governing body is aware of all cost associated with the operation and maintenance of the utility. Additionally, it is important that charges are appropriate and ratepayers, not general tax payers, cover all costs associated with the utility. According to Gerasimos and Wang (2003), the following goal development process must address;

1 . Revenue Generation: the utility must cover its costs and by law can only exceed costs by a limited amount.

2. Cost Allocation: the structure for allocation of costs of uses and users.

3. Incentive Provision: the extent to which the utility will try to influence the behaviors of users through the rate structure.

4. Revenue Stability: the predictability and stability of the revenue flow.

5. Administrative Costs: the tradeoff between low administrative costs and a more complex rate structure.

6. Transparency: the pricing model must be understandable and provide a clear price signal.

7. Reliability: the system provides enough capacity for peak usage and expansion.

8. Affordability: the pricing model must be fair and equitable to all users and consider the extent of cross subsidies.

Rate studies are more than just a planning or finance document that aids in the decision making process. Among considerations include whether rates are distributed fairly among residential and commercial customers. It is important that accurate data is provided by the entity being evaluated and care must be taken to ensure that all expenses to the utility are truly related to the utility function as charged. Dialogue among organization leaders and the rate study team are an important issue in the planning process. A completed rate study serves as a planning methodology for future capital improvements and utility expansion.

A key tool in utility rate structuring is benchmarking with other agencies using similar utilities and a comparable customer base. However, it must be noted that all utilities are different in some respect and the model must ensure that each community's utilities are self-sufficient and meets the needs of the community. Additionally, many rate structures are structured differently based on the community's strategic plan or basic needs. Base rates and volume rates are structured differently in many communities and meter size varies from system to system. Additionally, the age of the system plays a key role in pricing.

A utility rate study is a road map for a designated period of time that helps planners make decisions for capital expansion, addition of new utilities, services provided to the community, and other key elements of the long term strategic plan. Rate studies are accomplished when necessary, but at a minimum when rate increases are anticipated. Additionally, a successful rate model can serve as a tool for what-if analysis by planners. In this instance, a capital improvement projection can be measured to determine impact on rates thus aiding the decision making process. Several questions must be answered prior to beginning a rate analysis. These include:

1 . What will happen to the customer base over the term of the rate study? Will it increase or decrease? Is there anything projected that will change the customer base?

2. Will costs escalate over the rate study term? Are increases or decreases in labor, materials, services, or benefits anticipated?

3. Will staffing levels or organizational structure change over the rate period? What is the anticipated level of growth for the organization?

4. What staff outside of the utility department support water and sewer through a percentage of their jobs? What percentage and can it be justified?

5. What contribution will need to be made to utility reserves? What is necessary for emergencies?

6. What capital improvements are planned over the rate period?

7. What capital replacements are projected?

8. What debt service is associated with water and sewer? Are any bonds planned for the future or included in capital expansion or improvement?

It is important to remember that the main goal of a rate study is to ensure the utility is completely selfsufficient. Bond sales can be supported by utility rates, but it is important to note that each utility, water or wastewater, should be able to stand on its own. To dip into general funds to pay utility expenses would add an unfair element as non-users would be forced to pay for a service not rendered. The water and wastewater fund should balance at the end of each year.

Utility Rates - Cape Coral Florida

A consultant hired by Cape Coral to audit the City's Utilities Department identified perhaps the most difficult challenge facing City administrators (Raftelis Environmental Consulting Group, Inc., 1995). Establishing a shared community vision has been made difficult owing to the numerous interest groups in the City. Groups include homeowners and other residents; developers; owners of undeveloped residential, commercial, and resort properties; citizen groups, and multigenerational citizens. Each of these groups has its own financial, social, business, health, and security requirements. These differing requirements often translate into differing objectives, such that City leadership must be responsive to a diverse set of public needs.

As with most municipalities, utility rates in Cape Coral are a concern to citizens. The following few pages attempt to outline a few of the issues faced by a growing city. In 1995, data became a major issue as a much needed rate increase was voted down by Council due to numerous questions, many brought forward by citizens.

It is important to discuss this issue from a historical perspective. In 1988, Boyle Engineering Corporation, under contract with the City, developed a utility master plan, titled "Water Independence for Cape Coral," (WICC Plan). The highlight of this plan was the initiative to utilize reclaimed wastewater effluent, in combination with canal withdrawals, for irrigation and other non-potable uses. By providing an irrigation distribution system, the City reduced the demand on the aquifer thereby preserving and prolonging its life.

In 1991, the City of Cape Coral hired an engineering firm to conduct a utility rate update for the City water and wastewater utility system. The purpose of this paper is not to critique the report submitted by the engineering firm of Camp, Dresser, and McKee. No one can argue against the fact that the report was professionally prepared. Rather, the focus of this paper is on the forecasting of future revenues used as a basis for the study. Four issues contributed to the forecasting model used in the study producing inaccurate projections: (1) the City was installing 14 square miles of sewer system that was completed behind schedule; (2) the City was installing an irrigation system to homes. These accounts were added at a slower than anticipated pace; (3) the growth rate for the City was anticipated to continue at the 8% level experienced in the 1980s. In fact the rate dropped to approximately 3%; and (4) the data provided by the City for water and sewer accounts were inaccurate.

According to the 1991 rate study based on account data provided by the City, water accounts were predicted to reach 28,979 and wastewater accounts 23,088 in 1992. The City reported that actual water accounts for 1992 reached 37,098 while wastewater accounts rose to 23,705. The study predicted that the City would make $15,470,594 during that first year. Actual revenues were only $15,406,209. The difference of $96,708 for that first year was insignificant. However, the larger question is how revenues could be short at all when actual accounts appeared to exceed predicted accounts by such a significant margin.

The problem worsened in the second year as the real impact of a faulty forecast was realized. Projections for that year called for 35,327 water accounts and 25,009 wastewater accounts. City statistics for 1993 revealed that actual water accounts reached 38,315 while sewer accounts rose to 23,342. Projected revenues for 1993, based on the rate study were $19,147,161. Actual utility revenues were $15,406,209, representing a difference of $3,740,952. Again, actual accounts appeared to exceed predicted accounts and, given the wide range of error in estimating revenues, there was substantial reason to doubt the ability of the forecasting study to accurately estimate utility revenues.

In 1994, City staff determined that the account data utilized in the 1991 study were flawed and corrected the account totals for future use. As evidence of how far the data were off, the 1991 study had predicted that the City would have 37,044 water accounts and 39,933 wastewater accounts in 1994. Using the 1994 adjusted data, the prediction was for 28,891 water accounts and 17,344 wastewater accounts. The actual figures for 1994 were 28,152 water accounts and 16,203 wastewater accounts. The inflated rate study projected $24,228,719 in utility revenues for 1994. Actual revenues realized were $14,523,876, almost $10 million below the expected total.

The combination of erroneous data, slower than expected growth rate, slower than projected wastewater construction, and delays in securing irrigation connections created revenue flow problems for the City. Compounding the issue was the fact that City planners budgeted with the projected figures. In 1994, the City of Cape Coral allotted almost $1.6 million more than actual revenues. The 1991 rate study, in its executive summary indicated that, "from projections of revenues and expenses at existing rates, the water system appears to be selfsufficient only through Fiscal Year 1992 in terms of meeting its operating revenue needs from the standpoint of debt coverage." As later facts became known, this turned out to be a true statement. The efficiency and effectiveness of the rate study were handicapped by the data used and thus by the forecasting model developed. Clearly, results from the 1991 rate study were flawed, leading to significant underestimating of revenues for City water, wastewater, and irrigation programs.

Growth in government means changes in processes and structure. While Cape Coral accomplished this strategically with forward thinking innovations such as a $21 million Water Reclamation Plant, a $125 million Gravity Sewer Project, and a $100 million Dual Water System, the City's data collection system was not as responsive. In 1991, as the rate study was being conducted, the City realized that its computer system would be the key to a cost-effective solution to problems already identified with information processing, data collection and full integration of systems. A proposal was presented to the City Council to replace the WANG VSlOO with an IBM AS400 and a fully integrated database provided by Harward Technical Enterprises (HTE). The Wang VSlOO utilized a flat file database that required COBOL programmers to customize reports for management. It was adequate throughout the early history of Cape Coral, but not so for maintaining data for an enlarged city with a proactive strategic plan. The AS400 and the HTE software were chosen in 1992, but the implementation process extended into 1994.

The City's first Business Manager was hired in January 1994. At that time, the utility module was not converted from the WANG system to the HTE system. A new utility rate study was commissioned in early 1994, but not completed until December of that year. Once completed, the new rate study was rejected by the City Council after many sessions of heated public debate. The discrepancies noted between the 1991 rate study and current data in 1994 proved to be confusing to citizen groups and City Council members. Basically, conversion of the WANG system to HTE highlighted data problems that contributed to inaccurate forecasting during the previous study. The Business Manager assumed responsibility for data conversion. It was apparent at an early stage that the HTE system was an outstanding system that would accomplish everything that the City needed in the area of data storage, management, and security. However, the HTE system was only as good as the data provided by the City and the previous system. Therefore, the first element of conversion became an analysis of data and processes. Through this process, several areas of concern developed.

Additionally, there were few processes in place that involved users in the storage and manipulation of data. This resulted in responsibility for data being maintained at a centralized level with few measurements in place for data accuracy. Additionally, property changes were the responsibility of Lee County. The County utilized a good system for joining and dividing property. However, once the action was accomplished, the County transferred the changes on a weekly basis to the City for inclusion in their database. There was no process in place for the data to be entered in the City's database; therefore, each week the data held by the City of Cape Coral were deteriorating.

Also, there was no accounts receivable database available for a water assessment. Citizens paid as they were connected and the results were logged, but not maintained so that they could be queried or analyzed. Several accounts, totaling approximately $65,000 were not billed for their annual payment. In 1993, some 24 months later, the properties involved were assessed liens by the City but still not billed. In 1994, the accounts were billed by the incoming Business Manager. However, due to the liens not being placed until 1993, several properties had new owners. This caused a huge customer service problem. Additionally, the absence of a database resulted in several homes being missed and not connecting as legally required by City ordinance.

Finally, water and wastewater accounts and housing units were tracked by a report from the WANG system. Though this report was difficult to read, the 1991 report relied primarily on this historical data for its forecasting model. This customer data obtained from internal records proved to be the Achilles heel of the rate study. Data retrieved from historical files indicated that over time, City staff had erroneously transposed units and accounts. Each dwelling is considered a unit, while only the metered accounts are measurable for revenue purposes. The reporting system used by City staff consisted of reports from various internal forms that were consolidated in the Customer Service department on a written monthly report.

Compounding the issue was the fact that these reports to management were simply compiled on the monthly reporting sheet and then filed. Without the benefit of a spreadsheet, it was easy for management to miss the transposition of erroneous data. This caused customer complaints and data that were virtually useless for planning purposes. Since the reports were filed and not followed on a spreadsheet, the significant difference in the number of units was not discovered until the City converted to the new computer system in 1994.

The 1991 rate study predicted that the City would experience a 20% reduction in water consumption due to the implementation of Water Independence for Cape Coral, the earlier report commissioned in 1988. This projection was built into the model, but did not compensate for erroneous data provided by the City. In 1994, the City Business Manager analyzed six months of water usage for the first 10,500 customers receiving the dual water system. This review determined that in a six-month window, 9,500 users having irrigation in 1994 and no irrigation in 1992 consumed 203 million fewer gallons of potable water. With a City average of 207 million gallons per month, this constitutes two full months of water and wastewater revenues with only 33% of the potential users connected. While this variable was considered, its effects on new irrigation revenues were considered to be minimal. Further analysis of accounts in preparation for the 1994 rate study revealed inaccuracies in approximately 8,000 water accounts and 5,000 wastewater accounts.

In 1991, the City was structured for a centralized information system division that allowed no ownership of data by the individual departments. As stated earlier, the MIS Manager and two programmers managed the WANG system. This was a system of centralization by necessity. The COBOL programming required to provide reports was complicated and cumbersome. While department managers controlled input through account entry at the various service counters, very little control over or responsibility for data was provided to department managers. Therefore, many of the data entry requirements fell on the MIS division. Managers requiring reports would request the necessary data through the programmer and wait on results. Due to the complexity of the COBOL programming, managers had to assume that the programmer understood the requirements.

Responsibility for data and processes was placed at the lowest level rather than with senior management. The engineering firm was provided data by a divisional supervisor based on reports provided by the MIS division. Measurement and accuracy checks were not in place at higher levels of the organization.

The rate study conducted in 1994 was ultimately rejected in the face of problems realized with the earlier study. In addition to inaccuracies identified in the data provided for the 1991 study, citizens blamed City officials for delays in ongoing projects and voted the 1994 study down. The City began to explore the various reasons given for the study's rejection and in early 1995, realized that implementing a new computer system was not the complete answer to data accuracy. A new City Department, the Office for Business Management and Information (OBMI), was formed from the existing Business Office and the MIS Division of General Services. This allowed the processes of revenue collection to be integrated with the implementation of the new computer system.

Understanding that the problems with the rejected 1994 rate study were not due to the methodology utilized by the engineering firm, but due to the data provided by the City, managers embarked on several changes to strengthen future rate models. First, the City fast tracked the conversion to the HTE system. The City's implementation of the utility module of the HTE system was delayed during the initial phase due to implementation concerns. Data provided to the engineering firm were from the WANG system that was running simultaneously during conversion. Conversion of revenue data was given new emphasis and authority under the responsibility of OBMI. The City created the Office for Business Management and Information (OBMI) by combining offices of Utility Customer Service, Assessment Billing, Lot Mowing Billing, Stormwater Billing, and the MIS Division of General Services. With the exception of MIS, all of these offices were divisions of the Utilities Department. The City's creation of OBMI allowed for centralization of the data process engineering.

Further, the Accounts Reconciliation Project was developed by the Business Manager as a task force to analyze data and assign responsibility. This project was established to assign responsibility for data. Each process was fiowcharted by teams of individuals that were involved with the collection, processing, storage, and analysis of data. Once complete, responsibility and accountability measures were implemented to ensure accurate data throughout each City department. The Raftilis Study (1995-1996) was commissioned to analyze utility operations and provide an operational look at City utilities. Finally, a group of volunteer citizens formed an ad-hoc committee to analyze City utility operations. This watchdog group evaluated past City processes to determine if the best interests of the City were considered during each transaction.

The final result of these changes was that forecasting for future utility needs became easier due to improved data. In response to revenues being underestimated, the City eliminated several capital projects that were planned. By reducing current spending levels, the City managed current operations without funding from the 1994 rate study. However, significant amounts of money and man-hours were wasted due to inaccurate data.

Working closely with the Finance Director, the Director of OBMI provided forecasting data for budgeting purposes that proved accurate during FY 1995 and FY 1996. However, because the City had not raised rates in FY 1995 as proposed, the self-sufficiency of City utilities was jeopardized. The Department of Public Works Director wrote in late 1995 that City utility rates should be raised "to make necessary repairs to our collection system and provide a connection which will allow us to divert sewage from the southwest section of town to the Southwest Reclamation Facility (SWWRF) for treatment."

As noted at the beginning of this section, the 1994 utility rate study was not approved by the City Council due to the many questions raised by community activists during the public hearings. The study was not successful due to the many "pitfalls in forecasting." Insufficient and inaccurate data due to inadequate structure and processes made forecasting for an accurate utility rate extremely difficult. The result was obviously a study that did not respond to the needs of City management.

Despite significant problems associated with erroneous data, there were elements of the rate study project that were positive. For example, successful forecasts require that the forecaster show that the project will improve operations in accordance with the needs of management. This project clearly set out to produce accurate estimates of revenues to be collected to facilitate management's budgeting for water, wastewater, and irrigation projects. In addition, forecasters must work carefully with management in order to lead to results that will meet management's goals. To this end, CDM representatives met regularly with City officials and staff to ensure that the project remained on track and that both sides were informed of the project's progress. These discussions were important since City representatives were not experts at forecasting.

A key element in forecasting is the time frame in which data are collected and analyzed in comparison to the time frame for the forecasting. Data used in 1991 were on a short time frame since the City's computer system only held 90 days worth of data. This was an acceptable range since the study was needed relatively soon after it was commissioned. An apparent weakness, however, is the fact that no trend or time series analysis could be conducted on data obtained for such a short time frame. This diminished the ability of the forecaster to anticipate other potential outcomes since a valuable point of reference was lost.

Successful forecasts result when forecasters understand the culture and operational goals of the organization. In retrospect, it seems apparent that this is the point at which things began to go awry. The forecasters did not go so far as to put themselves in management's shoes. The right questions were never asked and vital information was not shared. CDM began analyzing data provided by the City in blind acceptance that the data were accurate.

The City of Cape Coral rebounded from its forecasting failure in 1991. In 1995 the annual report of Cape Coral's water and wastewater system described the City's systems at that time. The City water system included 24 raw water supply wells, 6 miles of raw transmission mains, a reverse osmosis water treatment plant, associated brine disposal system, two storage and repump stations, 540 miles of potable water mains, and 450 miles of irrigation (reuse) mains (Hartman & Associates, Inc., 1995).

At that time, and continuing until today, Cape Coral has one of the largest operating reverse osmosis plants in the country. With a rated capacity of 15 million gallons per day (mgd) of potable water, the system provides Cape Coral with reliable flow of purified drinking water, drawn from the aquifer deep beneath the city. Current consumption is about half of the plant's current capacity, promising that the community's water needs will be met easily for years to come.

In 1995, the City's system for reclaimed water included 400 miles of gravity sewer mains, 6,339 manholes, 170 lift stations, 48 miles of force mains, two water reclamation facilities, and an irrigation system for water reuse and effluent disposal. The irrigation system included 450 miles of water reuse mains, two storage and pump stations located at the water reclamation facilities, and five canal pump stations (Hartman & Associates, Inc., 1995).

To further assure plenty of pure potable water to its businesses and residents, Cape Coral introduced one of America's first, largest, lowest costs, and most successful, residential dual water systems. A separate system reclaims and recycles domestic wastewater, adds water from fresh-water canals, and distributes the water exclusively for irrigation and fire fighting.

In 1996, City Council and staff recognized the need to update the WTCC Plan, as sound engineering judgments for the future needed to be based on current data rather than assumptions made the previous decade. To this end, the City engaged Dames & Moore to update the existing WICC Plan. Their scope of work involved three distinct phases: Initial Planning, Engineering Planning and Update of the Master Plan. This effort was completed in October/November 1998.

The initial planning phase consisted of a tremendous data collection effort to establish existing utility, financial and local conditions. All pertinent information was collected, catalogued, stored and managed in a GIS database. The key products of this phase were the development of hydraulic models for the potable water, waste water and secondary systems. Field calibration of these models was also accomplished to ensure that predicted modeled values were closely correlated with actual outcomes.

The engineering planning phase of the project involved the development of the next utilities expansion areas. To do this, Dames & Moore, together with a team from the City, distilled and refined a set of engineering planning criteria against which non-served units of the City would be evaluated. The criteria included: projected density, land value, rate of growth, proximity to existing utilities, groundwater protection, surface water effects, economic development, land use conformance, existing utility availability, and planned capital improvements.

All areas of the City were evaluated against these criteria resulting in the identification of units which appeared to merit expansion. Given these interim results, a financial feasibility review was applied to further narrow the candidate units for new utilities. The outcome derived from this process pretty much validated the Council's initial assessment of what the next expansion areas should be. That is, the Pine Island Corridor, an area in the northeast (Purple area as designated on the City planning map), and the rapidly developing Southwest area.

This master plan phase of the project will provide the utilities "road map" to the future. The initial look at the future will be at 2002, then 2005, 2010, 2020 and build out. At build out, the population of the City is projected to be approximately 400,000 people. Sizing of utility lines at build out has been determined as well as at 2020. With the results of the Utilities Master Plan Update, the City's utilities expansion will be planned to be efficient and orderly thereby assuring the continued growth and stability of Cape Coral.

Due to the public hearing process, the City of Cape Coral learned a valuable lesson about accurate forecasting. The 1991 rate study produced a false target resulting in overspending by City government and the need for a utility hike in 1994. Inaccurate data and the inability to explain the deficiencies, led to mistrust of government staff and the voting down of the 1994 rate study. During the public hearings, citizens were blaming everything from expensive supplies to government corruption as the problem. Laubach (1995) wrote an article titled "City Utilities Losing $200,000 a Month" in which a quote from then Public Service Director places the blame for the losses with the predictions made for the 1991 utility rate study and delays in the wastewater project. The debate over utility rates resulted in demands by City Council members for audits of the entire system. City Council voted to delay any rate increase until a determination of cause could be established.

Based on citizen opposition, rate increases requested and needed in 1995 were not approved until much later. As noted throughout the historical analysis of rates at the time, the City spent to the 1991 projections and now in a financial bind without requested rates. In fact, as noted earlier, rumors circulated indicating that the City was losing $200,000 per month and the question was ask during a February 27, 1995 public hearing. The following is a quote from a report by contractor Camp Dresser and McKee, Inc. sent to the Utility Director on May 22, 1995.

"Current revenue is approximately $200,000 less a month than the City's projected expenditures for fiscal year 1994/1995. The 1994 rates were not sufficient to cover operating costs in 1994 and 1995 due to the following factors: the number of customer accounts was overstated due to a programming error; the growth rate projected by the City in the 1991 Rate Study was not realized; the debt service increased for the southwest plant and transmission system due to higher interest rates; and water consumption was less than anticipated due to the use of reuse water. Projections and assumptions are estimates arising from historical usage and available data. "(CDM memorandum, May 22, 1995)

To this point, this case centers on water and wastewater utilities. Irrigation in Cape Coral is, and has been leading edge technology but not without controversy. The chart below demonstrates how the 1994 rate proposal suggested raising irrigation rates for the first time. Citizens were promised $5 per month for life for a residential home when the system was approved in 1988. While City Council should not have promised something this hard to deliver, citizens expected compliance. This rate study represented the first time a raise was suggested, thus adding to opposition. At this writing the irrigation rate is $9.50 per month for residential irrigation water regardless of usage. A bargain, but not $5 for life as promised.

As noted, utility rates have continued to be a concern for citizens. Fast forward to 2009 and the City is involved in a new controversy; a huge increase in utility rates due to a stoppage in utility expansion and the need to pay for new facilities. On May 19, 2009, Cape Coral's City Council passed resolution 13-09. As noted in the charts below, this resolution raised utility rates significantly to pay for expansion of facilities and debt service largely associated with delayed new utility service areas.

In a March 23, 2009 memorandum to the Mayor and City Council, the Finance Director explained that the 2006 rate adjustment program was based on projected hookups from completion of the Utilities Expansion Program (UEP). In May 2008, City staff presented an analysis stating that the City is in danger of not meeting requirements for its bond covenants for the fiscal year 2008 due to issues facing the UEP. Bond covenants require that the City collect enough from water and sewer to cover debt service by a minimum of 1.0 times. To ensure compliance, City staff managed revenues to ensure that bond covenants would be met. Staff feels confident that bond covenants will be met in 2009, but 2010 and beyond were in jeopardy. To combat this possibility, staff contracted Burton and Associates to update the May 2008 utility rate study and provide scenarios for City Council to consider that would assure successful bond covenant coverage (Finance Director Memorandum, March 23, 2009).

In the March 23, 2009 memorandum, the Finance Director indicated that the economic slowdown caused a downturn in projected utility hookups. Additionally, recent City Council action halting the UEP created pressure on the financial system. Staff recommended that utility rates be adjusted to reflect revised connection estimates. This memorandum proposed several scenarios to be considered by City Council. Rates, according to the memorandum, are based a series of assumptions. Issues such as future projections, capital improvement program, operating expenses, capital expansion fees, and debt issues are dependent upon market conditions. Recent market adjustments dictate that the City review and change its rate plan to meet future obligations. The following scenarios were submitted to City Council.

The Finance Director presented three scenarios (Memo, March 23, 2009) for City Council to consider in an effort to ensure that the City would meet debt obligations in 2010. According to the memorandum, doing nothing would result in several negative actions including failure to meet bond covenants and reduced funds to meet operations and capital obligations. Scenario 1, listed below required no further action in the UEP and increased rates the most for citizens currently on the system.

Under this scenario, rates increase 30% in the first year and progressively increase over a five year period to 104% from the 2009 level. Scenario 2, shown below, allows for water to be extended to utility area North 1 to 8 and provides an 18% increase in 2010. This scenario provides for a 62% increase over a five year period.

Under scenario 3, the UEP would continue with all services to utility are SW 6/7 and water only to utility area North 1 -8. The results, listed below, raise rates 18% in 2010 and have a five year cumulative effect of 53%.

On May 19, 2009, under City Resolution 13-09, City Council adopted scenario number 1. This scenario requires current rate payers to pay for facilities and debt incurred for UEP projects. This was not accepted very well by the public.

The City of Cape Coral utilizes a utility rate study, commonly completed by an outside consultant, to identify utility rate requirements. Utility Rate studies for water and sewer are commonly utilized by cities and counties to determine the appropriate rate to be charged for services. These rate studies are demand models that consider numerous variables that consider various influences to determine an optimal pricing strategy. This study examines the elements of a utility rate model that are used to create an economic, environmental, and equity balance for governmental agencies trying to serve the public and maintain a fair price for services. This research will include publicly operated water and wastewater considerations as we analyze the elements of a rate model.

Determining utility rates is an important element in the decision making process for government agencies. To that end, a good rate model is easily completed and monitored by the staff of the organizations they support. However, usually due to overall costs or civic mistrust in government, rate models are often completed by consultants to justify any proposed rate increase. It is not unusual for municipalities to hire short-term expertise to complete projects where permanently the hiring the human resources cannot be justified. In reality, there are many pitfalls to rate modeling and statistics can be manipulated to meet the needs of the analyst. This research will also explore some grey areas in rate modeling.

The ability to forecast future growth and consumption is another critical element of a rate model that is often minimized or overlooked. As noted earlier, in 1995, a rate study by the City of Cape Coral Florida was rejected by City Council after opposition from citizens. The problem stemmed from erroneous data in a 1991 rate study that enabled revenues to be approximately $10 million or 40 percent, below projections by the time a followup study was contracted (Anderson and Forrer, 2001).

CONCLUSION

This research is a base document to support future research in the area of water and wastewater utility pricing. The paper attempts to identify elements of the demand function and pricing methodology that affects utility pricing. While it is virtually impossible to cover every model and variable in a short paper, this research identifies the basic elements of a utility rate study. Future research will explore individual pricing and demand models in an attempt to develop an optimal water and wastewater pricing model.

The main pricing variable is the block structure utilized by many municipalities when determining utility charges. Shinn (1985) indicated that consumers are not really sure whether they are looking at marginal costs or average prices. Municipalities use increasing or decreasing block pricing dependent upon the political and environmental issues they must address. Consumer perception of financial models may be based on biased information. It is extremely difficult for a consumer to read his/her meter and follow consumption on a monthly basis. Therefore, consumers may not completely understand the price of the utility.

It is imperative that municipalities build a rate model that addresses variables important to the community they serve. Due to the vast environmental differences, there are no "one size fits all" rate models. Rate models must be carefully craned and communicated to consumers in term they understand. Cape Coral is no exception.

Subject: Municipal bonds; Water utilities; Utility rates; Cost allocation; Case studies

Location: United States--US, Florida

Classification: 9190: United States; 8340: Electric, water & gas utilities; 9130: Experiment/theoretical treatment

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 3

Pages: 37-48

Number of pages: 12

Publication year: 2011

Publication date: May/Jun 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables References

ProQuest document ID: 868724587

Document URL: http://search.proquest.com/docview/868724587?accountid=38610

Copyright: Copyright Clute Institute for Academic Research May/Jun 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 29 of 100

A Fuzzy Topsis Approach For Logistics Center Location Selection

Author: Erkayman, Burak; Gundogar, Emin; Akkaya, Gökay; Ipek, Mümtaz

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Abstract:

It is clearly known that urban freight transportation has a significant role on sustainable development of urban areas. The persistent growth of the costs of freight transportation and as a result of congestion, environmental pollution and increasing inefficient usage of land in urban areas are forcing users and public authorities to develop alternative logistic solutions to relieve the freight traffic problem. Establishing logistics centers is one of these alternative solutions. Logistics centers are specific centers that various logistic based activities like distribution, storage, transportation, consolidation, handling, customs clearance, imports, exports, transit processes, infrastructural services, insurance, banking and similar commercial activities are performed. These centers are defined for national and international all logistic and related operations. Logistic centers must be settled near production and commercial centers, highways, railways, airports and if possible seaports. In this study we proposed a fuzzy TOPSIS approach to a logistics center location selection problem in eastern anatolia region of Turkey. [PUBLICATION ABSTRACT]

Full text:

1. INTRODUCTION

Logistics has been defined as, 'the process of strategically managing the movement and storage of materials, parts and finished inventory from suppliers, through the firm and on to customers'. Freight transport accounts, on average, for only around 40% of a company's total logistics costs. Roughly 1.75 million people worked in 'logistics and related roles' in 2003-2004. Logistics also plays a vital role in maintaining economic prosperity and social well-being [1].

Urban logistics has been defined as those movement of goods that are affected by particularities associated to urban traffic and morphology [16]. Increasing road freight vehicle number and their impacts in urban areas and cities have received more attention in recent years. Freight and passenger transportation in urban areas result several problems like social, economic, environmental and etc. Road freight vehicles operating in an urban environment generally emit a greater proportion of certain pollutants per kilometre travelled than other motor vehicles such as cars and motorcycles. This is due to their higher fuel consumption per unit of distance travelled and the fact that many of them use diesel as a fuel [2]. The growing flows of freight have been a fundamental component of contemporary changes in economic systems at the global, regional and local scales. The consideration of these changes must be made within a perspective where they are not merely quantitative, but structural and operational [3]. Some significant reasons of how important freight transportation are [2];

* It is fundamental to sustaining our existing life style.

* The role it plays in servicing and retaining industrial and trading activities which are essential major wealth generating activities.

* The contribution that an efficient freight sector makes to the competitiveness of industry in the region concerned.

* The effect of freight transport and logistics costs on the cost of commodities consumed in that region.

* The total cost of freight transport and logistics is significant and has a direct bearing on the efficiency of the economy.

* The environmental effect of urban freight movements (in terms of energy use and environmental impacts such as pollution, noise, visual intrusion etc.).

Rapid growth in transport is defacing cities by environmental pollution, road crashes traffic congestion, environmental emissions, due to consumption of fossil fuels. Environmental problems caused from transport could be reduced through an efficient transport system and well planned logistics centers.

Congestion and inefficient use of lands are other negative impacts of disordered urban transport. Additionally for sustainable development of the urban areas the well organization of logistics activities has a great importance.

One of the main objectives of the sustainable long term transport development program is to develop a framework for an optimal integration of different modes of transport in the regional logistics centers so as to enable efficient and cost-effective use of the transport system through seamless, customer-oriented door-to-door services, favouring competition among transport operators [4].

City logistics planning and logistics center design must be done through an interdiscipliner approach and a frame model must be built. City logistics problems can be defined as follows [5]:

Traffic congestion, environmental pollution, visual intrusion, noise pollution, air pollution, wastage of energy, separated settlement of corporations related to logistics, unweildiness of foreign trade and public formalities, additional area requirement of the ports, intermodal/multimodal terminal necessity, qualified sectoral labor force, fiind necessity and economical scale, high logistics costs.

In this paper, we proposed a fuzzy decision making approach to select the best location for logistics center in northeast of Turkey according to a variety of criteria.

2. LOGISTIC CENTERS

2.1 Definition Of Logistics Centers

A logistics center is a defined area within which all activities relating to transport, logistics and the distribution of goods, both for national and international transit, are carried out by various operators. These operators can either be owners or tenants of buildings and facilities (warehouses, break-bulk centers, storage areas, offices, car parks, etc...) which have been built there [7].

Nowadays, a logistics center is perceived as an 'integrator' of various transport modes, able to promote intermodal transport. A Logistics center is mainly an intermodal terminal, which is the principal component of the intermodal transport chain, constituting the node where the transshipment of goods from one mode to the other takes place. There is a consensus in definitions that intermodal transport constitutes a transport process in which at least two of the following conditions are fulfilled [6].

* Two or more different transport modes (lorry, train, barge, ship, plane) are deployed.

* The goods remain in one and the same transport load unit for the entire journey.

Also, in order to comply with free competition rules, a logistics center must allow access to all companies involved in the activities set out above. A logistics center must also be equipped with all the public facilities to carry out the above mentioned operations. If possible, it should also include public services for the staff and equipment of the users. In order to encourage intermodal transport for the handling of goods, a logistics center must preferably be served by a multiplicity of transport modes (road, rail, deep sea, inland waterway, air). Finally, it is imperative that a logistics center be run by a single body, either public or private [7].

The location of the logistics centers is a key element in enhancing the efficiency of urban freight transport systems and initializing relative supply chain activities sufficiently; thus, the location of a intermodal freight logistics center should be selected carefully; otherwise it may cause irreversible consequences hi the city planning and also it may create bottlenecks that lead to rapid increase in cost in providing transport solutions. All influencing factors for the determination of a location should be considered and well planned. Hence, public authorities should consider the importance of this topic by any given decision in terms of strong economical, social and environmental implications before announcing an area as a logistics center [4].

3. FUZZY TOPSIS METHOD

The TOPSIS [8] is widely used for tackling ranking problems in real situations. Despite its popularity and simplicity hi concept, this method is often criticized for its inability to adequately handle the inherent uncertainty and imprecision associated with the mapping of the decision-maker's perception to crisp values. In the traditional formulation of the TOPSIS, personal judgments are represented with crisp values. However, in many practical cases the human preference model is uncertain and decision-makers might be reluctant or unable to assign crisp values to the comparison judgments [9]. Having to use crisp values is one of the problematic points in the crisp evaluation process. One reason is that decision-makers usually feel more confident to give interval judgments rather than expressing their judgments in the form of single numeric values. As some criteria are difficult to measure by crisp values, they are usually neglected during the evaluation. Another reason is mathematical models that are based on crisp value. These methods can not deal with decision-makers' ambiguities, uncertainties and vagueness which cannot be handled by crisp values[10]. The use of fuzzy set theory [11] allows the decision-makers to incorporate unquantifiable information, incomplete information, non-obtainable information and partially ignorant facts into decision model [12].

TFNs appear to be a valid tool, offering a well balanced compromise between computational costs and accuracy in the final ranking [13].

The steps of Fuzzy TOPSIS are as follows [14], [15]:

4. ILLUSTRATIVE EXAMPLE

For illustrative example three centers (Erzurum, Diyarbakir and Malatya) are selected from the northeast region of Turkey. Evaluation criteria and sub-criteria used on logistics center location selection problem are taken from [5]. Four expert groups studied on the selection problem indicated as El, E2, E3, E4. The hierarchical model including main criteria is illustrated in Figure 1.

5. CONCLUSIONS

Increasing traffic level and its effects on urban areas cause social, environmental and economic problems. To overcome these problems an efficient transportation policy must be developed. For productive transportation and sustainable development, building logistics centers may provide efficient solutions to relief congestion, reduce pollution and dicrease logistic costs. Making the decision of where the logistics center must be located is fairly important and crucial for countries.

Many different traditional and novel techniques for layout or location problems proposed in the literature like AHP, TOPSIS, linear programming, integer programming, heuristic methods and etc. In this study we defined the logistics center location selection problem as MCDM problem, and proposed a fuzzy approach to solve. Decision making problems with subject to subjective evaluations must to be considered in fuzzy environment. In general the necessary data for MCDM problems are imprecise and uncertain. Solving problems through fuzzy techniques eliminates the limitation of crisp values. The importance of the model is the vagueness of the subjective decision making is taken into account by using fuzzy techniques in fuzzy environment. More dependable, more sensitive and more flexible results can be obtained through fuzzy approaches.

Subject: Fuzzy logic; Logistics; Freight forwarding; Urban areas; Sustainable development; Case studies

Classification: 8350: Transportation & travel industry; 1540: Pollution control; 9130: Experiment/theoretical treatment

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 3

Pages: 49-54

Number of pages: 6

Publication year: 2011

Publication date: May/Jun 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Equations Diagrams Tables References

ProQuest document ID: 868724941

Document URL: http://search.proquest.com/docview/868724941?accountid=38610

Copyright: Copyright Clute Institute for Academic Research May/Jun 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 30 of 100

Micro Enterprises In Inner-City Communities: Current Challenges And Viability

Author: Sen, Arup K

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Abstract:

Supporting micro enterprises within inner-city communities is a viable strategy to promote economic development, combat poverty, and alleviate social costs. Some authors suggest that micro entrepreneurship is essential to maintain a healthy economy within low-income communities. This paper is aimed at highlighting the profile and functioning of micro enterprises in inner-city Buffalo, New York with regards to aspects such as size, financial and non-financial assistance, goals and barriers experienced by micro entrepreneurs. Data from an exploratory survey of 100 micro enterprises suggest that micro entrepreneurs encounter several problems that impact negatively on their profitability and viability. The data also suggests that these entrepreneurs are constrained not only by financial factors but also non-controllable factors such as the economy of the city, availability of reliable labor, and insurance requirements. This paper concludes with a brief discussion of the implications of the survey findings for developing strategies to address issues facing micro enterprises in inner-city communities [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Micro enterprises play a significant role in the economic growth of most communities and economies in developed and developing nations. Micro enterprises have also tended to be a strategy in inner-city communities of both developed and developing economies to promote economic development and also to alleviate poverty and social costs such as food stamps and welfare. These enterprises also assist in developing inner-city neighborhoods by creating jobs and a return on investment for the entrepreneurs (Schreiner, 2001).

A micro enterprise business is a small business with usually five or fewer employees that require less than $35,000 to start and is too small to qualify for services offered typically by major commercial financial institutions. Typically, these enterprises are informally run businesses involved primarily in retail and service activities. Most of these enterprises have tended to be looked at from a development or poverty alleviation perspective rather than as entrepreneurial activities and potentially growing businesses. Micro enterprises may be further segregated into survival micro enterprises, which include low skilled, low cost as compared to entrepreneurial micro enterprises, which occupies skilled labor, technical knowledge, and greater use of capital. (Shaw, 2004)

While sufficient evidence and analyses of micro financing, development, and training programs exist, there is a paucity of research that examines the financial and non-financial challenges of the inner-city micro enterprise owners. While studies have been conducted that identify micro enterprise programs this paper explores the barriers experienced by these entrepreneurs in terms of their potential for long-term business success and determine owner's level of financial dependence and success factors. There is a lack of systematic information available to determine how these micro enterprises got established, how they perform, what their financial and non-financial requirements are, and what their current challenges are like in the inner-city community of Buffalo, New York.

Set against this backdrop, the research aims at obtaining more systematic information on the profile of inner-city micro enterprises, financial assistance, barriers facing the establishments and their establishment goals. The paper is organized as follows. The next section provides a research context for this study along with an overview of current theoretical perspectives of micro enterprise activities. Next I describe the survey methodology and the main characteristics of the survey establishments. Following this section, I present the results for the micro enterprise firms surveyed. This paper concludes with a brief discussion of the implications of the survey results for the strategic management of micro businesses.

RESEARCH CONTEXT

Micro enterprises must exhibit a level of entrepreneurial knowledge in order to survive, as few of these enterprises have the knowledge and financial resources to withstand the competitive pressures. Many social scientists suggest that micro-entrepreneurship is critical for the economic development of inner-city communities, and for economic development to be effective, new businesses in low-income communities must be instituted by local initiatives. (Acs and Malecki, 2003; Lichtenstein and Lyons 2001). According to Hisrich and Peters (1998) entrepreneurship is defined as "the process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence" (p9). Porter's work on creating wealth within disadvantaged inner-city communities contends that government should focus on providing infrastructure to support genuinely profitable businesses. Porter's model is not aimed to redistribute wealth but "to identify and exploit the competitive advantage of inner-cities that will translate in truly profitable business" (Porter, 1995:56)

The United States census defines a micro enterprise as a business that operates with five or less employees. In New York State about 85 percent of the businesses are classified as micro businesses, which convert to approximately two million micro enterprises, employing a fifth of the State's labor force and generating almost $60 billion in annual revenues (Deutsch, 2006). These micro entrepreneurs have minimal savings and their success relies on the availability of financing from commercial financial institutions, micro-loans, or grants. However, because of their lack of any significant collateral, high interest rates, and limited access to financial services, results in a deterrent and barrier for the start-up and survival of these enterprises. ( Lichtenstein and Lyons,2001; Jurik et. al., 2006).

Much of the literature on the viability of micro enterprises is either conceptual or anecdotal and has focused primarily on the financing and training programs. (Roger et.al. 2001). The underlying reasons for the disparity in performance of these micro entrepreneurs has resulted because of limited per capita purchasing power and the over representation of these enterprises in a competitive and low profitable type of economic activity such as retail and services ( Suron,1997). For several decades, programs such as the Community Entrepreneurs Program ( CEP) has assisted micro entrepreneurs with strategies to establish and succeed in their business endeavors by providing them with the appropriate education programs, personal empowerment, and asset building (Dumas, 2001). In this study it should be conceded that I am not attempting to contribute to the theoretical discussion of micro enterprises, but instead my focus is empirical, exploratory, and descriptive.

SURVEY METHODOLOGY

It is a major challenge for researchers in obtaining systematic information from micro enterprises because of lack of current contact information. Experience from past research indicates that micro enterprises are reluctant to respond to mail surveys because of time constraints by the owner of the micro business and also in their understanding and interpretation of some of the terminology in the questionnaire. Because of this, a telephone survey was conducted to obtain data and verbally explained the questions with a standard protocol.

Micro enterprises are defined as business with less than 5 employees that require less than $35,000 start-up capital and also too small to receive financial services from a major commercial financial institution. In a preliminary effort to contact the micro-enterprises a telephone survey was conducted with 100 micro business owners located in the inner-city of Buffalo, New York. While the survey data was restricted to only inner-city Buffalo (leaving the analysis rather limited hi terms of geographical scope), some of the results suggest potentially useful directions for additional empirical work at an expanded geographical scale.

In a study by Frey, (1989) the advantages of data gathered by telephone survey far outweigh the disadvantages. Furthermore, the specific advantages of telephone surveys include cost efficient, speed of collecting data, and provide the opportunity of controlling the quality of information gathered. The major disadvantage is the length of interview time because it is difficult to keep an average person on the phone for more than 7-8 minutes. In order to get a high participation rate, the questionnaire was limited to approximately 7-8 minutes.

The sampling frame for the study was developed from the database of the Small Business Development directory of the City of Buffalo, New York. The sample was restricted to the zip codes of 14201, 14202, and 14213 with a total sampling base of 590 micro enterprises. My research budget was limited, in that; I could not afford to sample the entire inner-city of Buffalo.

The survey instrument was pre-tested with a pilot study of 25 firms during September 2009. The results and feedback from the pilot study were used to design the final survey instrument. Telephone interviews were than conducted by professional trained interviewers utilizing the Computer Aided Telephone Interviewing (CATI) system and by computer-assisted random sampling. After three attempts, 68 usable responses were received (yielding an initial response rate of 12%). In order to achieve a higher response rate three more attempts were made to the remaining businesses, yielding another 32 additional completed surveys (giving a final response rate of 17%).

Although response rates of approximately 20% is common in survey research that focuses on business establishments, the 17% response rate was disappointing in light of the potential salience of the study to the target firms. Nevertheless, t-tests comparing early (n=68) versus late respondents (n=32) failed to uncover statistically significant differences between the two groups in terms of critical variables such as start-up finances and levels of financing. This said, I openly concede that a 1 7% response rate is insufficient to offer conclusive findings. Instead, the results should be treated as suggestive only.

The survey instrument included both qualitative and quantitative questions. Quantitative measurement of the variables ranged from ordinal (5 point Likert scale), categorical (yes/no) to interval (percent of funds borrowed). The first section of the survey instrument obtained information on revenue, employment size, business type and ownership. The second section asked about financial and non-financial assistance and barriers facing the establishment while the third section asked about the goals of their establishment.

CHARACTERISTICS OF THE SURVEY ESTABLISHMENTS

Our analysis begins with an overview of the characteristics of the micro enterprises across the four size classes of firms as presented in Tables 1 through 4. As Table 1 indicates, the respondents examined in this survey suggests a balanced percentage between retail and service industry categories of which half report annual sales of less than $100,000. The data in Table 2 indicates that about half the micro enterprises are sole proprietorships or partnerships while the other half are either a C or S corporation.

The sample statistics also indicate that a fourth of the establishments are fairly young (less than 10 years) while half of them have been in operation for more than 20 years, which is a strong indicator of the longevity and sales volume of micro enterprises. Similarly, the distribution of number of employees reveals that approximately two-thirds of the businesses surveyed have one or two employees which increase with increased sales volume. The statistical data from the survey validate some of the similarities of the characteristics of micro enterprises of innercity Buffalo and other inner-cities across the nation.

FESANCIAL CHARACTERISTICS MICRO ENTREPRENEURS

Regarding the issues of financing, there are two primary reasons why a micro enterprise owner requires capital. This first reason is to fund the establishment of the business and then to fund for continued business growth. In order for the start-up of the business only one out of ten micro entrepreneurs prepared a formal business plan. (See Table 5). Almost three-fourths needed a start-up financing of less than $20,000, while the remaining entrepreneurs needed over $20,000 to establish their business. (See Figure 6) The data in Figure 7 indicates that almost half of the micro-owners had to borrow their start-up funds. Given their low levels of income, saving even a small amount of money can be difficult. There are also other factors that do hamper the attempts by the micro enterprise owners to secure financing. Survey findings indicate that majority of the entrepreneurs funded their startup capital requirements from their own personal savings or from other household members. About a third utilized their own savings to finance their business and another third borrowed from friends and family, while only a fourth of them were able to get financing from a commercial financial institution. A third had to borrow more than half of their start-up funds while the remaining borrowed less than a half. Based on the literature (Rutherford, 2000) and the facts it indicates that access to capital is limited for micro enterprise owners for the start-up phase.

Based on these responses the issue arises of the limited use of external capital and whether it is a result of lack of access to external financing resources or the entrepreneur's lack of knowledge on the availability of the public and private financing institutions. A survey conducted by Chandra (2000) indicates that a large majority of the micro entrepreneurs do not use commercial financial institutions because they are limited by lack of access of capital and their poor business conditions. Research results from Haynes et al. (2000) and McPherson (1996) reported that lack of financial assistance is considered to be the main problem facing micro entrepreneurs. In summary, besides commercial financial institutions, the entrepreneur's personal savings and their ability to access financing from friends and family appear to be important source of start-up finance.

BARRffiRS FACING MICRO ENTREPRENEURS

In operating their businesses, the micro entrepreneurs encounter serious barriers that impact negatively on their business and profitability. These barriers range from the economy of the city, insurance requirements, to lack of marketing and financial knowledge. Respondents were asked to indicate the problems facing their establishments. Cross tabulation by size and business type did not indicate any significant difference. The economy of the City of Buffalo, and federal, state and city taxes emerged as the primary barriers facing just more than half the respondents. (See Figure 9) This was followed by the availability of reliable labor, liability, workmen's compensation, and disability insurance.

Additional questions posed to the respondents on security and vandalism and their financial and marketing knowledge also presented a barrier for their business operation. The existence of crime and vandalism not only has a negative impact on profitability but can ultimately jeopardize the survival of inner-city businesses with low profit margins. These findings clearly confirm that the economy of the inner-city community and the taxation polices are critical for the success and survival of micro enterprises.

GOALS OF MICRO ENTREPRENEURS

Majority of the micro entrepreneurs expressed the same feelings regarding their business goals and success factors. The most important goals expressed by these entrepreneurs for the success of their business includes friendly customer service and being financially stable (see Figure 10). The entrepreneurs would like to be able to understand the elements of a financial statement, cash flow, accounts receivables and payables, and inventory management. Also basic marketing knowledge would assist them in maintaining a competitive advantage by product and marketing expansion and communication within their target market area. Lack of marketing and financial knowledge may be a serious impediment for then" business operation and restrict their growth potential.

To this end, development policies and training programs must continually be developed and adapted thereby creating a viable policy framework for assisting micro entrepreneurs accomplish their financial and nonfinancial goals and transforming into institutions to address critical issues facing inner-city communities.

RESEARCH LIMITATIONS

Caution should be taken in generalizing the results of this study because this study is subject to several limitations. The three major limitations are: 1) sample size,2) low response rates, and 3) limited geographic scope.

The first limitation concerns the small sample size used in this study. Data was collected from three zip codes instead of the total micro enterprise population in inner-city Buffalo because of the limited budget. A second weakness of the study is the low response rate of 17 percent. Usually a 20 percent or lower response rate in survey research with small businesses is quite common, but nevertheless the response rate of 17 percent is insufficient to provide conclusive findings and thus the results should be treated as suggestive only. Finally, the sample was selected from three zip codes in the inner - city of Buffalo, New York and thus limited in geographic scope.

CONCLUSIONS

Micro enterprises are considered as an effective policy and strategy to overcome poverty both in developed and developing economies. Furthermore, in communities with low-income, low level educational attainment and high unemployment rates, the creation of micro enterprises and self-employment is viewed as one route out of poverty and reduction of social costs. The Small Business Administration has developed polices which benefit inner-city low-income communities, low educational attainment, high level of unemployment, and a high concentration of minority (Hispanic and African American) population.

For micro-enterprise owners, a major problem is trying to locate funding because of lack of collateral to obtain a loan. Another problem is their lack of knowledge in preparing a business plan, which is an essential document to obtain a loan from a commercial financial institution. The availability of effective financing programs should be considered as an imperative by government institutions. Furthermore, the availability of a wide array of financial and non-financial services are critical for the survival, productivity, and growth of micro enterprises which could lead to economic growth and job creation in inner-city communities.

Increasingly the literature on inner-city development suggests that the development of more micro enterprise led development policies could enable economically disadvantaged inner-city communities to reverse declining conditions by creating jobs and wealth through micro enterprises. Finally, this study has offered an exploratory review of a topic that has attracted significant attention in the recent academic literature on micro enterprise activities and viability in the retail and services sector.

Subject: Entrepreneurs; Case studies; Entrepreneurial finance; Social change; Economic development

Location: United States--US

Classification: 9520: Small business; 1120: Economic policy & planning; 9190: United States; 9130: Experimental/theoretical

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 3

Pages: 55-62

Number of pages: 8

Publication year: 2011

Publication date: May/Jun 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables References

ProQuest document ID: 868724930

Document URL: http://search.proquest.com/docview/868724930?accountid=38610

Copyright: Copyright Clute Institute for Academic Research May/Jun 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 31 of 100

Sustainable Markets: Case Study Of Toyota Motor Sales, U.S.A., Inc.

Author: Manna, Dean R; Marco, Gayle; Khalil, Brittany Lynn; Meier, Sara

ProQuest document link

Abstract:

"The traditional definition of sustainability calls for policies and strategies that meet society's present needs without compromising the ability of future generations to meet their own needs (1)." Sustainability is a concern in private and public sectors all over the world; it is an issue that resonates with people in all age ranges, income levels, and geographic locations. The main idea of sustainability is "reduce, reuse, and recycle." People and organizations alike must consider every possible effect from the decisions they make in regards to the environment. With over 600,000,000 passenger cars on the road in the world, and over 50,000,000 passenger cars built each year, it is imperative that automakers make sustainable decisions (2). It is not just the large number of vehicles in the world that is cause for concern, but the immense amount of resources needed to manufacture, transport, and fuel them. Automakers must consider the impact that each car has during every stage of its life cycle, in addition to their responsibility to society (in terms of the environment, education, and safety) and the impact of their suppliers. This case study is designed to discuss the background of Toyota and highlight the company's current actions in regard to sustainable marketing; a comparison will also be made to the sustainable efforts of Honda and Subaru. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION TO THE HISTORY OF TOYOTA MOTOR SALES, U.S.A.

On October 31, 1957 Toyota Motor Sales, U.S.A. Inc. was established. Their headquarters were established in an old Rambler dealership in Hollywood, California. They began selling cars in 1958, and they sold 288 vehicles that year; 287 Toyopet Crown sedans and one Land Cruiser. Soon it was discovered that the Toyopet, despite its sturdy build and quality features, was underpowered and overpriced for the American market. The Toyopet was discontinued in 1961. The Land Cruiser carried Toyota's sales in the United States until 1965 when the Toyota Corona arrived. The Corona was specifically designed for the American drivers. It had a powerful engine, factory installed air conditioning, and an automatic transmission. The sale of the Corona helped to increase Toyota's sales in America threefold in 1966 to more than 20,000 units.

By July 1967, Toyota had become the third best selling import brand in the United States. The Corolla was introduced in 1968, and like the Corona, was a huge hit with the American drivers. The "Corolla has since become the world's all-time best-selling passenger car, with 27 million sold in more than 140 countries (3). Toyota's onemillionth vehicle was sold in 1972. Toyota then surpassed Volkswagen as America's number one selling import brand by the end of 1975. "Three years later, in 1978, Toyota won the "Import Triple Crown" by leading all import brands in sales of cars, trucks, and total vehicles (4)."

As Toyota celebrated its 25th anniversary in American in 1982, it opened a new national headquarters complex that it still occupies today in Torrance, California. In 1986, it became the first import automaker to sell more than one million vehicles in America in a single year. This year also marked the company's debut as an U.S. manufacturer, with the introduction of the first car Toyota built on American soil. The car was a white Corolla FX16 which was produced on October 7, 1986, at the New United Motor Manufacturing, Inc. plant, a joint venture with General Motors. Since then, Toyota has established many other vehicle and parts plants in North America.

By 2010, Toyota will have the annual capacity to build about 2.2 million cars and trucks and 1.45 million engines in 15 plants across North America, including the States of California, Kentucky, Indiana, West Virginia, Alabama, Tennessee, Texas, Missouri and Mississippi. As Toyota' s presence grew in America, the company sought to gain greater involvement in the community nationwide. So, to commemorate the company's 30* anniversary in America in 1987, Toyota established the Toyota USA Foundation with a $10 million endowment and a mission to make Toyota a leading corporate citizen. In 1989, Toyota established their luxury line with the debut of the Lexus LS 400 and the ES 250. Highly acclaimed cars and exceptional customer service quickly became the trademark of Lexus. In 1991, Lexus earned the title of No. 1 luxury import in the United States, surpassing both Mercedes Benz and BMW. By the end of 2000, following its tag line, "The Relentless Pursuit of Perfection," Lexus edged Mercedes Benz by 423 units to become the top-selling luxury brand in the United States, a position it has held for nine years running. That year, the brand also dominated three independent J. D. Power and Associates quality surveys, being named top nameplate in Customer Satisfaction, Sales Satisfaction and Initial Quality.

Toyota continued its strong growth through the 1990s. A highpoint came in December 1997 when the Toyota Camry first earned the title of No. 1 selling passenger car in America. Toyota also launched its first fullsized pickup, the Tundra, in 1998. Toyota marked the start of the new millennium with the launch of the Prius, the world's first mass-produced gas/electric hybrid car. Prius, which in Latin means "to go before," was revolutionary, featuring an EPA-estimated fuel economy rating of 45-city/51 highway and ultra-clean tailpipe emissions that were 90 percent less in smog-forming gases than conventional cars at the time.

May 2001 marked the incorporation of Toyota Motor Sales de Mexico, Toyota's new sales and marketing subsidiary in Mexico. By the end of the year, Toyota had grown to become the third best selling automotive brand in the United States, surpassing Dodge with best-ever sales of 1,741,254 vehicles. In December of 2002, Toyota delivered its first two zero emission, market ready hydrogen fuel cell vehicles to customers in California for real world testing. The next year, Toyota's new, breakthrough hybrid technology, "Hybrid Synergy Drive" debuted in an all new 2004 Prius.

Toyota's growth in America continued in 2003 when Toyota launched Scion as its third line of vehicles. The Scion line features three modestly priced but feature-rich vehicles brought to market by most Toyota dealers under an innovative, youth-oriented marketing program. Scion was a success and in 2004, Toyota's U.S. sales topped two million vehicles per year for the first time.

In 2005, Toyota continued expanding its environmentally advanced lineup with the introduction of the world's first luxury hybrid, the Lexus RX 40Oh, and a hybrid option for the Toyota Highlander. Toyota added a hybrid option to its popular Camry sedan in 2006 and began building it in the United States at its massive Kentucky plant. The company also opened up its 10th U.S. plant in San Antonio, Texas to build full-size pickups. In addition, the company launched the FJ Cruiser with a design that barkens to the early years of the ragged Land Cruiser, the only vehicle Toyota has continuously sold throughout its entire 50-year history in America. As a Result, sales surged to more than 2.5 million for the first time and Toyota established itself as the third best-selling automotive company in the United States.

During 2007, its 50th year in America, Toyota introduced its largest pickup truck ever, the rugged 2008 Toyota Tundra, as well as the second generation of its iconic Scion xB urban utility vehicle and the world's first V8 hybrid, the Lexus LS 60Oh.

As a result of an economic recession, Toyota's sales were down in 2008, but the Toyotas brand outsold Chevrolet to become the No. 1 selling automotive brand in America and Camry retained its crown as the No. 1 selling car in the nation for the 1 1th time in 12 years. Toyota also passed General Motors in global sales to become the world's largest automaker for the first time in history. In 2009, Toyota is prepared to launch two all-new gas/electric hybrids, the third generation Prius, with an estimated EPA fuel economy rating of 50 miles per gallon in combined driving, and the first, dedicated hybrid from Lexus, the HS 25Oh.

SUSTAINABLE CHANGES

Toyota has been heavily involved in the implementation of sustainability throughout the company. They have made huge improvements in regards to protecting the environment and their consumer, and they are still striving towards higher goals in terms of sustainability.

The following outlines some of the sustainable changes that they have made over the past few years.

SUSTAEVABLE LEADERSHIP CHANGES

In a major move in an attempt to become more sustainable, they initiated a drastic organizational structure change. On June 23, 2006, Toyota Motor Company released the announcement that they were making changes in terms of their board of directors and organizational structure. As a result of the changes, TMC now has one chairman, one vice chairman, 1 president, 8 executive vice presidents, 13 senior managing directors, 1 honorary chairman, 1 senior advisor, 1 member of the board, 7 auditors and 49 managing officers for a total of 82 executives.

Sustainable Organizational Structural Changes

Toyota also made some of the following sustainable changes to its organizational structure:

Domestic Sales Operations Group and Overseas Planning Operations Group

* The Domestic Sales Operations Group and the Overseas Planning Operations Group have been reorganized.

* Sales and planning functions, which were divided by region, i.e., domestic and overseas, have been integrated.

Purpose: As a global business management function of Toyota's global headquarters, to allow close coordination between TMC and various regions, including Japan, and to implement the "most suitable growth strategy from a global perspective" through product, price and supply-and-demand.

Government & Public Affairs Group/General Administration & Human Resources Group

* The transfer of some divisions/departments of the General Administration & Human Resource Group to the Government & Public Affairs Group, have taken place.

Purpose: To optimize the structured organization and distribution of human resources by consolidating the divisions and departments relevant to government & public affairs.

Production Control & Logistics Group

* The name of the Production Control & Logistics Group has changed.

Purpose: To create a name that reflects a strengthened stance toward planning that considers the actual situation of global production activities.

Housing Group (Housing Company)

* The name of the Housing Group (Housing Company) has changed.

Purpose: To reflect the achievement of the original objective to reinforce operational structures through the introduction of the "company" system.

Divisions/Departments not belonging to a group; Asia, Oceania & Middle East Operations Group; China Operations Group

* The transfer of some divisions/departments to relevant groups.

Purpose: To clarify the chain of command and to optimize the structural organization and distribution of human resources.1

SUSTAEVABLE OPERATIONAL CHANGES

Greener Operations (5)

In 2009, Toyota commissioned the MV Auriga Leader, the world's first solar-powered pure car carrier, to exclusively transport Toyota, Lexus and Scion vehicles. The vessel's 328 solar panels provide up to 40 kwH, decreasing demand on the auxiliary engines.

In 2009, Lexus Technical Training Center in Miramar, FL received Gold LEED certification. Between 2001 and 2008 they reduced energy consumption at the North American non-manufacturing faculties by over 26%, exceeding the initial 201 1 target.

The second largest single-roof solar power installation in North America, a 2.3 megawatt solar array system, began operation in 2008 at Toyota's North American Parts Center California (NAPCC) in Ontario, California.

In 2007, Pat Lobb Toyota of McKinney, TX became the first automotive dealership in the nation to receive LEED Certification (Silver). Since then, three additional Toyota dealerships have received LEED Certification with multiple other dealerships in the planning process.

In 2005, the Portland Vehicle Distribution Center received Gold LEED Certification. The site is powered by 100% wind energy and 99% of construction waste was diverted from landfill.

In 2003, Toyota unveiled an expansion of their sales headquarters. The complex was the largest ever to receive a Gold Level Certification from the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) Green Building rating system.

They provide more than 1,750 Toyota, Lexus and Scion dealers in North American with resources to help manage service-related waste streams and comply with regulatory requirements.

Greener Manufacturing (5)

They have reduced their water usage per vehicle by 20% since 2003 and continue efforts to improve water management. Through their aggressive use of waste management and recycling, the North American plants have reduced their landfill waste by 96% or more since 1999.

They are continuing to evaluate materials from renewable resources such as a plastic made from corn and natural fabrics for vehicle interiors. For example, they have introduced soy oil-based polyurethane foam for use in passenger seats in the Corolla and the Lexus RX.

Currently, their End f Life Vehicle (ELV) recycling/recovery rate is over 90% with a goal of 95% ELV recycling/recovery by 2015. The use of metal returnable shipping containers in their parts distribution network has saved over 30 million pounds of wood, 10 million pounds of cardboard and $20 million in packaging costs since the program launched in 2003.

They have extensive programs to reduce the use of substances of concern (SOCs) in vehicles, minimize undesirable emissions from manufacturing operations, and further improve vehicle emission standards.

Sustainable Infrastructure

Since 2007, Toyota has hosted the Meeting of the Minds summit. The summit "is an invitation only leadership summit. It brings together 130+ policy-makers, opinion-shapers and thought-leaders from commercial, non-profit and public sector organizations (6)."

Toyota offers three different major programs that provide teachers with grants and students with scholarships, as well as, sponsoring a number of nonprofit educational organizations. "In 2007, [Toyota Motor Sales, U. S. A., Inc.] contributed $57 million to U.S. philanthropic programs (7)"

Social Work

Toyota places great importance on their social responsibilities to the communities in which they operate, the consumers they serve, and all of their stakeholders. Toyota breaks these social responsibilities into three categories: (1) initiatives toward improving traffic safety, (2) social contribution, and (3) communication with society. These topics are outlined below. Some of the following practices appear to be nothing more than good business practices, but Toyota clearly goes beyond typical good business practices to train the world to become more sustainable.

Initiatives Improving Traffic Safety

Toyota believes that in order for automobiles to keep developing as a means of transportation, the negative effects on the environment must be minimized, along with traffic accidents and traffic congestion.

In August 2006, Toyota announced its Integrated Safety Management Concept, an expression of the direction of Toyota 's technology development. Under this integrated Management, information detected by various sensors, including information on the driver's physical condition, the vehicle's performance, and the traffic environment, is processed by an onboard computer -which activates the active safety system to determine the optimal support at all stages of vehicle operation to give the driver in order to prevent a dangerous situation from occurring (8).

Toyota has developed a "navigation-linked brake assist system" which alerts the driver of upcoming stop signs both visually and aurally. The system is based on two lanes in a few cities in Japan, and they are planning on gradually expanding the coverage.

They have also developed advances in the driver monitoring system. For example, it can monitor the driver's eyelids as well as the direction of the driver's face. It calculates the how open the eyelids are by detecting the upper and lower eyelids. In order to protect pedestrians in

an accident, Toyota has adopted "impact-absorbing structures in the hood, cowl, fenders, and bumpers." These are only a few of the developments Toyota has made in order to make driving safer for their consumers.

Social Contribution

Toyota is striving to be a good corporate citizen and as a result they are involved in various social contribution activities.

Toyota also has a number of environmental initiatives, which include: (1) Anti-desertification Initiative in China, (2) Assistance for Rainforest Restoration in the Philippines, (3) Launching an Initiative to Construct a Model Forest Restoration Program in Japan, (4) The Forest of Toyota, (5) Toyota Environmental Activities Grant Program, and (6) Employees Discuss and Draw Up Fundamental Principles at the Toyota Shirakawa-Go Eco-Institute. Toyota also has a plethora of initiatives for traffic safety, education, support for culture and the arts, and community care.

Toyota maintains the same policies and practices globally as they do in the United States. In Spain, Toyota has supported planting trees along the riverbanks of two large rivers that drain the Iberian Peninsula: the Tajo and Guadiana. In New Zealand, Toyota is working with non-governmental organizations to protect Maui's Dolphin, which is distinctive for its small size and rounded dorsal fin. In Malaysia, they are educating children on road safety in an attempt to eliminate traffic accidents. Road safety is one of the biggest social concerns in Pakistan, with the number of vehicles increasing by 10% per year. So Toyota has developed a fun way to teach road safety to children there. They are providing support for financially disadvantaged children to continue their education in China. In Indonesia, they are supporting the local community by carrying out tree-planting activities. These are just a few of the socially responsible activities that Toyota supports globally.

Communication with Society

Toyota is a part of the World Business Council for Sustainable Development. "Headquartered in Geneva, the World Business Council for Sustainable Development (WBCSD) is a coalition of 200 international companies united by a shared commitment to Sustainable development.... The WBCSD has established four focus areas: 'Energy and Climate,' 'Development,' 'Business Role and Ecosystems,' and makes policy proposals [there under]." Toyota also held the Classic Car Festival at MEGA WEB IN Odaiba, Tokyo. It was held there for the first time in commemorate Toyota's 70th anniversary. Toyota believes that it is important to meet and discuss issues with its wide range of stakeholders, and since 2001 has hosted the Toyota Stakeholder Dialogue every year.

Competitive Comparison

Subaru and Honda are two of Toyota' s biggest competitors, so to better understand Toyota' s actions, it is imperative to compare them to their competitors. The sustainable information from Honda and Subaru will be summarized in this section.

Subaru (9)

Environmental Policy

Subaru of America (SOA), Inc. is a wholly-owned subsidiary of Fuji Heavy Industries Ltd of Japan. Headquartered in Cherry Hill, New Jersey, the company markets and distributes all-wheel drive Subaru vehicles, parts and accessories. SOA understands its responsibility to the global environment, society at large, their customers, their distribution network and their employees. As they conduct their business operations into the future, they commit to establish and maintain an effective environmental management system that extends further than just meeting the stated environmental laws and regulations, and that encompasses the integration of sound environmental practices in all of their business decisions.

Subaru's Environmental Commitments

1. Comply with all environmental laws and regulations and other requirements related to our business activities.

2. Implement effective pollution prevention systems that protect our air, land and water.

3. Conserve natural resources, by reducing, reusing and recycling materials.

4. Continuous improvement of our Environmental Management System (EMS).

5. Create employee awareness and commitment to SOA's Environmental Philosophy and Policy.

6. Work with SOA's business partners to improve their operational impact on the environment.

The Subaru Clean Plant

The Subaru plant was the first auto assembly plant to achieve zero landfill status - nothing from its manufacturing efforts goes into a landfill. It's all reused and recycled. Each year, SIA actively recycles 99.3% of excess/leftover steel, plastic, wood, paper, glass, and other materials. The remaining 0.7% is shipped to the city of Indianapolis and incinerated to help generate steam. In 2006, SIA recycled 11,411 tons of scrap steel, 1,537 tons of cardboard and paper, and 963 tons of wood. That's equal to conserving 31,040 mature trees, 31,572 cubic yards of landfill space, 711,631 gallons of oil, and 10,759,000 gallons of water.

Firsts In The Industry Achieved By The Clean Plant

1. First auto assembly plant in the U.S. to be smoke free.

2. First auto assembly plant hi the U.S . to be ISO 1400 1 Certified.

3. First auto assembly plant in the U.S. with an on-site solvent recovery system that produces dry still bottoms.

4. First U.S. automotive assembly plant to be designated a wildlife habitat. Deer, coyotes, beavers, blue herons, geese, and other animals live there in peaceful coexistence with the Subaru plant. It's our commitment to leave as small a footprint as possible, delivering real-world benefits that everyone can enjoy.

5. Awarded the U.S. EPA's Gold Achievement Award as a top achiever in the agency's WasteWise program to reduce waste and improve recycling.

Vehicles

Subaru offers the most fuel efficient All- Wheel Drive vehicle lineup in America. Since 2003, Subaru has offered Partial Zero Emissions Vehicle (PZEV) certified Legacy, Outback, and Forester models for sale anywhere in the United States. Subaru PZEV vehicles meet California's Super-Ultra-Low-Emission Vehicle exhaust emission standard. Gasoline vehicles meeting PZEV emissions standards can have even lower emissions than hybrid or alternative fuel vehicles. Subaru PZEV vehicles are also U.S. Environmental Protection Agency (EPA) Certified SmartWay Vehicles and are honored in the EPA's Green Vehicle Guide.

Green Suppliers

Subaru also has a list of guidelines that was revised in 2008, which their suppliers must meet. This ensures that even the companies supplying parts to Subaru are environmentally friendly.

Honda (10)

Initiatives and Awards

Hydrogen Home Energy Station" Honda has established an experimental Home Energy Station (HES) that generates hydrogen from natural gas for use in fuel cell vehicles while supplying electricity and hot water to the home. The new HES system that has been jointly developed with strategic fuel cell partner Plug Power is located on the grounds of Honda R&D Americas in Torrance, California, and is intended to demonstrate and evaluate hydrogen productions, storage and fueling as part of ongoing research in hydrogen energy sources. Honda is researching ways to improve the energy efficiency of the hydrogen fuel production process and vehicle efficiency. The new HES system produces enough hydrogen each day to refill the tank of a Honda FCX hydrogen fuel cell electric vehicle, a process that takes just a few minutes. The system consists of the following major processes and components:

1. Reformer to extract hydrogen from natural gas

2. Fuel cell unit to provide electric power that utilizes some of the extracted hydrogen

3. Refiner to purify the hydrogen

4. Compressor for pressurizing the extracted hydrogen

5. High-pressure tank unit to store the hydrogen for refueling

6. Solar panels

Honda Engineering, a Honda subsidiary, developed the solar cell panels included in the HES system. Those next-generation solar cell panels feature a light-absorbing layer formed by a compound made of copper, indium, gallium and selenium (CIGS), which lowers the amount of electricity required for production of solar cells compared to ordinary silicone-crystal type solar cells. Similarly, the new Honda-developed electrolysis unit included in the HES system is a compact unit that achieves higher efficiency generating hydrogen from water by using a new ruthenium-based catalyst. The result of these new Honda technologies is increased efficiency in producing hydrogen from renewable energy.

Green Factories

All major Honda plants worldwide already meet the toughest international environmental management standards (ISO 1400), covering a host of environmental areas, such as waste disposal, water treatment and energy use. Honda's philosophies on the three R's:

Reduce: When it comes to improving operations, Honda listens to the people who know best - their employees. Honda associates have provided many of the recommendations now in place that have helped reduce up to 58 percent of their waste.

Reuse: Raw materials used in Honda's manufacturing process are not just sent to landfills - they are reused in the most efficient ways possible. For example, leftover raw steel from stamping is used for engine and brake components.

Recycle: Recycling improves the bottom line while healing the skyline. Honda has annually received up to $1.2 million in revenue from recycling paper, cardboard and plastic from their facilities. They have also focused on the use of returnable shipping containers and the development of emissions-reducing door - and truck-sealer materials.

Vehicles

Four Honda vehicles have earned recognition from the American Council for an Energy Efficient Economy (ACEEE) as the "greenest vehicles" of 2006. In their 9th annual Green Book: The Environmental Guide to Cars and Truck ranking of environmentally responsible vehicles, two Honda models tied for the top spot on its list of "Greenest Vehicles of 2006: the natural gas-powered Civic GX and the Insight hybrid, Honda Civic and Civic Hybrid were also among the top twelve greenest vehicles of the year. This was the sixth year in a row that a Honda vehicle received the number one ranking in this study, and the fifth consecutive year that Honda vehicles held at least 4 of the top 12 positions.

Additional Awards

1. Insight tops Edmunds.com list of "Top 10 Most Fuel-Efficient Cars for 2005."

2. Honda Insight earns Highest EPA Fuel Economy Rating in 2005.

3. 2006 Accord Hybrid Sedan wins Kiplinger's Best Fuel Economy in the $30,000-$45,000 category.

4. 2006 Insight garners Best Fuel Economy honors from Kiplinger's.

5. 2008 Civic GX is named "America's Greenest Car" by the American Council for an Energy-Efficient Economy (ACEEE).

6. Civic Hybrid is third on the Edmunds.com list of "Top 10 Most Fuel-Efficient Cars for 2006.

7. Civic Hybrid and Fit make the Edmunds.com list of "Top 10 Most Fuel-Efficient Cars for 2007.

SUMMARY

As evidence of Toyota' s efforts over the years, they have attempted to be highly competitive with regard to the sustainability. Toyota focused on improving their competitiveness in the area of leadership, organizational structure and operational changes.

Toyota has published its 13th annual Sustainabilitv Report reviewing its environmental and social activities for 2009. Number one on its list of topics is what Toyota calls "the quality issue." The report addresses both the events of last year and looks to the future by emphasizing the proper disclosure of information about quality-related issues to its dealers and to the public. The report also re-states Toyota's environmental initiatives, such as reducing CO2 emissions, and confirms Toyota's commitment to social issues, including those in emerging countries. Further investigation will be done to see the progress that Toyota has made to remain competitive relative to sustainability (11).

Subject: Sustainable development; Green marketing; Automobile industry; Energy efficiency; Competition; Case studies

Location: United States--US

Company / organization: Name: Toyota Motor Sales USA Inc; NAICS: 336111, 423110, 441110

Classification: 9190: United States; 1540: Pollution control; 7000: Marketing; 8680: Transportation equipment industry; 9130: Experiment/theoretical treatment

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 3

Pages: 63-72

Number of pages: 10

Publication year: 2011

Publication date: May/Jun 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables References

ProQuest document ID: 868724567

Document URL: http://search.proquest.com/docview/868724567?accountid=38610

Copyright: Copyright Clute Institute for Academic Research May/Jun 2011

Last updated: 2013-09-09

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Document 32 of 100

Tour Planning at Cirque du Soleil

Author: Jobin, Marie-Hélène; Talbot, Jean

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Abstract:

Marie-Hélène Jobin and Jean Talbot are the authors of this decision-making case that deals with the planning of logistics projects in the large-scale entertainment industry. The case proposes an in-depth analysis of all aspects relevant to the development of tour plans, with a focus on operational, financial and strategic issues. The starting point of the case is an opportunity for Cirque du Soleil to incorporate a new destination - Istanbul, Turkey - in its tour plan. The Vice-President of Tour Planning and Partnerships must analyze the suitability of this destination and decide on the choice of show, the performance schedule and an eventual agreement with a business partner. [PUB ABSTRACT]

Full text:

- Where?

- Istanbul.

- What show?

- I don't know. We have to talk about it. The promoters behind the proposals suggested names of shows, but I believe that the choice of show is open for discussion.

Louise Murray, Vice-President, Tour Planning and Partnerships at Cirque du Soleil, considered the information given to her by Ines Lenzi, the Director of Partnership Management, before answering: "Let me think about it a little longer. It seems like an interesting project, but we're not very familiar with the region. I'm going to take a close look at the proposals you've given me and we'll talk about it again after the Christmas holidays. By the way, Happy New Year 2009! Ciao!" She hangs up the phone, deep in thought.

Cirque du Soleil regularly receives unsolicited business proposals. But receiving two serious proposals for the same city one right after the other could be seen as a strong sign of potential.

Which show would be the most appropriate? Which partner and which partnership model would allow us to maximize our impact and our profits? There were many aspects to consider before this project could become reality. Louise Murray thought to herself, "What worries me most are the deadlines. It's December 23, 2008. So 2010 may just as well be tomorrow! Is it possible to add a stop in Istanbul5 to our show schedule?"

Indeed, planning is a long, drawn-out process at Cirque du Soleil. "Over the past few years, we have worked hard to improve our planning process. It may not be perfectly tuned yet and we may be missing interesting business opportunities due to an overly structured, long-term planning process, but on the other hand, this structure is what allows us to manage complexity. I'll have to look at all the angles to see if we can optimize the process even more," Louise Murray told herself.

From Street Performers to International Cultural Industry Leaders

Cirque du Soleil began with a very simple dream. A group of young entertainers got together to amuse audiences, see the world, and have fun doing it.

Guy Laliberté, Founder of Cirque du Soleil

Cirque du Soleil's artists have travelled far and wide on the youthful dreams of its founder! And over the years, nearly 80 million spectators on five continents have shared in the dreams of the creators, artists and employees of Cirque du Soleil. The worldwide success of Canada's cultural jewel is attested by the numerous prestigious awards it has received, including Emmys, the Drama Desk Award, the Bambi Award, the ACE, Geminis, the Félix and the Rose d'Or de Montreux. In 2008, the company, which is headquartered in Montreal, presented 18 shows simultaneously throughout the world. We're a far cry from the performers on stilts at the Baie St-Paul1 festival back in the early 1980s, when the idea for Cirque du Soleil was hatched.

In 1984, 73 people worked for Cirque du Soleil. Today, it has close to 4,000 employees, including 1,000 artists hailing from 40 different countries. Guy Laliberté heads up a company that is international in every sense of the term - by its composition, its influence and the scope of its activities - and whose unique signature is instantly recognizable around the world. The company constantly renews its product offering, but the result is always a feast for the senses.

"Creativity is part of the Cirque culture.2 This creativity is on display in the work of the artists, of course, but it is also manifested in the exploits of the craftspeople and technicians who work behind the scenes," Louise Murray points out. It also shows through in the work of the planners and logisticians who collaborate to find customized solutions to new problems as they arise, helping to turn Cirque into the Organization - a machine without precedent anywhere in the world.

The numbers speak for themselves: in 2008, 18 different shows, including eight shows touring the planet (see Appendix 1); 450 trailers and cargo containers transporting 4,400 tonnes of Cirque du Soleil material around the world at any one time, and; an average of 400-500 tonnes of material for each show shipped by land, sea or air to their next destination. Since 1984, Cirque du Soleil's touring shows have stopped in over 200 cities the world over. One of the company's greatest strengths lies in the speed with which entire shows are transferred from one site to another.

Logistics at Cirque: On Your Mark. Get Set. Set Up, Tear Down! ... Then Set Up Again!

A wide range of administrative formalities and tasks must be accomplished to ensure the transfer of material and people to a new show site. The tearing down, repacking, shipping and setting up must all be done in a very precise order. And because each move is to a new site, often in a new country, the experience is unique every time. A technical problem, customs difficulties, a breakdown or bad weather conditions can all lead to costly delays, sometimes even forcing the cancellation of shows.

Moreover, the profitability of Cirque's business model depends on the density of the market. Setting up a show involves very high fixed costs and profit is made only if the number of tickets sold offsets the expenses incurred (see Appendix 2). The cancellation of a show consequently results in a complete write-off, not only because of the loss of immediate profit, but also because the show cannot be rescheduled. There is always another city waiting for Cirque, and, as such, it can neither extend its stay nor return at a later date.

The logistics professionals at Cirque have become experts at a skill on which there is currently little documentation. Through trial, error and a bit of luck, and often at the price of considerable creativity, they have learned to find custom-made solutions. No two sites or shows are exactly the same. Their challenge is to derive a science from the unique and the unprecedented in order to assure the quality of the spectators' experience, the public's and artists' safety and the profitability of the tour.

The arrival of a show in one city implies that another city has just said its goodbyes to Cirque's artists a few days previously. Indeed, because its highly specialized equipment is very expensive, Cirque only has six big tops at its disposal.1 Therefore, it is not possible to start setting up equipment before winding up in another city.

It normally takes 10 days to move to a new site: three days to dismantle and prepare the material to be shipped and then seven days to completely set it all up again in a new location.2 There are many tasks to be carried out, including preparation of the site, setting up of the big top, the tents for the artists and public facilities, preparation of the technical plateaux, the flooring and the trapezes, plumbing, mechanical and electrical work, carpentry, lighting and sound systems, organization of on-site transportation and access to the public transit network, installation of technology and telephone systems, etc. Everything must be done in a precise order since many tasks can only be carried out once others have been completed. The four masts supporting the big top are the last to be taken down and the first to be put up at the new site.3

A tremendous amount of information is necessary to ensure the success of this process. The technology is also pushed to the extreme. The main challenge is the frequency and speed with which these operations must be completed. And since very few companies are required to repeatedly dismantle and repack all the computer hardware necessary to run a performance site, there are few models Cirque can refer to. The technical equipment must be available from the very start of the installation and is often the last equipment to be packed up. It is also tricky to hook up to the host countries' communication infrastructures, particularly for the ticketing systems, which vary from one place to another.

Because of all these constraints, Cirque had no other choice than to create an environment adapted to its own needs in terms of technology management. The transferred equipment includes all of the necessary systems to manage and transfer the operating data and transactional information. Trailers were adapted for transporting the servers and equipment, enabling them to be set up without being unpacked. By implementing this initiative, installation time was reduced by 25%.

Portable boutiques with cash registers connected directly to headquarters' central systems were also developed, making it possible to manage inventory and track sales in real time and to complete installation quickly. The box office was also redesigned to be used from a trailer to minimize the need for connections and system configuration.

Optic fibres have now replaced traditional cabling to improve the bandwidth and secure the network. Cirque is considering using satellite communication in the future to reduce the accidental rupture of cables during work on the site. Links with the outside world are not only vital for the transfer of management data, but also for the troupe to be able to keep in touch with their families while on the move. Realizing that it is critical for the health and morale of its artists, Cirque ensures constant access to a communication network.

Experience has allowed Cirque to precisely document all setup and tear-down tasks, the necessary personnel for each day of operation and the employees' required qualifications. Even the linguistic competencies required of the teams on site are specified to ensure efficient and safe work. An estimate is also provided of the personnel needed for each performance.

A detailed nomenclature of the required material is produced for each tour. In this way, the exact nature of everything being transported is known. This document is essential to ensure the proper packing and labelling of goods, to adequately plan the transport and coordination of shipments, as well as to settle customs formalities when traveling from one country to another.

It is an understatement to say that international transfers are challenging. When changing continents, Cirque often takes the opportunity to renew material or make adjustments to a show. In such cases, the equipment may converge from many different places around the world, often arriving via multiple modes of transportation. The material must be consolidated upon arrival on the new continent and the precise details of shipments must be known in order to clear customs formalities.

The transfer of Alegria from Santiago, Chile to Seoul, Korea at the end of 2008 offers a good illustration of the complexity involved in organizing these international transfers. In this case, a major shipment was sent from Montreal to replace tents and promotional material, as well as to renew certain equipment designed or custom-made at the company's headquarters. The shipment was sent by land to Vancouver and continued on by sea afterwards. Meeting the deadline was critical in this case because the cargo contained equipment necessary to begin setting up upon arrival.

Equally urgent was the dispatching overseas of the canvas from Bordeaux, France, via the Suez Canal. Also sent by boat was the set of big top masts and other infrastructure equipment from Buenos Aires, Argentina, where they had been in storage for the Alegria tour. Once again, the shipping time was critical because the masts are the first items to be assembled. The costumes and artistic material were delivered by plane to Seoul as soon as the shows in Chile had wrapped up.1

Finally, part of the equipment that had been used in the Santiago shows was stored in South America for the Quidam show commencing in June 2009, thus avoiding a costly repatriation to Montreal.

Thus, it can be seen that Cirque's equipment executes a complex ballet around the world. The sequence of city stopovers, the equipment's points of departure and the tour itineraries must be carefully planned to minimize travel and to maximize the commercial potential of each performance.

"Even so, there are always offers that are hard to refuse," remarks Louise Murray. "Cirque is made up of enterprising people who are overflowing with project ideas. It's in our nature to be adventurous and to pounce on opportunities," she adds.

However, there is a large potential for savings in streamlining tour plans to maximize a show's capacity and in proposing itineraries that minimize travel and shipping costs and installation times. Planning is therefore the key to success.

Planning: Reconciling Rationalization and an Entrepreneurial Spirit

It is the responsibility of Louise Murray and her team to achieve a balance between all these tensions. One could say that her role has grown as Cirque has grown. When she joined the communications and sponsorship team at Cirque du Soleil in 1992, the company had only 500 employees. Her previous training had left her well prepared to function in an environment characterized by diversity and to promote difference. Her B.A. in cultural animation and research had taught her that difference is a valuable asset and that there are more dimensions to cultural expression than just its artistic dimension.

Louise Murray has a well-integrated vision of Cirque productions:

Our shows are not produced independently of each other. A synergy must emerge between these different cultural works. We can see them as a strategic portfolio of cultural products. Ideally, we would be able to present several touring shows in succession in a large city in order to establish our reputation, build an audience and open the way for the establishment of a permanent show. But you need market depth to do that. Smaller markets require different solutions. For example, shows nearing the end of their touring career are now revamped as arena shows to reduce costs and maximize returns in smaller markets.

Today, Louise Murray, who holds an M.B.A. from HEC Montréal, is Vice-President, Tour Planning and Partnerships at Cirque. She leads a 15-member team divided into three branches (see Appendix 7). The Tour Partnership Management Department, led by Ines Lenzi, ensures partnership follow-up and contract management. Ms. Lenzi also coordinates consultations between the various internal stakeholders for the preparation of contracts. For its part, the Tour Planning Department is headed by Gera Landmeter. The principal mandate of this department is to develop the tour schedule, which requires gathering information of the highest quality in order to support decision making and to ensure that all issues and opportunities are explored. Finally, Sylvain Guimond is the Director of Touring Sites Development. His team is the largest and is responsible for knowing and anticipating absolutely everything about the sites visited in preparation for future show deployments. Team work and intense collaboration with numerous internal and external stakeholders are required of all members of the Tour Planning and Partnership team.

Louise Murray's strong interpersonal skills, client-oriented culture and holistic understanding of the Cirque concept are all major assets that she has put to good use in order to consolidate partnerships and provide leadership for tour preparation. One of her most valuable contributions has without a doubt been the rationalization of the planning process, which she successfully implemented while managing to preserve Cirque's ability to take advantage of business opportunities.

"Turkey is definitely an attractive opportunity! Now all we have to do is determine which show we could present there," she muses to herself as she opens the application containing the tour plan (see Appendix 6).

Long-range planning

Preparing a tour requires keeping an open mind in the face of business proposals and a systematic solicitation process aimed at identifying the best sites and the countries with the strongest commercial potential. As part of her job, Louise Murray regularly meets with promoters, visits potential sites and closes business deals.

Tour planning requires a methodical approach that involves many different sectors of the company in a climate of collegiality. Although the planning horizon is very stable for resident shows, the same cannot be said of touring shows. Five years ahead of time, Cirque is already planning what continent each show will visit. There is a two- to three-year horizon for choosing the cities to be visited by each show. At that stage, the number of performances and the length of the stay in each city still have to be decided.

Normally, the tour plan is finalized at least 24 months ahead of the event. "Actually, that's the target we aim for," explains Louise Murray. "However, I can say that 90% of our projects are completely locked in two years ahead of time.1 The remainder represents our capacity for flexibility and the potential to seize business opportunities."

In fact, Cirque's organizational capacity to make changes to its tour plan is quite substantial. As Louise Murray explains:

Thanks to the expertise of our employees, it's not that complicated to move a tent. We pull up the stakes and we change sites. We can afford to change a tour plan even with only a few months' notice, but the less notice we have, the higher the costs. Technically, it's possible to make changes if they involve one of the 80 destinations that are already on the plan. However, it there are too many modifications, it becomes too complex for us to manage.

Given the extreme complexity of the site installation process and the many formalities associated with a show's arrival in a city, it goes without saying that a clearly visible planning horizon is essential to ensure the sustainability of Cirque and the success of its future projects.

Accordingly, Cirque has made a major effort to reinforce its planning process and, particularly, to ensure that all members of the organization adopt a structured approach. Figure 1, which was prepared by Louise Rémillard, Senior Internal Audit Director, presents the outline of this hierarchical approach adopted by Cirque. As can be seen, the tour plans are established based on a strategic reflection and a search for cohesion with the company's vision. We propose to take a closer look at how this process takes shape and at the actors involved in preparing the plan.

The planning process and the actors involved

As Figure 1 shows, the planning process comprises four separate plans: the strategic plan, which has a horizon of three to five years, the long-term plan, with a horizon of 30 to 36 months, the tactical plan, based on an 18- to 30-month horizon, and, finally, the operational plan, which has a much shorter horizon of 12 to 18 months.

Strategic planning

The strategic plan is established by the members of senior management (mainly senior vicepresidents), the executive producers and the artisans behind the Cirque image.1 This plan sets out Cirque's main orientations and ensures that the itinerary is aligned with the company's vision. It also fixes growth and profitability objectives.

Long-term planning

The long-term plan covers a shorter horizon of 30 to 36 months. The preparation of this plan is launched at the bi-annual meeting chaired by Daniel Lamarre, President and CEO, and the team reporting to Jacques Marois, Senior Vice-President of Touring Shows. Louise Murray is responsible for preparing the initial tour proposals. The scenarios are approved by Jacques Marois and, based on this preliminary scenario, the business cases for the different options are developed by the Office of the Chief Financial Officer. The plan is then presented to the executive board,2 which approves the global, long-term plan and finalizes the company's objectives. The long-term plan is then communicated to the various directors.

Tactical planning

One of the purposes of the long-term plan is to establish the medium-term tactical plan. It provides Louise Murray with valuable input for an important meeting, the "2TP Meeting,"1 at which the planning of tours and partnerships is discussed. This meeting mainly involves the vice-presidents of the different units, who join the teams reporting to vice-presidents Louise Murray and Jacques Marois. Gradually, the options become clearer and specific cities and partners are considered.

In the case of a new production, a kick-off meeting is called following the 2TP meeting. Since everything is new, several elements need to be assembled. A list of essential information is thus drawn up that includes financial data, potential installation sites and their availability as well as the contingencies inherent to the new show. Research is then undertaken to gather this information. The general idea is to obtain, in a timely manner, all the information necessary for the planning phase, which is then carried out by geographic region.

Approximately 28 months before the deadline, Jacques Marois and Louise Murray's team are ready to present all the partnership and itinerary options for potential tours. At that point, a large meeting, called the work group, is convened, including the directors of the different divisions, show directors and site and technical operation heads. The purpose of this meeting, which is conducted in a spirit of collegiality, is to ensure that the full details of the options proposed are examined from every angle. As Louise Murray explains:

Clearly, there will still be many outstanding issues at this stage in the process. The idea is not to discuss things like transport or visa delivery problems in this or that country. Our overall goal is to determine the feasibility of our plan, alert all the stakeholders to the wrinkles that need to be ironed out and tap into everyone's experience in order to make life easier in the steps ahead.

In the run-up to this meeting, all relevant information on the available site is supplied by the Director of Touring Sites Development, with additional information being contributed by the Office of the Vice-President of Marketing, by the Office of the Chief Financial Officer and by the different departments concerned by the operations.

The itinerary of the cities visited, known as the CSI, for City Show Itinerary, represents the culmination of this step. Several actors are involved in the development and analysis of this document, which details the cities visited by each show, set-up and closing dates, the performances spread out over each week and potential options for added performances. The seating capacity of the big top (i.e., number of seats), sales targets and annual vacations are also included. This is undoubtedly one of the key documents in the organization of Cirque's touring shows.

Once a broad outline of the itinerary has been established, the next step involves a detailed planning process where each division must operationalize the general plans. This is a pivotal moment in terms of allocating tasks and making everyone accountable within the collective project. Everyone puts their shoulder to the wheel to help find solutions to the challenges that inevitably arise. Work groups are organized, in some cases to track down carriers, locate storage sites or rental equipment, in others to negotiate supplies or custom-made equipment, costumes or sets. Major efforts are also undertaken to obtain authorizations and visas and to complete the administrative formalities necessary to enter, stay in and even leave the countries on the tour plan.

Over the following months, touch-ups are invariably made to the plan, whether to add a stop-over city, to remove a city or to alter the amount of time spent in each city. These last-minute changes are mainly dictated by business forecasts. Logistical constraints are also taken into account in order to optimize the order in which the cities are visited. All these changes are systematically reported in the organization's dashboard.1

Operational planning

Twenty-four months from the deadline, the schedules are set and the show dates are sent out internally by the Internal Communications Department, which has now become the custodian of the schedule. The communication of these dates sends a green light to the Marketing Department to initiate promotional and ticket sale activities. However, to postpone cash outflows as long as possible, promotional and marketing activities are planned as late as possible starting from the date on which tickets go on sale. In some markets, the ticket release date is only eight months in advance, while in others a period of 12 months is common. Based on the ticket release date, the different promotional, merchandising and sponsorship activities are planned for the latest date possible.

Given all these elements, it is easy to see why the 18-month period is considered borderline for ensuring a smooth execution. If changes need to be made after this date, a much more extensive set of measures needs to be deployed. The relevant documents (the City Show Itinerary and the show schedule) will obviously need to be modified. The Internal Communications Department is responsible for updating the information on the Intranet. The information is then relayed to all the stakeholders concerned. If needed, the new shipping dates are confirmed and the availability of the site validated. If tickets have already been sold for performances that are cancelled, each ticket purchaser has to be contacted and offered a refund.

Business Partners: Precious Allies

Concurrently with the show planning processes, the Vice-President of Tour Planning and Partnerships must develop and maintain relations with business partners and local promoters. "These actors are important for the success of Cirque du Soleil," she explains. "A competent partner that we can trust is a major asset to us when penetrating a new region." It goes without saying that forming a partnership with a local promoter can eat into potential profits, but their knowledge of the territory, consumer habits, local actors and the availability of top-quality sites in large cities makes it worth it.

Louise Murray uses the example of the show Alegria in Seoul to illustrate this point. An independent promoter was used for this location, which required negotiating a whole new contract and starting the whole process over from scratch, thus eliminating any possibility of economies of scale. On the other hand, an experienced and well-connected promoter makes it possible to cover several projects within a single round of negotiations and their knowledge of the terrain can spare Cirque a costly process of trial and error. However, profits have to be shared with the promoter. Louise Murray summarizes the situation thus:

If we go it alone, we reap all the benefits, but we also have to do everything ourselves. Promoters help remove operational obstacles and reduce uncertainty and, in some cases, they offer the potential for higher revenue because they are familiar with the local sponsorship community. If we know the market very well, it's usually more profitable for us to go it alone. Otherwise, it's usually better to partner with a promoter.

However, Louise Murray is very clear on one point:

We look upon our partners as vectors in the fulfilment of our mission. We want to remain in control of our chain of value creation at all times and there is no question of changing our business model or losing our soul in a partnership.

She mentions one particular case in which Cirque's partner, which was responsible for artists' accommodations on the tour, tried to skimp on the hotel category, provoking a strong reaction from Cirque management. Such a move cannot be tolerated because the quality of a production depends on the morale of the artists - how they are fed and housed affects their well-being.

The value creation model at Cirque is complex. Promoters are required to fit into this system and contribute to it. Cirque does not sell its shows to a distributor. It is the partners that team up with Cirque to deliver an artistic work and offer audiences a unique experience. It is therefore only appropriate that the lion's share of the profit goes to the artists - that is, to Cirque. Under no circumstances would Cirque tolerate a larger portion of the profit going to the promoter.

The process of establishing contracts with promoters involves several internal actors at Cirque, including the people in charge of marketing, sponsorships, social responsibility, finance, taxation and insurance. Human resources, technical operations and, of course, the general show managers concerned also participate. All of them have a say in the process of forging partnerships. As such, the establishment of a partnership involves multiple points of contact.

However, the major players form a smaller circle. This circle includes the Office of the Vice-President of Tour Planning and Partnerships, of Business and Legal Affairs, and a sponsor who also serves as chief negotiator. The sponsor can change depending on the circumstances and the business opportunity. It is usually either Jacques Marois, Senior Vice-President of Touring Shows, Daniel Lamarre, President and CEO, or one of the executive producers who takes on this role.

It is this negotiator who initiates talks and defines the framework of the budding partnership. The baton is then handed to Louise Murray, whose job it is to validate the different aspects of the contract to be signed with the various actors mentioned above. She is also responsible for preparing the contract and obtaining the authorization of the key stakeholders in the process.

The preparation of the show schedule represents a delicate task for all members of her team, as both operational considerations and the needs of the personnel must be taken into account.

The next step is the signing of the contract with the promoter. For the general show manager, this is the signal he has been waiting for to put the wheels in motion that will transform this agreement into a magical event.

There are several types of financial arrangements that Cirque can negotiate with a partner. First, it can always decide to go it alone, in which case it will be responsible for everything from selecting the site to preparing visa applications and negotiating water supply and security services around the site. While Cirque gets to keep all the profits, it is also alone in assuming all the risks.

Another solution is to establish a partnership. Several formulas are possible. The simplest is the fixed show fee formula, in which the partner assumes responsibility for all costs and revenues and pays Cirque a pre-established, fixed amount for the show. This option eliminates any risk for Cirque.

The most common formula used, however, is the "Rock & Roll" model, under which the profits are shared, with a percentage going to the artist (i.e., Cirque) and the remainder going to the promoter. Typically, a percentage of box office revenue and merchandise sales is also paid to the artist in the form of royalties.1 The costs incurred by each party are deducted from the remaining gross sales and the profits are divided as per the agreement signed between the two parties.2

Finally, a customized allocation of expenditures and revenues is also possible, but the general principle remains the same: the artist receives the majority of revenue generated by the work.

In the course of this process, Louise Murray typically meets with the promoters several times in addition to making contact with several subcontractors in the field, visiting several sites and installations and travelling a few thousand kilometres.

When selecting a partner and signing a contract, Cirque's main goal is not necessarily to extract as much profit as possible, to the detriment of the partner. Rather, its logic is geared toward establishing a long-term relationship based on shared expertise and mutual growth.

Signing contracts that lack precision or fail to cover certain aspects invariably leads to conflict and losses. Given the number of actors involved in the preparation of these contracts, it is important to clarify the areas of responsibility of each stakeholder when preparing the schedule (see Table 1; the grey zones indicate the person in charge).

Louise Murray's team has also developed a detailed roadmap of the different actions to be taken in order to ensure that everyone knows what their tasks are in preparing the contract, that everything is done on time, and that no aspect is omitted. This document is basically a checklist indicating each critical task in the project process, along with the date on which it was completed or is expected to be completed. In some cases, there is simply a binary indicator to show whether or not the task has been completed. This monitoring tool is updated regularly. Each active project at Cirque has its own roadmap. A project is a combination of a show, a site and a date.

Turkey: A Project Worth Exploring

Turkey would be a new destination for Cirque du Soleil. Cirque has received several unsolicited proposals from promoters1 to set up a Cirque show in Istanbul in 2010, according to the report emailed by Ines Lenzi to Louise Murray earlier this morning. "Surely that's a sign that there is interesting potential here!" she muses.

Two serious proposals have been received. The first is from Turkey's Minister of Culture and Tourism (see Appendix 9). The second was submitted by a promoter in the telecommunications sector (see Appendix 10). As it does for all the proposals it receives, Cirque has responded with a standard email (see Appendix 11). This response is a first step aimed at framing the potential business relationship within a commercial logic. "Basically, we ask them to do their homework and to ensure that their proposal is economically viable for Cirque and for them," Louise Murray explains. This initial contact generally eliminates proposals from groups or individuals that are not backed by a solid organization.

In this case, both proposals appear to be supported by serious individuals. In addition, the market potential is good. After taking a quick look at the market studies at her disposal, Louise Murray concludes that Cirque can reasonably expect to sell over 100,000 tickets in Istanbul. This is a realistic scenario. At the same time, she notes that tickets are usually released for sale in this market eight months in advance.

Turkey's goal is to boost its visibility on the international stage and it has been courting the European Union for several years. Istanbul was designated European Cultural Capital in 2010. The Turkish metropolis, which hopes to draw 10 million foreign tourists in 2010, has announced a series of projects aimed at promoting its historical heritage. With a new leg of the Grand Prix Formula One in Istanbul, Turkey has resolutely set its sights on the West, making it a market with a lot of potential in the coming years. The timing for launching a show in Turkey would thus be perfect for 2010, but the big question is: Is there enough time to put everything in place?

The proposal also carries some risks. This is a country that Cirque has never before visited. It has no tried and tested partnerships in this region. Although Turkey is quite Westernized, it doesn't really know a lot about Turks' cultural interests. Nor is Cirque familiar with the country's administrative procedures, particularly in the area of customs and immigration. Many financial aspects also still need to be clarified. Is it easy to get money out of the country? How do its tax laws work? Then, there are the questions of the infrastructure necessary to ensure logistics and the installation of Cirque's operations. For example, is there a box office network? Will Cirque obtain a site with good potential?

As Louise Murray likes to say: "Impossible is just a word. For us, it's a challenge to go beyond our limits." Challenges and obstacles will not stop Cirque from coming to Istanbul. "But at the same time, the desire to go beyond our limits should nourish us, not make us burn out," she adds.

The organization has a motto that Cirque president Guy Laliberté repeats often: "Each opportunity must offer a choice, a creative challenge that lights a spark in us. That is the first criterion in selecting our projects. Also, we have to have fun doing what we do."

For the challenge to become a source of satisfaction, there has to be a good fit between Cirque's culture and the host country. Cirque has always refused to compromise on artistic expression. The fundamental question thus becomes whether the creative work will resonate with audiences. And the best indicator of that is undoubtedly ticket sales. In short, will the commercial operation be a profitable one?

Everything is based on the anticipated gross profit margin of the projects, which, simply put, depends partly on costs and partly on potential ticket sales. The deeper the market, the higher the revenues. However, there is also fierce internal competition to support one project or another. Ultimately, the projects selected will be those that are the most feasible... or at least those that Cirque has the most faith in!

It also happens that decisions are made based on a particularly appealing project or for strategic reasons, with the profit margin criterion being put on the back burner. "I don't systematically try to avoid less profitable destinations. However, it's my responsibility to highlight the cost of these strategic decisions and to assess whether it's worth the effort," explains Louise Murray.

She looks over all the documents spread out on her desk and sums up the decision that lies before her:

First of all, we have to determine whether Turkey is a viable destination and what the potential risks and benefits are. We also have to determine what work we could present there and when. On top of all this, there have to be opportunities to form partnerships.

I am happy to see that we have succeeded in developing a structured planning process that ensures our long-term visibility. However, by integrating Turkey in our tour plan as early as 2010, we will be bypassing the normal process. Am I making a mistake in encouraging this project? Should I insist instead that the organization adopt a disciplined approach to optimize our costs?

2011-03-14

Subject: Decision making; Logistics; Entertainment industry; Strategic planning; Business growth; Case studies

Location: Canada

Company / organization: Name: Cirque du Soleil; NAICS: 711190

Classification: 9172: Canada; 8307: Arts, entertainment & recreation; 2310: Planning; 2200: Managerial skills; 9130: Experimental/theoretical

Publication title: International Journal of Case Studies in Management (Online)

Volume: 9

Issue: 1

Pages: 1-32

Number of pages: 32

Publication year: 2011

Publication date: Mar 2011

Year: 2011

Publisher: HEC Montréal

Place of publication: Montréal

Country of publication: Canada

Publication subject: Business And Economics--Management

ISSN: 1911-2599

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Diagrams Tables Maps

ProQuest document ID: 859447262

Document URL: http://search.proquest.com/docview/859447262?accountid=38610

Copyright: Copyright HEC Montréal Mar 2011

Last updated: 2013-09-25

Database: ABI/INFORM Complete

Document 33 of 100

Eastern Medical Faculty Foundation: The Internal Medicine Call Centre Service

Author: Tyagi, Rajesh Kumar, Professor

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Abstract:

This case, prepared by Rajesh Kumar Tyagi, deals with the management of a call centre in a health-care establishment affiliated with a medical school in Chicago. The main challenge facing this call centre is to meet needs in a context where quality of service (in this case, response time) is crucial, where processing times are highly variable and where employee turnover is high. The main objective of the case is to understand the impact of decisions made regarding the service capacity and operations of a service centre. The case's secondary objective is to examine the impact of operational decisions on financial results. The case introduces us to a manager at the call centre who is given the mandate to propose changes aimed at improving service efficiency. Are the problems facing the centre the result of insufficient capacity, poor appointment scheduling, or a combination of both? How can the number of dropped calls be reduced? Is it worth investing in automated services? If so, what services should be automated? [PUB ABSTRACT]

Full text:

Laura Jones was appointed supervisor of the call centre unit by the Eastern University Faculty Foundation's hospital Customer Service Department in January 2003. The call centre unit provides service to the Division of General Internal Medicine. The call centre service is a very important component of the department's operations and is considered a major source of competitive advantage for the hospital in Chicago's highly competitive healthcare delivery sector. Laura was handpicked for her experience in managing call centre operations in the customer service department of an airline. Upon her arrival, she quickly realized that major improvements in efficiency and customer satisfaction were needed in the call centre. The unit had received numerous complaints from patients and callers about the quality of this service.

Laura has been given the mandate to make changes at the call centre level to improve both the effectiveness and the efficiency of the service. As she sifts through the pile of reports, she ponders the following issues and tradeoffs: Are we facing a problem of insufficient capacity, poor scheduling, or both? What do we need to do to improve the call centre's efficiency? How can we reduce the number of abandoned calls? Would it be worthwhile to invest in automating the system? If so, which of the services should be automated?

Her unit consists of nine agents; seven of them have less than one year of experience, while two have more than two years of experience at the call centre. The agents receive standard training upon hiring and should be familiar with medical terminology. Agents are not expected to give advice in emergency cases, but they help connect patients with nurses and doctors. They receive a variety of calls from patients to schedule appointments with the department's physicians, to confirm appointments, to request information about the facilities, procedures, special services, lab reports, and for managed care queries, follow-ups, billing and prescription refills. Appointment confirmations can be initiated by both the agents and patients. The call management system has not been updated in over three years and the agents' workload has been increasing steadily. Agent turnover is high in all units and it is a challenge to keep them motivated and efficient. However, the turnover rate is comparable to the industry standard.

The Eastern Medical Faculty Foundation

Eastern Medical Faculty Foundation Inc. (the Foundation) is a premier, multi-specialty organization committed to providing high-quality care to patients and to supporting the research and academic endeavours of the Chicago School of Medicine.

Established in 1980, the Foundation is an independent, not-for-profit organization governed by a Board of Directors. Foundation physicians are full-time faculty members at the Chicago School of Medicine and are on the attending physician staff at Eastern Memorial Hospital. The Foundation currently has 480 physicians and 800 health professionals and other staff working together in more than 35 medical and surgical specialties and subspecialties. Expected operating income for the current year for the Eastern Medical Foundation is approximately $52 million. The Internal Medicine division represents approximately 14% of this income. The Faculty Foundation hospital has small units that operate separately for each of the hospital's medical and surgical departments, the largest of which is the Internal Medicine Department. The projection for admissions for the current year is around 42,000 patients in the Internal Medicine Department. On average, each patient spends 4.85 days at the facility. The Internal Medicine Department has 492 patient beds, 400 physicians and nearly 650 health professionals and staff.

Its size and group practice structure are designed to provide comprehensive care for many diseases and illnesses. For adult patients who require multi-disciplinary care, specialists from different areas of work share their expertise and develop individualized plans. Out-patient services are provided in a large, state-of-the-art Ambulatory Care Centre housed within the 2 million square foot Eastern Memorial Hospital complex located in the heart of Chicago. Eastern Memorial Hospital takes care of any in-patient care required. The term out-patient clinic generally refers to highly specialized types of care, or refers to a general care, like urgent care facilities. Such clinics may be designated "out-patient" because they are attached to hospitals but do not serve those requiring overnight hospitalization. However, an out-patient clinic does not have to share facilities with a hospital, and some are not located on hospital campuses.

The Internal Medicine Department

The Internal Medicine Department team consists of professors at the Chicago School of Medicine at Eastern University. The practice is run on a rotational basis, where a group of doctors has out-patient clinics followed by ward care days and so on. They are assisted in their work by interns and nurses. Appointments are made at least two days in advance and reconfirmed if required at least three hours in advance. In the event of unforeseen changes in the doctor's schedule, appointments are rescheduled and patients are informed at least 24 hours in advance.

Call Centre Operations

The introduction of the call centre operations in the Internal Medicine Department helped the department in several ways. First, it streamlined the process of appointment scheduling and made tracking easier. Second, it took scheduling responsibility away from the ward assistants and secretaries, thereby freeing them up for other work. Finally, the call centre employees were able to take on certain support functions, including translation, administrative duties, query handling, emergency medical advice for first aid, etc.

The call centre unit, consisting of 12 telephone lines, operates five days a week, from Monday to Friday, between 8 a.m. and 5 p.m. (refer to Appendix 1 for a breakdown of the types of calls in a typical day, and see Appendix 2 for daily call volumes). The department has to rely on the limited data available, as extensive data showing seasonality and cycles are not available. When a caller dials the unit's number, the customer care representative (CCR) or "agent" attends to the call. There are nine customer care representatives who process calls. The call goes to the agent waiting the longest. Each agent is required to interact politely with the caller, obtain complete information about the patient for identification, referral and customized service for special needs, explain procedures with clarity and give appropriate directions. In addition, agents also help the physicians and nurses communicate with non English-speaking patients. There are occasional cases of missed calls if all the phone lines are busy and the customer decides to abandon the call instead of waiting for a CCR to attend to the call (or instead of leaving a message).

If all the CCRs are busy, the caller is kept on hold and hears recorded music interspersed periodically with the message: "You are in a queue. Please bear with us and our staff will attend to you shortly."

If, after 240 seconds on hold, none of the customer care representatives has been able to attend to the caller, the caller is automatically directed to a message recording facility and hears the message: "Sorry for keeping you waiting. Unfortunately, an attendant is not available at this time to answer your call. Please leave your message after the tone and your request will be attended to." At this point, the caller has the option of abandoning the call and opting out of the queue or leaving a message. Agents retrieve the voice mail messages and perform the necessary actions based on the message. Part of one agent's time is spent making these outgoing calls.

Several patients are not comfortable conversing in English. In such cases, CCRs are often called upon to assist the doctors and nurses with translation and interpretation. The CCRs are also trained by the nurses to handle certain emergency queries. If they cannot respond to a query, the caller is put on hold and the nurses or doctors are consulted. The time spent consulting a nurse or physician, or the time during which the agent is away from the terminal and unavailable due to other responsibilities, is clocked as "walk-away time." The other duties of the call-centre employees include arranging for special patient requests such as wheel chairs, and paper work pertaining to appointments (called post-message activities). Also, Laura gives them work not related to the call centre to be completed when they are not attending to calls or doing post-call-related activities. The CCRs are allowed a 45-minute lunch break that must begin between 1 p.m. and 2 p.m., but that can end after 2 p.m. They are also granted a 15-minute break during each pre- and post-lunch time period in a staggered manner. The time spent on rest breaks is clocked as "not ready time." CCRs are required to punch in the "not ready" button on their consoles before going on their lunch break or any other scheduled or unscheduled breaks.

Some of the CCRs are called upon more frequently than others for translation assistance, because of their knowledge of Italian, Spanish and, in one case, Chinese. Translating aid for Michelle and Sam (both agents at the call centre) amounts to approximately 15 minutes each per day. Translating aid for Jessica and Alyson (other agents) totals 45 minutes each per day. These CCRs have clocked a very high proportion of walk-away time. The other performance parameters also show a wide variation (refer to Appendix 3 for CCR performance ratings established following a study by the Customer Service Department). These appendices show that the processing time varies not only by the type of call, but also by the CCR taking the call. Appendix 4 illustrates the ACD system in use. The buffer capacity of the ACD system is defined as the total number of phone lines minus the number of agents on call. When incoming call volume exceeds the buffer capacity, callers receive a busy signal. Appendix 5 provides an overview of the deflected and abandoned calls by the hour.

Laura's Challenges

Anecdotal evidence collected from patient complaints suggests that the quality of the service needs to be improved. By pulling data sets from the call management system, Laura notes with satisfaction that the proportion of missed and abandoned calls (refer to Appendix 4 for a figure presenting abandoned, missed and deflected calls) is lower than expected, at roughly 4 to 8% of total calls. But she makes up her mind not to be satisfied with merely an "acceptable" rate of missed calls. Why should even an average 6 out of 100 calls go unanswered? With an average of 588 calls a day, that amounts to about 35 callers! Call volume is shown in Appendix 5. In the past, customer satisfaction surveys were not conducted in a systematic manner and the validity of the results is therefore questionable.

Laura is aware that her CCRs are the first point of contact for most of the department's patients and, as such, they are often responsible for creating lasting impressions about the efficiency and quality of care in the Internal Medicine Department. Revenue lost will be due to patients abandoning the calls. She is also aware that service systems have to deal with the added variability introduced by customer contact and with the application of process view to service settings. While thinking about these options, she has focused on understanding the service chain design network.

Strategic Options

Laura is thinking of answering some calls using automated answering. Broadly speaking, she has the following options:

Option 1: Increase service capacity by hiring more CCRs;

Option 2: Automate the call management system without adding service capacity;

Option 3: Increase CCR pay and improve agent training to reduce processing time (assuming training improves processing time);

Option 4: Invest heavily in automating the system and hiring more CCRs.

Specifically, she would like to:

*Identify the major problems being encountered at the Customer Service Department;

* Conduct a capacity analysis of the CS Department;

* Estimate the margin lost on an annual basis due to callers who abandon their call or receive a busy signal between 10 a.m. and 2 p.m.

2011-02-15

Subject: Call centers; Health care industry; Quality of service; Management styles; Management decisions; Case studies

Location: United States--US

Classification: 9190: United States; 8320: Health care industry; 5320: Quality control; 5250: Telecommunications systems & Internet communications; 2200: Managerial skills; 9130: Experimental/theoretical

Publication title: International Journal of Case Studies in Management (Online)

Volume: 9

Issue: 1

Pages: 1-10

Number of pages: 10

Publication year: 2011

Publication date: Mar 2011

Year: 2011

Publisher: HEC Montréal

Place of publication: Montréal

Country of publication: Canada

Publication subject: Business And Economics--Management

ISSN: 1911-2599

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables Diagrams

ProQuest document ID: 859448477

Document URL: http://search.proquest.com/docview/859448477?accountid=38610

Copyright: Copyright HEC Montréal Mar 2011

Last updated: 2013-09-25

Database: ABI/INFORM Complete

Document 34 of 100

Andrew Ford, D.D.S.: A Sole-practitioner Professional Practice Case

Author: Cornell, Robert M; Warne, Rick

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Abstract:

As the U.S. economy continues to shift from manufacturing to service-oriented jobs, students will benefit from exposure to realistic scenarios that service providers may experience. Andrew Ford, D.D.S. is based on a real-life situation facing many single-practitioner professional dental and medical practices. Many professional health care providers have little business experience or training and instead rely on bankers, accountants, and bookkeepers to record accounting entries and provide sound business advice. In this case, students assume the role of a friend/consultant called upon to help determine why the dental practice is not performing at the same level as similar practices. Students encounter a situation in which an over-worked medical professional supposes that an employee might be embezzling money or there is some other problem the professional cannot identify, thereby causing low profitability. In this role, the student finds that the professional's accounting records are sparse, making it difficult to precisely evaluate the operation of the practice. The student is asked to analyze the provided information and make suggestions for improving the profitability of the practice. The case also provides students' exposure to basic regression analysis a consultant might use to assess cost behavior. This learning case is appropriate for both undergraduate and graduate managerial accounting classes. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

The U.S. economy continues to shift from manufacturing to service-oriented jobs. Accounting research, education, and practice must continue to evolve to provide value-relevant information for economic decisions. Andrew Ford, D.D. S.: A Sole-practitioner Professional Practice Case is based on a real-life situation facing many small businesses in the evolving economy. Many small business owners, including professional health care providers, have little business experience or accounting training. These professionals may initially rely on accounting systems as simple as cash register tapes and check registers to manage their affairs. As the business evolves, the professionals must instead rely on bankers, accountants, bookkeepers, and office managers to provide sound business advice and record accounting entries.

In this case, students assume the role of a friend called upon to help determine why a dental practice is not performing adequately. The student encounters a situation in which a growing business lacks detailed accounting records, making it difficult to accurately evaluate the practice. The student must analyze the available (sparse) information and make suggestions based on assumptions and predictions.

The case also provides students exposure to important cost accounting concepts, requires careful analysis of basic accounting information, and allows students to explore different options - with varying levels of economic risk - when recommending a course of action to the business owner. The case is unique and an important addition to available management accounting case studies because the scenario differs from other cases that rely on precise accounting information. Instead, Andrew Ford, D.D. S. requires students to expand their thinking in search of possible alternatives to determine the cause of low business profitability, and to determine whether the business may be viable going forward. This scenario is accurate to situations faced by many small-business owners, their financial advisors, and accountants.

We developed our case after much discussion with dentists and with a worldwide dental industry consulting group. Although we simplified the context somewhat for the classroom, our interactions with those in the dental industry indicate that two primary concerns exist: 1) employee embezzlement and fraud, and 2) allocating appropriate time to different procedures (i.e., product mix). Though fraud does not exist in this case, students are required to ascertain whether fraud is a likely cause of the subpar performance of the dentist office. We believe that the principles taught in the case will help students who work as accountants for a service provider or who may consult for such businesses.

CASE MATERIALS

The following case presents a hypothetical yet realistic scenario that many practitioners face.

Background

Andrew Ford, D.D. S. is a dentist who owns his own practice located in Edmond, Oklahoma. Andrew's practice is typical since about 75% of dentists operate their own practices (Bureau of Labor Statistics 2010a). He recently returned from a supplier-sponsored trade show and golf outing in St. Augustine, Florida. While he was there, Andrew spent time learning about new cosmetic dental procedures and networking with other dentists over dinner and on the golf course. This was the first event of this type that Andrew had attended in the last several years.

After lengthy discussions with other dentists who also own small practices, Andrew began to recognize that his practice did not appear nearly as successful as the others. Andrew stayed up late each night worrying about his practice and his future. He realized that although he worked as many hours and had as many patients (likely more) as other dentists, he was not financially as successful as the others.

On the final day of the trip, Andrew attended a seminar designed to teach dentists how to spot embezzlement and fraud at their practices. He learned that according to a recent survey, 59% of dentists reported experiencing embezzlement during their career (PR.com 2007). Andrew left that session worried that one of his employees might be embezzling from him, which could explain why he was lagging behind his peers financially. He was determined to return to Edmond and ascertain if fraud and theft were causing his practice to suffer or if there was some other problem. As soon as Andrew returned from Florida, he decided he should find someone who might be able to help discover what was causing the poor performance at his practice.

Dental Practice Background

After earning a degree in Biology, Andrew attended dental school where he graduated at the top of his class. Upon graduation Andrew moved back home to Oklahoma and began working for a local dentist, Dr. James Sutton, in Oklahoma City. Dr. Sutton was a very well-known and respected dentist in the area with a large patient base. Andrew worked long hours as his associate while earning a salary. He thought this experience was necessary to establish himself as a practicing dentist in the area, but the long hours for little reward became frustrating.

Andrew had always planned to open his own practice, and after six years of working for Dr. Sutton, he opened his own dental practice in Edmond, Oklahoma, a small but growing suburb just north of Oklahoma City. The population of Edmond was minimal at the time, but there was promise that this suburb would grow in the future and allow for likely expansion of the practice.

Andrew rented a modest office in a strip mall which also housed a Daylight Donuts, a nail salon, and a dry cleaning business. In the beginning Andrew could only afford one receptionist and one dental hygienist, and he performed a majority of the tasks himself. The receptionist handled all appointments and billing, while the dental hygienist aided in all procedures, from routine cleanings to any special procedures. Andrew worked very hard over the next few years trying to build a successful practice. He ordered all the supplies and saw every patient himself in order to establish a relationship. Partly due to these personal relationships, his patient base grew rapidly and word began to spread throughout the community.

Within four years of opening, Andrew's practice was booming. He was overrun with patients because of his reputation for quality work and courteous service at a fair price. His practice quickly grew too large for his current staff size, and he recognized the need to hire more employees to handle the increasing patient load. He added another dental hygienist (for a total of two) and assigned each to their own group of patients. In September 2007, he also added a new accounting associate, Jan, to handle the insurance processing and billing. In retrospect, because of his haste in hiring the new personnel, he neglected to follow standard hiring procedures including checking references and conducting background investigations.

Dental Practice Information

Late in 2008, one of Andrew's suppliers paid for a much needed "working" vacation to the industry trade show to thank him for his loyalty to their company. While playing golf, Andrew began talking to some of the other dentists about how overworked he was, and asked if they were experiencing the same problems. Andrew was shocked to find out that some of the other dentists were not working nearly as many hours as he was while still earning much higher incomes. He could not figure out why this could be since he was working 50 hours per week on average for 50 weeks each year, while some of the other dentists were only working 40 hours per week for the same 50 weeks and making more money than Andrew.

Andrew was tired of consistently working 50 hours a week, and his family life was suffering. Although very willing to work hard, he has always desired a respectable income while working a more normal 40-hour week. Andrew was discouraged and unsure how he can continue to operate his own practice. He even considered returning to a salaried position at a corporate-owned practice that would likely lack opportunity for professional growth.

Andrew decided to call a fraternity brother from college, Peter Campbell, who was working as an accountant at a local firm in Ponca City, to ask for help. During their phone conversation, Andrew told his friend Peter about his recent trip and the final session he attended on embezzlement. He then said, "Peter, I've thought this over and over. I know that my practice should be doing just as well, or better, than these other dentists. Like clockwork, I work ten hours a day, five days a week. I only take a total of two weeks of vacation and personal time away from the practice each year, but I'm still not making any money. I can hardly pay the bills and I'm suffering from working so much but I can't figure out what I'm doing wrong. My family hardly sees me. I'm worried that one of my employees is stealing from me and I think I know who it is. My new accounting assistant, Jan, must be the culprit. Can you help me prove it?

Although he had not heard from Andrew in a few years and had little expertise in investigating fraud and theft, Peter was concerned and agreed to help. Peter visited the practice the next day over his lunch break and began to ask questions and gather information. In addition, Andrew provided Peter with his financial information for the past three years. The financial information revealed that Andrew grouped together all operating costs as "overhead" (this is common for this type of small practice). Although he is certain that the costs in total are accurate, he has difficulty determining where he should place each "overhead" cost on formal financial statements. Table 1 provides three years of financial information for the practice. Table 2 provides the number of procedures performed, sales revenue, and "overhead" expenses per month for the year 2008.

Business Analysis

Peter quickly realized that he would have difficulty determining whether Jan, or anyone else, was embezzling money from the practice without a full investigation. When done properly, such an investigation would cost thousands of dollars and take months. Peter decided, instead, to focus his efforts on his area of financial expertise and then, if necessary, focus on the embezzlement issue later.

Peter decided to first examine some of the pertinent business issues associated with small professional health care practices. He decided to investigate Andrew's practice and some competing dental practices in the area to determine their revenue structure. He also considered comparing the practice's profitability with industry standards. Industry information is provided in Table 3.

After reviewing the practice, Peter concluded that Andrew was focusing almost solely on low-end services, such as simple teeth cleanings and minor fillings. This allowed Andrew to see more patients each day, but this part of the practice seemed to consume all of Andrew's time. Peter investigated the competing dental practices in the area and visited with representatives from an industry trade group. Most dentists generate their revenue from three distinct areas. The first service offered is simple teeth cleaning and minor fillings, essentially what Andrew was doing exclusively during the day. The second service is tooth restoration / major repair work, and the third is all other cosmetic procedures, including whitening and veneers. The industry trade group suggested that 1 0% of all cleanings should result in a restoration / major repair visit. Andrew currently did not spend any time performing either of these other services.

Peter decided to further investigate how the mix of these additional services affected bottom-line profitability of a practice. He found information concerning standards for each new type of procedure (restorative/major repair and cosmetic) from the industry trade group. Revenue and expense information for each procedure is found in Table 4.

An Improved Business Plan?

Peter explained his findings to Andrew, and the two of them started working together to find ways to improve the bottom line of the practice. After doing some market research, they considered raising prices for simple cleanings and fillings in an attempt to free up time for more profitable procedures. They determined that the average current price was likely too low, and that for every 10% price increase in preventative care cost, the practice would lose 10 % of the current procedures (i.e., the number of procedures performed annually decreases 10% for every 10 % price increase). It also appeared that a 50% price increase from the current average rate would be the maximum before all patients would seek other providers.

The industry trade group explained that 10% of the total preventative procedures performed should result in restoration and/or major repair procedures, which are currently not happening at all. These are the first procedures Andrew will perform if there is any free time. Each major restoration/repair takes 30 minutes to complete. Therefore, for every hour freed up by increasing prices, Andrew can perform two restoration procedures.

Furthermore, if there is any additional free time after the cleanings and the restorations, Andrew can perform the more lucrative cosmetic procedures. These procedures require an hour per procedure, but they are the most profitable. However, there is significant risk associated with these procedures as expensive advertising must be purchased to motivate demand. The only way to improve demand is to purchase additional advertising in the local newspapers, magazines, and billboards. Ultimately, it is risky to spend extra money on advertising without increasing the number of cosmetic procedures. This is just one of the decisions Andrew must make when planning for the future. The number of expected cosmetic procedures based on $600 of yearly advertising expenditures is provided in Table 5.

DISCUSSION QUESTIONS

The information provided in this case is typical of the quality of information obtained with analyzing many small professional practices. Much of the information requires estimating and inferences. Student responses will vary and rounding is necessary to evaluate the data and respond to discussion questions.

1. Did Andrew properly assess the direct material, direct labor, and overhead costs associated with operating his practice?

2a. Based on your evaluation of the practice in

2b. Based on when Jan was hired, does it appear that reported practice performance declined after her hire, indicating embezzlement?

3a. List the types of fixed, variable, and mixed costs a dental practice would likely incur when providing cleaning procedures.

3b. Plot the sales revenue on an scattergraph with the number of monthly procedures on the X-axis and the monthly sales revenue on the Y-axis. Does it appear that there is a linear relationship between the number of procedures and sales revenue? Prepare a scattergraph for overhead expenses by plotting the number of monthly procedures on the X-axis and the monthly overhead expenses on the Y-axis. Does it appear that there is a linear relationship between the number of procedures and overhead expenses?

3c. Using simple regression, determine the variable cost per procedure and the fixed cost per month for the practice.

3d. What is the coefficient of determination for the regression analysis and what does it mean?

3e. What are the t-statistics and p-values associated with the fixed and variable costs? How do you interpret the t-statistics and p- values?

3f. Revenue per procedure varies slightly in medical practices depending on payment methods including cash, credit cards, and insurance reimbursement. Assuming average revenue per existing procedure, what is the contribution margin per procedure? How many procedures must Andrew perform to break-even? How long does it take to perform one existing procedure, and how many hours would it take to perform the necessary procedures to break-even? Does it seem reasonable for one dentist to work that many hours and complete that many procedures?

4a. If the annual target profit (before tax) for the practice is $150,000, how many procedures would Andrew have to perform?

4b. How many hours would it take to perform that many procedures? Does it seem reasonable for one dentist to work that many hours and complete that many procedures?

4c. Based on your answers to 3a - 3e and 4a - 4b, compute the 90% and 95% confidence intervals (see Table 6 for required t-statistics) for the total cost associated with the number of procedures to earn an annual target profit (before tax) of $ 1 50,000. What does the confidence interval mean?

5. What would be the new price and contribution margin for each 10% price increase (each increase is an additional 10% of the initial revenue per procedure, not a compound increase) up to a maximum 50% price increase. Market research has shown that a price increase in excess of 50% would cause all customers to seek new dentists.

6a. Assume that Andrew wants to work 40 hours per week for 50 weeks each year (or 2,000 hours per year total). How much does the price per existing procedure need to increase so that Andrew has enough free time to perform other procedures due to the reduction in patients? What are your suggestions of ways to fill this time? Andrew will perform all existing cleaning and major / restorative procedures first and then perform any cosmetic procedures.

6b. Assuming Andrew has moderate risk-tolerance, provide a forward-looking Contribution Income Statement to demonstrate planned practice performance with this service mix. Note: Assume that the variable cost per procedure determined in 3a is based on 20 minutes of dentist time and would recur with these other procedures as well (i.e. there are no specific costs associated with the cleaning procedures that would not recur with other procedures). Again, Andrew will perform all existing cleaning and major / restorative procedures first and then perform any cosmetic procedures.

6c. Now assume Andrew has high risk-tolerance, provide a forward-looking Contribution Income Statement to demonstrate planned practice performance with this service mix. Note: assume that the variable cost per procedure determined in 3a is based on 20 minutes of dentist time and would recur with these other procedures as well (i.e. there are no specific costs associated with the cleaning procedures that would not recur with other procedures). Again, Andrew will perform all existing cleaning and major / restorative procedures first and then perform any cosmetic procedures.

7. Assume (independent of all prior assumptions in the case) that Andrew wants to spend 33.33% of his time on cleanings, 33.33% of his time on restoration / major repair, and 33.33% of his time on cosmetic procedures. He is planning a 40% price increase to allow time to complete these new procedures and is willing to spend $60,000 this year on advertising to promote the cosmetic procedures. How many of each type of procedure would Andrew have to complete annually in order to break even? How many hours would it take for Andrew to complete the break-even number of procedures?

8. Provide a memo explaining your findings and present your recommendations. Address the initial concern from Andrew Ford that a staff member was embezzling from him. Carefully explain the problem Andrew is facing due to the mix of services he offers and how changing the product mix will affect practice profitability. Use calculations from your analyses to support your assertions. Provide a business option based on Andrew's moderate and high risk tolerances from 6b and 6c. In particular, address the risks of incurring additional fixed costs such as advertising expense. Carefully explain any potential downside risk associated with incurring additional fixed advertising costs.

CASE LEARNING OBJECTIVES AND IMPLEMENTATION GUIDANCE

In the ten-year span from 2009-2018, manufacturing jobs in the United States are expected to decline by 9% despite the projected growth in population. In contrast, service industries are expected to add 14.5 million jobs in this same time period (Bureau of Labor Statistics 2010b). As most students will likely find employment in the service industry, they will benefit by participating in learning activities that provide examples of situations that service providers may encounter.

Andrew Ford, D.D.S. introduces and combines several management accounting concepts leading to improved business design and practices. This case is based on a real-life situation facing many service providers who have little formal business training and instead rely on others to provide sound business advice. The student assumes the role of a friend who is asked to help determine the reasons a dental practice is not profitable. In this role, the student finds that the professional's accounting records are sparse, making it difficult to precisely evaluate the operation of the practice. The student is asked to analyze the provided information and make suggestions for improving the profitability of the practice.

This case links topics that are typically covered in separate chapters in many management accounting courses and thereby provides an opportunity to associate these topics in a real-life situation to which many students can easily relate. The linked topics include cost behavior including fixed, variable, and mixed costs; product pricing; regression analysis and interpretation; contribution margin; expected values; break-even and target profit analyses; product mix decisions; and pro forma contribution format income statements. Perhaps one of the most important components of the case is that certain questions require students to evaluate risky alternatives and suggest a course of action for the naïve business owner. This scenario provides an opportunity for students to arrive at different conclusions with different answers based on their own perspectives instead of attempting to arrive at one "correct" answer.

To successfully address the case requirements, students should possess a basic understanding of accrual accounting concepts including revenues, expenses, assets, liabilities, and the format of traditional financial statements including the balance sheet and the income statement. Also, students should possess the ability to communicate well in writing as the case requires the composition of a business memo. Instructors may perceive the required memo as the most important component of the case as it requires the student to communicate financial information, including risks associated with suggested changes in the business, to a naïve business owner with little accounting knowledge. The memo requirement is designed to reinforce the accounting concepts by requiring students to explain their recommendations in a detailed, organized manner.

The instructor can choose to select all or parts of the discussion questions to highlight specific topics of interest. The following specific learning objectives should be achieved by completing all of the case requirements: 1) Understand how to incorporate simplistic revenue and cost data in a small professional service firm; 2) Gain an understanding of cost behavior; 3) Develop product mix recommendations using expected values of expenditures; 4) Complete a recommendation memo including recommendations and analyses directed to a naïve business owner; 5) Integrate basic statistical analysis into a management accounting context.

Suggested Audience and Implementation Guidance

The primary audience for this case consists of students in any accounting course in which performance measurement, information analysis, critical thinking, and written communication are examined. Students in introductory management accounting courses at most universities will likely find the case requirements challenging. The case is most appropriate for junior-level or senior-level accounting courses as well as MBA courses. Examples of classes that may find this case useful include higher-level undergraduate management accounting course, an entrepreneurship course dealing with small business or professional practice issues, or a management accounting course at the graduate level such as an MBA management accounting course. A suggestion for appropriate questions for these students follows.

To prove relevant in many types of accounting courses, the case provides questions that vary in difficulty. Question difficulty levels are identified with the solution in the Teaching Notes. Questions labeled easy or medium would be appropriate for use in an introductory undergraduate managerial accounting course. Questions labeled easy, medium, or difficult would be appropriate for a higher-level undergraduate managerial accounting course or a graduate-level managerial accounting course (e.g., MBA-level managerial accounting).

Student Evaluation of the Case

We tested the case in one section of intermediate managerial accounting students (i.e., students had completed an introductory managerial accounting course in a prior academic year) and with two sections of MBA managerial accounting. A total of 98 students participated in the case evaluation. After submitting the case for course credit, the instructor distributed a questionnaire to assess the extent to which the case achieved the desired learning objectives and to obtain general student reaction to the case.

In general, we found that the MBA students found this case more challenging because they needed significantly more instruction in interpretation of statistical results than did the undergraduate accounting students. The MBA students indicated that their formal statistics training had occurred primarily as undergraduates and that integrating basic statistical concepts into the case scenario was helpful.

ACKNOWLEDGEMENT

We thank John H. Jameson, D.D. S. of Jameson Comprehensive Coaching for providing important details related to a small dental practice such as the one described in this case. We also appreciate the Risk Management Association for allowing us to adapt the format of their annual statement studies for use in the context of this case. We are grateful for the helpful comments we received from Robert Allen. Finally, we thank the graduate students who provided important feedback on earlier versions of this case.

Subject: Cost volume profit analysis; Small business; Management accounting; Dentists; Case studies

Location: United States--US

Classification: 9190: United States; 4120: Accounting policies & procedures; 9520: Small business; 8320: Health care industry

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 2

Pages: 1-17

Number of pages: 17

Publication year: 2011

Publication date: Mar/Apr 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables References Graphs Equations

ProQuest document ID: 862378845

Document URL: http://search.proquest.com/docview/862378845?accountid=38610

Copyright: Copyright Clute Institute for Academic Research Mar/Apr 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 35 of 100

Case Study: Trademark Infringement Issues

Author: Cosgrove, Michael; Marsh, Daniel; Chester, J F; Cosgrove, Sean

ProQuest document link

Abstract:

This is a case study of trademark infringement disputes. One of the authors (M. Cosgrove) incorporated The Econoclast, Inc. in 1979. The company provides capital market publications to financial and nonfinancial institutions, and owns the trademark Econoclast®. Over the years, others have attempted to use the same name for similar services. This case study presents the practical steps that Cosgrove undertook to prevent infringement of his trademark in various cases that occurred since our prior paper was published in 2005 (Cosgrove, Marsh and Chester.) The paper also explains the basics of trademark law, the meaning of trademark infringement, and obligations of the trademark owner. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

One purpose of a trademark is to provide protection to customers by ensuring that goods and services they purchase are actually manufactured or provided by the companies associated with the marks. By granting trademark owners the exclusive right to use certain marks to identify their goods and services, trademark law allows a firm to distinguish its products and services from that of other firms. This is a method of branding. The value of a trademark to its owner is dependent on a number of factors, such as the size of the market created for the branded product, as well as the novelty or uniqueness of the mark itself.

Trademark protection can arise through common law right by merely using the mark in commerce or via registration at a national office. Both methods afford similar protection, although the requirements for obtaining and retaining protections, as well as the geographic limits of trademark rights, are different for registered trademark owners versus owners of purely common law trademark rights. For registered marks, the period of protection varies, but a trademark can be renewed indefinitely beyond the time limit by payment of additional fees. Trademark protection is enforced by the courts which, in most countries, have the authority to block trademark infringement.

Trademarks promote enterprise, both locally and globally, by providing owners of trademarks with recognition and profit. Trademark protection also hinders the efforts of unfair competitors, such as counterfeiters, to use similar distinctive signs to market their products and/or services. Trademark law allows people with skill and enterprise to produce and market goods and services more profitably, thereby facilitating both domestic and international trade. Moreover, trademarks can protect consumers from unwittingly paying a premium for inferior products.

Trademarks can apply to more than just names. Trademarked items may include a combination of words, letters, numerals, symbols, colors, and artwork. In addition to trademarks identifying the commercial source of goods or services, several other categories of marks exist. Collective marks are owned by an association whose members use them to identify themselves with a level of quality and other requirements set by the association. Examples of such associations would be those representing accountants and engineers. Also, certification marks, such as Underwriters Laboratories or the Good Housekeeping Seal, are protected trademarks which are used to identify products that meet the specific standards of those certifying entities.

A trademark is registered by filing an application with the appropriate national or regional trademark office. The application must contain a clear reproduction of the mark filed for registration, including any colors, forms, or three-dimensional features. The application must also contain a list of goods and/or services to which the mark would apply. The mark must fulfill certain conditions in order to be protected as a trademark or other type of mark. It must be distinctive so that consumers can distinguish it as identifying a particular product, as well as from trademarks identifying other products. It must neither mislead nor deceive customers or violate public order or morality.

In addition, trademark law recognizes the principle of priority; that is, the rights applied for cannot be the same as, or "confusingly similar" to, rights already granted to another trademark owner. Whether a mark is confusingly similar to a pre-existing mark is determined through search and examination by the national office or by the opposition of third parties who claim similar or identical rights.

Most countries in the world register and protect trademarks. Each national or regional office maintains a Register of Trademarks which contains full application information on all registrations and renewals, facilitating examination, search, and potential opposition by third parties. The effects of such a registration are, however, limited to the country (or, in the case of a regional registration, countries) concerned.

In order to avoid the need to file trademark registration applications separately with each national or regional office, WIPO (The World Intellectual Property Organization) administers a system of international registration of marks. This system is governed by two treaties - the Madrid Agreement Concerning the International Registration of Marks and the Madrid Protocol. A person who is a resident of a country party to one or both of these treaties may, on the basis of a registration or application with the trademark office of that country, simultaneously apply to register that mark in some or all of the other countries of the Madrid Union. At present, more than 60 countries are party to one or both of the agreements. Although the U.S. has been a part of the Madrid Protocol for some time, the USPTO has only recently enacted procedures for handling Madrid Protocol applications.

This introduction to trademarks is taken, in part, from the World Intellectual Property Organization. Information on obtaining a trademark can be obtained from United States Patent and Trademark Office.

FRAMEWORK FOR TRADEMARKS

The objective of intellectual property protection is to create incentives that maximize the difference between the value of the intellectual property that is created and used and the social cost of its creation, including the cost of administering the system (Besen, 1991).

Intellectual property can be protected by patents, copyrights and trademarks. Trademark protection doesn't have a constitutional footing, while patents and copyrights do. State law is the origin of trademarks; Federal trademark protection was passed in 1870, but that particular act was ruled unconstitutional. But in terms of history, the Romans, Greeks and others used different markings to indicate who made items such as pottery or bricks. In the Middle Ages, trade guilds employed markings to identify who made a particular product. The 1946 Lanham Act is the basis of the modern U.S. trademark system which spelled out the major requirements for registration and maintenance of ownership.

The purpose of trademark law is to prevent confusion in the minds of the consuming public as to the source of a particular good and/or service. The owner of a trademark has spent time and resources marketing goods and services identified by the mark. And the purpose of doing that is to have the mark identified with only those goods and services to the exclusion of other goods and services. In monopolistic competition, trademarks or branding, can be very useful as a method to help differentiate close but imperfect substitutes. The trademark holder often must work to prevent others from using the trademark and benefiting from prior use of the trademark. Using someone else's trademark without permission, known as infringement, will likely cause confusion in the minds of the consuming public.

It is not necessary to prove actual confusion of unique customers in order to prove trademark infringement. Proving likelihood of confusion in the market satisfies the requirement so that similar marks in physical design could constitute cases of infringement (Besen, 1991).

In the United States, trademark does not need to be registered for the owner to prevent others from using it, but Federal registration does provide legal advantages to the trademark holder when pursuing infringers. One advantage is that it serves as public notice of the existence of the registrant's mark, which prevents anyone from claiming that they did not know the mark existed. This notice is constructively assumed to be given to anyone within the territorial jurisdiction of the registering body. For example, a mark registered with the U.S. Patent & Trademark Office (USPTO) would be constructive notice to anyone within the United States, plus its territories and protectorates.

Trademarks must be protected by the trademark holder to prevent them from falling into the public domain and causing the trademark holder to lose protection (Iowa State University). For example, the term "Kleenex" has become so ubiquitous that people often refer to non-Kleenex brand facial tissue as "Kleenex." If left unchecked, the mark could become synonymous with "facial tissue" and thus would become generic. If so, the mark loses its uniqueness and would thus lose its protection under trademark law.

An earlier case was aspirin, which originally was a trademark of Bayer for their drug containing acetylsalicylic acid. Aspirin is now a generic name. Another example is "xerox," (lower case spelling) used as an adjective or verb, derived from the trademarked "Xerox," used by the Xerox Corporation to describe its process of dry ink copying. Xerox has spent millions of dollars in recent years to reinforce its brand and deter generic use of the term "xerox" for copies made on copiers other than those made by Xerox.

CASE STUDY

The Econoclast, Inc. was incorporated by Professor Cosgrove in 1979 and has provided capital market publications to institutions since that time. It is independent of the University of Dallas. Professor Cosgrove also has been a contributor to Blue Chip Economic Indicators since 1983 as well as to the Western Blue Chip State Economic Forecast since 1989. He has been a contributor to The Wall Street Journal forecasting survey since 1994. Cosgrove also contributes to various other entities including Reuters U.S. Economic Survey and MacroMarkets Home Price Expectations Survey. In other words, Cosgrove has spent significant time and resources in developing customer recognition and goodwill in the Econoclast® mark. Note the Cosgrove, Marsh and Chester paper for infringement cases for 2005 and earlier.

One of the cases from the 2005 study had not been resolved at the time that paper was published. In brief, that case involved Dr. John Palmer, a professor at the University of Western Ontario, who had started a blog on economics called "Econoclast." U.S. trademark law does not apply in Canada, so legally Professor Cosgrove had no recourse. Nonetheless, Dr Palmer was sent a cease and desist letter. The question in this case is whether Dr. Palmer felt he had a moral duty not to engage in trademark infringement, even if he did not have a legal duty. He subsequently changed the name of his blog to "The Eclectic Econoclast", but that did not alter the trademark confusion issue with Econoclast®. In the meantime, Cosgrove had employed a law firm to obtain a trademark in Canada. Dr. Palmer eventually altered the name of his blog to "ElecEcon" to avoid infringing on Cosgrove's Econoclast® Canadian trademark.

An interesting aspect of that case was that the American Economic Association, based in the United States, initially hosted a link to the Canadian Econoclast site, which meant that the American Economic Association appeared to be infringing on a U.S. trademark. That issue was resolved with AEA. But the possible infringement issue with the AEA was a surprise in that it took a lengthy amount of time to resolve the possible infringement issue. Professors expect students to do an internet search to avoid the possibility of plagiarism and/or a copyright/trademark violation before submitting term papers. The AEA presents itself as the public spokesman for academic economists in the United States and normally adheres to the highest ethical and intellectual standards, but it is not clear to this day what level of due diligence the AEA engages in before adding links to its website.

Illustration I - Possible International Infringement

Dr. Ron Woods in Australia had a site called Econoclast. U.S. trademark law does not apply in Australia, so legally Professor Cosgrove had no recourse. Mr. Woods was sent a cease and desist letter anyway. The question in this case is whether Mr. Woods felt he had a moral duty not to engage in trademark infringement, even if he did not have a legal duty as was the case with Dr. Palmer in Canada.

This situation, like the one in Canada, introduced an interesting legal issue. The internet is essentially a global community in which national borders become meaningless, yet laws defining intellectual property rights can only be enforced within national jurisdictions. Even though U.S. trademark law is not applicable in Australia, residents of the U.S. can access the site in Australia, and Econoclast® is a registered trademark in the U.S. and in Canada. Since Econoclast® is available via the internet, the mark, in one sense, has already been published in Australia. Thus, it may be possible that Australian law could afford some protection to Econoclast® under common law.

In addition the USPTO considers web pages to be valid evidence of "use in commerce" for purposes of applying for Federal trademark registration. However, the question remains as to the geographic limits of this "use in commerce."

Professor Cosgrove found it necessary to employ a law firm in an attempt to obtain a trademark in Australia. That was in the 2006-2007 timeframe. Mr. Woods also decided to apply for a trademark for Econoclast in Australia. At one point, both applications were pending for the right to own the Econoclast trademark registration in Australia.

After significant resources were allocated to that issue, Mr. Woods allowed his application to expire and the Cosgrove Econoclast® application was registered in Australia in August 2007. That should have resolved it, but there continues to be a likely infringement issue with Mr. Woods.

Illustration II - Likely Infringement within the U.S.

Professor James K. Galbraith at the Lyndon B. Johnson School of Public Affairs, at the University of Texas at Austin, was writing a column entitled Econoclast for Mother Jones, a nonprofit magazine. Professor Cosgrove noticed the likely infringement issue in 2007 and sent cease and desist letters by certified mail to Dr. Galbraith, John Harris at Mother Jones, as well as to James Steinberg, the then Dean at the Lyndon B. Johnson School of Public Affairs on May 25, 2007.

Mr. Harris, President and Publisher ?? Mother Jones, responded in writing on May 31 saying that they had no idea the word "Econoclast" was trademarked and said, "we are happy to assure you that we will not" (use Econoclast.) No written response was received from Dr. Galbraith or Dean Steinberg. Mother Jones stopped using Econoclast® with a minimum of transaction costs. It may be that Mother Jones had no idea Econoclast® was federally registered and Dr. Galbraith may have been similarly ignorant. However, professors lecture their students on the importance of not plagiarizing and violating trademark/copyright law. Professors, in cases, may not accept an excuse such as, "Gee, I had no idea." An internet search would have resolved it on the part ?? Mother Jones and/or Dr. Galbraith. Moreover, as cited above, the existence of a federal registration is constructive notice to everyone in the United States of the existence of Professor Cosgrove's ownership of Econoclast®.

Below is a copy of the partial home page of Dr. Galbraith that was posted at LBJ School in May 2007:

James K. Galbraith

Lloyd M. Bentsen, Jr. Chair in Government/Business Relations and Professor of Government

Contact Info:

Phone: 512-471-1244

Email: galbraith(a>,mail. utexas.edu

Office: SRH 3.237

Spring 2007 Office Hours:

Tuesdays, 1:30-3:30 p.m. or by appointment

James K. Galbraith teaches economics and a variety of other subjects at the LBJ School. He holds degrees from Harvard (BA. magna cum laude, 1974) and Yale (Ph.D. in economics, 1981). He studied economics as a Marshall Scholar at King's College, Cambridge in 1974-1975, and then sen>ed in several positions on the staff of the U.S. Congress, including Executive Director of the Joint Economic Committee. He was a guest scholar at the Brookings Institution in 1985. He directed the LBJ School's Ph.D. Program in Public Policy from 1995 to 1997. He directs the University of Texas Inequality Project, an informal research group based at the LBJ School.

Galbraith has co-authored two textbooks, The Economic Problem with the late Robert L. Heilbroner, and Macroeconomics with William Darity, Jr. He is the author of Balancing Acts: Technology, Finance and the American Future (1989) and Created Unequal: The Crisis in American Pay (1998). His most recent book, Inequality and Industrial Change: A Global View (Cambridge University Press, 2001), is co-edited with Maureen Berner and features contributions from six LBJ School Ph.D. students.

Galbraith maintains several outside connections, including serving as a Senior Scholar of the Levy Economics Institute and as Chair of the Board of Economists for Peace and Security. He writes a column called "Econoclast" for Mother Jones, and occasional commentaiy in many other publications, including The Texas Observer, The American Prospect, and The Nation. He is an occasional commentator for Public Radio International's Marketplace...

Either Dr. Galbraith or an assistant must have entered this information about Econoclast® - Cosgrove' s trademark. Professors expect students to do an internet search to avoid the possibility of plagiarism and/or a copyright/trademark violation before submitting term papers. The experience of Professor Cosgrove with his Canadian case, the American Economic Association experience and his experience with Galbraith suggests that perhaps professors should follow their own suggestions to their students and check the internet for copyright/trademark infringement issues. Dr. Galbraith no longer has Econoclast on his home page.

But the Bill Moyers Journal, in a 2008 link, still had Econoclast associated with Dr. Galbraith:

http://www.pbs.ors/movers/iournal/10242008/profile.html

Bill Moyers Journal

October 24, 2008

When last week began, minders of the world's major economies had gathered together to hammer out a coordinated strategy for stabilizing the world economy. In response, investors kicked off the week with the biggest single-day percentage gain in the Dow Jones industrial index in seventy-five years. Thus commenced a roller-coaster week on Wall Street, with stock markets gaining and losing huge amounts daily before ending low on Friday.

Markets this week remained volatile, as traders reacted to a steady stream of bad economic news in the US and abroad. Economist James K. Galbraith joins Bill Moyers on the JOURNAL to help make sense of the state of the economy, the efficacy of the bailouts, and how we got here.

James K. Galbraith is currently the Lloyd M. Bentsen Chair in Government and Business Relations and Professor of Economics at the LBJ School of Public Affairs at the University of Texas at Austin. He holds degrees from Harvard (B.A. magna cum laude, 1974) and Yale (Ph.D. in economics, 1981). He studied economics as a Marshall Scholar at King's College, Cambridge in 1974-1975, and then sen>ed in several positions on the staff of the U.S. Congress, including as the Executive Director of the Joint Economic Committee. He was a guest scholar at the Brookings Institution in 1985 before joining the faculty at the University of Texas. From 1995 to 1997 he directed the LBJ School's Ph.D. Program in Public Policy. He held a Fulbright Distinguished Visiting Lectureship in China in the summer of 2001 and was named a Carnegie Scholar in 2003. His recent research has focused on the measurement and understanding of inequality in the world economy, and leads an informal research group called the University of Texas Inequality Project with several of the school's distinguished graduate students.

Professor Galbraith has co-authored several books including: BALANCING ACTS: TECHNOLOGY, FINANCE AND THE AMERICAN FUTURE (1989), CREATED UNEQUAL: THE CRISIS IN AMERICAN PAY (1998), INEQUALITY AND INDUSTRIAL CHANGE: A GLOBAL VIEW (Cambridge University Press, 2001), which was coedited with Maureen Berner and features contributions from six LBJ School Ph.D. students, UNBEARABLE COST: BUSH, GREENSPAN AND THE ECONOMICS OF EMPIRE (2006) and his latest book THE PREDATOR STATE: HOW CONSERVATIVES ABANDONED THE FREE MARKET AND WHY LIBERALS SHOULD TOO (2008).

Professor Galbraith maintains several outside connections, including serxdng as a Senior Scholar of the Levy Economics Institute and as Chair of the Board of Economists for Peace and Security. He writes a column called "Econoclast" for MOTHER JONES, and occasional commentary in many other publications, including The TEXAS OBSERVER, THE AMERICAN PROSPECT, and THENATION. He is an occasional commentator for Public Radio International's MARKETPLACE. Published October 24, 2008.

An issue with owing trademark rights is that it is the responsibility of trademark owners to be vigilant in ensuring that their mark is not being infringed and to bear the burden of asserting their rights. The USPTO doesn't police infringement or assert the rights of registered trademark owners. In addition, the USPTO will not advance a case in court on behalf of trademark owners.

The USPTO also considers web pages to be valid evidence of "use in commerce" for purposes of applying for Federal trademark registration. However, the question remains as to the geographic limits of this "use in commerce."

Illustration III - A Case which may or may not be Infringement

In October 2009, Professor Cosgrove happened to be watching CNBC one evening and Brian Domitrovic was introduced as having written Econoclasts, a recent book. Mr. Domitrovic is an assistant professor at Sam Houston State University, Huntsville, Texas, in the History Department. Professor Cosgrove has been using Econoclast® since 1979 and is always surprised to learn of professors at other universities who suddenly decide to adopt Econoclast® for their personal use.

An attorney, at the time, suggested that book titles were exempt from trademark law. A general legal principle is that while the contents of books may be copyrighted, book titles per se cannot be copyrighted. You can write a new book and call it The Godfather or Jaws if you wish. There still might be an infringement issue, but it could hinge on technical details.

The relationship between trademark law and book titles can be divided into two basic categories. The first category - books in a series - typically follows traditional trademark principles, whereas the second category - titles to individual books or novels - is not afforded trademark protection. For example, The Seven Habits of Highly Effective People is a registered trademark of a series of books, pamphlets, audio tapes and other media describing personal and leadership development skills. The Seven Habits series of books and other media can register a trademark because it is a series of books and other media that are linked by the title and content with a certain format of leadership development skills marketed by the publisher.

As mentioned above, the Lanham Act provides trademark protection to words or phrases that identify a product or service because it is associated with that product or service. In the words of the courts, it is "distinctive" more than just "descriptive." A single published work cannot be inherently distinctive because the words of the title identify a book, not its source (Herbko 2002). "Titles of single works merely serve to describe the work no matter how unrelated to the book contents." (Herbko 2002, Cooper 1958) While a single work of fiction is not afforded protection under trademark law, a single book title may be protected under copyright law until the expiration of the copyright.

In this case, Econoclast® is a registered trademark of Econoclast, Inc., whereas the book titled Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity, could not receive trademark status because it is a "single published work." (Herbko 2002) It could be that Econoclasts: The Rebels JVho Sparked the Supply-Side Revolution and Restored American Prosperity may possibly infringe on the Econoclast mark if the book discusses similar types of economic theories regularly espoused in the Econoclast and could increase the likelihood of confusion from the customer's point of view.

However, it did not seem worth it to hire an attorney because Mr. Domitrovic had not used a major publisher. Nonetheless, a letter was sent to David E. Payne, Ph.D., Provost and VP of Academic Affairs at Sam Houston State University, with a copy to Dr. Terry Bilhartz, Chair, History Department at Sam Houston State.

Provost Payne responded essentially stating he had checked and this is an issue with Dr. Domitrovic if Dr. Cosgrove should decide to pursue it. The History Department at Sam Houston State University lists the book on its website: Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity ... by Dr. Domitrovic. It isn't clear what role Sam Houston State has in this.

Again this case may not technically be infringement or plagiarism, but Professor Cosgrove is nonetheless surprised by the frequency with which university professors suddenly have the insight to use Econoclast®, in particular, since most professors lecture their students on the importance of avoiding plagiarism and/or copyright/trademark violations before submitting term papers.

Illustration IV- Possible International and likely U.S. Infringement

In early August 2010, we happened to search the internet for possible infringements of Econoclast®. Much to our surprise, we found that the Financial Times had a blog called Econoclast. Shortly after we noticed it, a friend sent us an email that contained the following:

Financial Times

The Financial Times has launched a new blog called Econoclast which will focus on macroeconomics, economic policymaking and the financial markets. It will be written by Gavyn Davies, a macroeconomist who is now chairman of Fulcrum Asset Management and co-founder of Prisma Capital Partners. He was the head of the global economics department at Goldman Sachs from 1987-2001 and was chairman of the BBC from 2001-2004. Gavyn also sen'ed as an economic policy adviser in No 10 Downing Street, an external adviser to the British Treasury and a visiting professor at the London School of Economics. His blog can be read online at http://bloss.ft.com/econoclast/ and followed on Twitter at wwwtwitter. com/fteconoclast

The Financial Times is one of the leading business newspapers in the world. If some entity started a blog called the Financial Times, one might expect that the Financial Times legal team would attempt to punish that entity to the fullest extent possible as an example so that others might be less likely to do something similar.

On August 3, Cosgrove sent emails to the COO of Prisma Capital Partners, since Mr. Davies is associated with that entity, and several individuals at the Financial Times. On August 4, we received an email labeled "Private & Confidential" from a Senior Legal Counsel at the Financial Times. The essence of the letter was that the Financial Times had made the decision to use Econoclast and not Prisma Capital or Mr. Davies.

That case ended with very limited transaction costs on Cosgrove's part, but the interesting question is, "Why would the Financial Times start a blog called Econoclast® when it is very clear to anyone checking for possible conflicts that the Econoclast® was already trademarked?"

SUMMARY

Trademarks are a form of intellectual property, similar to patents and copyrights. Infringement of trademarks is a violation of property rights under U.S. law and international conventions. One of the authors (Cosgrove) incorporated The Econoclast which owns the trademarked name Econoclast®, the title of his capital markets service. Since this trademark has been in use since 1979, violators cannot use the excuse that it escaped their attention because it is so new.

Nonetheless, most of the infringement cases cited here were perhaps inadvertent. The Econoclast® is not as well known as The Wall Street Journal and Professor Cosgrove is not a celebrity economist of the likes of Paul Krugman or Larry Summers.

On the other hand, modern technology has made the cost of searching for prior trademark claims exceedingly low. It is surprising that there seems to be a high degree of carelessness on the part of people and entities that should know enough to run an internet search to determine if there might be a copyright/trademark issue. Are people and entities that careless, or do they somehow think trademark and/or patent law doesn't apply to them? Fortunately, the majority of possible infringements of the Econoclast® were halted at low cost with ceaseand-desist letters. But at the time of this writing, there does remain a potential dispute with one of the cases.

Subject: Trademarks; Infringement; Case studies; Litigation

Location: United States--US

Classification: 9190: United States; 4300: Law

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 2

Pages: 19-26

Number of pages: 8

Publication year: 2011

Publication date: Mar/Apr 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: References

ProQuest document ID: 862378360

Document URL: http://search.proquest.com/docview/862378360?accountid=38610

Copyright: Copyright Clute Institute for Academic Research Mar/Apr 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 36 of 100

Case Study: Horseplay In The Workplace

Author: Lucas, John J

ProQuest document link

Abstract:

This HRM case examines the concept of "Horseplay" in the workplace as clerical employees were playing "popcorn basketball." This case is based upon an actual event that occurred in a business unit of a Fortune 500 company. The case study can be used for any undergraduate or graduate level human resource management class. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

One afternoon, two clerical employees, who were members of the International Brotherhood of Electrical Workers (IBEW), observed a management employee sleeping in his chair with his mouth wide opened. The employees decided to play "popcorn basketball" by throwing pieces of popcorn at the wide opened mouth of the management employee. In essence, they were using the management employee's mouth as a basketball rim. After a few attempts, one bargaining unit employee was successful and landed a couple pieces of popcorn directly into the mouth of the sleeping management employee. The management employee started choking on the pieces of popcorn that had lodged in his mouth. The two bargaining employees were laughing profusely at the reaction of the startled employee. The management employee, still somewhat dazed, started screaming at the two employees with abusive and foul language. With such a loud commotion in the office, the department head came in and had to intervene to end this disturbance in the workplace.

UNION'S POSITION

Management employees serve as role models in the workplace. If the management employee was not sleeping, with his mouth wide opened, this event would have not occurred. Additionally, the management employee screamed loudly and used abusive language towards the clerical employees when he awoke from his afternoon nap during working hours. Clearly, this is just another glaring case of the abuses that our union members encounter at the company.

COMPANY'S POSITION

The company agreed that management employees must serve as "role models" in the workplace. Therefore, the management employee should have not been sleeping nor used any type of abusive language towards the clerical employees. His actions were totally unacceptable and he will be disciplined accordingly. However, the fact remained that the clerical employees were "horseplaying" during working hours and must be disciplined for their inappropriate actions. The company has a zero tolerance for "horseplay" in the workplace, as described in the company's handbook that is given to every employee.

QUESTIONS FOR THE CASE STUDY

1. What is the appropriate discipline for the management employee based upon his actions?

2. What is the proper discipline, if any, for the clerical employees for "horseplay" in the workplace?

3. What possible recourse, if any, is available to the clerical employees, if they deemed the discipline as excessive?

4. What other course of action can the company undertake to reinforce that there is a zero tolerance for "horseplay in the workplace?"

INSTRUCTOR'S NOTES

This case provides an interesting examination of the concept of "horseplay in the workplace" and the appropriate course of action if it should occur in the workplace. The case can be used in any undergraduate or graduate level human resource management class. It is designed to be conducted as a group assignment or general class discussion within one class hour.

Subject: Work environment; Employee attitude; Human resource management; Case studies; Quality of work

Location: United States--US

Classification: 9190: United States; 6100: Human resource planning

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 2

Pages: 27-28

Number of pages: 2

Publication year: 2011

Publication date: Mar/Apr 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

ProQuest document ID: 862378758

Document URL: http://search.proquest.com/docview/862378758?accountid=38610

Copyright: Copyright Clute Institute for Academic Research Mar/Apr 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 37 of 100

Heavy Construction Systems Specialists, Inc. (HCSS)

Author: Roche, Olivier; Shipper, Frank

ProQuest document link

Abstract:

Heavy Construction Systems Specialists, Inc. [HCSS] designs and sells hi-tech software to the heavy/highway construction industry. The case describes a unique corporate culture that has made HCSS a business success in a highly competitive industry. The company's employees discuss in detail why they bought into the concept of employee ownership while Mike Rydin, the firm's CEO, explains the advantages but also the limits of this very successful business model. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

"Never settle for being as good as you currently are"1

HCSS was founded in 1986. For the first few years, the company's office was in the home of its founder and president, Mike Rydin. Mike had previously worked in the estimating department of a large heavy construction company where he understood, firsthand, the importance of bidding and time crunches." He decided to address this critical issue. Within a few years he hired his first employee, a programmer named Carl, and they created a software package, the DOS version of HeavyBid. This estimating software was made for infrastructure contractors who bid on projects ranging from $50,000 to over one billion dollars. A key feature this young company offered was 24/7 product support; this was unusual at the time. Many times calls for help came in the middle of the night and were responded to by the president himself. Today HCSS still offers 24/7 instant support, now to over 3,500 companies.

In 1989, HCSS moved into its first office building and the company has continued to expand ever since. Starting as a single-product company, HCSS's product lines currently include a half dozen other software programs. HeavyJob, for example, gives foremen the kind of information they need to manage their work responsibly and efficiently. On a daily basis, this job tracking software transforms the information collected from the construction site so that it can be used at headquarters by management. This includes time card entry on both PC and handheld devices, instant production/cost analysis, and billing and forecasting, all of which interface with the contractor's accounting software. Another example of successful software developed by the company is Equipment360, an equipment maintenance program that gives a company/customer the ability to track, identify, analyze and resolve equipment maintenance issues before a major problem occurs. This delivers cost savings to the company through less down time and fewer major equipment repairs, as well as lower fuel consumption. [A complete listing of the company's product lines is provided in Appendix I].

Today the company has 110 employees and sales of almost $18 million [see additional financial data in Appendix 2]. In August 2009, the company moved into its own 45,000-square-foot state-of-the-art facilities in Sugar Land, Texas, near Houston. Mike appreciates that HCSS has come a long way from its humble beginnings, yet he considers that much remains to be accomplished; there is always room for improvement. In the case of HCSS, this company growth has happened at the same time as adjusting to a more challenging economic environment with the downturn of 2008-2009. HCSS has managed to keep its business profitable during this period, and Mike plans to resume the company expansion in 2011. The new facilities are built to accommodate twice as many employees as the company currently has. Mike is confident that HCSS has the financial resources to achieve its target growth, which is to double its activities over the next three years. While adding additional human resources has always been a challenge in this industry, HCSS has so far been very successful in attracting and retaining motivated and highly capable employees while increasing its activities at a double-digit growth rate.

BUSINESS ENVntONMENT AND STRATEGY

HCSS operates in a highly competitive environment. In addition to large companies offering standardized software with an established brand, such as the traditional Microsoft Excel software package, there are also a host of small companies, such as "BID2WIN" or "Hard Dollar," offering customized software.

For HCSS, a smooth interaction with its customers is not only critical to increase sales but also to develop new products. Over the years, most of the ideas for new products have come out of discussion with customers. As one of the company's software development managers Minh likes to repeat to the new recruits, "Our software is developed by our customers. The customers tell us what they need and we simply deliver what they want."

While this statement is true, it is deceptively simple. The most important part of the work actually takes place between the phase of listening to what the customers want and that of delivering the right product. The next critical piece is the reliable and personable after-sale support. The company's competitive edge lies in the implementation of this inventive phase where the employees translate a customer's needs into software that meets or exceeds their requirements, at the same time maintaining high standards of work ethics and the motivation to solve customers' problems in an efficient and timely manner. No doubt, the skillful communication and good relationships between the marketing, sales, development and support departments are major factors in this seamless service delivery [see the organization chart in Appendix 3]. To achieve this level of coordination, employees have to be responsive, creative and flexible. They must be able to address customers' needs at the same time they are team players, looking beyond their own department's interests to look at those of the company as a whole. In other words, each employee has to behave like an entrepreneur developing his own business.

Minh [Manager, Software Development] : "I think it [i.e., the employee 's ownership mentality] means that I need to do whatever it takes to take care of the issues that come up. Having pride in what you do and deliver. I think a reflection on the entire company is what we're delivering. How we connect with customers. How we talk to customers. Having that ownership ofi 'Whatever I do does make an impact. ' In my group, in particularly, I really emphasize the importance of team chemistry, teamwork; getting people involved early beyond the scope [of their regular duties]. We endorse creativity and we want that from our employees. It's not, 'Here's your job, go do it. ' It's, 'Whatever you want to do. Come to me and let me know what your ideas are. ' We really foster the idea that you have and help you grow it."

At a more senior level, there is also an understanding that a corporation is a legal structure necessary to run operations and deal with other organizations. However, the company's real business and competitive advantage resides one level below. That is where the relationship between HCSS employees and the customer's employees develops and the problems of the latter are understood and resolved.

Tom [Vice President of Technical Services]: "So from an employer's standpoint, we wanted to make the kind of company that people wanted to stay at and be part of for the long teim. And then from a software supplier standpoint, the thing that infuriated more customers than anything was the lack of ability to get somebody to go actually help them. The whole trend in software over the last 15 years has been to outsource your support and outsource your development. So all the parts of the software company got further and further away from their customers. The programmers just became people who wrote code, and the quality assurance personnel just became somebody who didn 't really know the product, but they knew how to press the buttons to break the code. Support just became somebody to look through a manual and answer questions over the phone. We wanted to do just the opposite ofthat. So we 'reverse modeled' as an employer, but we also 'reverse modeled' as a business. We wanted to be the kind of company that our customers and our employees would have relations with and know each other."

This "employee-to-employee relationship approach" focuses on people's needs and not simply on business needs [see Appendix 4 for a description of the company's culture and its branding]. It can be illustrated by two examples of special services provided by HCSS. The first is the "Help-inar," developed by Tom (VP, Technical Services) three years ago. This concept is based on the premise that to develop a genuine relationship with potential customers, the best person to market HCSS services is not always a salesman. Tom, with a background in psychology, believes that rather than being in the business of selling services, the company is there to solve customers' problems. Since most of the actual end users of the software are the client companies' "techies," the best people to interface with them are HCSS "techies," without the interference of the sales department.

Tom [Vice President of Technical Services]: "And all a 'Help-inar' is, we take our technical people and travel them around the country and put them in a meeting room in a hotel. Customers can come in and ask them questions all day. They just get help. The end result ofthat is - the customers love it. They're able to come in and get help, but then also hear about some of the other stuff that we're doing and a lot of our new products. So they become sales events, but there 's no salesman there. It 's only the technical people, which mean that customers hear what you 're doing, but they don't hear it with a sales spin. They're hearing from an employee who's technical in nature, which they almost take that differently."

At that stage of interaction, removing the salesman from the equation allows HCSS to establish a different relationship with its customers. It also allows the company to find ideas for its new products without the filtering of the sales department.

The second service provided by HCSS is instant support. Mike considers this to be fundamental. When clients encounter technical issues with the company's software, they contact the support department; with 24-hour live support, there is no waiting. During conferences and industry fairs, end users talk to each other and share their experiences with various software providers. HCSS's responsiveness to its customers' needs is now well-established in the industry and this has contributed to the firm's rapid development to become a leader in the construction and heavy highway market.

Tom [Vice President of Technical Services]: "It always sounds kind of old and stale to say your people are your competitive advantage, but I think that it's not just the people here, it's the combination of the people without the restrictive rules that keep them from connecting with customers."

HUMAN RESOURCE PRACTICES AT HCSS

Hiring the Right Employees

HCSS uses several methods to recruit, like many other organizations in the industry. In addition to advertising on the web and in local media, candidates are recommended by former colleagues. The recruitment process has evolved over time, but it has always been very thorough, to the point where it is sometimes perceived as lengthy to a fault, especially when there is pressure to fill a critical position. Indeed, recently Mike and the senior management team were seeking to hire a marketing director to fill a role that had been open for almost a year. The most recent candidate, after six interviews, was not hired. At the same time, there were eight other more junior positions open. Mike was optimistic that they would be quickly filled with the current high unemployment rate; nevertheless, with so many people involved in the selection process, staffing an empty slot is a time-consuming endeavor. Unlike the recruitment process in many other organizations, Mike, and other senior executives are directly involved, not only for senior positions such as marketing director, but also for entry-level positions. At the midmanager level, future team members participate in the process. Between human resources' criteria and that of the functional departments, Mike is aware that there are slight differences in the traits required for the best candidates, which leads to lengthy discussions. Mike supports this "collective wisdom;" the discussions are ultimately very healthy.

The result of this extensive process is a workforce well appreciated by HCSS clients for both its technical expertise and its diligence in solving problems. In addition, HCSS has a very low annual turnover (usually in the 23% range). Mike believes that time invested up front is time saved later in several ways. It avoids a situation where employees who cannot adjust to HCSS corporate cuitare have to be terminated and replacements hired, and it saves the training that would be required for those replacements.

Over the years, employees have joined the company for various reasons. The remuneration package is attractive, but it is not the principal factor. Indeed, in some cases, particularly at the lower levels, employees only realize how generous it is once they have experienced the profit sharing program, which may be six months to one year after they have joined. Instead, most employees quickly learn to appreciate the "intangible" advantages associated with a position at HCSS. Through the open dialogue in the lengthy interview process, candidates learn about the atmosphere in the company and its casual environment. Both parties learn about the other; in the end, both must feel that there is a good match.

Sebabi [Organizational Development Manager] : "Before I accepted the position, I asked, 'I'd like to talk to some of the employees just to find out what they really think about the company and the culture... Sophie said, 'Sure. You can come this afternoon. You can talk to anybody you want. Just walk around and pull anybody you 'd like. ' I mos going 'What? You 're not going to tell me, "Talk to this person or only that person "? ' And that impressed me. And that helped me to know that it was the right decision to come here, knowing that I could talk to anybody. And I came and talked to a few people, but just that freedom to talk to any employee stood out to me."

By talking to so many potential colleagues at different levels, both the employer and candidate are able to evaluate if they have work/family values and work ethics in common. If they do, the candidate is hired.

Melissa [Business Analyst]: "That goes back to the ownership mentality that your peers are the ones you're working with every day. They probably have a really good idea whether you're going to fit into their little group or not, and how you're going to react with the different personalities in their group."

HCSS treats its employees very well but performance is expected. Even after the extremely selective interview process, in some critical and customer oriented departments, such as support, the turnover is substantial during the first 90 days of employment. For a small company operating in this industry, there is very little room for slackers or people who don't share the same work ethics and "can do" attitude.

Eric [Major Account Manager]: "Some get weeded out in those 90 days. [During the interview] they may say all the right things like, 'Oh, I'm loyal to customers. I have a good attitude. I'll go the extra mile. ' Until you get them over there and let those guys [other employees in the support department] determine that, you don't really know. If you ask our customers, 'What's the biggest thing here?' it's the support, your attitude, your attitude towards support. And if someone comes in and they don 't have that, they don 't come close to making 90 days."

That said, past the 90-day introductory period, the voluntary turnover is only around three percent. This is very low for a company operating in this industry. In 90 days, both parties will have assessed their compatibility.

In terms of background, HCSS is quite open with regard to the profile of its employees. This reflects the diverse background of the senior management and the belief that during his/her career at HCSS, an employee will assume many responsibilities that were not anticipated when drafting the initial job description. In this way, the "can do" attitude, motivation and aptitude to learn, are as important as a degree or past experience. HCSS hires a person knowing that his/her job functions will continue to be adjusted, either because of changes in the challenges facing the company, or to adapt to the person's abilities and willingness to accept responsibilities and grow within the organization.

The recruitment process of Daniel, the receptionist and corporate ambassador, is a good example of the company's philosophy. Even the double title is illustrative. After completing a dual degree in international business and Spanish, Daniel was hired by a large US company. As he was about to finish his training program to become a manager, he decided to leave, unhappy with the corporate culture and the working conditions. Daniel decided to go back to school to get a Master's degree in acupuncture, but at the same time he applied for the HCSS position as a receptionist. He was interviewed by human resources, his future manager and colleagues, and finally by Mike. He was obviously overqualified for the position, but during the interview process his interest in health and wellness was discussed. One thing led to another and his job evolved, based on the qualities he offered.

Daniel [Corporate Ambassador]: "When I first started, I was asked if I would actually take on more responsibilities to help out some of the other managers [in the wellness area]. And they just thought I'd be a natural fit for it. I really enjoyed it. [After a couple of months] I realized that I needed more feedback from more people in the company, so I helped form a wellness committee, where one person from every single department is represented and they come to the meetings and we figure out where we want to go with the wellness program in the company. ...I'm the lowest rung of the company and yet I can go and talk to the CEO."

New Employee Orientation/ Acculturation Process

At HCSS the support provided to employees during the first few months of their assignment is as important as the initial recruitment process. In a traditional orientation program, companies spend most of their time discussing matters such as benefits, health insurance, how to log into the network systems, and various company policies. These topics are also covered at HCSS, but most of the orientation program is spent discussing the history of the company, the characteristics of the industry, the interpersonal relationships within and outside the company and why these are so important for the success of HCSS.

In addition, the company has developed a mentorship program in which a new employee is paired with an experienced one from another department. The mentor acts as a "confidante" to make sure that the integration process is progressing smoothly. The new employee can feel free to discuss any personal or family issues, as well, which is why it is important that the two work in different departments.

Finally, because of the rapid expansion, senior management decided that there was a need to organize additional opportunities for a direct interface between new employees, their families and the senior management team.

Tom [Vice President of Technical Services]: "It's hard to connect with new employees now because there are usually multiple layers. So between them and myself, there are a couple different levels of supervision. They don 't really work with me all the time. Between them and Mike, there's another level of supewision. So we try to do things with new employees where they get some one-on-one time with the executives at the company as a way for us to tell them what HCSS wants to be, and why we want to be that, and we 're going to get there. So we have dinners that we do when we hire a new employee. Or we'll take the new employee and the spouse to dinner with the executives, and so that the new employee and the spouse both get the opportunity to meet us. And we get to meet them and just kind of break down the barriers a little bit. And we do some stuff within their orientation where they get the chance to talk to the executives at the company."

Performance Review, Development and Job Promotion

At HCSS, the collective hiring process described earlier is perceived as a logical preliminary step; the annual employee evaluations benefit from a similar 360-degree perspective. It is an anonymous review made up of two components. First, evaluators fill out a questionnaire in which each employee gets numeric grades (one to ten) for performance and ability to work as a team member, seven being considered the company average. Second, a group of peers is selected, usually including the colleagues with whom the employee interfaced the most during the preceding year. The members of this group make anonymous qualitative comments regarding the employee's performance. Then the direct supervisor discusses these comments with the employee to assess in which areas improvements are needed, as well as how to assist the employee in achieving his/her objectives. It is also a good opportunity for the employee to discuss any problem or challenges he or she faces in the organization.

At HCSS, formal titles do not mean a lot. Knowledge, people or technical skills and the ability to solve problems are the reasons an employee is sought out by colleagues or customers. To some extent, job titles are a reflection of these recognized abilities. In this fast-paced environment, employees are problem solvers who do not always follow the chain of command. For instance, employee X may report to Y on the organization chart but he/she will not hesitate to talk directly to Y's supervisor or another colleague of Y's in another department, if this person has the information or the ability to solve the problem at hand.

John [Software Developer] : "I do custom programming. I talk with customers about what they want, help work it up and prototype it for them, make sure this is what they want.. ..I also help support when they have a problem, if they can 't figure it out. 'Is that a bug in the system? ' Or a customer is making a suggestion that needs technical input. 'Is this something that we can look at putting in?' We'll work with the product manager. 'What's coming up?' And ways we can do it. It's a pretty flexible position really, and you can make of it what you want here. I mean, we're not structured in that, 'Okay, in this role, you only do this, and in this role you only do that. ' It 's really, 'How much do you want to do and handle? ' And so really, I think the main core ingrethent at this company is problem solving."

There are several additional reasons why titles are not so important. First, employees, to some extent, "create their own job." They may have been initially hired for a specific task, but their job definition will change over time without any change in their title. As their skills improve, they may be able to spend more time solving other issues or they may discover some other tasks that they like to do or for which they have a natural talent. Second, the company and its environment change constantly. Some tasks disappear or, with experience and/or new software, take less time to complete; meanwhile, the organization faces new challenges. In this fast-changing environment, employees are task-oriented. That is why adaptability and aptitude to learn technical skills and develop people skills to be able to handle emerging challenges are so important within the organization.

Melissa [Business Analyst]: "So what I envision [in the near future] is a lot of the things I currently do now, that I've spent a lot of time on, would be made a lot more efficient, a lot more automated. And then I will look for other avenues to use my skills in the company to make another area better. Or to learn more knowledge about the software we sell. That's one of the beautiful things here is if you do a good job and you have an interest in another area, as long as you do a good job, if you want to move that route, you're more than welcome to do that. Because here we concentrate on what your strengths are [and] how can we use them better."

A final reason is efficiency and cost effectiveness. At HCSS, a good employee is an employee who is versatile and who understands the synergies that can be achieved when departments work together; someone willing to pitch in, whenever and wherever it's needed, for the good of the company as a whole. There is very little room for a "silo mentality" where an employee is only interested by the performance of his/her own department.

Genaro [Regional Manager for Technical Services]: "I've got a few roles. I help manage implementation support for our 1,200 to 1,300 companies in our West Coast region, which includes everything basically west of Texas. Recently, in the last seven or eight months, I've been assigned as the quality assurance manager for our flagship product as well, and took over that department to help kinda get some things in order. I help out with a lot of sales calls in our region, as well, and from some of the other regions, as well."

HCSS also encourages its employees to explore various interests outside the organization. For instance, expenses for employees attending ownership conferences are paid, as are those related to attending meetings of professional associations that present opportunities for development. For example, Chris (Regional Manager for Technical Services &Training and Implementation Manager) participates at conferences as an active member of the National Utility Contractors Association where some of HCSS' s existing and potential customers can be found.

HCSS grooms its own managers and rarely recruits them externally (an exception being the current search for a marketing director). However, while a promotion means facing new challenges, it does not necessarily guarantee an increase in salary or a larger office.

Chris [Regional Manager for Technical Sendees & Training and Implementation Manager]: "I went from technical services to training manager to implementation manager, regional manager, product manager. These are the things that I am going after. They 'Il give you the opportunity, especially if you vouch for one, and you knocked it out. Then you can really move to different areas in the company but none of those [moves] dictates my salary."

HCSS provides tuition assistance for work-related training programs at any University or College. The company also pays for off-premises seminars but primarily relies on peer-training and self-learning. Most employees are self-starters who learn new technologies and other things on their own. The organization has books they recommend, such as First Break All the Rules.3 About half of the staff has read it and participated in book studies. HCSS also offers courses in management and leadership to employees, some of which are taught by company executives. In an example of organizational development through peer interaction, the leadership team, composed of four or five senior managers, meets every month to discuss areas that need improvement. They start with basic information from the "Best Places to Work" surveys and they research what areas the employees would like to see improved in the company.

The attitude of each employee to never settle for what they already know creates a culture where everybody is constantly learning new things to ensure that they are up-to-date with their skills and their abilities to deliver high quality performance for the company. This dynamic self-perpetuates as employees recruit candidates with similar attitudes and abilities. At the same time, the organization supports new initiatives by paying for employees to go to conferences, training programs and certifications. Once these outside programs are completed, employees teach what they have learned to colleagues. HCSS tries to encourage employees to think, "How can I enhance not just my own value but also that of everybody else?"

Genaro [Regional Manager for Technical Services]: "We like to self-learn. I would say that there is some technical training that we 'Il go through, and get everybody; but a lot of times, it 's other people who took it upon themselves first to learn and then they're teaching the rest of us. That's how we keep current with a lot of things. Somebody will go- just the interest in it so much that they figure it out, and say 'Hey. We might, as a support department, need to know about this' and then share that information with everybody else. So, it makes it - and we do send people over to do technical training. We 've done that in the past, but a lot of our guys are better off just tinkering with stuff "

Overall, through the hiring, integration and promotion processes of its employees, HCSS is continuously defining and refining its corporate culture. The end result is that employees tend to be versatile in terms of their abilities and willingness to complete various tasks. They are also "problem solvers," more interested in meeting new challenges than in getting a new title and a larger office. In addition, they tend to be self-starters willing to learn and share their knowledge with other employees. Finally, as noted earlier, there is very little room for the "silo mentality." Employees are networkers who know how to reach out to other communities /departments within or outside the company.

Fringe Benefits and Wellness

HCSS provides comprehensive health care and retirement benefits. The company does not provide day care, per se, but it is very family oriented. In the case of an unexpected circumstance, employees are allowed to bring their children to the office. Often this benefits the company because employees facing emergencies do not have to call in sick; they can still work. This reduces the stress for the employee and at the same time it is another way to connect the employee's family to the work place.

As for the health and wellness of employees, HCSS does not only "talk the talk;" the organization also "walks the walk." In addition to modern workout facilities, a soccer field and a basketball court, there is also a running track on the company's premises.

Maria [Controller] "... You 'Il see people running the track throughout the day, taking walks around the track, and take breaks. Maybe sales will go out and walk around. I don 't know if they 're talking business, but they 're walking around the track. It brings people together. It's kind of a team-building issue, too. "

In addition, HCSS sponsors and pays registration fees for events such as: 5-K runs, marathons and bike races. Some employees prefer indoor activities. Daniel (Corporate Ambassador),4 along with his other numerous responsibilities, organizes Pilates sessions, teaches yoga and is valued as a personal trainer. As well, he provides assistance and advice to employees during lunch breaks.

As for refreshments, company refrigerators are stocked with soft drinks, juices and Gatorade. Each week a different department is in charge of kitchen duty, restocking on a daily basis with fresh fruits and vegetables - avocados, apples, oranges, grapes, carrots, strawberries or whatever is in season and healthy.

Work and Family Life

HCSS organizes picnics and Christmas parties and invites the employees' families. Beyond these formal events, many employees continue their social interactions after office hours on and off the company premises. For instance, when some employees organize a movie night, the company picks up the tab for basic food and drinks. Other employees might go to a show with colleagues and their children. Finally, HCSS tolerates "underground" activities, such as on-line video games on company's computers, as long as it is after office hours.

BUILDING LEADERSHIP AND THE ENTREPRENEURIAL SPHUT

HCSS offers courses and training programs in management. It offers financial incentives to enhance employees' performance, but it does not stop there. Mike believes that perks and training opportunities would not fundamentally change the attitudes of the employees if it was not for the existence of three major characteristics of HCSS corporate culture: access to information, involvement in the decision-making process and tolerance for honest mistakes.

Access to Information

In this fast-changing environment, it is essential for the senior management and decision-makers to keep an "open-door policy," not just in theory but also in practice. An open-door policy does not only mean that any employee can talk to the senior management and the CEO whenever they have ideas or problems. It also means that the senior management will provide them with the information they need to accomplish their objectives without having the manager "breathing down their neck" to make sure that the job is done. Very early in the company's development, Mike realized the limits of the hierarchical structure in which a CEO tells his manager what to do, who in turn tells the employee what to do. As a company grows, the temptation to add layers of management is difficult to resist, but a bureaucratic structure is not particularly cost-effective. Instead, Mike thinks it is better to invest time recruiting the right people, give them the adequate information and let them run their business with little supervision. He decided that a flat structure in which employees assume ownership of their ideas and performance leads to a far more effective organization, particularly when these employees have been selected for their "can do" attitude and their ability to learn on their own.

Melissa [Business Analyst] : "I think that it's important for your employees to feel like they're a part of something bigger. That's a big basis for the ownership culture for me - communicating, open-book policy. It's more like you come here and you work more with family than you do, you don 't just clock in and clock out. I mean you take ownership for the things you do, the things your coworkers do. "

Chris [Regional Manager for Technical Services & Training and Implementation Manager], like the receptionist Daniel, was overqualified for the position that he initially accepted at HCSS. Although he had managed about 80 franchisees in his former job, Chris started as a support technician. Within one year, his managerial skills were recognized and he was promoted to the position of training manager. As a new technician, he had a firsthand experience of the company's open-door policy.

Chris [Regional Manager for Technical Sei-vices & Training and Implementation Manager]: "As we were working on our annual end-users meeting during which 800 to 1,000 people come to Houston to visit with us, I saw an opportunity to refine our knowledge of HCSS customer base. I said to Mark [his supervisor at that time], 'How many of our top customers show up to user group meeting? ' Mark did not know the answer and he asked me to find this info and others. So, I went to our CEO and asked him. It seemed like real internal [confidential] information that you would not give a new employee... and he gave it to me. ..Mike always says he wants to give us the tools to do our job. So, it 's very rare, very rare that you would ask for information on something that Mike wouldn 't share with you. ...He tells us a lot of stuff that I can promise you you'd never hear in another company if you're not on the executive level. From the biggest deals we 're working on to the money we 'Il make out of these deals . . . .He will share this information with us, to make sure that we 're all engaged. ...Because we 're owners, we should know. "

Trusting and Involving Employees in the Decision-Making Process

At HCSS, employees are involved in all major decisions, from hiring future colleagues to the deadline for a software release or the choice of the lay-out for their offices in the new building. One of the recent issues discussed with employees was the need to change the company's insurance provider, as well as the level of coverage that was needed. For these important deliberations, large meetings were held and everyone was invited to share their views and to help make the final decision.

Chris [Regional Manager for Technical Sendees & Training and Implementation Manager]: "I remember this specifically. It was... 'If we spend this much, this is the level of service we would get. ' And if we wanted to increase that, 'We can spend more to get this higher level, but it's gonna come out of our bottom line. ' And at the end of the year, your share of the company 's profits - and we all decided to self-insure some risks but to spend more on others because we wanted a higher level of insurance. It wasn't four or five people at the executive level saying 'This is what we 're doing. ' They let us decide. And that 's just one example of a lot of things. So, yes, we do have a tremendous amount of trust with our executives. "

Nevertheless, HCSS is a company, not a democracy. At the end of a discussion, Mike or a senior manager will make the final decision, notably when there is a stalemate or when an outcome is uncertain. Interestingly, there is less resistance from employees to implement a decision, even if they disagree with the final choice, when all options have been discussed and understood.

Tolerating Honest Mistakes

When an employee makes an honest error which is not repeated and the company tolerates it, there are benefits on two levels. First, it is very difficult for employees to take initiatives if there is zero tolerance for failure. Self-managed employees at HCSS, like managers in other companies, have to make decisions and take initiatives in a complex and fast-changing environment. A lack of tolerance stifles creativity and the entrepreneurial spirit of employees who fear negative consequences for their decisions. Second, a company's negative attitude towards failure inadvertently encourages employees to hide their mistakes as well as the consequences of their mistakes. Often, it is not the initial mistake that jeopardizes the viability of an organization but the long-term consequences of a cover-up when an employee fears sanctions.

Melissa [Business Analyst]: "I was in a test environment. I did a lot of testing to change some things. I accidentally sent out 2,000 alerts and faxes to customers telling them that they had not paid their maintenance fees. I don 't know how accurate they were because we hadn 't been using them in a long time. We immediately get these phones ringing off the wall; our in-boxes get filled with these replies to 'What are you talking about? ' So the first thing I did was I ran to Mike [CEO] and Tom [Supervisor] and I said, 'Look, I just sent out these emails by accident and dah, dah, dah, ' and I was upset. Rather than yell at me or whatever, Tom immediately sent out emails to all the same customers saying, 'We were doing some testing. We apologize for the mistake. '...At the end of the day, we did collect almost $10,000 from clients who had not actually paid their maintenance fees and we also installed a new password system to avoid repeating the same mistake. Here, we accept mistakes. We expect you to learn from them and try not to make the same mistake again. But mistakes are a good way to grow and realize that something needs to be changed. "

CORPORATE GOVERNANCE AND THE MEANING OF "OWNERSHIP"

Governance Structure

HCSS is an S Corporation and the company does not have to disclose any financial information to anyone. Still, they provide some data to Dun & Bradstreet and to large customers, in order to assure the latter that HCSS is a service provider in good financial health before they sign a long-term contract to design and roll out software. HCSS also provides information on financial performance and ongoing transactions to employees so they can assess the size and likelihood of their next "profit sharing" check. For obvious reasons, the company closely guards certain critical information, such as its ownership structures and margins on certain products and services.

With regard to ownership, a few stock options were provided to employees and outsiders who were associated with the start-up during the early years of operation, as well as to a couple of external investors who financed the venture. Otherwise, the company remains essentially owned and the finances controlled by Mike and his family. Only Mike, his wife, Sophie, and Tom (VP, Technical Services) are members of the board and attend board meetings. ESOP, the Employee Stock Ownership Plan, can vote as an entity for the most important decisions, such as the eventual or hypothetical sale of the company. Employees, as individuals, do not vote their shares. Therefore, employees' ownership mentality and sense of empowerment are not only derived from share ownership through ESOP. Indeed, the impact of the share ownership program on employees' behavior is leveraged through management practices that give employees access to information and actively involve them in the decision-making process whenever the company faces key issues. Here the practical meaning of ownership is that the employees "do business" the way an owner would, and the proportional sharing of the company's profit is an integral part ofthat.

Employee Stock Ownership Plans (ESOP)

Within the first few years, Mike had already decided to develop the entrepreneurial mentality of the employees and to encourage their involvement in the company's affairs. Nevertheless, the decision to implement an ESOP was not an easy one. There are pros and cons for employee-owned corporations. HCSS set up a trust and made tax-deductible contributions to it. These discretionary cash contributions were initially used to buy shares from selling owners and, subsequently, shares from employees leaving HCSS or selling their shares to diversify their portfolios. The stocks acquired by the trust are allocated to the individual account of each employee based on the level of their remuneration, which also serves as the basis to compute their end of the year share of the company's profits. At HCSS, 25% of the profit sharing program is paid in shares that go to the ESOP account of each individual. All full-time employees with at least six months of service are included. The accounts vest overtime and, at HCSS, employees are fully vested after six years of service.

In addition to the tax breaks for both the owners and the employees, there are a few other advantages attached to ESOPs. First of all, participants are able to build their nest eggs for retirement while developing a sense of ownership in the company. Second, as employees build their stake in HCSS, there is an increased incentive to stay. This is particularly important in industries with high turnover rates such as the software development industry where employees typically stay an average of only 1 8 to 24 months with the same employer.

There are also a few disadvantages to ESOPs. First of all, employees have fewer options to diversify their portfolio. Indeed, most of the employees living in the Houston area, including HCSS employees, are painfully aware of the Enron bankruptcy. This bankruptcy ended up being particularly costly, especially for employees who had a lifetime commitment to and investment in this corporation; after the bankruptcy proceeding was closed, there was not much left for Enron retirees to live on. Second, as employees build their stake in the company and become majority shareholders, complex decisions can become difficult to make. Every shareholder has a different time frame. When long-term investments such as capital expenditures and research have a negative short-term effect on cash at hand and the profit sharing program, disagreements may emerge and, ultimately, the collective decision may not benefit the long-term interest of the company.

All the above scenarios were carefully considered before setting up the employees' stock ownership plans. Today, Mike still owns 33% of the shares and the employees about 34%. Currently, 19 employees, those who joined the company during its early years, own a majority of the 34%. With the growth of the company, fewer shares were available to newcomers. As a result, over the last few years, these 19 employees were given the option to sell 10% of those shares every year. This allows the more senior employees to diversify their portfolio over time and for the company to have shares available to new employees. The balance, about one-third of the shares, is owned by the few external investors mentioned earlier who either financed the start-up or provided technical advice, such as the accountant, lawyer and programmer who accepted shares in lieu of cash as payment for their services.

Stock Appreciation Rights [SARS]

To complement the ESOPs, it was decided in 2007 to offer additional incentives and to increase the stake that each new employee had in the company. The main objective of SARS was to offer new employees, who had not benefitted from the company's fast growth as a start-up, the opportunity to benefit from future growth. This had to be achieved without offering shares, as they were not available, due to the limitations imposed on an S-Corp capital structure. Any employee who had worked more than 1 ,000 hours during that year was granted rights on 700 shares on the basis of the stock price at that time. At the end of the fourth year, i.e., 201 1, if the stock price has appreciated, each employee will exercise those rights and pocket the difference between the initial benchmark and the value of the stock. This stock appreciation will be considered and paid out as ordinary income.

End-of-Year Profit Sharing Program

At HCSS, the profit sharing program computation is straightforward. The first 10% of the company's net profits is booked as retained earnings for the company's use. The profit sharing pool for employees represents 60% of any profits above the 10% (which, in 2007, was $1.6 million and, in 2009, $0.9 million). The profit sharing pool is then shared among employees, calculated on their base salary. The profit sharing program represents the same percentage of every employee's basic salary, from entry-level employees to senior executives. For 2009, which was a difficult year in the industry, the profit sharing program represented about 17% of the employee's base salary. During better years, it has sometimes reached or exceeded 35%. Seventy-five percent of the profit sharing program is paid in cash and 25% in stocks that go to the employee's ESOP account.

Sebabi [Organizational Development Manager]: "And the thing that impresses me the most is that our CEO and our entire executive team do not sit there and make the assumption that, because they 're at that level, they should get a disproportionately higher percentage of the profits of the company. It is still based on W- 2 wages, of course, whatever your wages are. But everybody gets the same percentage. So if it's 25% for that year, then everybody gets 25% for that year. And I think that really, not only for me, personally, but for every employee, it makes them really buy into the whole concept that we 're all in this together as a company, to help it to be more successful. "

One advantage of the profit sharing program, particularly when the company has an established track record of treating its employees well and fairly, is that some employees accept a pay cut when they join HCSS. Others, particularly at entry level, accept salaries that would be considered low by industry standards. During the long interview process, nothing is more convincing for a candidate than to hear his/her future colleagues talking about their rewarding experience with such a system. By keeping starting salary at or slightly below industry average, the company is in a better position in the case of an economic downturn. However, the company annual raises are far above industry averages and, over time, with or without profit sharing award, an employee's income rival or exceed industry norms.

Besides motivating employees, another major advantage of the HCSS profit sharing program is that it reduces difficulties in relationships between departments with different objectives. For instance, while the sales and support departments have different priorities, employees in one area know that what is good for the other department is also good for them.

Eric [Major Account Manager]: "They [the support department] help me on my demos all the time and you 'd think maybe there 'd be some animosity because they spent all this time on a sale and they 're helping the salesman and the salesman is the one that ends up getting the commission. But that support guy knows that it 's going to the bottom line. It's going to profit share, too. "

In retrospect, Mike reflects that while the initial plan to make employees feel and behave like owners was a good idea, ESOP was probably not the best way to achieve these objectives. Indeed, over the years, ESOP triggered a few unexpected issues in the areas of tax and succession planning. In addition, as ESOP reached a certain threshold, cash payments had to be made to employees selling their shares at times when the company needed the financial resources for its expansion. Finally, ESOP was too complex for most employees to see it as a motivator to join the company and to stay during the first years of their employment.

Tom [Vice President of Technical Sendees]: "The ESOP is important, but it doesn 't get people in the door. And it doesn 't get them excited because a) people don 't understand the ESOP, and b) it takes them a number of years to build enough value in the ESOP where the ESOP becomes attention-worthy."

Profit sharing programs are more palatable than other incentive mechanisms for the employees at any level and far easier to manage by the company during every phase of the business cycle. However, to make the profit sharing program even more meaningful to employees, Mike quickly understood that two additional conditions had to be met. First, the profit sharing program must be easy to understand and the allocation process transparent. Second, the amount paid must be significant and fairly allocated among employees. As noted earlier, transparency and fairness are essential to enhance teamwork within and between departments. Over the years, several employees have mentioned to Mike how many opportunities they had in their daily work to help colleagues. Any assistance provided to a colleague is a plus for the company as a whole and each employee knows that the added value generated will be fairly shared at the end of the year.

Each month a member of the senior management team leads the company lunch meeting to discuss financial performance and the ongoing transactions. However, not every employee has a financial background. Therefore, discussions about financiáis are usually limited to a basic review of the income statement. From the employee's point of view, the main interest is that he/she can estimate in real time the size that the profit sharing pool will attain by the end of the year. In addition, making employees aware of the financial situation by the company directly, as opposed to hearing through the rumor mill, is preferable, especially in a time of financial difficulty. Finally, when efforts such as pay cuts and/or reduced hours are needed during an economic downturn, employees are able to put the request for sacrifice within the current business context. Financial pain is more bearable when it is understood and spread evenly.

Maria [Controller] : "Every week we meet at the company lunch meetings with employees and we discuss various things going on in the company. It's very open. Everybody knows what's going on, what's going on with our products, what's new, what's different, et cetera. Some people go off, visit customers. They'll come back and tell us how that went, what they did, everything like that. But once a month, we will go over the financiáis.... We look at sales. Sale figures, why they might have gone up or down. They'll ask, 'Why is electricity so high this month? '...Pretty much anything. Then we look at our margins and see where they are. "

MOVING FORWARD: EXPANDING WHILE KEEPING A COMPETITIVE EDGE

HCSS is conservatively managed, but well managed. The company has remained profitable even during the economic downturn and, except for the recent acquisition of their new headquarters, the company has managed to finance its activities out of its own cash flow. Therefore, to finance future rapid growth, both internal and external financial resources are available.

One issue Mike has faced since the beginning is the pace of company growth. While subject to market conditions, an unlisted, family-controlled company has no real obligation to grow rapidly. To contrast HCSS with publicly listed compames, at HCSS there is no analyst's meeting at the end of every quarter during which so-called experts, who often do not know much about the industry, pressure for "growth," "upside potential" and "market momentum." Neither are there venture capitalists and institutional investors on the board of the company pushing for a strategy that would deliver a rapid growth in sales and profits in the medium term at the expense of the longterm viability of the company. Mike is not under these pressures. Therefore, one option is to simply maintain the same pace. It took 25 years for Mike to grow the company to its current level and it could take another 25 years to double its size.

But is it so simple? The company has come a long way since its humble beginnings and Mike did not spend half of his life growing HCSS to let it stagnate at its current level. Besides, the company always has new products in its pipeline and in this fast-changing environment, not taking advantage of market opportunities could be very costly in the long term. In this industry, competitors do not sit idle. In fact, HCSS is about to launch a new safety software product with applications not only for companies in the construction industry where most of HCSS 's current customers operate, but also for other industries, especially the large manufacturing segment. This new software offers tremendous growth potential and the opportunity to create real value not only to clients but to employees and shareholders, as well. However, introduction of this new software to a larger market requires the company to grow rapidly to get and keep the first mover advantage.

Could the company double in size over the next three years without destroying its culture and its competitive advantage? Mike recalls that even during the downturn, he still had six or seven entry-level positions open and unfilled. Quite a few applications were received but candidates rarely made it from HR to the department interested in hiring additional employees. In addition to the lengthy recruiting process, for more senior positions, there are other issues.

For instance, considering its current corporate and governance structure, would it be possible for HCSS to attract and motivate the outside talent needed to complement the company's pool of internal managers? If so, what kind of incentive package would motivate these new senior executives to make the organization more efficient without destroying its unique corporate culture?

The company is currently headed by three senior managers: Mike with a background in philosophy, Tom with a background in psychology and Steve with an MBA. It is this unusual mix of creativity and pragmatism, coupled with the fact that none of them are fundamentally money-driven, that made the company a success. Would a "hired gun" take the same pride in growing the business?

In recent years, leaders have been selected internally but Mike is aware of the limitations this creates. As the company grows rapidly, HCSS could find itself led by managers and directors who do not have prior leadership experience. And in fact, the grooming process is time consuming. Situations can also arise where the company does not have internal candidates available. Hiring outsiders is always possible, but it is not an easy process, either. If anything, the ongoing search for a marketing director has proven frustrating and time consuming, considering the number of people involved in the process. Yet the collective wisdom attached to the current selection process has been key to hiring high-quality employees who quickly adjust to the company's corporate culture.

In addition to the human resources issues, both at entry and more senior levels, there are also issues related to the communication flows between departments. Being close to the customer and being very responsive to their needs means that the channels of communication have to remain highly effective. In this regard, is the current corporate structure adequate? Mike is aware of areas that need improvement. The support, implementation and programming departments communicate well together, but the marketing, sales and programming interface is not as effective. Can the company double its size while keeping the same structure?

Even at its current size, communication has become an issue, both horizontally and vertically. Often Mike spots disconnects between the outcome of a discussion of the senior team members and the perception and understanding of this decision by the employees at more junior levels; sometimes the message becomes confused. Mike was adamant that the open-door policy was the best way to communicate directly with everyone but he wonders if this strategy will be sustainable with 200 employees when it is already difficult to succeed with 100.

Mike knows that he must deal with these issues rather sooner than later. In a recent meeting with Chris, he noticed that employees in the customer support department were putting in long hours, even during the economic downturn. While there is nothing wrong with long hours over a short period of time, with business picking up, there is a risk that the situation would lead to the burnout of a few key employees. And in a business that relies heavily on employees' creativity and dedication to customers' needs, this situation cannot be left unattended for long without some unpleasant consequences that would be preferable to avoid.

Subject: Corporate culture; Employee ownership; Human resource management; Corporate governance; Software industry; Case studies

Location: United States--US

Company / organization: Name: Heavy Construction Systems Specialists Inc; NAICS: 511210

Classification: 9190: United States; 6100: Human resource planning; 2110: Board of directors; 8302: Software & computer services industry

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 2

Pages: 29-46

Number of pages: 18

Publication year: 2011

Publication date: Mar/Apr 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables Charts

ProQuest document ID: 862378264

Document URL: http://search.proquest.com/docview/862378264?accountid=38610

Copyright: Copyright Clute Institute for Academic Research Mar/Apr 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 38 of 100

The Rebirth Of Fix: Developing A Market Strategy To Compete In An Industry Dominated By Multinational Companies

Author: Nakos, George

ProQuest document link

Abstract:

This case was developed for the purpose of providing material for class discussion. The authors do not want to illustrate either an effective or ineffective international strategy. It attempts to illustrate the complicated choices that smaller companies have to make when they are competing against large multinational companies. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

A hitos, S. A., the company that produces Zagori, the largest brand of bottled water in Greece, has been a very successful company in its industry. In recent years, due to changing market conditions and the decline in growth for bottle water in Greece, its main market, the company has attempted to diversify its operations by introducing new products. Although a diversification strategy may allow the company to expand its market, at the same time, it may have negative implications. By introducing new products, it will compete directly with other multinational companies that have a commanding position in the Greek market and in the foreign markets that it may decide to expand. A move by Chitos, S.A., to introduce new products in new market segments may invite retaliatory actions by much larger and better financed companies. The marketing strategy that Chitos, S.A. will select will determine whether it will continue to grow and remain a profitable company.

HISTORY OF CHITOS, S. A.

Although the Chitos Company initiated operations in 1955, the firm entered a growth stage only in the last 20 years. The company was established to produce soft drinks for the local market in Northwestern Greece1. The Greek soft drink market at the time was very fragmented with a large number of small companies serving their local markets. Most of these companies were producing orange and lemon flavored carbonated drinks that were selling mostly through restaurants and cafes. When the Greek market opened to foreign competition in the 1970s and large international multinationals entered the market, most of the smaller local soft-drink companies disappeared. By the mid-1980s, the Greek soft drink market was dominated by the local subsidiaries of the Coca-cola and PepsiCo compames.

Probably Chitos, S.A. would have had the same fate if it had not been for a serendipitous discovery combined with the entrepreneurial spirit of the company. The owners of the company realizing that the future of an undercapitalized regional soft drink company in an continuously internationalizing environment was bleak, attempted to transform the company by becoming local bottlers for the products of the Coca-Cola Company. During the negotiations, they purchased two private springs of natural mineral water located in the area of Zagori, a place of unique natural beauty that also claims to have some of the cleanest water in Europe. Unfortunately for the Chitos Company, the Coca Cola Company decided not to partner with them in the production of Coke products. Subsequently, the Chitos Company decided to enter the bottled mineral water market. The market for bottled water in Greece in the 1980s was experiencing an explosive growth fueled by increasing disposable incomes and concerns about the safety of municipal water in certain regions of the country.

GROWING DECISIONS

The strategic decision to enter the bottled water market, originating probably in the desperation of the collapse of the negotiations with the Coca-Cola Company, turned out to be a very smart strategic move for the company. Very fast it became the leading company in Greece, commanding close to 30 percent of the domestic bottled water market". The company has invested in modern bottling facilities with the ability to produce 130,000 liters of bottled water per hour. In addition, it has vertically integrated its operations by investing in the production of plastic lids and other products necessary in the water bottling process3. The modern production process and the complete control that the company possesses over all aspects of production, has led the firm to achieve the safety quality certification ISO 9002 in 1999.

The rapid growth that the company had enjoyed in the last 30 years recently slowed considerably because the bottled water industry probably reached maturity. In 2009, the market for bottled water in Greece experienced, for the first time, a decline in sales, while in the last 20 years the consumption of bottled waters had grown by approximately 8 percent per year. In addition to worries of a maturing market, Chitos had to face increasing competition by multinational companies that had entered the Greek market. PepsiCo, with an 8 percent market share, was a very strong competitor and was planning to complete new bottling facilities in central Greece by 2011. PepsiCo had purchased the historic soft drink company, Ivi, and it was marketing bottled water under that name. Most Greek consumers perceived Ivi as a local brand. The Coca-Cola Company had also a very strong presence with the Avrà brand. Early on, Coke realized the importance of bottled water in the Greek market and it was constantly introducing new products into the market. Characteristically, while bottled water represented 6 percent of Coke's total sales in Greece in 2001, by 2008 water sales represented 2 1 percent of total sales. Other multinationals producing bottled waters locally or importing products were the Danone Company, Nestle, and the local subsidiary of Heineken, Athenian Breweries4.

Faced with a matured and increasingly crowded market, the Chitos Company had to select a new growth strategy that will allow it to grow and retain its profitability against fierce competition from powerful multinationals. The company had several options at its disposal: 1) diversify into fruit-juices, an important market in Greece dominated by the local Coca-Cola subsidiary; 2) create new soft drinks and try to promote them as "local" products versus the products of the large multinationals, a strategy that has been successful for local companies in South America; 3) diversity into alcoholic beverages by producing, for example, beer and wine; 4) diversify into totally unrelated industries; or 5) sell the company to a large multinational.

THE GLORIOUS PAST OF FLX

In a surprising strategic move, the Chitos Company decided to enter the Greek beer market and compete against long-established multinationals which were dominating the market. It decided to resurrect Fix, a defunct historic brand that many Greeks still remember. The Greek beer industry, at least for the first 100 years, was dominated by the beer Fix. The company was established in the 1850s by a Bavarian immigrant that opened a small brewery in central Athens. Gradually, the small brewery grew and monopolized the Greek market. While the unofficial monopoly that the company enjoyed brought substantial profits, it also helped to create an internal culture of arrogance. This resulted in horrible relations with distributors and a lack of a customer- friendly mentality. When foreign competition arrived in the 1960s, retailers and consumers abandoned the historic brand. By the late 1970s, the market share of Fix had declined to single digits and the company declared bankruptcy in 1983. Attempts to revive the historic brand either for the Greek domestic market or to target Greek communities residing in the United States, Western Europe, and Canada were not successful . The demise of the original company can probably be attributed more on the monopolistic behavior of its management rather than the quality attributes of its products. Many Greek consumers still remember the taste of Fix very fondly, although many of them decry the monopolistic distribution policies of its management.

The latest attempt to revive Fix originated by the Greek microbreweries company, a 45 year-old company that initially was producing wine and other alcoholic beverages. In recent years, it decided to enter the beer market. Mr. Gkrekis, the Greek Microbreweries CEO, realizing that his company did not have sufficient capital to establish an effective distribution network, decided to merge his company with another firm. In April of 2008 the Chitos Company purchased 51 percent of Greek microbreweries and, in early 2009, started producing and distributing the new Fix .

THE BEER INDUSTRY IN GREECE

The Greek beer market is highly concentrated with two companies controlling more than 90 percent of the market. The Dutch company, Heineken, has been the market leader in the Greek market for the last 40 years, commanding an 80 percent market share. Heineken operates in Greece through its local subsidiary, Athenian Brewery. Carlsberg, the Danish brewing company, has approximately 11 percent of the market following its purchase of the Greek assets of UK brewer, Scottish & Newcastle. The main product that Carlsberg is selling in the Greek market is the beer, Mythos.7 Mythos was originally founded by Butari, a large Greek wine company. It tried to appeal to consumers that wanted a "local" beer. While fairly successful, the Butari Company decided to sell it to a foreign multinational in order to concentrate on its wine business. Carlsberg recently announced a 50 million Euro investment in the Greek market with the goal of doubling its market share to 22 percent.8

Although the overall beer market in Greece declined in 2009 due to the economic crisis, the sector had experienced steady growth in the past.9 Further growth is expected in the future as Greek consumer tastes become more similar to consumers in other European countries. The annual beer consumption in Greece is 39 liters per person each year. This number is approximately half of the European average, which is 80 liters per annum.10

Beer consumption in Greece has traditionally been dominated by the so called "cold trade", sales in restaurants and bars. Approximately 65 percent of beer is sold in the cold trade market, while only 35 percent was sold in the "hot trade", sold in grocery stores for consumption at home. Due to economic conditions it is expected that the hot trade sector of the market will increase and more beer will be purchased in retail outlets as Greeks tend to consume more alcoholic beverages and entertain more at home.11

GLOBAL TRENDS IN THE BEER INDUSTRY

The global beer market is a mature market with the industry experiencing low growth rates. The growth rate is expected to decline further in the near future.12 Although the global beer market has traditionally been fragmented with a plethora of national or regional beers, recent trends have led to the emergence of global companies. The top three global companies are presently holding 45.2 percent of the world market. While further consolidation is expected, the unique characteristics of the product will always allow smaller niche beer producers to flourish. This is due to the high differentiation that exists within the beer category with different companies offering different type of beers, including ales, stouts, low/no alcohol, standard and premium lagers, and specialty beer.13 The premium and specialty sectors of the market are the only ones that have experienced substantial growth in recent years with consumers willing to pay a higher price to purchase a product that is perceived to possess a higher quality.

FUTURE STRATEGIC MARKETING DECISIONS

Following the mass introduction of Fix in the Greek market, the executives of Chitos Company contemplated whether they had made the right strategic decision. Was their decision to enter the beer market the right one or they should have pursued growth by introducing soft drink and fruit juices? What product and promotional decisions do they need to make in the future in order to become a successful operator in the beer industry? In their initial promotional campaign, the decision was made to utilize the "nostalgia" factor, trying to rekindle the memories that the older consumers had from the 1970s. Was that the right strategy, or did they had to focus more on the fact that Fix was a local beer fighting the big multinationals? Should they try to expand into niche markets, Greeks residing abroad, Greek restaurants in foreign countries, or tourists visiting Greece looking for a local beer, instead of focusing on the Greek mass market? Considering the growing segment of microbreweries worldwide and the growing number of imported premium beers in the Greek market, does it make more sense for the company to specialize in producing premium beers instead of making a lager beer similar to the ones produced by its competition? All these were decisions that the management of Chitos Company had to make in the near future.

CASE DISCUSSION QUESTIONS

1 . Why did Fix decline in the 1 970s and went bankrupt in the early 1980s?

2. Do you think that it makes business sense to try to revive a failed brand? Can you think of examples of other brands that have been revived in recent years? What are the advantages and disadvantages of reviving an old brand?

3. Is a nationalistic ethnocentric marketing strategy effective for a small company competing against large multinationals? Do you see any problems with this strategy?

4. Do you think that Fix needs to compete head to head in the Greek market with the large multinational Greek companies or try to move into niche markets? If it moves into niche markets, do you think that it makes more sense to do it by promoting to niche segments (Greek living abroad, Greek restaurants in foreign countries, or tourists visiting Greece) or by producing niche products (premium microbrewery products)?

Subject: Competition; Market strategy; Multinational corporations; Bottled water; Case studies

Location: Greece

Company / organization: Name: Chitos SA; NAICS: 312112

Classification: 8610: Food processing industry; 9510: Multinational corporations; 7000: Marketing; 9176: Eastern Europe; 9130: Experimental/theoretical

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 2

Pages: 47-50

Number of pages: 4

Publication year: 2011

Publication date: Mar/Apr 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: References

ProQuest document ID: 862378189

Document URL: http://search.proquest.com/docview/862378189?accountid=38610

Copyright: Copyright Clute Institute for Academic Research Mar/Apr 2011

Last updated: 2013-09-25

Database: ABI/INFORM Complete

Document 39 of 100

Forecasting For Publicly Traded Companies

Author: Petro, Fred

ProQuest document link

Abstract:

This project is intended to teach students to apply the material covered in their first graduate accounting course. This is accomplished by applying the material to an actual company selected by each team. The project is described as follows: The project includes a computerized spreadsheet preparation of a master budget forecast for an actual publicly traded company for one year into the future. The dates depend upon when the annual reports are prepared for your company. The forecast begins the day following the last available published annual report. The forecast does not comprise any actual numbers regardless of when the actual annual or quarterly statements are prepared for the company selected. The actual balance sheet, income statement and statement of cash flow from the preceding year are included with the forecasted balance sheet, income statement and statement of cash flow. The company must have a physical inventory, and accounts receivable from sales.

Full text:

PROJECT INSTRUCTIONS

The projects will be done in teams on the same company selected by the team with the approval of the professor. The number of team members will depend on the number of people in the class. Each person on the team will be responsible for preparing, submitting work by email and presenting a section of the master budget. If a team member drops the course, the remaining team members have the responsibility of revising the team member responsibilities exactly in accordance with the syllabus for the number of team members remaining. Accordingly, each team member will be responsible for preparing, submitting work by email and presenting the entire project in accordance with the revised assignment of responsibilities.

Teams are required to be made up as follows:

For a team of three: one person will prepare and present (items 1 -4) the introduction, a twelve month sales budget, a twelve month schedule of purchases and schedule of the collection of sales for twelve months; one person will prepare and present (items 5,7 & 8) a twelve month cash budget, a statement of cash flow for the current and projected year and a balance sheet for the current year and for the projected year; one person will prepare and present (items 6, 9 & 10) an income statement for the current and projected year, a twelve month cost- volume-profit analysis including a chart depicting the projection together with at least three other scenarios that also include charts. This person will also prepare and present the conclusion and recommendations.

For a team of two: one person will prepare and present (items 1-5 & 8) the introduction, a twelve month sales budget, a twelve month schedule of purchases and schedule of the collection of sales for twelve months, a twelve month cash budget and a statement of cash flow for the current and projected year; one person will prepare and present ( items 6,7,9 & 10) a balance sheet for the current year and for the projected year, an income statement for the current year and for the projected year and a twelve month cost-volume-profit analysis including a chart depicting the projection together with at least three other scenarios that also include charts. This person will also prepare and present the conclusion and recommendations.

Submitting project work It is very important that the project work be submitted and approved according to schedule. Each team member is responsible for submitting, by email, that team member's section on or before the due time and date. Only the team member responsible for a particular section is allowed to submit that team member's work. When work is submitted, there has to be enough time for the work to be reviewed and approved to avoid a late penalty. That is if the work is due by email on a specific date, for example 05/16/05, then the work will have to be submitted in time for review and approval. If the work is submitted after 3pm, in the evening on 05/16/05, there will not be enough time for the work to be reviewed and approved on 05/16/05 and the work will be regarded as late and there will be a grade penalty as detailed below.

Required format for submitting work The work submitted by email should include all work completed to date on one attached file. As each increment of work is completed, the new increment should be added to the total project work to date on the same one-continuous file and then emailed as an attachment for review and approval. Each section of work should include index tabs for quick reference. This will save substantial time in the review of each section of work.

The schedule for submitting and approval of work is as follows A written proposal including the company name, the nature of the company, and a detailed description of each team member's responsibility, exactly in accordance with the syllabus description including the due dates, is to be submitted, using the example matrix form provided, to the professor and approved by email_ no later than 3pm, 05/16/05. It is also required that a hard copy of the above information together with a copy of the last published balance sheet and income statement for your company be handed in 05/17/05, session III.

Proposals are required to be submitted on the following matrix form.

The introduction and history sections will be due at the time of presentation.

The sales projection is to be submitted and approved by email, no later than 3pm, 05/23/05... It is also required that a hard copy be handed in 05/24/05, session IV. The same information is also to be submitted to each team member, by email, by session IV.

The projected schedule of purchases and projected schedule of collections are to be submitted and approved, by email, no later than 3pm, 06/06/05. It is also required that a hard copy be handed in 06/07/05, session VI. The same information is also to be submitted to each team member, by email, by session VI.

The last year's actual and the projected income statements are to be submitted and approved, by email no later than 3pm, 06/20/05. It is also required that a hard copy be handed in 06/21/05, session VIII. The same information is also to be submitted to each team member, by email, by session VIII.

The CVP model, including the contribution margin income statement, the derivation and proof of the reliability of the model and graph for the projected year is to be submitted and approved, by email, no later than 3pm, 06/27/05. It is also required that a hard copy be handed in 06/28/05, session IX.

The projected cash budget is to be submitted and approved, by email, no later than 3pm, 06/27/05. It is also required that a hard copy be handed in 06/28/05, session IX. The same information is also to be submitted to each team member, by email, by session IX.

The three scenarios for CVP together with the supporting numbers, graphs and analyses are to be submitted and approved, by email, no later than 3pm, 07/18/05... It is also required that a hard copy be handed in 07/19/05, session XII.

The last year's actual and projected balance sheets and statements of cash flow are to be submitted and approved, by email, no later than 3pm, 07/18/05. It is also required that hard copies be handed in 07/19/05, session XII. The same information is also to be submitted to each team member, by email, by session XII.

The grading procedure for the project is as follows:

Grading begins at the beginning in the way that each team moves in the selection of a company and in assigning the duties to each member. (10 points)

The continuous communication , by email, of each team and its members with the professor on the progress being made and the timeliness in which the data is put together and forwarded, by email, to the professor for review and approval. (20 points).

Late work submitted will be penalized 10 points.

Each team member's ability to rework the parts necessary and the timeliness in which the rework takes place. (10 points)

The quality of materials used in making the presentation.

Each members knowledge and understanding of the subject matter being presented and the comprehensiveness of the coverage. The coverage should coincide precisely with the final work submitted.

The quality, correctness and obvious effort of each team member's work submitted in the final paper.

The last three items mentioned above carry 60 points.

The project is due to be handed in to the professor in one very formal aggregate spirally bound package of the entire project including a table of contents and a description of each team member's work at the beginning of the last class session. Each member on the team will be graded individually. No projects will be accepted past the due date.

The projects will be presented at the last class session. Each team member is required to present the responsible part at the last class session. . Failure of a team member to present that team member's responsible part will result in a loss of 10% for that team member. Therefore, the maximum possible that could be earned on the project would be 12%. A loss of 10% is equal to a loss of one full letter grade for the course.

No credit will be given for late projects. Each team is responsible for using presentation materials (power point, overhead slides etc.) that are very legible to everyone. Failure to make a very legible presentation will affect the grade by, at the very least, 15-20 points out of 100 points. The total possible percentage points on the project is 22.

PROJECT GUIDELINES - NARRATIVE FORM

The introduction should include a description of the company policies and the plan for the future.

There should be a very thorough coverage on the history of the company. This is certainly one of the most interesting areas in the entire project.

The growth rate should be derived from at least four sources. If available, the growth rate should be relative to revenue; otherwise, earnings per share might have to be used.

The time period covered should begin the day following the last available published annual report. If the most recent annual report is not yet available, then it would be necessary to go back to the last available published annual report and begin the project the day following that annual report.

Sales for the last twelve months will only be available on a quarterly basis; therefore, each quarter will be divided by three in order to get monthly sales.

The growth rate will then be applied to sales for each month which will become the sales forecast for each of the twelve months in the project.

Since inventories are carried at cost and not retail, it is necessary to use the cost of goods sold ratio to convert inventory at retail (the sales value) to inventory at cost by using the cost of goods sold ratio. This ratio is derived from the last actual published income statement in the annual report. The cgs ratio is determined by dividing cost of goods sold by sales in the actual income statement.

The projected schedule of purchases is based primarily on projected sales; however, other factors may enter into the preparation of this schedule. The inventory carried at the end of each month will certainly have to be enough to cover the next month's projected sales. For example, if the next month's sales are projected at $500,000, and the cgs ratio is 60% of the selling price, the ending inventory for this month will have to be at least $300,000, which is the cost ($500,000 ? .6) of the next month's sales. The ending inventory plus the cgs for that specific month will be the amount of inventory needed. The needed amount less the beginning inventory will = the amount that has to be purchased. The beginning inventory in the first month of the schedule of purchases is the actual ending inventory from the balance sheet of the last available published annual report.

The projected schedule for the collection of sales is discretionary based on the policy determined by the team member responsible for this section. For example the policy might be: 50% of sales collected in the month of sale, 30% of sales collected one month following the sale and 20% collected two months following the sale.

The projected cash budget is a very critical component of any projection. The budget is done on a monthly basis. The beginning cash in the budget is the actual ending cash amount found in the last available published balance sheet. Other sections in the budget include: purchases which is the monthly amount of purchases taken from the projected schedule of purchases; selling, general and administrative expenses taken from the projected income statement and expressed on a monthly basis in the projected cash budget; desired ending cash which is at the discretion of the preparer; cash flows from investing activities which is made up of the purchase and sale of all revenue producing investments such as plant and equipment, land and investments in other companies; cash flows from financing activities which include the purchase and sale of capital stock, issuance and retirement of debt instruments like bonds and notes payable, and the payment of cash dividends. The two sections - cash flows from investing activities and cash flows from financing activities should correlate directly to these same two sections of the projected statement of cash flow. The difference in the two documents is that the projected cash budget includes these items on a monthly basis whereas the projected statement of cash flow includes these two sections for a twelve month period. . Notes should follow the cash budget describing each item on a line by line basis. The notes should be on the page that follows the cash budget. Each note should have a reference number. The reference number should also be included in the cash budget in a vertical column so that each reference number is on the same line that the reference number pertains to.

The projected income statement should parallel, line by line, the actual income statement of your company. Sales or net revenue is taken from the sales forecast. Cost of goods sold is determined by multiplying the cgs ratio in the projected schedule of purchases by the projected sales. Expenses, such as selling, general and administrative should be based on the same ratio as these expenses relate to sales in the actual income statement of your company. The percentages used in calculating the amounts for the projected income statement should be included, line by line, in a vertical column centered between the last year's income statement and the projected income statement. Use the same income tax rate as that used in the actual income statement of your company. Earnings per share is determined by taking the net income divided by the outstanding number of shares of common stock. Fully diluted shares can be determined by using the relationship of fully diluted eps to primary eps in the actual income statement of your company and applying that relationship to the projected income statement.

The balance sheet should parallel, line by line, the actual balance sheet of your company. Cash will be taken from the ending cash in the projected cash budget. Accounts receivable will be the ending balance of accounts receivable taken from the projected schedule for the collection of sales. Inventory will be the ending inventory taken from the projected schedule of purchases. Plant and equipment should be the previous year's balance plus new acquisitions. Your team will determine if your projection includes plans to buy new plant and equipment. Accounts payable will be the ending balance taken from the projected schedule of purchases, depending upon the payment policy for the purchase of inventory. For example, if purchases of inventory are paid for in the month immediately following the purchase, then the amount purchased in the last month of the projection will be the outstanding balance for accounts payable. Notes payable will be the last year's balance plus new notes less amounts paid during the year on existing notes. Bonds payable will be the last year's balance plus new issuances of bonds less amounts paid during the year on existing bonds. Common stock will be the last year's balance plus new issuances less any stock purchased or retired. Retained earnings will be the last year's balance plus net income on the projected income statement less dividends declared during the year. There will be certain items on your company's last year's balance sheet that you will not be able to identify or calculate, such as deferred taxes. Because of the unidentifiable nature of these items they should be brought over to the projected balance sheet either in the same amount or in an amount needed to balance the document. Notes should follow the balance sheet describing each item on a line by line basis. The notes should be on the page that follows the balance sheet. Each note should have a reference number. The reference number should also be included in the balance sheet in a vertical column so that each reference number is on the same line that the reference number pertains to.

The statement of cash flow operating activities section should parallel, line by line, the actual statement of cash flow of your company. You will be using the method that we cover in class in determining the amounts in the operating activities section. There may also be items in this section that cannot be identified or calculated. Because of the unidentifiable nature of these items, they should be brought over to the projected statement of cash flow either in the same amount or in amount needed to balance the document. The investing activities section will include new cash acquisitions of plant and equipment or other investments and the cash amounts sold during the year. This section should correlate directly to the investing activities section of the projected cash budget, on an annual basis rather than a monthly basis. The financing activities section will include new cash issuances of debt and capital stock. This section will also include retirement for cash of old issuances of debt and capital stock and payments of cash dividends. This section should correlate directly to the financing activities section of the projected cash budget, on an annual basis rather than a monthly basis. Notes should follow the statement of cash flow describing each item on a line by line basis. The notes should be on the page that follows the statement of cash flow. Each note should have a reference number. The reference number should also be included in the statement of cash flow in a vertical column so that each reference number is on the same line that the reference number pertains to.

The cost-volume-profit analysis section begins with the derivation and explanation of the model. The model is expressed in the contribution margin format. The central part of the model is the variable cost ratio to sales. For example, if the vc ratio to sales is 80% or .8, then for every dollar of sales, there will be a variable cost of 80 cents. This ratio has to be determined before any part of cvp analysis can take place.

The most effective approach in deriving the vc ratio is through the use of the high-low method. The extent of the calculation will depend upon whether the company being examined is a merchandising company or a manufacturing company.

The following pertains to a merchandising company.

For a merchandising company, the vc ratio to sales is in two parts, the cost of goods sold vc ratio and the selling general and administrative vc ratio. The first part, cost of goods sold, is a purely variable cost, and the variable cost ratio for cgs is determined by dividing cgs by sales in either the actual or the projected income statement. The use of the high-low method is not necessary.

The second part, sg&a, is more involved because the sg&a expenses are mixed expenses. Mixed expenses contain both variable and fixed components. In order to complete the variable cost ratio, the variable and fixed components have to be disaggregated. This is accomplished through the use of the high-low model.

To determine the vc ratio for sg&a, the high-low model is applied to the last two year's actual income statements, such as the years 2001 and 2000, as follows:

1 . Sg&a for the year 2000 is subtracted from sg&a for the year 200 1 .

2. Sales for the year 2000 is subtracted from sales for the year 2001 .

3. By dividing the answer in 1. above by the answer in 2. above, the variable cost ratio to sales for sg&a is determined.

Alternatively expressed as follows:

2001 sg&a - 2000 sg&a = the variable cost ratio for sg&a to the sales dollar

2001 sales - 2000 sale

The following pertains to a manufacturing company.

For a manufacturing company, the variable cost ratio is also in two parts, the variable cost of goods sold ratio to sales and the sg&a variable cost ratio to sales. The difference in the manufacturing company and the merchandising company is that the manufacturing company cgs contains both a variable and a fixed component, while the merchandising company cgs is a purely variable cost. Therefore, the high-low method is used to determine the vc ratio of cgs to sales and also to determine the vc ratio of sg&a expenses to sales.

To determine the vc ratio for cgs, the high-low model is applied to the last two year's actual income statements, such as the years 2001 and 2000, as follows:

1 The following pertains to both merchandising and manufacturing companies:

Once the two vc ratios to sales have been determined for cgs and sg&a, the two ratios are taken to the contribution model income statement and included in the variable cost section.

The fixed component of any mixed expense or cost is a residual of the remaining expense or cost after subtracting out the variable component from the total expense or cost.

For example: Suppose that

1. Total sg&a expense is $1,200,000.

2. Total sales is $3,000,000.

3. The variable cost ratio to sales is 1 5% or . 15.

4. The variable component of total sg&a is $450,000 ($3,000,000 ? .15).

5. The fixed component of total sg&a is $750,000 ($1,200,000 - $450,000).

The same approach would be applied to total cgs in determining the fixed component of cgs.

The fixed component of any expense is never expressed as a percentage of the sales dollar. Fixed expenses may be expressed as a percentage of a total expense, but never as a percentage of the sales dollar. To express fixed expenses as a percentage of sales implies that fixed expenses are directly correlated to the sales dollar. This is incorrect. As total sales increase over time, the company will probably be expanding and total fixed expenses would increase as a result; however, the increase in fixed expenses would not increase directly with the sales dollar.

After the fixed components have been determined, they are also taken to the contribution model income statement together with the variable cost ratios.

The following pertains to both merchandising and manufacturing companies:

Once the two vc ratios to sales have been determined for cgs and sg&a, the two ratios are taken to the contribution model income statement and included in the variable cost section.

The fixed component of any mixed expense or cost is a residual of the remaining expense or cost after subtracting out the variable component from the total expense or cost.

For example: Suppose that

1. Total sg&a expense is $1,200,000.

2. Total sales is $3,000,000.

3. The variable cost ratio to sales is 1 5% or . 15.

4. The variable component of total sg&a is $450,000 ($3,000,000 ? .15).

5. The fixed component of total sg&a is $750,000 ($1,200,000 - $450,000).

The same approach would be applied to total cgs in determining the fixed component of cgs.

The fixed component of any expense is never expressed as a percentage of the sales dollar. Fixed expenses may be expressed as a percentage of a total expense, but never as a percentage of the sales dollar. To express fixed expenses as a percentage of sales implies that fixed expenses are directly correlated to the sales dollar. This is incorrect. As total sales increase over time, the company will probably be expanding and total fixed expenses would increase as a result; however, the increase in fixed expenses would not increase directly with the sales dollar.

After the fixed components have been determined, they are also taken to the contribution model income statement together with the variable cost ratios.

. Cgs for the year 2000 is subtracted from cgs for the year 2001 .

2. Sales for the year 2000 is subtracted from sales for the year 2001.

3. By dividing the answer in 1. above by the answer in 2. above, the variable cost ratio for cgs is determined.

To determine the vc ratio for sg&a, the high-low model is applied to the last two year's actual income statements, such as the years 200 1 and 2000, as follows:

1 . Sg&a for the year 2000 is subtracted from sg&a for the year 2001.

2. Sales for the year 2000 is subtracted from sales for the year 2001 .

3. By dividing the answer in 1. above by the answer in 2. above, the variable cost ratio to sales for sg&a is determined.

The following pertains to both merchandising and manufacturing companies:

Once the two vc ratios to sales have been determined for cgs and sg&a, the two ratios are taken to the contribution model income statement and included in the variable cost section.

The fixed component of any mixed expense or cost is a residual of the remaining expense or cost after subtracting out the variable component from the total expense or cost.

For example: Suppose that

1. Total sg&a expense is $1,200,000.

2. Total sales is $3,000,000.

3. The variable cost ratio to sales is 1 5% or . 15.

4. The variable component of total sg&a is $450,000 ($3,000,000 ? .15).

5. The fixed component of total sg&a is $750,000 ($1,200,000 - $450,000).

The same approach would be applied to total cgs in determining the fixed component of cgs.

The fixed component of any expense is never expressed as a percentage of the sales dollar. Fixed expenses may be expressed as a percentage of a total expense, but never as a percentage of the sales dollar. To express fixed expenses as a percentage of sales implies that fixed expenses are directly correlated to the sales dollar. This is incorrect. As total sales increase over time, the company will probably be expanding and total fixed expenses would increase as a result; however, the increase in fixed expenses would not increase directly with the sales dollar.

After the fixed components have been determined, they are also taken to the contribution model income statement together with the variable cost ratios.

The next section pertains to proving the reliability of the model. The reliability of the model is established when the income from operations (does not include interest or taxes), based on the contribution margin model, is the same as the income from operations (does not include interest or taxes) in the projected income statement. Income from operations includes revenue less cost of goods sold and expenses from operations. Interest and taxes are not included in this number.

This is proven as follows:

1. Calculate breakeven in sales dollars by dividing total fixed costs by the contribution margin ratio (.2 in the example above).

2. Subtract breakeven sales dollars from total projected sales dollars in the projected income statement. The difference in sales dollars is defined as the profit region in sales dollars.

3. The profit region in sales dollars multiplied times the contribution margin ratio, (.2 in the example above) equals net income before tax in the contribution margin model.

4. In order for the contribution model to be proven as reliable, the income from operations in the contribution margin model has to equal the income from operations in the projected income statement.

PROJECT GUIDELINES - ABBREVIATED FORM

1 . Introduction should include the following:

History of the company

Policies of the company

2. Sales forecast for twelve months

Calculated by applying the growth rate (acquired from analysts) to each of the past twelve months of actual data which then becomes projected sales.

3. Schedule of purchases for twelve months

Calculated by determining the amount of inventory on hand needed for your company and applying the cost of goods sold ratio (from the actual income statement) to the needed inventory so that the inventory is included in the schedule at cost. The policy on the amount of inventory to be carried is the team member's choice.

4. Schedule for the collection of sales. The policy for collections is the team member's choice.

5. Cash budget should include the following:

Beginning cash from the actual balance sheet included in the last year's annual report.

This beginning cash figure is the actual ending cash figure from the actual balance sheet.

Cash collected from sales from the schedule for the collection of sales.

Cash expenses which should also tie in to the projected income statement.

All items in the investing and financing activities the sections of the projected statement of cash flow.

Investments of excess cash into short term marketable securities.

Interest earned on the short term investments as additional cash.

6. Income statement format should be reasonably consistent with the company's past year income statement and should include the following:

Sales from the sales forecast.

Expenses relatively consistent with the expenses on the past year income statement.

Relate the expenses to sales.

Interest earned from investments in short term securities from the cash budget (other income)

Tax rates should be consistent with the last year's income statement.

7. Balance sheet should include the following:

Cash is taken from the ending cash in the cash budget.

Accounts receivable will be what has not been collected at the end of the year. This should come from the person preparing the schedule of collections.

Inventory will come from the schedule of purchases.

Other assets should be taken from the previous year's balance sheet with an adjustment for growth.

Plant assets should be consistent with the previous year's balance sheet with changes made consistent with the investing activities section of the statement of cash flow.

Long term debt should be consistent with the previous year's balance with changes made for any payment on the debt plus any additions that will come from the statement of cash flow in the financing activities section.

8. Statement of cash flow should include the following:

Cash flow from operating activities which include:

Net income from the income statement.

Depreciation, amortization, depletion, gains and losses from the income statement.

Changes in current assets and liabilities taken from the actual balance sheet and the projected balance sheet.

Cash flow from investing activities which include:

Purchases of new plant and equipment according to growth in the company also included in the cash budget.

Sales of plant and equipment, also included in the cash budget.

Cash flow from financing activities which include:

Issuances of capital stock for cash, also included in the cash budget.

Purchases of treasury stock for cash, also included in the cash budget.

Issuances of long term debt for cash, also included in the cash budget.

Retirement of long term debt for cash, also included in the cash budget.

Payments of cash dividends, also included in the cash budget.

The net increase or decrease in cash should check with difference in the beginning and ending cash in the actual (last year's) and projected balance sheet.

9. Cost volume profit analysis.

This section begins with determining the variable cost ratio to sales.

For a merchandising concern, this would be the cost of goods sold ratio to sales plus the ratio of variable operating expenses as they relate to sales.

For a manufacturing concern, this would be the variable part of cost of goods sold as it relates to sales (the ratio) plus the ratio of variable operating expenses as they relate to sales.

The contribution margin ratio and break even dollar sales have to be consistent with the projected income statement net income. That is, the difference in break even dollar sales and total dollar sales in the projected income statement multiplied times the contribution margin ratio has to equal the income from operations in the projected income statement. If this does not match, then the ratio has to be reworked until there is a match.

Subject: Public companies; Business forecasts; Accountancy; College students; Projects; Case studies

Classification: 4120: Accounting policies & procedures; 8306: Schools and educational services

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 2

Pages: 51-60

Number of pages: 10

Publication year: 2011

Publication date: Mar/Apr 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Tables Equations

ProQuest document ID: 862378335

Document URL: http://search.proquest.com/docview/862378335?accountid=38610

Copyright: Copyright Clute Institute for Academic Research Mar/Apr 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 40 of 100

Society Membership Trend Determinants For Sustainability: An Analysis In Insurance Industry

Author: Choudhury, Askar; Jones, James

ProQuest document link

Abstract:

This study investigates the impact of age based gender effect on CPCU society membership trend. Trade associations, membership societies, and other similar groups/unions are no different than any for-profit organizations during different economic cycles, specifically during an economic downturn. When economic condition gets tough, membership related expenses can prove difficult to attain and may cause descent in the membership trend. However, demographic factors, such as, age groups and genders of society members are also factors that impact the process of society membership trend. In our analysis, after controlling for younger age groups, higher age groups are found to be instrumental in impacting the process of trend of CPCU society's membership. This suggests that gender influence on the process of society membership trend is age dependent. Furthermore, gender effect is substantially higher for older age groups in comparison to younger age groups. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

In general, trade associations, membership societies, and other similar groups/unions are no different than any for-profit organizations during different economic cycles, specifically during an economic downturn. In tough economic condition, these organizations are trying to implement necessary steps to sustain and maintain their current business level. However, for both the members and the organizations there are some cost associated. Those who are committed to these organizations usually find the time needed to spend and the membership charge. However, when economic condition gets tough, budgeting dollars for membership can sometimes prove difficult. For industry trade associations and organizations, the goal in tough economic conditions is to show more than ever the value of the services being offered. Thus, this paper explores to identify determinants for membership fluctuations that may help the organization to device a process for their long-term sustainability.

The Chartered Property and Casualty Underwriters (CPCU) is a society committed to serve the property and casualty insurance industry professionals. These professional societies/associations are helpful to their members by providing continuous knowledge improvement, leadership skill building, and networking. The property/casualty industry in the United States operates in a regulated environment, and within the evolving American culture, consumer markets, and labor force. Thus ever changing, educational trends, demographic, litigation, consumerism, and new regulations influence the insurance industry constantly. Therefore, the need for new knowledge, and ultimately the desire and ability of insurance industry individuals to seek and attain diverse knowledge to keep up with the dynamic change in the environment requires investment in additional human capital. These societies provide opportunity to their members to develop and refine leadership skills by serving in local and national committees in leadership role. This in-turn makes these members more valuable to their employer organization. This also, provides new relationships with individuals in the same profession and hence extends professional network. This professional networking can provide insight on a work related issue or a decision making problem and its solution. This ability to seek assistance among the professionals from various organizations is a tremendous value to a member of the society.

The CPCU designation is awarded to individuals willing to go beyond the normal requirements of their profession. The American Institute for Chartered Property and Casualty Underwriters (AICPCU) confers the CPCU designation. This CPCU designation has been historically offered mostly in the United States, with the audience for it being the professionals within the property/casualty industry. The CPCU designation is earned through the successful completion of eight college-level courses with national essay examinations, an experience requirement, and an agreement to be bound by ethical standards. Curriculum includes risk management, insurance products, insurance operations, financial analysis, and legal and regulatory environment of insurance. Each course is accredited by the American Council on Education (ACE) for at least 3 college undergraduate credits and some for 3 graduate credits. The certification helps practitioners to make sound, ethical decisions in the complex environment of property and casualty insurance. An eight course program is tantamount to completing about 24 hours of college credits (per ACE). The CPCU society was founded in 1944, with a steady increase in membership. However, in recent years the membership trend has been in decline phase. Interestingly, the conversion rate is also in the same direction. Conversion rate is the percentage of new CPCU designees who become member of the CPCU society. Thus, the objective of this paper is to explore the determinants for society membership fluctuations.

There may be numerous factors contributing to this drift in CPCU membership. The number of industry designations has continued to grow. Although these other designations may not compete directly against CPCU in terms of curriculum offered, they may compete in terms length of time required. According to the 2007 Society of Insurance Trainers and Educators Designation Handbook, there are over 200 designations and certifications. One potentially perceived substitute for the CPCU designation is the MBA degree. An MBA degree is portable to other industries and can be attained approximately the same time as a CPCU. Some companies may even hold higher value for an MBA than a CPCU designation. In examining MBAs, the most helpful comparison is comparing the growth in part-time or Executive MBA students. These students are typically working in business, often with full or partial reimbursement of their educational expenses by employers. According to the U.S. Department of Education, over 125,000 students earned MBAs in 2005. Even though the number of business schools has increased by 10 percent according to the Department of Education, the growth in the rate of part-time has been the most dramatic with 62 percent of schools reporting increases in enrollment and 20 percent reporting significant increases in parttime MBAs. The average age for part-time MBA enrollees is 31 years, which competes evenly with the market of people beginning to consider CPCUs. Thus, we explore the effect of GMAT takers as a substitute to MBA enro liées on the CPCU society membership.

LITERATURE REVIEW

While there is considerable research done in the union membership that focuses on various factors affecting the membership fluctuations (Visser, 2006; Neumann & Rissman, 1984; Waddington & Whitston, 1997), very little is done in regards to the professional society membership, specifically in the insurance industry. Therefore, the primary objective of this research is to examine the determinants of membership trends within the insurance industry, specifically the CPCU society. Other studies explored political party associations (Selle 1991, Everson 1982, Klingemann and Fuchs 1998, Wattenberg 1998, Mair and Biezen 2001). Mair and Biezen (2001) found that trend fluctuations in political party association/membership may involve direct or indirect monetary gain and thus may change with the economic cycle.

Membership trend studies are done extensively in the area of labor unions (Waddington & Whitston, 1997; Mellor, 1990). Addison and Schnabel (2003) used a survey to study the trend factors. They observed two categories of determinants; macro-determinants and micro-determinants. Macro-determinants are: price inflation, employment growth, nominal wage growth, unemployment rate/change, labor force composition, and politics. Microdeterminants include sex, age, work experience, race/nationality, education, earnings, etc. Exploratory studies on union membership are done by Kaufman and Kleiner (1993) to observe a structural shift in the labor force composition. Other studies include Scruggs and Lange (2002), Waddington and Whitston (1997), Neumann and Rissman (1984), and Mellor (1990). By applying time-series and cross-section analysis on data from 16 different industries between 1960 and 1994, Scruggs and Lane (2002) conclude that globalization do not affect the union representation. Using similar analysis, Newmann and Reder (1984) found that union membership can be impacted due to modification in political decision on social welfare. However, research studies on professional society membership are rare. Therefore, our research findings on CPCU society membership will add a new dimension to the area of professional membership trend analysis.

DATA AND RESEARCH METHODOLOGY

Data for this study period covers 1996-2009 on a yearly basis. The data on number of CPCU society members was collected from CPCU society and GMAT exam takers data were obtained from Graduate Management Admission Council (GMAC). Table- 1 presents summary statistics of number of CPCU members and conversion rate of society members. GMAT takers data were collected for both male and female and are also reported in Table- 1. Multiple regression analysis was applied to explore the significance of gender effect on the number of members separately for male and female. In addition, regression effect of number of CPCU members up to five years lag GMAT takers were explored to observe any time delayed effect of GMAT takers on CPCU society membership.

Variables and Statistical Techniques

To observe the relationship between number of CPCU members and gender-categorized GMAT takers; two separate analyses were performed. First, correlation analysis is done (see Table-2) to examine the direction of the association between factors. Second, total members (number of CPCU members) is regressed on the GMAT takers for three different age categories to observe the difference in association among age groups separately for male and female. Another set of regression models were performed with five years lag. This is to observe, if more maturity (in this case up to 5 years) and possibly more real world experience dictates the necessity to become CPCU member. Thus, there are four regression models estimated in this study. In general, it is assumed that there is a difference between younger and older people in their decision making process and therefore, different age-groups of GMAT takers are introduced into the model as independent variables. These differences may relate to members' job position, the larger amount of life experience that they have, and other personal life aspects may also play a role on the decision making process to become a society member.

Multiple regression model is often appropriate for continuous and/or categorical predictor variable [X) with a continuous response (Y). Method of least squares or a method of maximum likelihood for normal population is primarily used. Further discussions on different estimation methods can be found in Choudhury, Hubata and St. Louis (1999), and Choudhury (1994).

EMPIRICAL RESULTS

Descriptive statistics for the various measures of dependent and independent variables are presented in Table 1. Relatively smaller standard deviation (1683.19) of CPCU members with a mean of 26,656.80 does not indicate much fluctuations in the aggregate membership from year to year. However, Graph- 1 and Graph-2 both depicts a disturbing declining trend in the CPCU membership and also in their conversion rate of membership. Table-1 reveals that "Male" GMAT takers outnumbered "Female" by more than 2:1 in the 35-39 age category, they also outnumbered "Female" in the 40-49 age category. However, they are equally likely at younger age. This suggests that due to some unobservable factor(s) female GMAT takers decline in the higher age groups. Thus, the idea of this exploratory analysis is to observe the association between CPCU members and GMAT exam takers by gender.

Simple pair-wise correlation analysis (see Table-2) among the variables, reveal that GMAT takers and CPCU members are negatively correlated at the 0.01 significance level for the age group 20-25 years. However, the relationship is positive for the higher age groups. It is possible that understanding the importance of becoming a CPCU society member requires experience and maturity. Therefore, the relationship reverses for the younger age groups when time period is delayed by five years and thus supporting our above hypothesis.

Results of multiple regression analysis are reported in Tables 3-6. All these models appeared to fit well in estimating the number of CPCU members. Reported coefficients of determination (R2) are 0.77, 0.42, 0.75, and 0.93 respectively, with highly significant F values. Results indicate that younger individuals in general are less likely to become a CPCU society member than older GMAT takers (see Tables 3-6). Analysis also reveals that, higher age group females after five years delay are more likely to join CPCU society than their male counterpart.

Therefore, individuals' gender may affect the decision to become CPCU society member depending on their age groups. Specifically, given five year delay, female GMAT takers will join the society at a higher rate than the male GMAT takers. A number of possible explanations can be explored for this age dependent gender effect. However, considering that the average age of a CPCU enrollee is about 3 1 years, competing time for family care could be a major aspect and gender differences in time spent on family care is well-documented. This study suggests that gender effect is age dependent and more specifically the gender effect is significant for individuals in the higher age categories.

CONCLUSION

This study, examines the effect of age based gender effect on the process of joining CPCU society. In particular, statistical significance and magnitude of GMAT takers dependent on age and gender influence on the "CPCU membership" is observed. As expected, after controlling for younger age categories, higher age category (more mature and experienced) is found to be instrumental in affecting the process of CPCU society's membership trend. This suggests that gender influence on the process of society membership is age dependent in GMAT takers sub-population. Furthermore, gender effect is substantially higher for older individuals compared to younger people. This predictive power of age dependent gender on the membership trend is most significant after five years of time delay.

Subject: Impact analysis; Memberships; Associations; Age differences; Gender differences; Property & casualty insurance; Case studies

Location: United States--US

Company / organization: Name: Chartered Property Casualty Underwriters Society; NAICS: 813920

Classification: 9540: Non-profit institutions; 8220: Property & casualty insurance; 9190: United States; 9130: Experiment/theoretical treatment

Publication title: Journal of Business Case Studies

Volume: 7

Issue: 2

Pages: 61-69

Number of pages: 9

Publication year: 2011

Publication date: Mar/Apr 2011

Year: 2011

Publisher: Clute Institute for Academic Research

Place of publication: Littleton

Country of publication: United States

Publication subject: Business And Economics--Management

ISSN: 1555-3353

Source type: Scholarly Journals

Language of publication: English

Document type: Business Case, Feature

Document feature: Graphs Equations Tables References

ProQuest document ID: 862378102

Document URL: http://search.proquest.com/docview/862378102?accountid=38610

Copyright: Copyright Clute Institute for Academic Research Mar/Apr 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 41 of 100

PEANUT VALLEY CAFÉ: WHAT TO DO NEXT? INSTRUCTOR'S NOTES

Author: Weyant, Lee E; Steslow, Donna

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Abstract:

This case focuses on the operational and strategic management issues faced by a family owned quick service restaurant (QSR). The case explores the operational issues with a multi-unit restaurant. What are the operational decisions necessary to effectively manage QSR facilities? What are the strategic issues facing a QSR owner? [PUBLICATION ABSTRACT]

Full text:

SUGGESTED TEACHING APPROACH

This case can be used in a variety of undergraduate classes. The authors believe that it fits into any of the following courses: Principles of Management, Introduction to Hospitality Management, and Strategic Management.

Principles of Management/Introduction to Hospitality Management/Strategic Management Learning Objectives:

Students will be able to:

comprehend the planning function of management,

write a mission statement

perform a SWOT analysis, and

recommend a strategy

TIME:

This case is designed for 4 hours - 2 hour of student preparatory time, 2 hour of class time.

MATERIALS:

The following materials support this lesson.

Case study - Peanut Valley Café: What to do next?

Environmental Scanning handout

A handout containing the following questions.

Does Peanut Valley Café have a mission statement? If not, what benefits might be derived from having a mission statement?

What are the benefits of environmental scanning?

What are the strengths and weaknesses of Peanut Valley Café?

What are the opportunities and threats facing Peanut Valley Café?

What strategy has Peanut Valley Café been pursuing to this point in time?

What strategy do you recommend Peanut Valley Café should pursue?

TEACHING APPROACH

This case is recommended as a culminating group activity for the planning function of management lessons. The case is designed for use in a traditional face-to-face class, online, or hybrid class.

As part of the introduction to the planning function of management lessons, the students are informed they will work in teams as a management-consulting firm hired to review a company's strategic plan. The students are given time to form groups of 3 to 5 students per group. The case and handouts are distributed either physically in class or via the Web (i.e., Blackboard, WebCT, course wiki, course blog) as part of the introductory materials to the planning lessons. This will allow the groups to collaborate before the in class discussion.

Students are reminded one day before the case is due of the pending class discussion. In class, students organize by groups. The class is asked if Peanut Valley Café has a mission statement? Since the company has no stated mission statement, students are asked what benefits might be derived from having a mission statement? While the specific answers may vary, the answers should thematically state the mission provides purpose to the organization (Robbins & Coulter, 2009, p. 164). Depending on time, students may be asked to write a mission statement for Peanut Valley Café. If this option is chosen, the responses are displayed (i.e., blackboard, posters, Discussion Board, course wiki, course blog) for discussion and collaboration.

Display the "Environmental Scanning" handout. Working in groups, the students are given the following directions, "Using the case study as your frame of reference and your knowledge of business, identify specific examples of each environmental component. For example, under competitor write McDonald's. You have 15 minutes to complete this activity". After the students have completed this activity, have the groups display their responses. As part of the discussion students are asked, "What are the benefits of environmental scanning to Peanut Valley Café?" Answers may vary.

Write the words "Strength", "Weaknesses", "Opportunities", and "Threats" on the board. Continue working in groups, students are given the following instructions, "Using the case study as your frame of reference, identify specific examples of strengths, weaknesses, opportunities, and threats. You have 15 minutes to complete this activity." After the groups have completed this activity, have members of the group display their specific examples. Answers will vary.

Now that a mission statement and SWOT analysis has been completed, students should be asked what strategy should Sam use for Peanut Valley Café? Answers will vary.

[Note for the instructor] Sam made the following decisions:

Reduced the number of menu items. Started featuring items on the menu for short periods of time similar to McDonald's approach with the McRib sandwich and the Shamrock Shakes.

Sold his catering equipment because of competitive forces.

Eliminated the gasoline sales at the Pleasant Valley facility

Started a succession plan with the goal of retiring from the business within seven years. This plan involved a mentoring program for the current General Manager as a possible successor. Sam had decided on a two-year mentoring program. If that did not prove successful, then Sam was planning to sell the business to outside investor since no family members were interested in the business.

MANAGERIAL ISSUES PRESENTED

The planning function of management involves "defining goals, establishing strategy, and developing plans to integrate and coordinate activities" (Robbins & Coulter, 2009, p. 9). This case focuses on the issues involved with the strategic planning aspects of a small business. Specifically, the case involves the application of a strategic management process.

The strategic management process is like driving your car through a snowstorm - you know your current speed, you check the weather conditions outside, and adjust your speed to meet the new environmental conditions. Robbins & Coulter (2009) describe the initial step in the strategic management process as "identifying the current organization's current mission, goals, and strategies" (p. 164). Why does the company exist?

The second step in the strategic management process involves gathering information about the environment in which the business operates. This is typically called the SWOT analysis since one is assessing the strengths, weaknesses, opportunities, and threats. The SWOT analysis is an analysis of the environment influencing the organization. An analysis of the internal environment provides information about the firm's "specific resources and capabilities" (Robbins & Coulter, 2009, p. 165). This analysis forms the basis for determining the strengths and weaknesses of the firm. On the other hand, an analysis of the external environment provides information about potential opportunities or threats. The external environment requires managers to scan for trends in a variety of areas - societal, technological, legal, global, competitive (Andrews, 1996; Robbins & Coulter, 2009)

The third step in the strategic management process is the formulation of strategies (Robbins & Coulter, 2009). These strategies will transcend the organization and require alignment throughout the various levels. At the corporate level organizations may pursue a growth, stability, or renewal strategy (Robbins & Coulter, 2009).

Subject: Fast food industry; Family owned businesses; Strategic management; Facilities management; Case studies

Location: United States--US

Classification: 9190: United States; 5100: Facilities management; 2310: Planning; 8380: Hotels & restaurants; 9130: Experiment/theoretical treatment

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 2

Pages: 1-4

Number of pages: 4

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

Document feature: References Diagrams

ProQuest document ID: 1274177360

Document URL: http://search.proquest.com/docview/1274177360?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2011

Last updated: 2013-09-10

Database: ABI/INFORM Complete

Document 42 of 100

MAYAWORKS: WEAVING THREADS OF ENTREPRENEURSHIP IN GUATEMALA

Author: Rarick, Charles A; Firlej, Kasia; Duchatelet, Martine; Feldman, Lori

ProQuest document link

Abstract:

This case explores the strategic direction of a small U.S. organization devoted to helping the Mayan population of Guatemala. MayaWorks is an organization that is attempting to create a sustainable market for the traditional crafts produced by Mayan women in the impoverished parts of the country in the central highlands. This social enterprise is attempting to help capitalism advance its social agenda. The organization faces many challenges as it tries to sow the seeds of entrepreneurs hip in Guatemala and is searching for strategic direction to continue and grow the organization. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTOR'S NOTE

This case is aimed primarily towards an undergraduate audience. The case is appropriate for courses in international business, entrepreneurship, and strategic management. In such classes, the preparation time for students should be about two hours in order to read the case and prepare answers to the discussion questions. Depending on the course, one might expect the instructor to lead a one hour class discussion focused on the course material while addressing the concepts of the social responsibility of business, the fair trade versus free trade dichotomy, and creative suggestions to help MayaWorks manage its future.

The case is also appropriate for discussion in a current business issues class or introduction to business class to spur a class discussion meant to introduce students to the concepts of social entrepreneurship, social responsibility of business, and problems of economic development in the poorest parts of the world. In an introductory class, the preparation time for students should be one half hour (to read the case) and an hour of class time to introduce the concepts.

CASE ANALYSIS

Question 1: Are the concepts of social justice and business at odds?

The question is deceptively straight forward, however, it could generate a lengthy and fruitful discussion. In the Western world of the Judeo-Christian tradition, several centuries ago, when the size of local populations finally grew large enough to allow for division and specialization of labor, those who worked hard and were aggressive, innovative, or lucky would garner a higher income than others, and eventually would become "businessmen", able to hire others and organize production to reap large profits. In those early times, the influence of the religious institutions was uncontested: these businessmen were devout enough to turn in a significant percentage of their income to their temple or their church. The temples and churches would then use these funds to distribute to the disadvantaged, thereby ensuring that a certain social justice prevailed across the spectrum of society.

With the advent of the industrial revolution, the magnitude of possible profits became so large that greed and personal interest often won out: businessmen might still make large donation to their temple or church, but they stopped giving a straight percentage. Businessmen often sought to leave a legacy by establishing huge trust funds for a defined purpose, but the purpose was rarely that of redistribution of income and social justice, it was more to insure that their name would live on through their legacies. They would create an art collection or a musical symphony orchestra, or they would build a large building complex (hospital, university, etc.) to bear the name of the patron.

Within the last fifty years or so our world has become global rather than local, thanks to the communication and transportation technologies, and the plight of the truly disadvantaged in the world has become better known. The disparities of income between groups of people within a country and across nations have become more striking because of easier access to information. This knowledge has been the motivation for socially conscious people to take action. These people are not necessarily personally wealthy, nor do they necessarily work under the umbrella of their religious institution. They seek to make a difference to a small group of people they have identified and feel they can help. They may organize as a non-for profit organization, or operate for profit. They understand that economic underdevelopment is not remedied through vast wholesale subsidies programs from richer nations to poorer nations, but rather through small scale, hands-on training of individuals, by individuals, to teach members of a disadvantaged group how to take advantage of their skills and talents.

These bright, innovative, socially minded, business savvy individuals place their talents at the disposal of less educated, less lucky individuals, advise them, organize them, sell their wares, and generate business profits that allow them to make a living for themselves while paying a fair living wage to their disadvantaged employees. The goal here is to serve the cause of social justice, helping others become financially independent, and able to send their children to school in good health so they might find their own productive place in the global arena. It is business, its success is measured by its profitability, but it serves the cause of social justice as it helps reduce poverty in the world and helps bring about more educated citizens in the world. While capitalism may at its core be centered on self-interest, there is a long history, and a growing movement, to combine the benefits of capitalism with the needs of the least advantaged. It could be argued that one of the greatest social injustices is to prohibit individuals from being able to capitalize on their abilities and skills. Economic freedom is not per se at odds with social justice.

Some additional reading on the subject:

M.Yunus (2008). Creating a world without poverty: Social business and the future of capitalism. Perseus Books Group.J. Elkington, P. Hartigan, and K. Schwab (2008). The power of unreasonable people: How social entrepreneurs create markets that change the world. Harvard Business School Publishing. S. Hart. (2007). Capitalism at the crossroads: Aligning business, earth, and humanity. Wharton School Publishing.

Question 2: What are the strengths, weaknesses, opportunities and threats of MayaWorks?

Strengths:

* Exotic appeal of the goods.

* Uniqueness of the goods

* Ease of adopting new wares to changing customer tastes

* Proximity to the U.S.

* Professional business competence in the U.S.

* MayaWorks has a great impact on the Mayan people: targeted assisted group is made of women artisans: research shows economic development resides in the hands of women because they use their income to feed and educate all their children, males as well as females.

Weaknesses:

* Small size of the producing group.

* Small output.

* Expensive logistics costs associated with transporting finished goods to the Chicago warehouse, then shipping to the final consumer.

* Employee training needed to maintain the quality of the product.

* Its success eventually will create its own demise: as employees are able to pay for menchildren's education, these children are likely to become adults who seek other more technology oriented and better paid occupations.

Threats:

* Political instability of the region.

* Cheap Chinese (or Indian, or African) imitations.

* Current economic crisis affecting disposable incomes of the target market

* Internet sales by competitors.

* Strong reliance on Word of Mouth networks

Opportunities:

* Internet sales of MayaWorks products.

* Focus on quality versus cheaper, coarser imitations.

* Use of social networking tools in order to educate about the cause of Maya Works

* Expand range of product offerings

* Tap into other wealthy markets: such as Canada, Europe

* Tap into new wealthy niche markets: quilters, interior decorators, etc.

Question 3: What strategy recommendations would you make to MayaWorks in order for the organization to continue to fulfill its mission and prosper?

1 . Expand production.

Increase the pool of producing artisans in Guatemala: currently, MayaWorks employs women from three cities. Clearly it could be tapping the help of women in more cities even if more training is needed. Given the threat of cheap imitations, quality is the key. Chinese cheaper imitations might use colored threads whose colors are more garish and that might bleed when handled or washed. MayaWorks could identify women whose family status allows them to travel to other cities to do training. A conflict exists when one considers that following sound business practices and growing the scope of the organization might steer MayaWorks to stray away from its original mission- helping to end the cycle of poverty for indigenous Mayan women in Guatemala.

2. Expand geographical markets.

Although its mission specifically states a "coming together of Guatemalan and North American women", it does not preclude MayaWorks from selling its wares in other parts of the world, such as Europe where such goods are very desirable.

3. Identify selling venues.

There are several very wealthy niche markets that meet in specific venues. Quilters come to mind: quilters abound in the US and in Europe. In the US and Europe, quilters no longer work to make practical objects for their family use, but any number of professional women and retirees have taken up quilting bas a hobby and are willing and able to spend considerable sums of money to satisfy their fancy. For example, check the websites of the American Quilters Society, the National Quilting Association, the European Quilt Association, etc. These associations meet several times a year in very large venues (for example, the Rosemount, IL. Convention Center or the Paducah, KY Convention Center, etc.). Thousands of participants come to view the quilt exhibitions and to buy quilting, embroidering, sewing supplies and cloth that are plied by hundreds of vendors. The MayaWorks textiles would do very well there as do those of similar social enterprises such as Zimbabwe's Tambani that serves the Venda people in the mountains of Northern South Africa and Zimbabwe, (www.tambani.co.za). Other specialized trade venues might be the Furniture and Furnishing trade shows where MayaWorks cloth products might be viewed by interior decorators for curtains, cushions, wall hangings, etc.

4. Continue to diversify its wares through innovations.

MayaWorks has done a splendid job expanding its line of products. It might look to niche markets to guide expansion into other decorative applications (for interior decorations and for quilting for example.) The practice to bring groups of visitors to Guatemala to awaken an interest in the region and its inhabitants is a very good one. One might spark up some interest by asking the tour visitors to suggest new products or new usages for the products with a monetary price to the best suggestion over a certain time period: per tour, per season, per year?

5. Create alliances with similar groups of women textile workers across the world.

This would allow the artisans to share awareness and kinship among workers of other cultures. This would allow the business executives o exchange ideas about non-traditional marketing, possibly to refer to each other on each other web sites. Such groups of social enterprises exist throughout the developing world: Tambani mentioned above is one of them.

6. Encourage the most creative workers to come up with signed creations.

Certainly the current appeal of the MayaWorks products is its rendition of traditional local patterns. Eventually though, especially if MayaWorks should decide to expand its markets by appealing to interior decorators, discriminate, upscale customers in the US and Europe, possibly fashion designers, some of its artisans might be encouraged to come up with new patterns in vibrant Maya colors, or traditional patterns in different mixes of colors or new creations altogether. This would help fight the cheap Chinese imitations too. More value could further be created by identifying the artists behind the most appealing designs.

Subject: Social entrepreneurship; Case studies; Associations; Strategic management

Location: Guatemala

Company / organization: Name: MayaWorks Inc; NAICS: 813910

Classification: 2310: Planning; 9540: Non-profit institutions; 9130: Experimental/theoretical; 9173: Latin America; 9520: Small business; 2410: Social responsibility

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 2

Source details: Special Issue

Pages: 1-5

Number of pages: 5

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 1274174498

Document URL: http://search.proquest.com/docview/1274174498?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2011

Last updated: 2013-09-10

Database: ABI/INFORM Complete

Document 43 of 100

COMPETING IN THE AGE OF WAL-MART: A BOUTIQUE BUSINESS CASE STUDY

Author: Thomas, Michael L; Mullen, Linda Greef; McDonald, J Michael

ProQuest document link

Abstract:

The Thomas Shop is a women's clothing boutique located in Effingham, Illinois. The business was started in 1936 and has since been handed down through the family with the second and third generations currently handling operations. Originally, the business offered approximately 2000 square feet of space, but was doubled in size in the early 1990's to accommodate shoes and other accessories. The store moved to its current location, (owned by the business owners) in the downtown shopping district of Effingham in the early 1970's. The town's population is approximately 20,000 and is the main shopping district for the surrounding county of approximately 35,000 residents, and further, draws customers within a fifty-mile radius. The nearest major city, St. Louis, Missouri is 100 miles to the west. The Thomas Shop has thrived for over seventy years with superior service and merchandise adaptability. However, the recent downturn in the economy has Kathy worried. Kathy is concerned that consumers will become more and more price conscious and may gravitate to the large discounters such as Wal-Mart and other chain stores (i.e. Kohls) for price reductions, even though the merchandise quality is below that of The Thomas Shop. [PUBLICATION ABSTRACT]

Full text:

RECOMMENDATIONS FOR TEACHING APPROACHES

LEARNING OBJECTIVES

Students will learn how key client management and customer delight are strategic tools boutiques can use to compete with large chains.

Students will explore the nuances of the above-mentioned tools.

Students will understand the importance of superior customer service and merchandising adaptability as a tactical tool kit to implement key client management and customer delight.

POSITION IN THE COURSE:

The case can be positioned in the course to supplement discussions on key client management, customer satisfaction/delight, marketing/extended marketing concepts, merchandising, or customer service.

STUDENT PREPARATION:

Students should expect to spend at least two hours reading the case and exploring the discussion topic questions. Outside sources of information to facilitate their understanding should be encouraged.

TEACHING METHODS:

The instructor should act as the moderator for the case discussion. The case can be assigned individually, or in groups.

The discussion can be as a whole, or in groups. If groups are chosen it is suggested that the class be brought together at the end of class to compare and contrast responses (This may extend the time past one hour).

ADDITIONAL INSTRUCTOR NOTES

Large discounters such as Wal-Mart have increasingly pressured small businesses. Drive through a small town and the absence of hardware, clothing, and other traditional independent staples such as pharmacies is evident. The decline in retail businesses in several Midwestern communities has been dramatic. Once accounting for 60% of all establishments, small retailers now make up only 33% of all business establishments (Strange, 1996). The large retail strategy of increasing SKU's via cost efficiencies and discounted prices is not viable for a boutique, as they can never achieve the cost economies of the large chains (McCaig, 2000; Clow and Cole, 2004). So, the question becomes: How do boutique businesses compete against the large chains?

The purpose of this case is to provide two strategic points of attack that boutiques can use to outmaneuver the giants and create a sustainable competitive advantage. The focus is on combining two well-known marketing techniques: key client management and customer delight as cornerstones in a strategy to leverage the small business strengths of customer service and merchandising adaptability. Additionally, merchandising adaptability and customer service are explored.

KEY CLIENT MANAGEMENT

Key Client Management (KCM) has traditionally focused on providing an approach to dealing with the special needs of large, complex clients (Piercy and Lane, 2006). However, the concept is not new to the business community. The idea that special attention should be paid to a business's largest clients is as old as business itself (Smith, 2000). Recent research has focused on ways organizations plan for and manage their most important customers (Ryals and Rogers, 2007; Piercy and Lane 2006; Smith 2000). At the heart of KCM philosophy is the idea that while customers are important they are not all necessarily equal. In order for a firm to operate as efficiently and profitably as possible they must understand the varying degree of value that each group of customers provides (Clow and Cole, 2004). Additionally, KCM understands that firms have limited resources to direct toward customer needs and therefore must prudently allocate them among their customers based on potential return.

Some confusion arises as to what constitutes a key customer. Many substitute the term "key" for "large" which is not necessarily what KCM is about. Key accounts are those that a firm sees as being of strategic importance. Two main perspectives underlie this approach: Customer attractiveness and the customer's perception of the business's strength (McDonald, Millman and Rogers, 1996). It is true that business volume with a customer is an important feature of market attractiveness, but so are customer profitability and growth potential. Customer perceptions are important because buy-in is necessary for KCM methods to be effective (Ryals and Rogers, 2007).

The literature on KCM also devotes much to the topic of strategic partnering. While strategic partnering is generally accepted as an appropriate strategy for business-to-business firms looking to expand relationships with key accounts, this is not necessarily the case for small boutique retailers. Selling to end consumers is very different than selling to other businesses. Retailers thinking of implementing KCM should focus on maximizing profits with their most attractive customer groups. Simplistic tools such as the "80/20 rule" (80% of revenues come from 20% of customers) can be useful in this regard (Smith, 2000). Another method is to breakup your customers into groups or buckets based on characteristics such as volume, profit, growth potential and opinion leadership (Clow and Cole, 2004). The idea behind this latter method is to try to match marketing approaches to each group in order to maximize the profit potential of each.

CUSTOMER DELIGHT

Customer delight has been variously described as being a subset of customer satisfaction research (Johnston, 2004); as being a distinct construct that while related to customer satisfaction is separate and different (Berman, 2005); and as representing 100% satisfaction (Ngobo, 1999). The one thing in common with all of these definitions is that they all acknowledge that customer delight is something beyond mere satisfaction. In theory, delighted customers should be more loyal than simply satisfied customers (Hallowell, 1996). Additionally, studies have empirically shown that this relationship exists (Fornell et al., 1996; Bearden and Teel, 1983).

The differences between satisfaction and delight are centered in the customer experience. Meeting or exceeding customer expectations should lead to satisfied customers. However, delighting customers requires something beyond this: joy and surprise (Berman, 2005). When a firm satisfies a customer they have essentially met their obligation to the customer. Satisfaction is only the half way point to customer delight. Delight involves a customer's emotional involvement that ties them to the product (Edwards, 2003).

One of the ongoing debates within satisfaction/delight research surrounds the measurement of the two. Some suggest that satisfaction and delight can be measured using similar metrics such as delivery time, presence of advertised goods, and customer service perceptions (see Berman, 2005). Others suggest that totally different metrics are necessary for delight that incorporate some level of joy and surprise (Edwards, 2003). Additionally, the measurement issue has developed into a debate over the linear relationship between customer dissatisfaction versus satisfaction, and customer outrage versus delight (Coyne, 1989; Fornell et al., 1996; Ngobo, 1999; Berman, 2005). Specifically, the relationship between satisfaction/delight variables (both negative and positive) does not occur linearly on a metric continuum. Kano (1984) illustrates this by breaking satisfaction/delight into three realms: MustBe Requirements; Satisfier Requirements; and Attractive Requirements. Essentially, the must-be requirements are those basic consumer expectations that must be met in order to avoid dissatisfaction or outrage. Satisfier requirements are those that are necessary to exceed expectations (satisfy the customer). Attractive requirements are those that are not expected by customers and therefore tend to delight the customer.

Outraged customers are those who become saboteurs of the brand via negative word-ofmouth, therefore; all customers need to have their must-be requirements met. Satisfied customers, because they have had their expectations exceeded, tend to show some level of loyalty, but do not tend to become ambassadors of the brand. Delighted customers however are those that become brand apostles (due to the emotional response generated by the experience) and are likely to spread the news to others. Lastly, it is important to note that unfulfilling the must-be requirements can have very detrimental effects, while unfiilfilling satisfier requirements does not necessarily lead to dissatisfaction.

When viewed in this manner it becomes clear that organizations cannot and should not try to delight all groups of customers. A combination of key account management and customer satisfaction/delight is called for to best manage the varying groups of customers every firm deals with.

DISCUSSION NOTES

The previous case study illustrates how a small boutique business can compete and prosper in the face of large discount and chain store competition. Success is achieved not by competing head-to-head on price, but rather by exploiting the unique strengths of small retailers: customer service and merchandise adaptability. Small retailers can take advantage of smaller more controllable sales staffs to focus on key clients. This is very difficult for larger retailers to leverage. Given the large size and heavy traffic flow of the discounter/chain stores they cannot hope to offer the personalized service of the boutique businesses. Yes, some chain stores do have personal shopping services, however these services are offered with significant service charges. The small retailer can include these services for key clients without significantly increasing thencost structure (for example: it does not cost Kathy anything to bring back special items for key clients).

It is important to note that in order to provide adaptable merchandise buying and superior service without increasing the cost structure, boutique businesses must be strategic in their offerings. Relying on a combination of key client management and customer delight techniques small retailers can focus on the profit potential of various groups of customers and offer services appropriate for each group. Obviously, The Thomas Shop cannot buy specialty merchandise for all customers. They focus on the upper echelon of customers (approximately top 5-10%) for this type of service, and since this segment provides approximately 70% of sales, this extended service has a big impact. Other middle to upper tier customers receive other specialty treatments, such as special invitations to fashion shows, personalized color analysis and sales support. Also, they have focused on niches within their customer base that allow for competitive advantage and opportunities to delight. The best example would be the mastectomy fitting service.

While the mastectomy fitting service is only for a very small percentage of clients it has a carry-over effect for the entire business because of the emotional nature of the service. Women who receive this service tend to become very loyal customers and are vocal in their praise of the business. Additionally, with social responsibility receiving more and more attention this type of service makes the business more appealing to customers who may never need the service, but respect the business for offering it.

Finally, this case demonstrates how key client management and customer delight must be used in combination with one another. A business cannot and should not try to be everything to everyone. Customer delight requires soliciting an emotional response from the customer. This is best reserved for the key clients who will significantly reward the retailer for their efforts. Other groups can still receive excellent service that will satisfy their needs and encourage repeat business, and may potentially propel them to key client status. The only requirement for all groups is that service meet expectations to prevent any backlash effect such as negative word-ofmouth. If a boutique follows these simple techniques they can put themselves in a position to not only compete, but prosper.

QUESTIONS

What are the key strengths that allow a boutique business to compete with chain stores and large discounters, such as Wal-Mart?

Students should explore customer service levels and merchandise adaptability. The oneon-one service that boutiques can provide, along with being on a first name basis with top tier clients goes beyond what the chains typically provide (the exception being high-end chains with personal shoppers, but customers pay additionally for this service). Boutiques have the ability to rapidly implement merchandising suggestions from customers that the chains cannot match. Additionally, specialty purchases for key clients are beyond the scope of the chains.

How should The Thomas Shop attempt to provide for key clients?

Student should recognize that key customers provide a significant amount of store revenues (80/20 rule). Therefore, the upper tier of clients should receive superior customer service, (for example personal shopping, special access to sales and other events). Some students will be tempted to offer these services to all customers, but it should be pointed out that the strategy should be to delight top tier customers with these specialized services.

Should all customers be treated equally? Why or why not?

This question is meant to start a discussion about why some customers are more valuable than others. Some students may take a democratic view that all customers should be treated equally. This can lead into KCM discussions, the 80/20 rule, and decile reports. Students should be encouraged to understand that providing extra services to top tier clients does not mean treating other clients poorly. All customers should be treated well (except those that steal or are verbally or physically abusive) however management must skillfully provide that extra service for key clients in a stealthy manner.

How could The Thomas Shop go beyond customer satisfaction to customer delight?

This question should further the discussion on KCM. Students are encouraged to explore the marketing concept and extended marketing concept. Customer satisfaction should be discussed to make the distinction between it and delight. Students should provide similar answers as to question 1 , however this allows a great opportunity to link delight with key client management.

What else could The Thomas Shop do to delight customers?

This should lead to a hearty discussion of customer service, and target marketing. Students may suggest various promotional ideas that are aimed at key clients. Some ideas may be specialty promotions for key clients, wine, and cheese after hour shopping etc. . .

What are some of the potential pitfalls of customer delight?

The costs associated with delighting customers should be explored and this should lead to a realization that it would be too costly to try and delight everyone. Additionally, students may express concern that delighting customers may raise expectations that may be difficult to meet.

What would you suggest they do to avoid potential pitfalls?

Following up on the previous question, students should further explore customer delight in the context of cost containment. What delight oriented activities could The Thomas Shop undertake that would not create additional expenses (i.e. specialty purchases at market)? Additionally, the management of expectations should be explored.

What would you suggest that Kathy do given her concerns about Wal-Mart in a weak economy?

Students should explore what has worked for the store in the past. The business has survived downturns and new competition. Extra effort on service for key clients should be emphasized, as should new promotional activities. Students should resist the temptation to bring on discount lines or to start any effort to significantly reduce margins as this would put the store in more direct competition with Wal-Mart. Some symbolic price promotions may be effective as a short-term fix, but the store must be careful to not go too far.

EPILOGUE

Kathy realized that a frontal assault against Wal-Mart and other discounters would never work. Instead the store would focus on their strengths. Discounters do not (and cannot afford to) offer the same level of service as department stores and particularly the small boutiques. Kathy had always focused on offering personalized service and constantly looked for ways to better serve the needs of her customers. Rather than retreat from this strategy in the face of new competition, and a declining economy she embraced it ever more tightly. Building on past successes the store would attempt to provide the highest possible level of customer service. The reality of the current economic situation is serious, but business has been steady, and Kathy has already noticed an increase in sales as consumer fears have abated.

The specialty services, such as mastectomy fittings, color analysis, style shows and oneoff market purchases for top-tier clients have endeared customers to the store. Additionally, close attention to merchandising has allowed them to carry products that are unavailable elsewhere, thus allowing them to differentiate themselves. Niche business such as prom dresses has kept them in contact with the youth market which helps the store cultivate future customers. Finally, Kathy has thought about expanding into other niches such as higher end hand bags and designer perfumes. This will further increase the Thomas Shop's ability to differentiate the business and better position the store as more upscale.

Subject: Small business; Competition; Retailing industry; Case studies

Location: United States--US

Company / organization: Name: The Thomas Shop; NAICS: 448150

Classification: 8390: Retailing industry; 9520: Small business; 9130: Experiment/theoretical treatment; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 2

Pages: 5-13

Number of pages: 9

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

ProQuest document ID: 1274177407

Document URL: http://search.proquest.com/docview/1274177407?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2011

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 44 of 100

CHARISMA SHOE COMPANY CASE ANALYSIS

Author: Brumm, Joan; Davis, Larry; Bashaw, Edward

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Abstract:

Charisma Shoe Company is based on an actual company. The company is one of the few remaining U.S. shoe manufacturers. Their children's division contains four brands of shoes for infants to twelve year olds. The company faces competition from foreign manufacturers and declining sales in their children's division. The board decided to hire an outside marketing company. They also voted to commit the resources necessary to bring the Children's Division sales levels. The marketing consultant's recommendation is for Charisma to change the branding in the children's division and develop a family branding strategy using the Charisma name as the central theme that ties each individual brand together. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTOR NOTES SUGGESTED TEACHING PLAN

The suggested teaching plan includes five sequential steps: (1) performing a SWOT analysis to identify the Strengths/Weaknesses/Opportunities/Threats of the company, (2) identifying the distinct competencies and the unique characteristics of the business and its Children's Division shoe line; (3) specifying recommendations and action steps that would lead to a competitive advantage; (4) developing a strategic marketing plan; and (5) developing promotion strategies.

ASSIGNMENTS AND ANALYSES

1 . Determine the strengths/weaknesses/opportunities/threats (SWOT analysis) of the company and the current marketing situation faced by the Children's Division of the company?

A SWOT analysis will help students identify some of the weaknesses in the Children's Division that led to the significant decline in shoe sales beginning in 2005 and extending to 2008. Student teams/groups are recommended to perform the analysis. The professor should provide a SWOT sample and template as a student guide through the process.

As the SWOT analyses are completed, class discussion should first identify the weaknesses within and external threats to the company. The SWOT analysis should also help to identify the things that Charisma Shoe Company does well, and, possibly more significant, the things that it does not do well. The core reasons that the Children's Division is unprofitable need to be identified.

Another suggestion is to have discussion of the benefits that Charisma children's shoes offer customers. Student teams should recognize that shoe purchase decisions are psychological and emotional as well as objective. Students should also discuss the Charisma children's shoe competitive environment.

The chart below shows a completed SWOT analysis for Charisma Children's Division. Students should be able to list at least three items in each category.

2. Identify the distinct competencies and the unique characteristics of the business and its Children's Division shoe line.

Distinct competencies are those processes and attributes of an organization creating a unique position relative to its competitors among the targeted market. This mixture should be a design for success that, in combination, creates a unique persona for Charisma Shoe Company. Three possible factors that students should consider are that it is a family owned business; the shoes are American made, and their superior fit including length and width of the shoes.

3. Establish appropriate recommendation and action steps that would lead to a competitive advantage.

Charisma Shoe Company and its Children's Division should attempt to establish its niche based on a competitive advantage. This may be based on some uniqueness of its shoes or a service quality that is only available through its company. Things to consider include an exclusive or unique distribution channel or system. The company should try to create a competitive advantage that could not be easily duplicated by a competitor company. A core competence is a critical foundation of a company's competitive advantage but the differentiation may be difficult to sustain as competitors sometimes attempt to imitate them. The company should commit to protect its distinct competencies from challenge in order to, subsequently, protect its competitive advantage.

There should be discussion of the need for and affordability of additional research before proceeding with advertising to new targeted market areas.

All students should recognize that secondary market research is much less expensive than primary market research because the costs are shared by multiple entities. However, it does not always meet the organization's needs. Secondary research includes information obtained from studies conducted by trade associations, government agencies, business publications and other organizations.

Primary market research is particularly well suited for research areas that the organization would not want to share with others in their industry. Examples of primary research include focus groups, surveys, field tests, interviews which look at specific aspects of a company's service, customer, or product.

One competitive advantage that Charisma has as a domestic manufacturer is location which allows it to easily and quickly respond to "fill in" orders. Another advantage for the retailer is to use the flexibility offered to company buyers with seasonal orders. Additionally, retailers are advantaged by being able to maintain lower inventory levels since Charisma can deliver product to retailers much quicker than their foreign competitors.

If this case is used to address marketing research decisions, then students could be prompted to suggest the types of research that are most appropriate (surveys versus focus groups, samples of customers versus random samples etc.).

4. Develop a 3-year strategic marketing plan for the company.

Students should be able to develop a strategic marketing plan that includes objectives, goals, a recommended strategy, and action steps. The plan should include the following elements:

* Establishment of the criteria or standards under which the company will operate,

* An environmental (SWOT) analysis within and external to Charisma,

* An evaluation of the current market for children's shoes,

* A realistic assessment of the major competitors in the industry,

* An identification of the trends that are anticipated to influence the children's shoe market over the next three years,

* A determination of Charisma's place within the current market,

* A determination of Charisma's desired market position by the end of three years,

* Identification of the customers/target markets whose needs are most closely matched by the shoes provided by Charisma,

* Determination of attainable objectives and goals that set targets for penetration by Charisma into these target markets,

* Establishment of the strategies to be used to achieve Charisma's objectives and goals,

* Establishment of human resource accountabilities,

* Establishment of an appropriate budget, and

* Putting in place appropriate implementation and control/evaluation plans.

Possible marketing objectives in the case might include expanding or trimming its product line, targeting expanded population segments, and establishing online marketing and sales through, increased utilization of Internet technology.

5. Develop promotion strategies for the company. Provide an estimate of the cost of each proposal.

Marketing mix strategies include price, place, product, and promotion strategies. The main emphasis with the promotion strategy will be to develop a family brand, with Charisma as the umbrella family name for all four Charisma children's shoe brands. Keeping in mind the main promotional strategy, develop promotional strategies for each of the four Charisma children's shoe brands and state who the target audience is, mom, the child, or both.

Students can develop a number of strategies. The promotional suggestions below are just some of the many possibilities.

a. Excellence

* Target Audience: Since one-year-olds have not developed shoe brand preferences, all promotions are aimed at mom.

* In-box flyer: The child's first real shoe is an emotional buy for the mom. One promotion could include an in-box flyer written by the real Christy Charisma to the mom.

* Direct mail pieces: Mail promotions to moms of new children

* Promotion of the website: Post the web address on all literature and the shoe box.

b. TJ's

* Target Audience: Promotions should be aimed at both mom and target boys and girls (2 -to 5-years old).

* An in-box flyer: The flyer should be aimed at mom, telling her about all the Charisma shoes lines.

c. Saddles

* Target Audience: Promotions should be aimed at mom and the boy. The shoes fit 6-12 year olds, but the promotion should be aimed at 12 year old boys.

* An in-box flyer: A flyer aimed at the boy that lets him identify with the brand and builds up the Saddle persona.

d. Christy Charisma

* Target Audience: mom and daughter

* On-the-box promotion: A story for the girl. It is better to aim at the 12-year-old (not offensive to 6-year-old) than to aim at 6-year-old (very offensive to 12-yearold).

* Website: Develop portions of the website for both mom and girl.

Subject: Case studies; Shoes & boots; Market analysis; Entrepreneurship; SWOT analysis

Location: United States--US

Classification: 9190: United States; 9130: Experimental/theoretical; 8620: Textile & apparel industries; 7100: Market research; 9520: Small business; 2310: Planning

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 2

Source details: Special Issue

Pages: 7-11

Number of pages: 5

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables

ProQuest document ID: 1274174078

Document URL: http://search.proquest.com/docview/1274174078?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2011

Last updated: 2013-09-10

Database: ABI/INFORM Complete

Document 45 of 100

THE MATTSAKA KOI AND EXOTIC FISH FARM COMPANY CASE

Author: Gagnon, Roger J; Lam, Marco

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Abstract:

The Mattsaka Koi and Exotic Fish Farm case addresses the inventory issues faced by Kioshi Mattsaka. Kioshi is forced to consider demand forecasting and inventory policies when the largest customer places an order for 6"-8" Koi and the company does not have enough Koi in that size to fill the order. This sparks the discussion about what inventory policy to use and whether to consider multiple customer service levels. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTOR'S NOTES RECOMMENDATIONS FOR TEACHING APPROACHES

This case can be used in an undergraduate or graduate course on operations management, inventory management, or supply chain management. While the case could be used to introduce inventory concepts, it may be most effective after the students have been exposed to basic classical inventory management concepts such as the costs of carrying and ordering inventory, economic order quantities, and perhaps "basic" customer service levels. Not only is the concept of customer service levels emphasized in the case, but, the advanced notion of differential customer service levels is introduced.

The case can be used before or after students have studied demand forecasting for the case dilemma evokes the importance of analyzing demand patterns by product and by customer, but does not require the students "crunch" the data. The absence of data allows the students to concentrate on what data the companies needs to gather and analyze and for what purpose. Clearly the case shows the interrelationships among: (1) forecasts of aggregate and customerspecific product demand patterns, (2) customer-specific service levels, (3) inventory policies which govern the level of supplies, perhaps based on customer priorities, and (4) company profitability. Figure INI illustrates the current case inventory shortage dilemma and how the students must consider a long term solution involving, not only the company's inventory policies and customer service levels but also, its demand management approaches, customer cost/profit analyses, and information systems development.

SUGGESTED ANSWERS TO CASE STUDY QUESTIONS:

1. Saburo remarked that the company's sales policy was to,"..turnover (sell) as many ponds of fish as possible in a year, regardless of which customers may be short on some orders." Does this sales policy really maximize profit? Does this policy affect other decisions such as inventory policy and customer service policy? Comment on the pros and cons of this current sales and economic policy or objective. Suggest an alternative company sales/customer policy that could possibly aid with the current dilemma.

The current company sales policy definitely does affect the inventory policies and customer service policies - especially those customers whose orders are not fulfilled. While the current sales policy may maximize the number of ponds or numbers of fish sold, this may not maximize long run profits. This may be due to hefty stockout costs particularly for Mattsaka's largest customers. Additionally, this lack of customer service may drive customers to look for new koi and goldfish suppliers.

2. What inventory cost should Mattsaka consider in developing inventory policies?

It is expensive to: (1) keep the fish while they are maturing, (2) order additional fish needed to replenish certain stocks and the supplies needed to sustain them, and (3) the costs incurred in ordering additional fish (at a higher cost) from another supplier in order to complete customer orders, which Mattsaka cannot fulfill. Therefore, holding, ordering, and shortage or backordering costs should be considered in establishing new inventory policies.

3. Does Mattsaka inherently consider customer fill rates? Should they?

It appears that Mattsaka is not considering customer fill rates explicitly. (They are maximizing the number or ponds of fish sold.) When choosing reorder points and order up to levels Mattsaka should consider the trade-off between having too much inventory when demand is lower than expected and having too little inventory when demand is higher than anticipated.

4. What inventory policy is Mattsaka inherently using?

At this time, the company uses an order-point, s, and order-up-to quantity, S. This is known as an (s, S) policy. This system is frequently encountered in practice (Silver et al. 1998, p. 239). Silver et al. note that values for s and S are usually set arbitrarily. An inventory management class could address how to obtain reasonable values for s and S, by simple sequential determination of s and S or simultaneous selection of s and S (Silver et al. 1998, pp. 331 - 335). However, the optimal determinations of sand S are complex and are not intended to be the focus of the case, since insufficient cost and demand data are provided for these calculations. Having said that, for this case the order-up-to-quantity S could be either the amount needed to refill the pond currently in use to capacity or open an additional pond's capacity of like type and size koi- now grown to adequate size- for sale. It would be difficult for Mattsaka to set S as a constant since each pond could contain different quantities of koi. The s calculation would be far more difficult. One could use computer simulation to test paired values of s and S over past data and, thus, determine reasonable, if not optimal values that perform satisfactorily.

5. What alternative inventory policies could Mattsaka use?

Here, the instructor can introduce a variety of policies; (s, Q), (s, S), (R, S), and (R, s, S). These policies are defined by order-point, s; order-up-to quantity, S; order quantity, Q; and review period length, R. For the introductory operations management class we address the conceptual differences between continuous versus periodic review and order quantity versus order-up-to level. Table INI provides a comprehensive description and comparison of these four types of common inventory policies.

It is apparent that Mattsaka' s inventory system is transaction based, thus signaling a continuous review system. Only when inventory reaches low levels (s) does the company respond by restocking the pond to its capacity (S) or opening another pond of like fish for sale. Therefore, we believe that the (s, S) inventory system most closely mirrors Mattsaka' s current inventory policies.

Rules of thumb; for A items use (s, S) or (R, s, S) systems and for ? items use (s, Q) or (R, S) systems for continuous review and period review policies, respectively (Silver et al, 1998, p. 236-41). In Mattsaka's case A items would likely be those fish that represent a large portion of company profits (40% to 80%) or are very costly to replace (e.g., premium, larger and midsize koi). ? items could be smaller koi and goldfish.

6. How could they allocate additional fish to ponds to help with their inventory stockout problems?

Mattsaka could allocate ponds to different inventory (customer) classes. For example, one (or more) pond(s) of 6"-8" koi could be reserved for Mattsaka's best customers; Mattsaka also needs to analyze and determine who are his "best customers". Alternatively, a proportion of each (or some) ponds' fish could be allocated for different classes of customers with higher priority customers having their proportion reserved. A further elaboration of these strategies is provided in the instructor's notes to question #7.

While an in-depth mathematical treatment of establishing multiple (customer) demand classes is beyond the intent and scope of the case, for a further discussion on multiple demand classes one is referred to Ha (1997) and Arslan et al. (2007).

7. What might be a plausible, if not efficient, solution for Mattsaka in managing his inventories given the possible stock-outs for key clients?

We note that experiencing a few stock-outs might not justify changing the company's inventory policy. However, if Kioshi could aggregate his past customer complaints concerning stock-outs by fish type and by customer (something they currently do not do) and that analysis indicate that there is a systematic problem, changing the reorder point or safety stock levels would be appropriate. Deshpande et al. (2003) discuss how not utilizing the differences in service requirements among customers is costly. Mattsaka could keep physically separate inventories or utilize the differences in service requirements by allocating certain fish to satisfy demand from their largest customers.

Keep separate inventories (or ponds) Many organizations have recognized that they need different inventory policies for different customer groups. Using only an aggregate service level has been shown to be costly (e.g. Deshpande et al. 2003). When the aggregate service level is too low customers will be lost. When the service level is too high for some demand classes, the company invests too much in inventory.

In practice, some companies have physically separated the inventory, while others have created different SKUs for the various demand classes. A drawback of these approaches is that the company does not take advantage of inventory pooling (Deshpande et al. 2003). Unlike a manufactured product Mattsaka cannot barcode his fish with different SKUs. However, he can separate them by ponds, reserving one or more ponds for his best customers. To offset legal challenges to this policy Mattsaka could charge his best customers a premium (higher cost per fish), establish an annual contract for this priority, have the customer complete an a priori blanket order promising to purchase a certain (minimum) number of fish per year for these reserved fish, or enter a consignment sales agreement, where the customer buys the entire pond upfront and pays Mattsaka for fish maintenance until delivery.

Multiple demand classes Mattsaka may be unable or choose not to separate his fish by pond. In that case another option would be to establish multiple customer demand classes to accommodate the reality that not all customers provide the same revenue or profit contribution and, therefore, may not be afforded the same customer service. The multiple demand class issue becomes important when different groups of customers, or demand classes, have different service restrictions with the supplier e.g., costs of lost sales, backordering costs, differing service level contracts.

This multiple demand class strategy could be operationalized as follows. (Please refer to Figure INI, which assumes the company is using an (s, S) policy.) When inventory is high (between the critical level c2 and the S level - a full pond), all customer orders would by accepted. However, when the inventory level hits the critical level c2, the company rations inventory or only orders for the high(er) priority customers would be accepted and all others would be declined, backordered, or filled by subcontracts with other fish wholesalers. There could be multiple classes of customers and, thus, several critical levels (c2, c3, etc.) (e.g., Arslan et al. 2007). Hence, a company can have on-hand inventory (for some high priority customers) and backorders (for lower level customers) at the same time.

In Figure INI the company has two critical levels indicating it has three types of customers - general, a higher priority customer(s), and the highest priority customer(s). A common analogy to this policy that could be related to the students is the distinct reservation of airline seats dependent on customer status or priority - coach, business class, and first class. Airline boarding priorities are directed, not only according to ticket price, but also type of airline credit card held, and travel miles with the airline - platinum, versus silver versus general status. Banks can answer (or return) calls to customers based on your importance to them as a customer (determined by reviewing your accounts with the bank - "Nations Bank Is Taking Calls of MostProfitable Customers First", The Washington Post, June 1997).

Where, ci is the critical level, L is the replenishment lead time, and S is the order up to level in the (s, S) policy.

SUMMARY

Since this case holds many inventory, sales, financial, and information system issues, we thought it best to summarize some of the questions/issues/recommendations that the professor could mention to Kioshi Mattsaka.

Mattsaka Koi and Fish Farm Company needs to collect the following data and make the following decisions and perhaps in this order:

Collect information on the past sales by

1 . fish type

2. customer

3. season of the year

4. aggregate sales by season by type of fish

This is to determine the sales records of which companies are purchasing which fish, how many, when, and total sales by season. This should help to begin to balance total and priority market demand with supply.

*Based on past data (if it exists) determine the amount of each fish type (by type and size) at the start/end of each month. Even better would be a graph showing the inventories of fish (by type and size) on a continuous basis. This is not as laborious as it may seem; inventories will not change daily, but only need to be adjusted on a transaction basis - after some are sold, discarded, or are moved to another fish category (and perhaps another tank).

*Determine the amount and type of past lost sales and to which customers. Determine how much revenue and profit were lost.

This will help to determine the cost of lost sales, to which customers, and from this determine which customers' lost sales cost the most.

*Establish information systems to determine this information on a continuing basis and assign one (or more) person(s) the responsibility for this operation.

*Establish who are their best customers, next best, etc. - perhaps by A, B, C analysis - and determine which fish types and sizes are most important to them and when. Use the revenue, profit, and cost of lost sales information collected from the company.

*Based on the above analyses either:

- dedicate one or more pond(s) by fish type to the "best" customers (those whose cost of lost sales exceeds the cost of dedicating one or more ponds to them

- establish critical levels (c2, c3, etc.) for each customer priority level. (This will be difficult, but will be aided by the information from the databases established that provide the revenue, profit, and the cost of lost sales per customer.

The students will not be able to actually determine the critical levels (c2, c3, etc.) since the pertinent sales, profit, and cost of lost sales data are not provided.

One may wish to discuss how to establish a critical level by:

1. Maximizing (Total Sales to Highest Priority Customers - Total Lost Sales to Highest Priority Customers + Total Sales to Other Customers - Total Lost Sales to Other Customers)

Or

2. Maximizing (Total Profit from Highest Priority Customers + Total Profit to Other Customers)

This can be analyzed through "what if simulation analysis or through sophisticated heuristics.

Neither of the above objectives is the same as... maximizing the number of ponds sold per year.., which the company is currently using.

Thus, the purpose of the case - to get the students to holistically consider the multifunctional, but interrelated sales, financial, and inventory information needs and resulting decisions necessary for Mattsaka to attack this multiple customer class, stock-out dilemma will have been served.

Subject: Case studies; Aquaculture; Inventory; Customer services

Location: United States--US

Company / organization: Name: Mattsaka Koi Fish Farm; NAICS: 114111; Name: Exotic Fish Farm; NAICS: 114111

Classification: 9190: United States; 2400: Public relations; 5330: Inventory management; 8400: Agriculture industry; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 2

Source details: Special Issue

Pages: 13-20

Number of pages: 8

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Diagrams Tables References

ProQuest document ID: 1274175097

Document URL: http://search.proquest.com/docview/1274175097?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2011

Last updated: 2013-09-11

Database: ABI/INFORM Complete

Document 46 of 100

BYD OF CHINA: ELECTRIFYING THE WORLD'S AUTOMOTIVE MARKET

Author: Rarick, Charles A; Firlej, Kasia; Angriawan, Arifin

ProQuest document link

Abstract:

The Chinese company BYD hopes to soon become the world's largest car company. With the support of American Warren Buffett, the company which has only been in existence for a few years, mostly making batteries, has caught the attention of not only Mr. Buffett, but also many in the auto industry. This case examines the favorable conditions that are propelling the Chinese company to the forefront of the not so distant future of the auto industry. [PUBLICATION ABSTRACT]

Full text:

BYD OF CHINA

With the American automobile industry facing serious financial difficulties, and the emerging importance of alternative fuelled vehicles, this case should be interesting and to students. The case is useful in showing how the global automobile industry is quickly changing and the need for speed and innovation is essential for survival. With the rise of the Chinese automobile market, companies like BYD, and maybe especially BYD, represent additional challenges to the American car manufacturers. The case asks students to do a number of things including assessing the future of electric cars and providing a strategic analysis of the Chinese producer BYD. These concepts are interrelated in that BYD has staked its future in the auto business on batteries.

TARGET AUDIENCE AND TEACHING STRATEGY FOR THE CASE

This case can be used in a number of courses including international business, strategic management, an introduction to business class, and others. The primary audience for the case is an undergraduate course, however, the case is flexible enough to serve other purposes. The case can be taught in-class or assigned as a group project. It would be helpful to require students to do some additional research into the automobile industry, however, the case can stand alone without this additional research. Students should be encouraged to think into the future of the automobile industry and the means by which vehicles will be powered. Current trends indicate that further change is likely for this industry. Students should be encouraged to think critically about the strategic direction of both BYD and the automobile industry as a whole. Assumptions should be challenged, including one that automobiles will always be manufactured in the United States, or that gasoline powered vehicles will always be needed. Propositions made by students need to be supported by reason and not opinion.

OBJECTIVES OF THE CASE

The main objectives of the case are to have students explore in greater detail the international automobile industry and to look into the potential of electric vehicles. The case points to the challenges facing American auto producers, historically a major source of employment in the United States. Students will be able to investigate through additional outside research (which is recommended for teaching this case) the causes of the downfall of the American auto manufacturing industry. Students will also become more aware of the rising threat coming from China in auto manufacturing. An additional objective is for students to see the importance of innovation and creativity in creating a competitive advantage.

ANALYSIS

The case asks students to answer three discussion questions. Instructors using the case should feel free to add any additional questions they feel are important for their course. While the discussion questions listed at the end of the case are ones considered important by the authors of the case, they in no way are meant to represent the only way to approach the analysis of the case.

Question 1: Do you think electric cars are a viable alternative to gasoline-powered vehicles? What is the future of the electric car? Explain your answers.

Question 1: Electric vehicles may become a viable alternative to gasoline-powered vehicles in the not so distant future, however, major changes will need to occur in order for this to happen. There are a number of problems facing the electric car including the current limited driving distance on a single charge and therefore a frequent need to recharge. While the vehicles may be introduced for urban drivers where the limited driving range is not a problem, as a replacement for all gasoline powered vehicles, major structural changes will have to be made. It seems reasonable to assume that hybrid vehicles will be a viable market in that they can run short distances without using the gasoline engine and then shift to gasoline power when on a long drive. Toyota has continued to emphasize hybrid vehicles over electric cars due to difficulties with long driving requirements in many markets. To completely remove the combustion engine from automobiles it will be necessary to build an infrastructure of recharging stations or battery replacement stations throughout the country. This will take time and a lot of capital. Improvement in battery technology will also be needed to make this a viable situation. One could make a reasoned argument that electric vehicles will eventually replace gas powered cars, but it will take breakthroughs in battery technology, infrastructure changes, and possibly a more secure source of the raw materials used to produce ion lithium batteries. The power position of the current energy companies cannot be ignored in the future shift away from gasoline as a power source for automobiles. As the new president of Toyota, Akio Toy oda stated in a recent Fortune interview, "We are talking about a once-in-a-century transformation of the market. I believe the auto industry is now trying to face the challenges of presenting a solution to this one-in-acentury change. And what is clear to me that what is going to happen will not just simply be an extension of the past. " (Fortune July 6, 2009). The global auto industry is clearly going to be experiencing significant changes in the coming years. Whether electric autos will dominate that future is presently unclear, however, an argument could be made for a variety of alternative vehicles emerging to at least slowly replace gasoline powered automobiles.

Question 2: What are the strengths, weaknesses, opportunities, and threats of BYD?

Question 2: The Chinese company, BYD has a number of strengths, a few weaknesses, and number of opportunities, and a number of threats. As a relative newcomer to the automobile industry the company will have to leverage its strengths in innovation to capitalize on its opportunities.

Strengths:

Lean production operations

A spirit of innovation and creativity

Management style that pays attention to detail

Competence in battery production that can be applied to automobiles

Located in the fastest growing automobile market

No "legacy costs" found with established competitors

Positioned as a "green business" in growing market

Financial backing of Berkshire Hathaway

Weaknesses:

Relatively small firm in an industry that operates with large economies of scale

Weak brand recognition outside of China

Little experience in automobile manufacturing

Strategy success dependent on acceptance of electric vehicles

Opportunities:

Market growth in China

Expansion to other Asian countries

Expansion to other emerging markets outside of Asia

Possible supplier of automobile batteries to other auto manufacturers

Partnerships with other automotive battery manufacturers

Partnerships with more seasoned auto manufacturers

Threats:

Battery technology advances do not materialize

Competitive strengths are copied by competitors, both foreign and domestic

Global economic slowdown continues to retard new car sales

Rising labor costs in China reduce some competitive advantages

Political instability in China affects the company

Question 3: What suggestions would you make to BYD in order for it to achieve its goal of becoming the world's largest automobile manufacturer?

Question 3: There are a number of recommendations that can be given for BYD to advance ahead and to continue its success, and one day become the world's largest auto manufacturer. BYD will need to establish its brand identity. Outside of China the brand has little to no recognition. BYD will need to begin to build a brand identity that is associated with the image it hopes to project to the world - a new car company with a new idea. BYD needs to create the image of being a leader in alternative vehicles which are environmentally friendly, affordable, and stylish. While the Chinese have improved the quality of many of their products, Chinese brands still do not carry a quality image. BYD may be able to distance itself somewhat from this by "localizing" the brand. Strategic alliances may also be helpful in not only creating a better quality image, but also in providing some of the strengths BYD currently lacks. BYD has done well on its own and the company should continue its efforts at battery innovation and product development. The current strategy is not a bad one but BYD faces the problem of much larger competitors copying its innovation. BYD may want to consider a strategic alliance with a more established automobile manufacturer, one that shares its spirit of innovation and possesses strong brand acceptance and has an established dealer network. Strategic alliances could also be developed with other battery manufacturers, including those in the United States, Korea, or Japan. The success of electric cars is dependent on advances in battery life. Working with other battery producers could conceivably produce some synergies. Finally, since BYD is betting the company on the success of electric automobiles, and since electric cars require batteries made of lithium ion, BYD will want to make sure that it has a reliable supply of the necessary raw material. If electric cars do become more popular, demand for lithium ion will rise and potential supply issues may arise.

BYD has an impressive track record. With the financial backing of Warren Buffet, the innovative and entrepreneurial spirit of its founder (Wang) and the growing need for alternative vehicles, BYD is positioned quite well for continued success. To move from its current market position to the world's largest car company will require continued attention to detail, continued innovation, and perhaps, partnering with more established firms.

Source: A. Taylor. Toyota 's New Man at the Wheel. Fortune. July 6, 2009. 84-85.

Subject: Automobile industry; Electric vehicles; Case studies

Location: China

Company / organization: Name: BYD Auto Co Ltd; NAICS: 336111

Classification: 9179: Asia & the Pacific; 8680: Transportation equipment industry; 9130: Experiment/theoretical treatment

Publication title: Journal of the International Academy for Case Studies

Volume: 17

Issue: 2

Pages: 15-19

Number of pages: 5

Publication year: 2011

Publication date: 2011

Year: 2011

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Business Case, Feature

ProQuest document ID: 1274176657

Document URL: http://search.proquest.com/docview/1274176657?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2011

Last updated: 2013-09-10

Database: ABI/INFORM Complete