In the following assignment I will be talking about Nestlé’s background, vision and mission statement, objectives, business strategy, marketing position, competitors, SHRM at Nestle/my view, Nestlé’s 3 HR policies and my views/recommendations, changing role of HR Managers, and finally my conclusion and recommendations.
2. Nescafe Today and Introduction of the company
At current time Nestle is one of the world’s leading Food Company, with its headquarters based in Switzerland. Till moment company has more than 280,000 employees and has over 500 factories in 86 countries. Its major market segments are Africa, America, Asia, Europe, and Oceania from where it generates huge profits.
Its main motive now is to setup factories locally wherever it can, and then hire local employees. It also tends to rely on local resources and raw material. Therefore, a lot of attention is paid towards its professional training and its social environment.
Nestle was founded in 1866 in Vevey, Switzerland, and is a public own company. The company has over 250,000 shareholders and out of those no one owns more than 3% of the stock. Only 1.5% of its profit is generated from its homeland, and rest is from the other 12 factories that it has overseas.
Nestle is known for its wide range of products, such as; baby food, dairy product, beverages, pet care, ice-creams, and pharmaceuticals products, etc (Nestle 2010). With the help to all these products it covers a vast market and therefore, provides its shareholders with a long term profitable growth.
3. Nestlé’s Vision
To keep its consumer satisfied, by providing them with best high quality food, and dairy product.
4. Nestlé’s Mission
The foremost motive is to keep its customer happy by making products as per to the individual taste, lifestyle, and needs which is good for health.
5. Objective of Nestle
Want to sustain its long term image by manufacturing and marketing its Company’s products in such a ways, which links with its customer needs and lifestyle.
Turning short term profit into long term.
Want to carry on its trust and brand image in customer and employee mind by looking after their values and beliefs.
To recruit the right person for the right job, because professionalism is very much required to survive in today’s competitive world.
6. Business Strategies
6.1 Corporate Level Strategies
Improve its product’s growth through renovation and innovation in process and technology.
Want Long term potential
Business should be done by holding on to the values and management principles of the organization.
Build its organization on the basis of human values and principles (Scribd 2010).
6.2 Business Level Strategies
To provide low cost products to its consumers to reduce competition.
Have the concept of Differentiation – By this I mean to reduce the risk of complexity of supply chain and lower attractiveness for discounters.
7. Market Positioning:
Nestle tries to position its product as a superior quality product and consumer focused. Therefore they have this attracting slogans and messages, such as;
“We know your taste better than you”
“Nestle Milk pack is now at your door step”
“Add additional flavors’ to your life”
These all slogans will attract the buyers and would therefore help Nescafe to show its picture clearly and differently. For example, milk pack will position Nescafe’s product on a better platform against the competitors and therefore would gain competitive advantage. Another way of promoting would be displaying their products on the events like Valentine day, Father’s day, Christmas, etc, so that people get familiar with their products.
In todays time any company that runs a business face competition in this competitive market. Nestle is a multinational company, and therefore has a competitor as well in this global market. A main competitor of Nestle at this time is Kraft, which has recently taken over Europe’s No.1 Cadbury Company also. Besides this there are other competitors like; Mars (in chocolate), Dannon and Yoplait (in yogurt), General Mills (in flour), etc (Castelar Articles 2005).
9. SHRM at Nestle
NESTLE – A HUMAN COMPANY
Nestle is a human Company and I can say this because they pay special attention to the individual needs of their customer and employees. You can see from their attitude and sense of responsibility that how much they are concern for their people. It’s true that Nestle wants to increase its profit, sales, market segment, but not at the cost which would affect the quality life of its consumer and employee.
Whatever Nestle is today, it gives all this credit to its people because without them they wouldn’t have come so far. It’s their peoples’ strength and energy which got them so far, and therefore, people are their real asset. The company has always promoted and encouraged open and active communication among its employees. Therefore taking in mind their employees ideas and discussions, Nestle today has resulted into improved Company overall.
Therefore, Nestle believes in;
– High Performance
– High Involvement &
– High Commitment.
10. My views on Nestlé’s SHRM
According to me I think that Nestle has done a great job in meeting its strategic HRM. This is because Nestle has successfully linked its HRM with its strategic goals and objectives in order to improve its business performance and long-term customer relationship. The company has aligned its HR strategies with its business goals, through which it achieved its core values. It kept its employees and customers satisfied by looking after their needs and requirements. Nestle totally achieved its strategic HRM by meeting its objectives which were;
Market its Company’s products in such a ways, which links with its customer needs and lifestyle.
Turning short term profit into long term.
Wanted customers and employees trust in its brand
To recruit the right person for the right job
Therefore, it’s proved that Nestle did meet its Strategic HRM, but with this it doesn’t mean it stops here. Nestle has to keep on changing its Strategic HRM with the changing time and needs of the customers. And hence it proved that its SHRM is equal to HRM and vice-versa and it both goes together in order for company to succeed and perform better.
11. Nestlé’s HR Practices
Nestle is a company whose HR strategies or practices are developed by keeping in mind the Business objectives of the company and the strategies devised to run the business. The HR strategies are always in alignment with the business goals. Nestle is unique in the sense that it has been able to successfully inculcate its business objective as well as its core values, consistently in its employees day-to-day activities starting from recruitment till continuous performance appraisals. Today, Nestle has one of the most recognized HR functions globally. (Nestle Careers 2002)
Three Nestles’ HR policies that I will be talking about are as follows;
11.1 TRAINING AND DEVELOPMENT
As per to Drucker the one contribution that manager should make it that he should provide better vision to other, so that they could perform better. So basically main work of manager is to motivate, train, and develop people in through the means of training.
According to Kirkpatrick there are four level of learning evaluation which is through reaction, learning, behavior and finally the result. If you follow these four principles you will get to know how to train your employees and in which field they need improvements in (Business Balls 2009).
Nestlé’s Training and Development process
At Nestle Training and Development is very important, from bottom to top. Everywhere in the world, every company runs its own training and development methods, such as; classroom courses, e-Learning, etc. Therefore, Nestle also got its own training and Development procedure, which is as follows;
Nestle provides the following-
Literacy training-to upgrades essential literacy skills, especially for workers who operate new equipment.
Nestle Apprenticeship Programs.
Local Training Programs-on issues ranging from technical, leadership, and communication and business economics.
My views on Nestles’ Training process
According to me Nestle is not doing a good job in its training and development department, therefore with the changing time it should also be changed and improved. By doing this it will help Nestle to improve their business productivity and growth. Therefore, a special attention should be paid towards the training process of employees, so that the company performs well in the long run.
In today’s time it is very important that training practices should be changed as the business strategy changes. Therefore you should always keep in mind few things when you are developing a training strategy, such as;
Always recognize the skills and abilities needed by employees.
Then have an outline which will describe that how your investment in training will help in meeting business goals.
Finally, execute the plan you made and monitor the progress that it resulted into (tutor2u 2009).
In case of small scale organization, training can be given by a supervisor or a skilled man, whereas in large organizations, there should be a full time training officer on training department for the employees. The training methods that I would recommend for Nestles’ are as follows;
Training – on the job
By this I mean that training should be provided at the work place. For example;
A proper instructions and demonstration should be provided to the trainee regarding their job.
A special coaching should be provided to employee. By this I mean that there should be close working relationship between an experienced employee and the trainee, so that trainee can learn and adapt to new surroundings.
A job rotation should be done regularly. By doing so a trainee will learn and experience different task and activities that are going on in the organization.
Advantages of- on the job training
– It’s very cost effective for the company.
– It seems to be very productive, because while learning they are also working.
– By having someone standing on the top, give employees more confidence, because they know they are doing good job.
Training – off the job
Off the job training means that employees have to take training by staying away from work place. This is a very formal kind of training provided to employees. Off the job training can either be provided by the company’s training department or through external provider. The examples of off the job training are as follows;
First one is Day release. It is when employee has to take some time out from the routine working hours and have to attend training centre
The other one is that you have to take evening classes outside the work premises and hours.
Then you have sandwich courses, where the employee has to spend around 6-9 months in college before joining work.
Advantages of off-the-job training:
– A special outside trainer is appointed by the company, so they save money by not hiring trainer on fixed salary.
– Employee can pay his full attention on training rather than working and getting distracted.
– The employees will get opportunity to meet other business employees who are there to learn the same techniques.
It is one the most effective training skills. In this trainer show trainees how they have to work and perform their task. In some cases trainer should include the trainees in his demonstration so that they could feel and observe the work practically rather than just looking at it.
Therefore, Nestle could provide any of above training options that I have recommended. By doing so, it will improve its productivity, because now employee will better understand their work. As of now they have done proper training in the field they were lacking before.
RECRUITMENT AND PLACEMENT
According to Sam Paul it is not necessary to do recruiting yourself, either it is better if you higher and external source for recruiting on your behalf. By this you can just give them the structure or guidelines, from which they will choose a candidate for you. This is very time saving and proves to be cheaper most of the times (Free Articles 2010).
Samta Sharma on the other hand says that recruiting proves to be very costly component for most of the industries. Therefore, company should adapt to online recruitment by installing new software known as resume parser. This software can automatically short list the best candidate needed for that post. After that interview could be arranged. This will save a lot of time and money of the company, because now they don’t have to go through the complete process of recruiting (Amazines 2010).
Nestlé’s Recruitment and Placement process
Nestle has a very outstanding recruitment practices. Nestle, just doesn’t fill jobs, instead they look for the right person for the right job to maintain work efficiency. Nestle works very hard to get the right set of people so that it can survive this tough market competition. (HR resource 2010)
The recruitment process at Nestle is clearly defined according to its business needs which is;
People with qualities like dynamism, realism, pragmatism, hard work, honesty and trustworthiness are looked for.
Match between candidate’s values & company’s culture are recruited.
Recruitment for management levels take place in the head office by top management and all others at the branch level. The existing employees are promoted to higher posts as per the requirements. There are no lateral recruitments. Another source of recruitment is campus placements and human resource consultancies to look for the enthusiastic, motivated and fresh pool of talent.
Decision to hire a candidate is finally taken by HR professionals only and no preference is given to external consultant. This is done to finally have the judgment power in the hands of Company.
Recruitment process is also totally based on hiring and recruitment of people who bring in new ideas.
My Views on Nestles’ Recruitment Process
According to me Nestles’ Recruitment process could be changed or improved in many ways. Nestle do have some good recruitment policies but at the same time it’s old, and to survive in today’s stiff market competition one has to keep updated.
Therefore, I would like to give some recommendations regarding how Nestle can improve its recruitment process.
Therefore, according to me they should have a totally new recruitment process, which should be like;
The company should first identify the vacancy, under which the requirement should be; what posts to be filled, number of persons required for the post, what duties they have to perform, and finally the qualifications required for hiring.
Should prepare the job description and the person with what kind of skill is required for that job.
Should give advertisement on the TV, Newspaper etc mentioning the skills they looking for.
From the response that came in, Nestle should short list the people who best fit the job description (Recruitment 2007).
Then the company should arrange the interview with the chosen candidates.
Finally they should conduct the interview and get back to them with their final decision.
After this the recruitment process should be immediately followed by the selection process. The employee should be hired based on the requirement, and the formalities should be taken care off.
Recent Trend in Recruitment Nestle should adapt to
It is when the external firm helps the organization by looking for the candidates according the needs and requirement of the organization. So in simple terms outsourcing firm gets the right candidate for the organization as per their needs and requirements. In turns of this, organizations pay huge amount of money to the outsourcing firm for their services. Example of outsourcing process is in the following table;
It is one of the most common techniques applied in today’s business. Poaching means that you can directly buy the person’s talent, rather than developing it from the start in new person. All the skills that you required for the job could be in this person, who is doing the same work in some other reputed company, which could be your competitor. So the question is what can you do to get him? The answer is simple; you could offer him or her attractive and enhanced pay package with extra facilities (like, holiday packages, car, driver, house, etc). This will surely attract him, and he will shake hands with your company. By doing this you have weakened your competitor, and saved training and recruitment cost and time (Articles Base 2008).
In today’s time many big companies use internet for recruitment. Through the means of Internet, company can post its requirement for the vacant job. Then people can send in their CV’s/Resume if they think that they are applicable for the job described. By doing this it saves a lot of time for both candidate and the company. Because now company can just reply or call in the person for interview who they think best met the requirement.
REWARDS & INCENTIVES
According to Stephen Burg it is very important to keep employees satisfied and happy so that they could work efficiently. The organization can do this by providing them with some kinds of rewards such as; appraisal, incentives, promotion, gifts, etc.
According to Daniel it is very important to give rewards and appreciate your employees work, but at the same time it should be related to their performance, and their competitive nature. Company should not just give rewards if the person is just doing his or her job, because they might get lazy and think that they don’t have to work more hard as compare to what they are already doing. Therefore, company should give rewards to those people only who keeps on performing better and are innovative.
Nestlé’s Rewards and Incentives Process
‘Passion to Win’ awards- These quarterly awards have been institutionalized to reward those who over-achieve their targets.
Long-service Awards- To recognize employees who have been with the company for more than 30 years.
‘Nestle Idea Award’- It was found from the correspondent that the company institutes Nestle Idea Award every quarter to recognize and award employees who come up with relevant and innovative ideas which have the potential of being implemented at Nestle.
For all aspects of Reward, Nestle applies the following fundamental principles;
Performance Driven – The reward is directly related to the performance of the employee. The better the performance, the better the reward is going to be.
Competitive – Nestle benchmark its’ all aspects of Reward to ensure that they offer all their employees a competitive Reward package
Inclusive – The reward program is made so that everybody could see the contribution that employees make for the organization, not just senior managers.
My Views about Nestles’ Rewards and Incentives process
This is the process where I am very satisfied with the Nestles’ rewards and benefits for its employees. But at the same time you could add a lot to what they already have. Therefore, I would like to give just few recommendations on how they can appreciate their employees work with few tips on no-money reward and recognition.
Besides what Nestle does for it employees it should also provide some kind of extra benefits to them. By this I mean; (Articles 2009)
Benefits should be provided to all employees, with no discrimination such as;
– Leave-Personal & Medical (fixed no. per year)
– Children Education Assistance Scheme
– Provident fund
– Retirement Gratuity Scheme
– Group Insurance & Accidental Insurance Scheme
– Monthly health check-ups & free consultation for self & family etc.
These all things will really motivate employees to do their task better, because now they are more satisfied and think that company treats them as a part and asset of the company rather than just an employee.
Hr strategies that Nestle should follow according to me
With the changing time Nestle should practice following HR practices:
Communication Strategy: Nestle should have an effective communication strategy in today’s changing scenario. Therefore, employees should be well trained and educated with the changes in the market and organization. And this can be done by having open-end discussions in meetings.
Effective Training and Development: At Nestle most of the trainings are done by in-house trainers. But with the changing time they should call external trainer for specialized training. Besides this Nestle should also have training abroad program, so that employees get the feel of global market by working outside.
Entrepreneurship strategy: Every employee needs to be an independent entrepreneur, who can generate ideas and bring them to reality by using the existing resources and support of the organization to create innovative and creative products and services.
Recruit purposefully – In today’s time when most of the organizations are firing people you should have more recruitment going on for the search of talented people. So it’s a great time for savvy companies to hire talented people who have been down-sized by other organizations. This will give advantage to Nestle in coming years.
Thought Nestle did everything that it could to survive in today’s competitive environment. But this competition will never stop and will get more intense with the time passing by. Therefore, beside my recommendations in its’ HR strategies, it should also pay attention to its VRIO approach). This is the approach which I think is very much required in today’s time and changing environment. It’s because if NESTLE will keep up with its VRIO structure it will be unique and different than others, therefore will face less competition in the market. How can it do this? Answer to this is by maintaining its VRIO (Valuable, Rare, Inimitable, and Organized) structure, which is as follows;
A resource is valuable if it helps the organization meet an external threat or exploit an opportunity. If a resource helps bring about any one of these four things then it is valuable: Efficiency, Innovation, Quality and Customer responsiveness.
Valuable resources of Nestle are:
Research & development processes
A resource is rare simply if it is not widely possessed by other competitors.
Rare Resource of Nestle:
Its uniqueness in Infant food products
Processes and ingredients they use are rare.
A resource is inimitable and non substitutable if it is difficult for another firm to acquire it or a substitute something else in its place. This is probably the toughest criteria to examine because given enough time and money almost ANY resource can be imitated. Therefore, one way to think about this is to compare how long you think it will take for competitors to imitate or substitute something else for that resource and compare it to the useful life of the product.
Inimitable resources of Nestle are:
Values followed at Nestle
A resource is organized if the firm is able to actually use it. However, if you analysis does turn up a valuable, rare, and inimitable resource that the firm is not taking advantage of, then the resources of the firm are not said to be organized.
The work motivation theories can be broadly classified as content theories and process theories. The content theories are concerned with identifying the needs that people have and how needs are prioritized. They are concerned with types of incentives that drive people to attain need fulfillment. The Maslow hierarchy theory, Fredrick Herzberg’s two factor theory and Alderfer’s ERG needs theory fall in this category. Although such a content approach has logic, is easy to understand, and can be readily translated in practice, the research evidence points out limitations. There is very little research support for these models’ theoretical basic and predictability. The trade off for simplicity sacrifices true understanding of the complexity of work motivation. On the positive side, however, the content models have given emphasis to important content factors that were largely ignored by human relationists. In addition the Alderfer’s ERG needs theory allows more flexibility and Herzberg’s two-factor theory is useful as an explanation for job satisfaction and as a point of departure for job design.
The process theories are concerned with the cognitive antecedents that go into motivation and with the way they are related to one another. The theories given by Vroom, Porter and Lawler, equity theory and attribution theory fall in this category. These theories provide a much sounder explanation of work motivations. The expectancy model of Vroom and the extensions and the refinements provided by Porter and Lawler help explain the important cognitive variables and how they relate to one another in the process of work motivation. The Porter Lawler model also gives specific attention to the important relationship between performance and satisfaction. A growing research literature is somewhat supportive of these expectancy models, but conceptual and methodological problems remain. Unlike the content models, these expectancy models are relatively complex and difficult to translate into actual practice. They have also failed to meet the goals of prediction and control
Motivation Theory 1 – Adam’s Equity Theory of Work Motivation
The theory explains that a major input into job performance and satisfaction is the degree of equity or inequity that people perceive in work situations. Adam depicts a specific process of how this motivation occurs.
Inequality occurs when a person perceives that the ratio of his or her outcomes to inputs and the ratio of a relevant other’s outcomes to inputs are unequal.
Our Outcomes < Other's Outcomes = Inequity (under-rewarded)
Our Inputs Other’s Inputs
Our Outcomes = Other’s Outcomes = Equity
Our Inputs Other’s Inputs
Our Outcomes > Other’s Outcomes = Inequity (over-rewarded)
Our Inputs Other’s Inputs
Both the inputs and the outputs of the person and the other are based upon the person’s perceptions, which are affected by age, sex, education, social status, organizational position, qualifications, and how hard the person works, etc. Outcomes consist primarily of rewards such as pay, status, promotion, and intrinsic interest in the job. Equity sensitivity is the ratio based upon the person’s perception of what the person is giving (inputs) and receiving (outcomes) versus the ratio of what the relevant is giving and receiving. This cognition may or may not be the same as someone else’s observation of the ratios or the same as the actual situation.
If the person’s perceived ratio is not equal to the other’s, he or she will strive to restore the ratio to equity. This striving to restore equity is used as the explanation of work motivation. The strength of this motivation is in direct proportion to the perceived inequity that exists.
Research suggests that individuals engage in illegal behaviors to maintain equity in relationships, either with their employing organization or with other people (Greenberg, 1990).
The theory was later expanded with the concept of “Organizational Justice”. Organizational justice reflects the extend to which people perceive that they are treated fairly at work. It identified three different components of justice: distributive (The perceived fairness of how resources and rewards are distributed), procedural (The perceived fairness of the process and procedures used to make allocation decisions) and interactional (The perceived fairness of the decision maker’s behavior in the process of decision-making). (Copanzano, Rupp, Mohler and Schminke, 2001).
Equity theory is descriptive and it reflects much of our everyday experience. As a theory however equity is only partial in analysis and as a predictor. There are many societal and institutional variables (inequalities) that we all navigate. The theory ignores people’s natural resilience, their competitiveness, selflessness and selfishness, their ethical dilemmas in decision-making and their passions.
It does not adequately explain interactions in close relationships such as marriage or “emotional labor” – where we may provide care to others at a burdensome cost of declining personal well-being and self-denial. Norms of equity and reciprocity are often discounted in close and romantic friendships or where there are deep family bonds.
In the social exchanges of business, causal, or stranger relationships, there may be more of a dominant assumption that inputs are offered with the expectation of a like response. There is more of a formal contract of tangible and intangible reward. A promise unfulfilled, without proper reciprocity incurs a debt of honor. A promise is broken. In our community, obligations of reciprocal response operate. We are expected to apply the Golden Rule and to help where we can – an act ably demonstrated by “the Parable of the Good Samaritan”.
Social exchange theory assumes rational, calculated action involving an expected pay-off. We do not always act rationally. Many will not be as selfish as rational action may suggest. Indeed our reward may be the inner glow of respecting oneself and living to one’s own values. Such altruism, albeit self-referential, does not sit easily under the assumptions of the “rational, economic-person” model.
It is necessary to pay attention to what employees’ perceive to be fair and equitable. For example: In my company, one of my colleagues was assigned to a project that required him to work during non business hours frequently. He worked three days at the office and two days at home in a week for a month and half. This caused others to start working from home during business hours.
Allow employees to have a “voice” and an opportunity to appeal. Organizational changes, promoting cooperation, etc. can come easier with equitable outcomes.
Management’s failure to achieve equity could be costly for the organization. For example: One of my technically team members was not very competent. He took double the time to complete any give work when compared to the others. Management failed to take any action; instead the others were given more work. Eventually, even the competent workers took it easy to restore equity causing project delays.
Motivation Theory 2 – Vroom’s Expectancy Theory of Motivation:
Expectancy theory provides a framework for analyzing work motivation, which is eminently practical. It provides a checklist of factors to be considered in any managerial situation and it points to the links between the relevant factors and the direction, which these factors tend to follow in their interrelationships. (Tony J. Watson, Routledge & Kegan Paul, 1986).
Expectancy theory holds that people are motivated to behave in ways that produce desired combinations of expected outcomes. It can be used to predict motivation and behavior in any situation in which a choice between two or more alternatives must be made. (Kreitner R. & Kinicki A., Mcgraw Hill, 7th Edition). Vroom gave the following equation of Motivation:
Motivation (M) = Valence (V) x Expectancy (E)
Valence stands for the preference of an individual for a particular outcome. Thus, when an individual desires a particular outcome the value of V is positive. On the other hand when the individual does not desire a certain outcome, the value of V is negative.
The value of expectancy ranges between zero and one. When a certain event will definitely not occur the value of E is zero. On the other hand when the event is sure to occur the value of E is one.
Since its original conception, the expectancy theory model has been refined and extended many times. The better know of all is the Porter-Lawler model. Although conventional wisdom argues that satisfaction leads to performance, Porter and Lawler argued the reverse. If rewards are adequate, high levels of performance may lead to satisfaction. In addition to the features included in the original expectancy model, the Porter-Lawler model includes abilities, traits, and role perceptions.
Vroom’s theory does not directly contribute to the techniques of motivating people. It is of value in understanding organizational behavior. It clarifies the relation between individuals and the organizational goals. The model is designed to help management understand and analyze employee motivation and identify some to the relevant variables. However, the theory falls short of providing specific solutions to the motivational problems.
The theory also does not take into account the individual differences based on individual perceptions nor does it assume that most people have the same hierarchy of needs. It treats as a variable to be investigated just what it is that particular employees are seeking in their work. Thus the theory indicates only the conceptional determinants of motivation and how they are related.
Research studies have confirmed that the association of both kinds of expectancies and valences with effort and performance. The motivated behavior of people arises from their valuing expected rewards, believing effort will lead to performance, and that performance will result in desired rewards.
The expectancy theory explains motivation in the U.S. better than elsewhere and therefore may not be suitable for other regions.
This theory can be used by the managers to:
· Determine the primary outcome each employee wants.
· Decide what levels and kinds of performance are needed to meet organizational goals.
· Make sure the desired levels of performance are possible.
· Link desired outcomes and desired performance.
· Analyze the situation for conflicting expectations.
· Make sure the rewards are large enough.
· Make sure the overall system is equitable for everyone.
Motivation Theory 3 – Maslow’s Theory of Hierarchy of Need:
Maslow believed that within every individual, there exists a hierarchy of five needs and that each level of need must be satisfied before an individual pursues the next higher level of need (Maslow, 1943). As an individual progresses through the various levels of needs, the proceeding needs loose their motivational value.
The basic human needs placed by Maslow in an ascending order of importance can be summarized and shown as below:
The desire to become what one is capable of becoming.
These are the needs to be held in esteem both by oneself and by others.
These are the needs to belong and to be accepted by various groups.
These are the needs to be free of physical danger. The safety needs look to the future.
These are the basic needs for sustaining human life itself, such as food, water, warmth, shelter, and sleep.
Maslow in his later work (Maslow, 1954) said:
1. Gratification of the self-actualization need causes an increase in its importance rather than a decrease.
2. Long deprivation of a given need, results in fixation for that need.
3. Higher needs may emerge not after gratification, but rather by long deprivation, renunciation or suppression of lower needs.
4. Human behavior is multi-determined and multi-motivated.
Part of the appeal of Maslow’s theory is that it provides both a theory of human motives by classifying basic human needs in a hierarchy and the theory of human motivation that relates these needs to general behavior. Maslow’s major contribution lies in the hierarchical concept. He was the first to recognize that a need once satisfied is a spent force and ceases to be a motivator.
Maslow’s need hierarchy presents a paradox in as much as while the theory is widely accepted, there is a little research evidence available to support the theory.
It is said that beyond structuring needs in a certain fashion Maslow does not give concrete guidance to the managers as to how they should motivate their employees.
The need hierarchy as postulated by Maslow does not appear in practice. It is likely that over fulfillment of anyone’s particular need may result in fixation for the need. In that case even when a particular need is satisfied a person may still engage in the fulfillment of the same need. Furthermore, in a normal human being, all the needs are not always satisfied entirely. There remains an unsatisfied corner of every need in spite of which the person seeks fulfillment of the higher need.
A person may move on to the next need in spite of the lower need being unfulfilled or being partly fulfilled.
No single motivation theory can suffice in today’s workplace. Each motivational theory has its pros and cons. A theory may get the highest performance from an employee but may not from another employee.
The organization’s workplace has changed dramatically in the past decade. Companies are both downsizing and expanding (often at the same time, in different divisions or levels of the hierarchy). Work is being out-sourced to various regions and countries. The workforce is characterized by increased diversity with highly divergent needs and demands. Information technology has frequently changed both the manner and location of work activities. New organizational forms (such as e-commerce) are now common. Teams are redefining the notion of hierarchy, as well as traditional power distributions. The use of contingent workers is on the rise and globalization and the challenges of managing across borders are now the norm. These changes have had a profound influence on how companies attempt to attract, retain, and motivate their employees.
Yet we lack new models capable of guiding managers in this new era of work. As management scholar Peter Cappelli notes, “Most observers of the corporate world believe that the traditional relationship between employer and employee is gone, but there is little understanding of why it ended and even less about what is replacing that relationship” (Cappelli, 1999). I believe that the existing work motivation and job performance theories are inadequate to cater to the present era of such diverse workforce. New theories of motivation are required to commensurate with this new era.
PESTLE Analysis is a type of situation analysis where we need before starting market decisions or business plans. It is extremely important to identify the external environment. The only way to accomplish our goal is through a PESTLE analysis which contains six factors that influence on a business: Political, Economic, Social, Technological, Environmental and Legal. Besides it is also very important for a company to be fully awake of the actions their competitors take. These kinds of factors change constantly.
It is no surprise why every time we talk about fashion the same name always comes up: Zara. The largest and the most famous Spanish clothing company in the world. There stores covers almost every continent in the world.
The Zara Company was established in 1975 by Amancio Orgega, Zara is the flagship of Inditex (Industria del Diseño Textil, S.A.), the company is located in Galicia, the north-west part of Spain. In a relatively short time frame Inditex has become one of the biggest clothing retailer in the world with 2,692 stores spread across 62 countries worldwide by the end of January 2006. In addition to Zara which accounted for 66 percent of the group’s turnover in 2005, Inditex owns seven smaller store brands: Bershka (avantgarde clothing), Pull and Bear (youth casual clothes), Massimo Dutti (quality and conventional fashion), Oysho (undergarment chain), Stradivarius (trendy garments for young women), Kiddy’s Class (children’s fashion), and Zara Home (household textiles).
The government and political parties are accountable for evolving the political environment in a country. The chief silent factor in a business is government; they can help an industry by using the form of policies. Zara has been present in Spain, and merely one more main distribution centre for Europe. In addition, the political help that is provided for expansion of the business in other countries must be assessed critically. Because European countries have predictable and safe economic environments, Zara has choices to expand its business around Europe.
And these are some of the most important pull factors that give a clear definition of the internationalisation of Zara include:
The 1986 admission of Spain in the EU;
The globalisation of the economy – potential economies of scale;
The homogenisation of consumption patterns across nations – Zara’s believes that “national frontiers are no impediment to sharing a single fashion culture”
The eradication of export obstructions and the growth of Information Technology. (Lopez & Fan, 2009).
As we know already Zara is a Spanish company so establishing a new branch in another country and all the terms which are related to taxation are political factors for Zara group. The political emphasize on the role of goverment and its effects on our company, and also extent of participation in a political situation. For example Indian government is willing to provide foreign investment in their nation; The Company Zara was provided an open market by India. However the government of India has its own policy which is to be followed by companies as Zara which formed a joint venture with TATA (Shah, 2011)
Production not transferred to low cost locations:
Zara resisted the famous in industry trend to produce fashion cheaply in countries like China. Zara states that this offers more control as it controls most of its steps on the Supply Chain, the design, manufacture and the distribution of products (CNN, 2001). In the UK, half of what products Zara sells are made in Spain, a quarter in the rest of Europe and another quarter in countries in Africa and Asia. For example, longer shelf life clothing such as t-shirts is outsourced to cheap suppliers mostly in Asia and Turkey (Business Week, 2006).
Zero Advertising Policy:
The rarest company policy is the policy not to advertise. While Zara’s competitors mostly rely on expensive advertising campaigns, Zara prefers to invest into opening new stores instead (CNN, 2001).
Producer of nearly 11,000 items annually:
There is a large product range in the Zara Company. While the competitors of Zara produce about 2000-4000 items annually, Zara produces a whole 11 000 items. In addition brand loyalty is built and an increased number of customer visits as a result of Zara changing its designs every two weeks.
A customer visit in Spain on a high street in Zara is 17 times a year compared to 3 times in the average street stores. (The Guardian, 2002).
Shortening Product Life Cycle:
While the designing of a new product and getting it to the stores by industry takes 6 months, Zara needs just 2 weeks to do the same (Business Week, 2006).
To recap, Zara breaks all the guidelines, but it seems that using this strategy proves to be very successful, because Zara is considered to be one of the largest stores in industry.
Growing of income:
People began to look for a high quality and comfortable life when their disposable personal income rose. A wide market share is provided to Zara from this kind of trend. Personalized consumption turns into the mainstream of society. A major guarantor of Zara’s success is “a small amount, variety, cheap.”
When talking about the strategy of design, an article in Business world Magazine defines it as follows: “Zara was a fashion imitator. It focused its attention on understanding the fashion items that its customers wanted and then delivering them, rather than on promoting predicted season’s trends via fashion shows and similar channels of influence, which the fashion industry traditionally used.” There will be a depreciation of 0.7% of fashion goods every single day. A new product, from its designing to manufacture, logistics operation and the final sale, needs only about 2 or 3 weeks in Zara.
Fashion has received attention by a growing number of people. However, only a small amount of people can afford it because fashion is a masterwork of top designers. By tracking these fashion elements, the designers of Zara design their own product in order to make it affordable to most consumers (Badu, 2010).
R&D and Production
1. Fast production: Zara’s deliveries take up to 6 weeks instead of 6 months which is usual for their competitors.(Ghemawat & Nueno, 2006).
2. It is easy for Zara to control their suppliers since they amount to 20. These 20 suppliers account for 70% of Zara’s production. Other companies for example have 200 suppliers or even more.
1. Zara have their own distribution centre with an order to delivery time of 24 hours for Europe and 48 hours for USA and Asia (Tokatli, 2007).
2. The shops receive two deliveries from Zara’s distribution centre. Which gives the shops the opportunity to have low inventory and a high turnaround within the shop (Lopez & Fan, 2009) (Ghemawat & Nueno, 2006).
Flexible Supply Chain
1.Zara is vertically integrated and controls its entire production chain. An effect of great importance of the control is the re-reducing the bullwhip effect. (Ghemawat & Nueno, 2006)
2. Zara has very short lead times. The Agility of their supply chain allows Zara to deliver from product design to the final customer within 2 weeks for repeat models or 5 weeks for new products (Mazaira, González, & Avendano, 2003).
Zara tries to help the sustainable growth of the society and the environments which it interplays with. This dedication to the environment is a fragment of the Inditex group corporate social responsibility policy.
Objectives and Actions:
At the sores:
Zara puts a lot of effort on eco efficiency at their shops. Energy saving is one of the key approaches to ecological preservation the company embraces. Another approach is the development of efficient management models for their stores that proposes some restrictions or changes to be carried into effect for all of the company’s processes, from the design of the store itself, the lighting and heating or cooling system equipment, to the possible recycling of furniture and decoration. Zara stores offer only paper or biodegradable plastic bags. About 90% of the bags Zara gives out to customers are papermade.
1. Waste reduction and urge to recycling
Every year Zara processes millions of hangers and security tags. In addition both the cardboard and plastics used are recycled.
2. Increasing awareness among the team members
Zara heightens all their employee’s awareness of the need for sustainable practices such as trimming energy consumption, using sustainable transport or modifying habits.
With the product
1. The company uses mostly ecological fabrics, like organic cotton.
Zara Supports ecological agriculture and uses organic cotton in the manufacturing of selected clothing items(100% cotton, completely free of pesticides, chemicals and bleaches). Due to their distinctive label such products can be recognized very easily at the stores.
2. Producing PVC -free footwear
Zara does not use any petroleum derivatives or non-biodegradable fabrics for the production of their footwear.
In the transportation
Zara’s fleet of Lorries ship over 200 million pieces of clothing per year and use 5% biodiesel fuel, which results in lowering the emission of CO2 into the atmosphere by over 500 tones
Animal welfare policy
All of the animal products, including fur and leather sold at Zara stores is supplied only from animals grown in livestock form and never from animas killed by poachers for skin sale. (Zara, 2010)
Plagiarism has become a hug problem in the fashion industry. Trends are very often imitated and cheaply as well as illegally sold in the street.
Since the European has a smoothly operating trade and legal system which facilitates business operations in member countries, other countries around the world do not provide the same reliabilities . In communistic countries loss of a private run business to the local government is highly probable.
Zara has had a very successful history from the moment they opened their small Spanish dress shop, and as we can see now the little-known brand has grown into a leader of the apparel market in less than 30 years. Now the footprints of Zara is nearly everywhere. The big design group, unique strategy, environmental management idea and other operational strategies make Zara success. This PESTLE analysis seeks to improve our understanding of the firm. The research has examined the internationalisation process of the firm with a special focus on motives, entry options and international marketing strategies. The main drawback that arises in a single case study is that of limited validity and representativeness which constrains the potential for making generalisations (Creswell, 1998). Another limitation is that the study was based solely on secondary data. However, this case is deemed adequate to provide good insight, and establish the avenue for future studies.
The direct model refers to the fact that Dell does not use the retails channel, but sells its PCs directly to customers through its website, this way the intermediary steps that may add time and cost are eliminated, and Dell is directly linked to its customers. The direct approach allows Dell to build a relationship, which makes it quick and easy for customers to do business with Dell.
The build-to-order model enables Dell to keep inventory down very low compared to competitors like Compaq and IBM. Dell has a low inventory of five to ten days, while Compaq and IBM have inventory of four weeks or more. Dell purchases a significant number of components from single sources. In some cases, alternative sources of supply are not available. In other cases Dell may establish a working relationship with a single source, even when multiple suppliers are available, if the company believes it is advantageous to do so when considering performance, quality, support, delivery, capacity and price (Annual Report, 1996).
If the supply of a critical single-sourced material or component were delayed or curtailed, Dell’s ability to ship the related product in desired quantities and in a timely manner could be adversely affected. Even where alternative sources of supply are available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of sales, which could affect operating results adversely (Annual Report, 1996).
On 21 September 1999, an earthquake of magnitude 7.6 struck Chichi, Taiwan. It had devastating consequences. Baum (1999) reports that after the disaster more than 2,200 people lost their lives, more than 50,000 buildings were destroyed and total industrial production losses were estimated as $1.2 billion. This area features high production concentration of many other computer components, e.g. motherboards (more than two-thirds of world consumption in 1999) and notebook displays. Local producers of computer memory, TSMC and UMC being the leading Taiwanese suppliers, lost significant quantities of work in progress at the time of the earthquake. Sherin and Bartoletti (1999) report that production lines could not restart at the first couple of days after the event as sensitive critical-path equipment had been damaged.
The world markets of memory chips reacted very fast to this news, as supply was constrained at the last part of 1999. The spot price of memory chips went up fivefold. computer memory increases were not passed on to consumers as higher product prices, but they were absorbed by the company and were passed on to investors in the form of less stock repurchases. Dell Computer Co. (2000a) announced that during the fourth quarter of 1999 it lost $300 million in revenue due to the Earthquake.
The global presence of DELL with sales offices in 43 countries, sales presence in 170 countries, 6 global manufacturing sites in Brazil, Tennessee, Texas, China, Ireland and Malaysia clearly defines its leading position in the computer systems market. The annual revenue for Dell Inc was $ 61.8 Billion (FY 2008- 2009). By cutting .the middle man and building PCs, enterprise products like servers, storages, solutions to order, Dell has revolutionized an industry once inundated with unsold inventory and products that quickly became obsolescent. Dell’s integrated supply chain has allowed it to gain market share while remaining profitable.
Dell’s business strategy includes direct route to market, Supplier relationship and E- Commerce.
Dell Direct Model
Supplier Relationship (Just In Time Strategy)
Direct Model: Dell’s business model is the envy of many competitors. Most other competitors are in the process of developing a direct market strategy but the transition from existing sales channel is not simple. Dell continues to gain market share by using its knowledge about its customers. First of all, the model eliminates the need to support a widespread network of wholesale and retail dealers, which allows them to avoid dealer mark-ups; avoids the higher inventory costs associated with the wholesale/retail channel and the competition for retail shelf space; and diminishes the high risk of obsolescence associated with products in a rapidly changing technological market.
Supplier Relationships: Dell.s integrated supply chain allows it to keep only four days of inventory. Component price in computer industry falls almost 6% a week. The company can provide the component price decline to its customers quickly. In addition, Dell shares demand information with suppliers, so ensuring that inventory is kept to minimum. Dell also enhances cash flow by effectively paying suppliers after customers have settled invoices. Dell’s relationship with their suppliers has played a key role in their success story. They have found a way to get most suppliers to keep components warehoused within minutes from Dell’s factories in Austin, Penang, Malaysia, and Limerick, Ireland. This has led them to reduce their number of suppliers from 204 in 1992, to only 47 today, all of whom have been willing to cooperate with their warehousing plan. These suppliers manage their own inventories, while they run parts to Dell as needed. The biggest advantage for Dell is that they don’t get billed for the components until they leave the supplier’s warehouse. Dell doesn’t take these components until an order is placed, which saves them a lot of money because the prices of PC parts can fall rapidly in just a few months.
E-Commerce: Dell has developed a process whereby they can assess the lowest possible price within an hour. Dell’s e-commerce infrastructure allows dynamic pricing strategy, whereby the same product and service can be sold at different prices, depending on the buyer. As a result of their innovative transformation, Dell sells more than $30 million per day on the Internet, accounting for 30% of their overall revenue. Dell views the Internet as the most genuine and efficient form of their direct model, providing greater convenience and efficiency to customers as well as to Dell.
Theoretical Model :-
Supply Chain Disruption, both potential and actual are the enemies of all firm. Supply Chain disruption can be defined as ” Unplanned and Unanticipated event that has disrupted the normal flow of goods and material within a supply chain. Risk Prevails in three categories i.e Internal risk , External Risk and Network related risk( Juttner et al. 2002). Risk can be catogorised in variables. Variables suggested by Ritchie and Marshall ( 1993) include environment, industry, organisation , problem specific, decision maker related variables.
Supply Chain Disruption:- Anything that affects the flow and supply of raw material, sub component, finished good from all the way from origin to the final demand point.
On the basis of the severity of impacts and their likelihood or probability of occurrence, the major established attributes of disruption can be classified as follows:
The most vital attribute of disruption is the inherent cause of disruption. For example, Murphy(2006) categorized disruptions into “natural events”, “external – man made events”, and “internal- man made events.” Blizzards, labour strikes, and product recalls would be examples of each category respectively (Murphy 2006).
Another vital attribute is on how many spheres or disciplines of the supply chain have been affected by a given disruption at one time.
The third vital attribute is whether or not the disruption is associated an environmental change. Disruptions that cause an environmental change usually impact some form of the infrastructure for either a long time period or permanently.
The fourth and the final attribute of disruption is the duration of the disruption itself.
The framework tests the supply chain risks based on the above mentioned attributes and classifies them as deviation disruption or disaster, based on the severity of the disruption over the supply chain and the probability of occurrence as a parameter for risk calculation, assessment, prevention or mitigation.
In order to see the different aspect of risk management in a supply chain, a frame work prepared by Manuj and Mentzer( 2008) has been reviewed.The schematic diagram of the framework is shown below.
The framework is created in view with firms having a global outreach who source from different countries. This framework provided is a comprehensive one with both risk management and mitigation factors incorporated in to it. This framework proved to be ideal for risk management and mitigation in Dell, a truly global firm.
The framework adopts 5 step approach for Risk management and Mitigation.
Risk Identification: – Risk identification is an important stage in the risk management process. Consequently, by identifying a risk, decision-makers become aware of events that may cause disturbances. To assess supply chain risk exposures, the company must identify not only direct risks to its operations, but also the potential causes or sources of those risks at every significant link along the supply chain (Christopher HYPERLINK “#idb3″et al.HYPERLINK “#idb3”, 2002). Hence, the main focus of supply chain risk analysis is to recognize future uncertainties to enable proactive management of risk-related issues.
Risk Assessment and Evaluation: – After the risk analysis, it is important to assess and prioritize risks to be able to choose management actions appropriate to the situation. One common method is to compare events by assessing their probabilities and consequences and put them in a risk map/matrix
Risk Management Strategy: – Different strategies are adopted for various risks according to their importance and nature. Various strategies are suggested in the framework, such as Avoidance, Postponement, Speculation, Hedging, Control, Risk Sharing/Transfer, Security etc.
Implementation of Supply Chain Risk Management Strategy:- Once the various strategies have been decided, plans have to be made for implementing the strategies based on their priority.
Mitigation of Supply Chain Risk: – Mitigation is the most commonly considered risk management strategy. Mitigation involves fixing the flaw or providing some type of compensatory control to reduce the likelihood or impact associated with the flaw. A common mitigation for a technical security flaw is to install a patch provided by the vendor. Sometimes the process of determining mitigation strategies is called control analysis.
Expansion of the Framework and explanation of Potential Source of Disruption Recovery:-
The global SCRM frame work designed by Manuj and Mentzer (2008) was applied on the Dell’s Value chain to analyze and identify the Risk. The framework was expanded and broken in to various stage and then applied to the Dell Value Chain.
Risk Identification: – In this phase various risk were identified by brain storming. The risks were classified in the following sub heads.
Supply Risk: – This includes of Wrong Supplier selection ,Natural Calamity like Earthquake, Hurricane, Low Inventory levels, Quality Issues , Supply disruption and Price escalation.
Operations Risk: – This includes Exchange Rate, Country Factors, and Virtual integration network breakdown.
Demand Risk: – This includes New Competitor, Technology Changes and Demand Fluctuation.
Security Risk:- This includes Information system breach and Freight breaches.
Risk Assessment and Evaluation: – In this phase we have calculated the RPN number. Probability and impact of disruption were quantifies on the scale of 1 to 10 based on the hypothesis on the most severe to be 10 and the least severe to be 1.Eventually the most probable to be 10 and the least probable to be 1. Multiplying the Probability and Probability, RPN was calculated.
Risk Management:- In this phase we have suggested the various ways by which an organization can minimize the impact by the risk which were identified in the Risk identification. Risk’s having high RPN number such as ” Supply Disruption , Low inventory Level ” should be attacked first, gradually coming down to the lesser RPN numbers and taking proper measure to minimize the risk.
Risk Mitigation: – Identifying the severity of disruption, risk mitigation strategy was defined.
The academic framework by Manuj and Mentzer(2008) was tested hypothetically over the case of severe supply chain disruption faced by Dell and other computer systems manufacturer, during the time when Taiwan, one of the largest manufacturing base for semiconductor and motherboard production and assembly, suffered an earthquake, which is critically analysed as an unplanned unorganised risk for any functional supply chain in the manufacturing scenario..
After the step wise approach of finalising the framework and implying and expanding it over a real time already occurred situation of crisis it was inferred that severe supply chain disruptions have a great impact on the firm. The existence of a clearly articulated risk management plan for disaster-induced supply disruptions has not appeared in Dell’s official announcements during the six month period after the event in Taiwan. The inherent supply chain agility of this CDM Company, however, offered it several means of recourse during the month that followed the disruption. Dell operates on a configure-to-order basis, thus the final decision on product configuration rests with Dell’s customer. The moment an input’s price increases, customers may modify their configuration preferences by requesting less of the expensive input. Veverka (1999) reports that Dell changed its marketing strategy after the Taiwan earthquake in an effort to shift consumer preferences towards low
A second ingredient of Dell’s supply chain strategy, long-term contracts with suppliers, did not deliver steady prices; despite expectations to the contrary in the PC industry press (Deckmyn, 1999). Baljko-Shah (2000) reports that Dell was forced to buy regular DRAM memories after the Taiwan earthquake, while their prices were high. Dell was planning to incorporate in its most innovative product line best-available technology memories (RDRAM). Contrary to earlier announcements, computer processor unit (CPU) suppliers did not make available on time CPUs compatible with the new technology memories. Dell ended up buying conventional memories during the earthquake-induced shortage in order to meet advertised commitments to increased memory capability in its innovative products. Dell Computer Co. (2000a) announced that during the fourth quarter of 1999 it lost $300 million in revenue.
With respect to the framework by Manuj and Mentzer ( 2008) , the disruption at dell, in the case of earthquake in Taiwan at the supplier base, disrupting the dell’s supply chain can be covered by deploying the Risk resilience. The key points to mitigate the damages caused by the Supply Chain disruption are recommended as below.
Postponement of Risk :- Postponement entails delaying the actual commitment of resources to maintain flexibility and delay incurring costs (Bucklin, 1965). It appeared that an increasing trend toward off-shoring provided a motivation for form postponement. Yang et al. (2004) also argue that with increasing attention to mass customization, agile operations, and e-business strategies, there should be more interest in postponement; however, there has been an absence of empirical research supporting this implication. Since global supply chains face high risks, postponement becomes increasingly valuable as the proportion of off-shore components in the final product increases. Therefore, as a preliminary observation, we believe that as the proportion of off-shore components in the final product increases, the likelihood of a supply chain considering investment in form postponement will increase.
Speculation of Risk: – Speculation (also called selective risk taking) is a demand-side risk management strategy that is the opposite of postponement (Bucklin, 1965). It includes such actions as forward placement of inventory in country markets, forward buying of finished goods or raw material inventory, and early commitment to the form of a product, all in anticipation of future demand. In the interviews, speculation emerged as the most commonly used strategy to address uncertainty in the business Environment:
Hedging of Risk: – In a global supply-chain context, hedging is undertaken by having a globally dispersed portfolio of suppliers and facilities such that a single event (like currency fluctuations or a natural disaster) will not affect all the entities at the same time and/or in the same magnitude. For example, dual sourcing can be used as a hedge against risks of quality, quantity, disruption, price, variability in performance, and opportunism (Berger et al., 2004), but dual sourcing requires more investment than single sourcing.
Transfer of Risk:- The transfer of risk primarily encompasses a risk sharing strategy in a case of severe supply disruption by sharing it with 3rd party suppliers and allies.
CONCLUSION, RECOMMENDATION, IMPLICATION FOR FUTURE RESEARCH:-
Supply chain risk management is a decision process often requiring a multidisciplinary approach. Typically, risk mitigation and contingency planning entails skills in operations strategy and supply chains. After a close analysis of the Dell Direct Supply Chain system considering the impact of the Taiwan earthquake on the dell by the frame work developed by Munoj and Mentzer ( 2008). The overall objective of the framework is to reduce the impact of disruption and understanding the various factors that play a role in the post- disruption recovery and decision making process.
Dell Computer’s doctrinal commitment to minimal inventories, however, is well known. Companies with similar strategic commitments are unlikely to be interested in risk mitigation policies involving emergency inventories along the supply chain. In this case, risk transfer is left as the main option to consider, including contracts with emergency suppliers and insurance contracts. In light of Kunreuther and Bantwal’s (2000) discussion on rigidities in the successful introduction of Cat-Bonds, one alternative risk transfer instrument, the latter task may be challenging strategy to apply, but appears to be worth the effort.
Scope for Future Research :-
The Supply chain Disruption Management framework and disruption management process model have areas of interest that have not been able to be explored in this research leaving multiple area for future research. First area of research is understanding of the decision making process and its operational and behavioural factors. Second area of future research is the impact on the risk that disruption and firm strategies have.
Putting to practice supply chain theories in order to bridge supply chain
strategy with company financial performance is a daunting task. Supply chain theory attempts to clarify the complex interconnections among many actors in supply networks. Yet, it is unclear whether simple formulas for supply chain performance, encompassing a few variables, will have general application to business practice. In addition, it is difficult to design empirical studies that would isolate the effect of supply chain strategy on business performance from other company decisions and environmental variables. The study of supply chain disruptions may provide an interesting exception to the latter restriction, in that disruption impact may test whether supply chain management affects Company risk structure. There is a fast growing literature on alternative methods of risk transfer. It would be interesting to explore whether the latter methods may shield customised product direct marketing companies from investor’s uneasiness after disruptions in component markets.
The brewery industry belongs to the manufacturing sector under the Nigerian Stock Exchange (This Day, 2011). It dates back to over six decades with the birth of the pioneer company; Nigerian Breweries in 1949 with of star larger beer, followed by Guinness Nigeria in 1962 with Guinness stout. The major products in the brewery industry are beer, stout and non-alcoholic drinks (Corporate Nigeria, 2010/2011). For the purpose of this paper, beer will be used to connote lager and stout.
The industry experienced a boom in the 1970s due to the fledging oil industry and rapidly increased from less than five n 1970 to over thirty by 1980 (Obot, 2000).
The ownership of the firms in the industry are either public or state-owned with or without foreign partnership. There are challenges of high operational costs due to importation, expert-skilled labour, maintenance of machinery and equipments. These challenges have lead to the closure of quite a number of the smaller firms in the early 80s’ leaving only the large firms with strong financial base..
At present, there are thirteen brewery (Nigerian Custom Service, 2011) companies left with only four listed under the Nigerian Stock Exchange (This Day, 2011).
The industry is at the maturity stage of its life cycle but still remains one of the striving industry in the Nigerian manufacturing sector. It has a direct employment of over 30,000 personnel and an indirect employment of over 300,000 thousand personnel as a result of the firms providing ancillary services to the industry (Equity Research report, 2006).
Nigerian Breweries and Guinness Nigeria are the two major players in the industry with . Nigerian Breweries leading the market with about 65% market share while Guinness Nigeria follows with about 25%. They both enjoy economies of scale and have good return on their investment (Corporate Nigeria, 2010/2011).
Analyses of Macro-environmental factors
Every industry is affected by factors in the environment in which they operate. These factors which they have no direct control over, may either impact positively or negatively on the industry. The factors used for this analysis are Political, Economic, Social and Technology.
The Nigerian political history after independence in 1960 has been characterized by a compendium of military and civilian governments. The military regimes had adversely affected the real sector, an example was the ban placed on importation of barley; the raw material for production of beer, by the military government of Buhari in 1987 (Porter & Phillips-Howard, 1994). However the past twelve years of civilian government has witnessed relative stability in most parts of the country except for the restiveness in the Niger Delta region, which has dwindled the country’s crude oil revenue. It is expected that the on-going elections will successfully usher in a new civilian government that will further stabilize the polity and create an enabling environment that will attract foreign investors and stimulate the resuscitation of the real sector (Corporate Nigeria, 2010/2011).
Nigeria operates a mixed economy which encourages the co-existence of both the private sectors and the state in the market place. It is an emerging economy with potential economic power given the abundant resources. The country’s economy is well diversified along sectoral classification with the oil sector accounting for over 80% of its GDP, through crude oil export thereby making its revenue highly susceptible to the vagaries of the trends in the international market (Corporate Nigeria, 2010/2011).
The economy is supported by a very resilient and strictly regulated financial system that has gone through several reforms within the past decade. While the exchange rate has been relatively stable in the past two years, interest rates have been closely regulated by the Central Bank of Nigeria while efforts to bring inflation rate below single digit has been elusive.
Other factors that have contributed to the harsh economic climate in Nigeria are lack of power and inadequate infrastructure. The period between years 2000 and 2010 has witnessed the closure of more than 850 industries. However, with the trend of increase in the manufacturing GDP over the past years (i.e. 2008: 3.6%, 2009: 4.2%), it is expected that a stable terrain will continue to attract investors in years to come (Corporate Nigeria, 2010/2011).
Nigeria with its population of about 150 million is a huge potential market for investors. The country is the second largest beer market in Africa after South Africa. South Africa with a population of 47.9million according to 2007 statistical data, has a beer consumption per capita of 50 hectolitres while Nigeria has 10 hectolitres per capita. Industry operators are of the view that the existing firms’ capacity are not enough to meet the demand of the market, and there is therefore room for expansion (Momoh, 2009).
Nigeria is a diverse country with over 250 ethnic groups. The population of the country gives a religious spread of Muslims(50%), Christians(40%) and indigenous religions(10%). The Muslims and Pentecostal Christians do not indulge in beer consumption due to their religious beliefs (Corporate Nigeria, 2010/2011)
The above notwithstanding, beer consumption remains a social activity in Nigeria and the sale of the commodity has continued to increase from year to year..
The brewery industry is highly capital intensive. This accounts for the reason why the ownership structure is either public and/or state-owned with/without foreign partnership. The technology for the industry, spare parts and expert technicians are not available in country and therefore highly dependent on foreign exchange. Guinness for example has Diego of Ireland as its foreign partner (Trade Invest, 2009).
The ban on importation of barley in 1987 necessitated the industry to settle for local substitute of maize and sorghum as raw materials for its production. The resultant plant conversion to accommodate the new raw material input-mix cost Nigerian Brewery a whopping sum of 100million naira! (Equity Research report, 2006).
One of the major challenges facing the industry is the maintenance of equipments and machinery. The players commit huge financial resources in technology and upgrades in order to remain competitive (Equity Research report, 2006).
Analysis of Industry Competitiveness using Porter Five Forces
Industry competitiveness is said to determined by bargaining power of buyers, power of suppliers, threats of new competitors, threat of substitute products and rivalry among existing firms. The profitability of the industry is determined by these five Forces as they influence prices, costs and required investment (Porter, 1985).
Bargaining Power of Buyers
Buyers create demand in the market and their bargaining power would represent a strong competitive force if they have sufficient bargaining leverage to influence and obtain price concessions and other favourable terms and conditions of sale (Thompson et al, 2010). In the case of the brewery industry, consumers are scattered across specific regions in the country. Some states in the Northern part of Nigeria do not permit the sale of alcoholic beverages due to religious beliefs.
The price elasticity demand for sales of brewery products is inelastic, an increase in price may not have a significant impact on demand. A decrease in consumer disposable income may have a small impact on demand, as buyers may go for cheaper brands or substitute products. The introduction of a new product into market that is not related to the brewery industry may compete with brewery products for consumer disposable income. The introduction of GSM service into the Nigerian market in 2003 created a serious competition for the brewery industry (Equity Research report, 2006).
The industry has good distribution networks, in fact, they are the buyers in the industry as they control movement of the products from the producer to the retailers, and thus determine the price of the products to a certain extent. This unfortunately does not allow interaction between the producers and the consumers, however the players in the industry especially the two big players strive to maintain contact with their consumers by advertisements, promotion of events and also sponsorships of various programmes and activities (Jernigan & Obot, 2006).
Bargaining Power of Suppliers
Suppliers in the industry include distributors of raw materials, components and finished products. Such components include bottles, crown corks, labels e.t.c. These services are outsourced because the Nigerian law does not permit the brewery firms to produce them (Equity Research report, 2006).
There are more distributors and suppliers than existing brewery firms in existence. The raw materials and components being undifferentiated give the manufacturers the luxury to chose their suppliers at will (Equity Research report, 2006). Nigerian Breweries alone has about 147 distributors and wholesalers within the country (Famurewa & Orekoya, 2008). However the distributors may pose a threat to the industry during industrial actions.
Threat of new Entrants
According to Porter, the threat of new entrants will affect the profitability of an industry (Porter, 1985) as the incumbents may be forced to lower their prices in order to discourage new entrants thereby reducing profitability. In the Nigerian Brewery industry, some factors which help to raise barrier to entry include capital requirements, legal costs, economies of scale, distribution networks (oppapers.com, 2011). Nigerian Breweries and Guinness both have foreign technical partners who provide the needed technical and financial assistance (Corporate Nigeria, 2010/2011). The other companies are mainly public or state owned and are localised within their region.
There were no new entrant into the business, until 2009 when SABMiller a South African company came on stream with the acquisition of Peabody Breweries and Standard Breweries. SABMiller strategy in gaining part of the market share was to produce low cost beer for a segment of the market who could not afford the premium brand of the existing market. However Nigeria Breweries was already producing such through Consolidated Breweries one of its subsidiary (Corporate Nigeria, 2010/2011).
Threat of Substitute
The availability of substitute may impact an industry’s profitability as consumers may decide to switch to a substitute product (Boeing et al, 2008). In Nigeria the consumption of traditional drinks such as burukutu, palm wine and ogogoro has a cultural affinity among consumers in the rural and urban areas. Other potential substitutes include alcoholic drinks such as wine, brandy, vodka and non alcoholic drinks such as malt, juice, soft and energy drinks. The alcoholic drinks are known to be consumed by a higher segment of the society (Jernigan & Obot, 2006), while the non-alcoholic drinks are to target the non-beer consuming religious groups.
Beer however remains the beverage of choice as some studies carried out have shown its predominant preference over other alcoholic beverages (Obot, 2000). Beer is known to account for 96% of alcoholic sales in Nigeria (Corporate Nigeria, 2010/2011).
Intensity of Rivalry among existing firms
This is a measure of the extent to which existing firms compete among each other for customers, this could be price and non-price based (Boeing et al, 2008).
In the industry as mentioned earlier, competition is between the two major players, however there are no price wars as the products are differentiated and price differences are insignificant. The industry produces 22 brands of lager and 4 brands of stout besides other non-alcoholic drinks, Nigerian Breweries dominates the market in the larger (Star) segment while Guinness dominates the stout (Guinness) segment (Corporate Nigeria, 2010/2011).
For non-priced based competition, the two companies compete on product innovations, such as packaging, branding and advertisements. Consumers have witnessed innovation of packaging from bottle to can and sip-it packs.
Summary of Five Forces
A summary of the five forces is hereby presented in the table below using key drivers and resultant effect on industry (Boeing et al, 2008).
Power of buyers
Concentration is high, no bargaining leverage
Power of suppliers
Suppliers more than Producers
Threat of substitute
Increased growth in substitute industry
Threat of new Entrant
High barrier to entry
Intensity of rivalry
Two major competitors
SWOT analysis will be used to measure an organization’s strengths and weaknesses, opportunities and threats in the industry on a four cell chart (Dibb et al, 2006).
Economies of scale
Strong financial base
High staff turn-over
Good distribution network
Continued low margin
Failure to capture mkt growth
(Dibbs et al, 2006)
With strength and opportunity, an organization in the industry can capitalize by expansion or acquisition of weaker firms. An organization with opportunity and internal weakness should watch the market slowly and formulate a strategy to build on its weakness. A weak organization facing threat should take the strategic turn-around required, by exiting the business or allow itself to be taken over by a bigger firm. An organization with strength but facing threat should use its strength to overcome its weakness (Dibb et al, 2006)
Hirschmann Herfindahl Index (HHI)
HHI is a measurement of the concentration of an industry. It is measured by squaring the sum of the market share within that industry . A HHI figure greater than 1800 imply an industry that is considerably concentrated (Boeing et al, 2008).
(Corporate Nigeria, 2010/2011).
The HHI measure gives a figure of 4,950 which shows a highly concentrated industry tending towards an oligopoly (Boeing et al, 2008).
The brewery industry has proved to be a sustainable business in Nigeria with over six (6) decades of operation and having survived years of unstable polity, economic downturns and different government policy and reforms.
The industry has been consistently dominated by Nigerian Breweries and Guinness and is sadly tending towards oligopoly with the acquisition of five existing breweries by Nigerian Breweries (allAfrica.com, 2011).
Nigeria is still considered one of the least penetrated beer market in the world in terms of its demographic population of over 150million (allAfrica.com, 2011). More investors are definitely welcome, however such investors will need to commit huge capital outlay to build plants or acquire existing firms and also create a strong distribution network in order to compete with the existing firms.
Beer consumption is a win-win situation, Nigerians drink when they are happy and wish to celebrate, they also drink when they are sad or emotionally down. The brewery industry will therefore continue to enjoy a sustained growth in the country.
Established in 1886, the Coca Cola Company operates in more than 200 countries & markets more than 500 brands & 3,300 beverage products. The Coca Cola Company explains its operations system this way. “We are a global business that operates on a local scale in every community we do business” The company believes its strengths lie in their ability to have a global reach & at the same time have a local focus. The company has more than 300 bottling partners worldwide. The Coca Cola Company manufacturers & sells concentrates, beverage bases & syrups to bottling operations; owns the brands; & is responsible for consumer brand marketing initiatives. The bottling partners manufacture, package, merchandise & distribute the finished branded beverages to their customers & vending partners, who then sell the Coca Cola products to consumers.
Coca cola is a company that knows that their main priority is to reach their products to the customers. Coca cola focuses on improving the product itself either by design, taste, ingredients, size, convenience, and many other factors. Coca-Cola’s target market satisfies a wide variety of cultural consumers around the world. Moreover, their products target people who are health conscious and people who are on a diet. Their products do fit all age groups from the young to the old. There are Coca-Cola products for the athletes who train for a sport, such as Powerade (Coca-Cola Product). Also, this company has focused on people who need coffee in the morning before they go to work. Coca- Cola owns a joint venture with Illycaffe, Italy coffee brand which is primarily for the people who are coffee-lovers. The focus of this market, Coca Cola, is applicable to both male and females. Coca- Cola does engage in product diversification throughout the world. Coke a product is mainly directed to the young children. Their advertisements are mostly directed to the young. Coke wants to target the young because they know their product will give youth’s power and energy. Brand extension strategy has played a key role on Coke. Coke introduces new products under their trademark Coca-Cola. Brand extension strategy is quite effective under the Coke trademark. There will be this recognition and realization from consumers, that they will be drinking a Coca Cola product. Brand extension strategy puts a new product into an existing market. Diet Coke is an example of brand extension strategy which became successful. For instance, Diet Coke has been recognized gradually by consumers worldwide, it has low calories and has been sold over 100 countries. It promotes liveliness and energy to consumers similar to Coke. Many consumers who do enjoy coke as a soft drink, there would be a higher probability for a consumer to try a can of diet-coke due to brand awareness.
Rationale: Coca Cola Company wants to continue focusing their needs for consumers with regards to delivering innovative food products which includes energy drinks, vitamins, and antioxidant drinks. Furthermore, Coca Cola is focusing on creating a healthy and active lifestyle that is more adaptive to consumer behavior. Coca cola is working with their bottling partners to enhance customer relationships and make their products widely known and distributed everywhere.
In terms of its growth strategy, which is their market position in the beverage industry, Coca Cola Company is concentrating in opening more opportunities in developing markets by leveraging the scale & reach of the Coca Cola system to shape & capture value. The company intends to accomplish it by sharpening their execution at the point of sale and expanding the brand portfolio. The company has projected that these developing markets are expected to contribute approximately 20 percent of incremental population growth over the next 10 years. Personal expenditure per capita in these markets is expected to increase by 65% over the next decade. Furthermore, Coca Cola company anticipates that developing markets will contribute approximately ¼ of the incremental unit case volume by 2020.
The coca cola company’s long term growth strategy of investing in emerging markets, is related to the Coca Cola Company projections in these markets. The CCC attributes this to a positive correlation between wealth and the increase in consumption of Nonalcoholic ready-to-drink(NARTD) beverages. From now to 2020, more than 1 billion people will join the middle class, and the per capita wealth for individuals will increase by nearly 30 percent. They have the ability to invest in new plants in places like china & India. Over the next 3 years Coca Cola company plans to invest $2 billion, 3 new plants are expected to be finished in that time period. The company clearly understands in order for intended strategy to be attained, consumer access and system alignment is key to their growth in these emerging markets. This means placing more coolers throughout these countries, in order to drive on-the-go consumption.
The Coca Cola company is also encouraging their partners in the value chain, to enhance their soft skills within these developing markets. The company is focused on growing annual consumption of beverage products. The company intends to work with its bottling partners to establish new customer relationships & grow existing ones, from street vendors & restaurants, to large-scale grocers.
The reason why the CCC emphasizes the development of soft skills, the Coca Cola Company has a vast distribution network to contend with. To remain a leader in the beverage industry, communicating with its partners along the value chain is an important aspect of their continued success in the beverage industry. As I have said, Coca Cola Company has a huge distribution network and it is one of the best distribution network in the world, nobody in the beverage industry can match this tremendous asset. Another reason why the Coca Cola company is successful in its core activities, stems from its mission, vision & values. This is the source where the CCC can attribute its success, & its long-term strategy to become the most widely available & consumed soft drink in the world. Perhaps the following statement which comes from the CCC’s mission, vision & values strategic outlook can be deemed a poignant assertion. “The world is changing all around us, to continue to thrive as a business over the next ten years, & beyond, we must look ahead, understand the trends & forces that will shape our business in the future & move swiftly to prepare for what’s to come. We must get ready for tomorrow, today”.
This is Coca Cola’s mission statement “To refresh the worldâ€¦To inspire moments of optimism and happinessâ€¦To create value and make a difference.” Coca Cola company mission statement clearly defines the purpose for which and reason why they exist as an organization. The employees must be feel they are a part of an organization that knows where it is heading, in terms of the language it uses with their mission statement. “to create value & make a difference” resonates with belonging to an organization, that wants to create a culture of empowerment and continuous improvement.
Coca Cola Company’s vision statement is a guide to what the company needs to accomplish so it can achieve sustainable and quality growth. The CCC vision statement is based on what we will call the six P’s (people, portfolio, partners, planet, profit, productivity)
People: Be a great place to work, where people are inspired to the best they can be
Portfolio: Bring the world a portfolio of quality beverage brands that anticipate & satisfy people’s desires & needs.
Partners: Nurture a winning network of customers & suppliers, together we create mutual enduring value.
Planet: Be a responsible citizen that makes a difference by helping build & support sustainable communities.
Profit: Maximize long-term to shareowners while being mindful of our overall responsibilities.
Productivity: Be a highly effective, lean & fast-moving organization.
Culture of CCC
This quote epitomizes their culture: “Our Winning Culture: Our winning culture defines the attitudes and behaviours that will be required of us to make our 2020 vision a reality”
Such is the importance of the Mission & Vision of the CCC, I believe it is important to include the culture of this company. Because the culture shapes the attitudes & behaviours of the everyone that works for the organization. The Coca Cola Company is identified with having a strong culture The CCC has incorporated the culture with their 2020 Vision, which is a long-term strategy aimed to be a “RoadMap” for understanding the trends and forces that will shape their business of the future. The CCC say’s it is a preparation of what’s to come & designed to seize on opportunities once they have been identified. This roadmap is based on winning together with their bottling partners.
Values of The CCC
Live Our Values: Our values serve as a compass for our actions and describe how we behave in the world.
Leadership: The courage to shape a better future
Collaboration: Leverage collective genius
Integrity: Be real
Accountability: If it is to be, it is up to me
Passion: Committed to heart & mind
Diversity: As inclusive as our brands
Quality: What we do, we do well
Values as we understand, act as a guide for our individual actions and group behaviour. They are the moral compass in our every day interactions with the internal & external environment, customers, associates, public, family, friends, and institutions,
The Coca Cola Company’s mission, vision, culture, and values, defines and shapes the company’s objectives into measurable expressions of what the organization intends to achieve. They include a mixture of hard and soft goals, the hierarchy or top management at Coca Cola Company understands they have to develop a blueprint that employees and the bottling partners can follow and identify with being successful in their business. One striking example comes from their vision statement one of the six P’s, which states, “People: be a great place to work, where people are inspired to the best they can be” Another vision statement say’s “Partners: nurture a winning network of customers & suppliers, together we create a mutual enduring value” The CCC’s vision, culture and values create an atmosphere of individual attainment and group accomplishment. Where the essence of individual talent is nurtured and encouraged, and group effort is identified as an important contributor to the goals of the CCC.
The value of change plays an important part in the core activities of the Coca Cola Company because the company relies a lot in its suppliers, the bottles companies and the people selling the product. The suppliers are from people they get there ingredients like sugar, coffee, citrus around the world, the water they use in the process of making the beverage to the people in charge of the packaging.. Then come in role the Coca Cola system which is basically where first the company produces the beverages and then comes in play the bottling partners. They are independent bottling partners in charge manufacture, package and distribute the final product. Finally there is the selling the beverages process where the final products are taken to the warehouse for being distributed to retail outlets. The products are then distributed to the customers that are supermarket, convenience stores, restaurants, etc. And also to the vending machines and coolers that are place in strategic locations to reach all customers. And that way the product finally reach the consumers, around 1.6 billion time a day are the products consume
Coca Cola Company depends a lot in other part to take the products to the consumers. They treat them with respect and importance and make them realize the importance of their work to the coca cola system. They have been using this system for years and so far had work perfectly. They are focus in the need of the consumers, the customers and the franchise partners; they think in terms of globalization, they are always aware of change. They also use an aggressive marketing strategy. Almost everywhere and in the most important events you can see a Coca Cola logo, they have billboards, commercials, products that will be associated with Coca Cola.
The core activities are an important play for the company because if what makes them different from the rest of the company. They depends a lot in the suppliers the bottling companies and the customers. They play in an important role in making the product as the suppliers give them the prime materials. Then there are the bottling companies that are play an equal significant part, they are the package where the product is deliver and if you can see the bottle of the products of the company are immediately associated with the company. For example Coca Cola has a unique bottle design that everyone in the world with associate or recognized.
Coca -Cola Company is an organization which provides value for their consumers and customers. Customers are their energy source for this organization. Creating the value starts with their coca cola products. Hence, this can greatly be achieved by greater variety of brands, pricing, packaging, and affordability. In addition, Coca-Cola products do focus on the customer lifestyle in terms of satisfaction. For example, if a person were to be on a diet, well there is diet coke. Hence, Coca Cola does engage in the customer needs in terms of the product. Coca- Cola has over nearly 400 brands (including water, juice, teas, coffees, energy drinks, and especially sodas) and wants to engage consumers to try something refreshing and new. It really comes down to choices for consumer in terms of coca cola products. Coca-cola brands include Fruitopia, Fanta, Sprite, Dasani, Nestea, Powerade, and many more brands. One of Coca-Cola’s slogans was “Open Happiness.” This slogan was represented to the consumers and was meant to letting the consumers enjoy their products. Coca Cola is able to meet today’s non-alcoholic beverage needs of consumers. Coca Cola’s current value proposition is “The Coke Side of Life” which represents happiness when you open up a can of coke or any other Coca-Cola product. “The Coke Side of Life” explains that it is an enjoyable, comfortable, and sociable environment when one actually consumes a Coca-Cola product.
Rationale: Coca Cola Company continues to work on research/development and focus on making new products. For instance, a can of coke has a secret formula that will be difficult to imitate. Coca Cola products are significant because they make each product unique.
Porter 5 Forces Analysis
Threat of Entrants
Coca-Cola does have a lot of competitors in the soft drink industry. The threat of entrants is low for the soft drink industry. There are very few entrants who can compete with Coke. In addition, a barrier to entry when entering the soft drink industry would be a high capital investment. If you don’t have that high capital investment it would be hard to enter the industry. Coke nearly earns 48% of the soft drink industry and there are no competitors that are nowhere near coca cola’s distribution. Coca-Cola has over 500 brands of products which are potentially substitutes. To get the point, the buyer can switch from one product to another at no cost under the Coca Cola brand. Nowadays, consumers are really being health-conscious about their health. So they may not be interested in soft drinks but look at tea, juices, milk and even water. Certainly, Coke does have these products on hand. If Coca Cola decides to increase most of their product by a $0.50 increase, it would be very likely, consumers would buy Pepsi products. Coke can lose its profits margin and can have a major impact on the trademark itself if they increase prices. Price is a huge factor to take into consideration with regards to other entrants. The challenge for this organization today and the future is to focus private companies because they can imitate the products and put cheaper prices. Private companies currently earn 14.4% of the soft drink industry. Having strong barriers prevents from this rising situation to happen. One strong barrier to entrant that prevents from coming would be distribution channels. Coca cola has their products everywhere on their store shelves which make it accessible to consumers while new private companies will have a hard time selling their products to wholesalers, retailers, and distributors.
Rationale: Entrants are slowly rising to the carbonated soft drink industry and as organization must find new barriers. Coca-Cola should continue to develop their brand loyalty worldwide and convince consumers to have reliability in their products.
Barriers to entry
One of the 5 forces that shape the soft drink industry is barriers to entry. The Coca Cola company says on its website it is facing strong competition from well-established global companies and many local participants. For this particular industry, the competitive forces are benign, (favourable). Most of the companies in the soft drink industry are profitable. The Coca Cola company’s main competitors are Dr.Pepper, Nestle and Pepsico. These companies definitely have the advantage over there competitors. In porters 5 forces, Porter refers to supply-side economies of scale, where firms such as the CCC and Pepsico can produce at large volumes enjoy lower costs per unit because they can spread fixed costs over more units, employ more efficient technology, or command better terms from suppliers. According to Porter’s article, supply-side scale economies deter entry by forcing the aspiring entrant either to come in the industry on a large scale, which requires dislodging entrenched competitors. How does a newcomer circumvent the barriers to soft drink industry? Perhaps create new distribution channels of their own. Creating a niche market for their drink in the form of marketing to a certain segment in the soft drink industry.
Competitive rivalry is between two main competitors the Coca Cola Company and Pepsico to satisfy the taste of consumers in this industry. Last month Beverage Digest reported that Pepsi-Cola’s market share fell 0.5 percentage point while Diet Coke slipped just 0.1 percentage point in the U.S. supermarkets, convenience stores and other retail outlets. The two companies have fought over the past decade to win market share from one another as overall sales dropped. This relates to Porter’s article on the 5 competitive forces that shape strategy. There is an intense rivalry between these two companies. According to porter “high rivalry, limits the profitability of the industry.” The Coca Cola Company and Pepsico are competing based on brand image.
Power of the buyers
One of the 5 forces of porter is buyers the power of the, for Coca Cola Company the power of the buyers is high. They play an important role in the Company process because they are part of the distribution process of the company. They play an important role in distributing the system so it can reach the consumers. They are part of the company and the process. They are part of the strategy used by the company.
Power of the suppliers
Another of the 5 forces of porter is the suppliers. As well they play an important role in the company process so they have a high power. They have a high power because they also play an important part of the process of the soft drinks. If they decided to boycott the company it will caused them serious damages. There will be a cost to switch suppliers because they will have to build a relationship since 0 and might lost incomes for doing that.
External Fit(Diamond E. Model)
The senior management team wants to increase the efficiency and effectiveness in the production and bottling sector. With regards to economies of scale, Coke continues to increase production at a low cost. As production of Coca Cola products increase, the cost of producing each unit falls. Moreover, the senior management continues to think about new products (in addition to their 500 products), develop beverages, make new programs and promotions, and meet the needs of customers.
The senior management continues to strive for sustainability in their organization. Coca cola recently launched their plant bottle packaging, which basically means they have created their PET bottles from plant based materials. Hence, makes their product 100% recyclable. Muhtar Kent, chief operating officer continues his obligation with sustainability. In 10 years, he plans to reduce coca cola’s emission by a half.
To continue improving performance, Coca-Cola continues to update their technology with regards to quality control. As well continue using better material for their products. In addition, this organization is starting to develop their products in rural areas of the world. The senior management team wants to let consumers know that they are the most trusted carbonated soft drink company and strive to achieve leadership in corporate sustainability.
Rationale: The main preferences for Muhtar Kent, CEO, wants to develop and raise their brands, enhance revenue growth and increase productivity within their products.
The resources on the Coca Cola Company according to the Diamond E. Model are first the all the resources that the company have to keep on growing and innovating. From the shareholders to the investors, etc. The company has used many of these resources to create healthy products or bio friendly products. They are aware that many of their ingredients comes from the environment and the nature so they are trying to created a friendly environment where the environment is being look after. They have different programs that are meant to help the environments to maintain the natural resources of the land. This is very important because if one of the products they use is gone they won’t be able to produce the product anymore.
What is the structure, leadership and unique features of the Coca Cola Company in relation to Fry/Killing Diamond E Model. It is what is referred to as the Coca Cola system, which comprises 300 bottling partners worldwide. The coca cola system operates through multiple local channels, the company manufactures and sells its concentrate, beverage bases and syrups to bottling operations, owns the brands and responsible for consumer brand marketing initiatives. The bottling partners manufacture, package, merchandise and distribute the final branded beverages to customers and vending partners, who then sell the products to consumers. It is no wonder the coca cola company has one of the best distribution systems in the world and the ability to penetrate in markets where no company can duplicate is attribute to the structure and leadership at the Coca Cola company. The other unique aspect is the relationship it has with its bottling partners, who in turn works closely with customers, like grocery stores, restaurants, street vendors, convenience stores, movie theatres, and amusement parks to execute localized strategies developed in partnership with the company.
The strategic job we chose for our organization was Brand manager and the requisite job we chose was a Truck Driver/Vending Machine Supplier.
Requisite Job at Coca Cola: Truck Driver/Vending Machine Supplier
The requisite job for the Coca Cola company we agreed to use was the truck driver/vending machine supplier. This type of worker requires high school education, has to be licensed to drive a truck, may involve some lifting and moving heavy case of soft drinks. It would be an asset to be in good physical condition. But it is not a requirement. The job incumbent must be personable, because you are dealing with customers and consumers of the company on a daily basis. It would be ideal to hire from within the company a group of truck driver/vending machine suppliers, but due to the supply of this type of worker. We will hire from outside the company. It is easy to hire from a pool of truck driver/vending machine stockers.
-Responsible for delivering product and filling vending machines at all points of availability.
-Collects and is accountable for money
-Check accuracy and stability of the load
-Restock machine to proper level, maintaining accuracy in stock levels
-Invoice and collection of monies
-Securing company assets
-Ensure the machines are clean and in good working order
-Ensure compliance with regulatory and company policies and procedures
-Settle all accounts daily
-Ensure product codes and Health codes are adhere to
-Report damage to machines
-Load supplies in a vehicle, such as a truck
-Establish and maintain good customer relations with business owners and operators
Knowledge/Skills/Attributes/other attributes of a Truck Driver/Vending Machine Supplier
-knowledge of the English language
-Able to provide customer service and interpersonal relationships on one on one basis.
-able to provide and identify customer service needs in a group dynamic situation.
-being able to evaluate quickly customer service needs and know how to meet those needs
-knowledge of simple mathematics and statistics
-knowledgeable of relevant equipment and company safety policies and procedures.
-able to understand and read provincial regulations, regarding the safe operation of a vehicle
-Judgement and Decision-making
-Ability for good oral expression
-Ability to perform and work directly with the Public
-Able to deal with external customers
-Able to have Face-to-Face discussions
-Able to work with a group or team
-Is able to work outdoors, exposure to all types of weather
-Able to handle the daily contact with the same people in a professional and polite manner
Labour Market for a Coca Cola Truck Driver/Vending Machine Supplier
Based on the duties and KSAO’s of this type of work at the Coca Cola company. We are not just looking to hire any driver. They need to have the experience in dealing with customers and the public. They must be committed to working for the company, because we are going to be testing the potential hirees. The testing will be based on questions about our company’s occupational health procedures and equipment operation. The potential hirees will be tested on English language proficiency and Mathematics problem-solving etc… They will also be quizzed on customer service skills. What type of interpersonal skills do they possess? This type of job consists of daily contact with customers and business owners. We will give provide further training for those drivers/vending suppliers at the company’s expense. Based on these requirements for the job, we will need to find certain individuals that possess a high school diploma, with a clean driving record. The company is confident that we will find these talented people to come and work for the Coca Cola company. The CCC will provide the additional training to enhance skills such English, written and oral comprehension. The training will also involve a simulation of driving a Coca cola delivery truck. How to handle tight corners for example, or driving on the highway, avoiding dangerous maneuvers, while changing lanes. We at Coca Cola believe we can, attract and retain this type of driver. They will go through Coca Cola University, and once they complete their goals with a certificate. They will have the ability to work anywhere in Canada and the U.S. The company believes by showing that commitment and belief to our people in this case, our truck driver/vending suppliers, we have created a our own market.
The benefits are:
-Training: at the Coca cola university for only selected hirees.
-Health, Dental, Vision Plan
-an employee who requires work-life balance, can ask for it. This might involve parental leave or personal leave program. It is our belief at our company that we have invested time and training for our employees, in order to retain and attract future employees this is one benefit at the coca cola company will a mainstay. We also have wellness programs, so our employees have the option of going into a fitness program at the no cost to them. We have financial planning benefits that our Truck driver/vending suppliers can take advantage of, so they can plan for the a secure future for their families.
We would start the new hiree’s at $13 hourly rate,work, after one year to $15/hr- enventually topping at $30/hr. The performance pay would be based on individual performance. We are designing the merit bonuses into the compensation package. One form of a bonus incentive could be showing up for work consistently. Or we could gear it to production like serving a number of vending machines or a certain number of clients. The other options are, since this type of work involves excellent customer service skills, we could start to give bonuses to employees who score high on customer service. Another type of bonus, could be about minimizing errors by truck delivery personnel on the most efficient routes for delivering products of Coca cola. We would also encourage the participation of employees on what type of bonuses they like to attain. Research has shown that employees who work to challenging but attainable goals, especially when they had a role in formulating these goals-outperform those without specific work goals
It is our belief that the best form of recruiting for future truck delivery drivers is externally. Although we will encourage the input of our present employees about their ideas on who would be an ideal candidate, people they know. We trust our employees input, this method of HR forecasting may not be sophisticated but it assures the involvement of our employees for this type of work. It also ensures the employees, that the company has invested this much training and time for their personal development, they become part of decision-making. External recruit reduces our HR costs somewhat, but the investment we make in the training we provide is offset by performance bonuses and compensation packages. The company becomes profitable because of our incentives and the commitment by our truck driver/vending suppliers.
Based on the type of work is involved in becoming a Truck driver/vending specialist, we believe the PAQ method for analyzing specific techniques of this job will be sufficient. It is a structured job analysis checklist of items or job elements used to rate a job. The PAQ method will co
With the changes in the global economic reforms and advent of globalization, international business has become the greatest priority for every business to become the Multinational Company to take the competitive advantage of whole global market. But with these benefits, the companies have to face the major challenges and complexities too to manage the business in other countries. The major challenges comprises of the environmental factors and out of which cultural differences is also the major issue that the MNC’s faces within the host country. The issue of cultural diversity within the international business is the current scenario is constantly rising up with the growing factor of globalization (The Problem of Cultural Diversity in International Business, 2008).
Managing the differences in the languages, traditions, cultures and religions within the host country is very difficult and complex job as compared to the home country for the MNC. The cultural diversity among the human resources and the customers not only relates to the social setup but also have impact on the psychology and the personality of the stakeholders. Setting up an organizational culture which makes the pace with the country culture is quite difficult for any MNC as business culture is quite different from the social culture of the host country (The Problem of Cultural Diversity in International Business, 2008).
The UAE is considered as the country of great cultural heritage which is strongly influenced by the originality of its people. Though the UAE is considered as the greatest business hub for the international trade but at the same time, it is quite difficult for MNC’s to adapt the cultural shift within the country. The business within the UAE has its own cultural etiquettes and ethics which a MNC’s need to adapt with tolerance and flexibility. The UAE is the Islamic country whose culture is totally different in respect to greetings, attribute towards the god, prayers, appearance, religion, behavior, communications, workplace environment, women at workplace, eating and drinking habits etc. Thus the MNC doing business o planning to do business within UAE have to follow such cultural norms in relation to marketing and all other operational activities so as to follow the legal obligations and also to make the market loyal towards the company with the feeling of belongingness (Cross cultural business relationships: Abu Dhabi, 2011).
FedEx Express is the industry global leaders in the express distribution industry and committed to provide rapid, reliable, and timely delivery service in about 220 countries and territories which connects the network of more than 90 percent of the world’s GDP within one to three business days. The company facilitates the customers with several world class services such as unmatched air route authorities and best transport infrastructure, integrates with high class technical infrastructure which makes FedEx Express as the world’s largest freight and express transportation organization. The global leader has to face various challenges of the global business environment and combating with all such challenges it becomes the leader to take the competitive advantage of the global market. Being the global leader, the company faces various challenges in trading within the foreign countries including the cultural challenges utmost. FedEx UAE also faced various cross cultural challenges to establish itself and to earn the loyalty of the customers as FedEx is the US based company and UAE is the Islamic country thus there is a huge cultural difference between both the home country and the host country of the FedEx (Company Information).
Cultural Challenges faced by FedEx in UAE
Being the global market leader of the express industry and even in the UAE express market, FedEx has to face various environmental challenges particularly the cross cultural challenges with respect to the workplace environment and the marketing among the host country customers. The cultural challenges relate to religion, language, working style, women at workplace, behavior, attitude, appearances etc. These Factors pay a very vital role in the organizational culture and the customer satisfaction and loyalty as the local national prefer those brands within which they have trust and belongingness and the most culturally related organization is able to reach more and more local customers. Within the host country, the FedEx have to attract the UAE local Nationals and have to employ the local Emirati people as per the UAE policy of Emiritization and to reduce the operational cost. But in doing so the company has to face various challenges related to cross cultural environment.
Islam, the official religion of UAE encompasses the every aspect of life within the country. Showing disrespectful feeling for the Islam is the serious and punishable offense within the country. The Islamic faith throws light on the generosity, respect and the modesty within the business which is totally opposite to the US based organizational culture. The individual honor and respect as the human is the most prominent and supreme within the Islamic culture and business discussions are mainly done with the help of indirect style of communications. Hierarchy is the most important concept within the UAE which mainly focuses on the top down approach having the decisions, powers and authorities centralized to the single person. Within the direct communication, they leave comparatively less personal space as compared to other organizational culture but the Arab gives high value to the Civility within the business itself. Shaking hands within the meetings and departing is restricted only to Men; Women usually avoid shaking hands for greeting and the Men usually place hand over their own heart in greeting women. Status of the person within the organization is considered as very much important and most senior person in the group is greeted first whether with the first or last name or with the titles. Hospitality is considered as the matter of pride within the Arab culture and they preserve the honor of the host (Culture and Work Styles in Dubai, 2011).
The culture is very many vast terms and comprises of various factors, attire is one of the major factor within UAE culture. Arab Men used to wear Thobe, a long ankle length white cotton garment and the women wore Abaya which makes them covered from shoulders to feet. Foreign men wore the formal business attire for the business and western women wear western clothing with the care to cover the legs, arms, shoulders and legs as it is considered as impolite to remain them uncovered (Culture and Work Styles in Dubai, 2011).
Alcohol is strictly prohibited under the culture and it is considers as illegal offence to have the license of alcohol. Bars and hotel provides the alcohol for the tourist, expats and the residents who have the license to buy the fixed amount of alcohol every month. Public display of drinking alcohol is the strict offence and punished as fine to incarceration as per the offence (Culture and Work Styles in Dubai, 2011).
As compared to Europe and the US, the attitude towards time in the UAE is far more relaxed for instances, the meetings can start late or can be cancelled at the last moment without any warning which is the greatest challenge for FedEx as it is the US based firm where strict timelines are followed. The working week within UAE culture is also different from the Christian countries i.e. it runs from Saturday to Wednesday with the weekend having the Muslin Sabbath (Challanges of Doing Business in UAE).
Arabic is considered as the official language of UAE, though English, Hindi, Persian is widely spoken in the country and Urdu is considered as the language of commerce. More than 80 % of the UAE national and Expats follow Sunni Branch of Islam, and rest follows Shia Branch of Islam. Religious freedom is being provided by the constitution and other religions practiced in the country are Hinduism and Christianity (Culture & People).
Strategies and Measures to manage such challenges
Such cross cultural challenges so faced by the FedEx within UAE can affect it international business in the host country of UAE as it directly affects the work culture environment and the organizational culture and also affects the marketing strategy of the company. FedEx have to interact the local UAE consumers directly as it is involved in the Express business. Managing the cultural impact is quite difficult to the company in the direct marketing and interaction with the consumers and even with the other stakeholders. Some of the strategies and measures can be applied in order to combat with such challenges and to evolve as the UAE local as well as the global market leader within the Express market of UAE. Such measures are as follows:
A basic understanding of Islam.
Knowledge about role of women in the workplace environment and at home.
Awareness to the Arab workplace culture.
Knowledge of verbal and non verbal communication in the Arab culture.
Attire and dressing knowledge as per the requirement.
Effective translation during communication.
Respect as a prominent factor (Cross cultural business relationships: Abu Dhabi, 2011).
The UAE is considered as the most cosmopolitan and westernized country of the world but in spite of such business exposure, it has preserved its cultural heritage. The globalization have resulted to the transformation of traditional culture in to multicultural tapestry which would lead to the mix of traditional and modern eastern and western culture within the UAE and helps to manage the cross cultural challenges for the MNC’s planning to set p their business in UAE.
The banking industry in Trinidad and Tobago has somewhat changed in the past few years. This resulted in the entry of some banks and the re-entry of others. This paper strategically analyses the current strategic position of one of the major banks, First Citizens (FC). First Citizens Bank is a member of the First Citizens Group, which consists of:
First Citizens Bank Limited
First Citizens Asset Management Limited
First Citizens Trustee Services Limited
First Citizens (St. Lucia) Limited
First Citizens Securities Trading Limited
Caribbean Money Market Brokers (CMMB)
For the purposes of this paper, First Citizens Bank’s current strategies that are being utilised to achieve its goal are critically analysed along with its internal and external environment, which establish the forces that drives change and the key success factors that sustains competitive advantage. All these factors give rise to the SWOT analysis of the bank, which matches the bank resources and capabilities to the competitive environment in which it operates.
FC Bank is the first indigenous bank of Trinidad and Tobago and was formed in 1993 out of the amalgamation of three failed financial institutions namely: The Workers Bank of Trinidad and Tobago 1989 Ltd, Trinidad Co-operative Bank Ltd and The National Commercial Bank Ltd. It is the third largest bank in Trinidad and Tobago and the fastest growing. Over the years, FC Bank has become one of the region’s leading and most dynamic financial product and service providers. This position is further strengthened by the acquisition of CMMB one year ago. The leadership’s robustness at the bank has championed the industry in technology, innovative product offerings and profitability, which earned them numerous awards, with the most recent being ‘World Finance magazine – Best Bank, Trinidad and Tobago 2009’.
2.0 DEFINING THE INDUSTRY
The banking industry is part of the Financial Services Sector, which is highly regulated by the Financial Act of Trinidad and Tobago. The Financial Services industry comprises of credit unions, investment banks, insurance companies, mutual funds etc. All the aforementioned offers similar services as retail banking as per a regular bank, but the Commercial Banking Sector consists of all financial institutions permitted the Financial Services Act and approved by the Central Bank. There are a number of commercial banks approved by the Central Bank and registered under the act, these include:
First Citizens Bank Limited
Republic Bank limited (RBL)
Royal Bank of Trinidad and Tobago (RBTT)
Citibank (Trinidad and Tobago) Limited
First Caribbean International Bank
Bank of Baroda
For the purpose of this paper, this would be defined as the industry and would be the basis on which analysis is made.
3.0 ORGANIZATIONAL FRAMEWORK
3.1 Vision, Mission and Objectives of First Citizens
First Citizens’ vision is “To become the most competitive group in Trinidad and Tobago with a well established international presence.” While the mission is “to build a highly profitable financial services franchise renowned for innovativeness, service excellence and sound corporate governance.” To achieve the aim FC focuses on continuous improvement of systems and products, building a strong base of knowledge and skilled workers and creating strategic partnerships in key sectors that add value to the franchise.
The mission is underpinned by the core values, which assist the employees in the achievement of the mission. The core values are:
Commitment to excellence
Commitment to customers
Commitment to integrity
Commitment to financial strength
Commitment to employees
Commitment to continuous improvement
The main objective of the bank is to improve profitability with a major focus on its return on equity. The main objective is supported by secondary objectives, which are:
Leveraging Technology to create confidence in the bank’s systems and procedure
Reducing overheads costs while simultaneously increasing revenues
Aggressively increasing assets, loans and fund base
Widening the range of products and services primarily in the area of internet and mobile (electronic) banking
Improving First Citizens’ risk management
Improving the Group’s image and service quality
Deepening the human resource competence
These objectives are quantified using the balance scorecard, which sets specific targets needed to be achieved in order to achieve the organisation’s objectives. In order to achieve the objectives, each branch manager, department and unit is required to produce a balanced score card, which eventually sums to the overall directional scorecard.
In order for the vision, mission and objectives of FC to become operational strategies must be implemented. Figure shows the alignment of First Citizens’ strategies with its vision. The use of the group’s balance has made strategy making and organisational coordination reflect the top-down manner in which strategy is developed and communicated. The banks’ existing strategies is summarised using Ansoff’s Directional Matrix (see figure).
From the Directional Matrix, FC Bank’s diversification strategy exemplifies the Bank’s thrust into a wider and more competitive industry. This is indicates that boundaries that separate traditional banking from other type of financial services are being eliminated, this is also an indicator of the industry in its maturity stage (indicated in a later chapter). Although the strategy is that of diversification it involves a broad market scope. The strategy involves leveraging technology to provide excellent customer service especially since FC is always first to market. It is the technological advancement, that is the bank’s core competency and some features (mobile point of sale) gives it its distinctive capability.
4.0 THE DYNAMICS OF THE EXTERNAL ENVIRONMENT
All organizations are inextricably associated with its external environment, regardless of the country to which it belongs. This association influences how the organization operates and the products or services provided. The external forces may facilitate or inhibit organizational performance and may form limits with which the organization is able to function. These forces shape how the organization defines itself and how it articulates its goals, objectives and strategies. An analysis of the external environment assists in understanding the forces or factors that shape the organization.
4.1 PEST Analysis
PEST analyses the external macro-environment in which an organization operates, based on political, economical, social and technological factors. These factors are beyond the control of the organization but must be considered in formulating the strategies of the organization.
PEST Analysis for First Citizens
The Political climate of Trinidad and Tobago has remained quite stable over the past twenty years. This has led to implementation of legislations that improved efficiency and reduced costs (banking fees) in the Banking sector, but have also reduced margins and fee income. The latest legislation implemented is the Anti-money Laundering legislation, in which most of the countries in this region is adopting. This law has sought to increase the transparency of banks and attempts to lower the credit risks of the country in which the bill is implemented. The banking industry over the years has dynamically evolved; this evolution has led to the opening of the banking industry (regionally) or relaxation of entry requirement for large foreign banks, for example, the entry of the Bank of Baroda. This has led to further diversification of the banking sector that inevitably breeds competition. However, although competition creates innovation, this threatens the profitability of the current banks in the market as larger more capitalized banks can undercut the local banks and decrease their market size. These foreign banks operate as loss leaders to steal market share and further diminution opportunity in an already saturated market. As a result, in recent years there have been re-entry of banks into the sector e.g. First Caribbean International Bank (FCIB). Furthermore, FC is owned the government which suggest that there is slow decision making in the organization however, the government can be the main borrower on the market.
The world’s economy, over the past two years, has experienced a downturn, which saw many countries GDP decline that resulted in declaration of recession and the plummet of oil prices, which adversely affected the banking industry of most countries. However, all indicators point towards improvement in the economy though it may be slow. The effects of the economy has led to banks reducing interest rates and fees in order to reduce the amount of loan defaults and increase economic activity in an attempt to boost the economy. The improvement of the economy will see commodity prices improving which will increase revenues and economic activity, which will impart a greater potential for lending and borrowing by banks. However, there is a risk of returning to inflationary pressures with accompanying increasing interest rates. The mal-effects of the downturn has led to increased unemployment which increased loan defaults, however there have been some refinancing of loans in an attempt to reduce defaults. According to the Central Bank Governor, in the business section of the Guardian Newspaper, if the economic growth is slower than in the past, banking institution will be forced to consolidate to achieve economies of scale. This reduces competition in an industry, in which competition breeds innovation and
Socially, crime is considered a two edged sword since it creates an opportunity for banks to finance security companies; however, it has led to the exit of many business owners and thus capital. A high crime rate can harm the country’s foreign direct investment (FDI) opportunities and by extension tourism. As the country is developing, one would find that people are being more educated and customers are demanding better quality and quantity service; people are intolerant of poor customer service and lack of advancement in the banking industry. It is foreseen that, if the issue of crime is not addressed that there would be further flight of capital, decrease in FDIs and tourism. In addition, if banks do not progress with technology, there would a flight of customers to the substitutes in the market.
The banking industry has fully embraced technology, which has revolutionised the sector. The technological advancement by banks has empowered customers so that they control their financial information with greater access. This has also led to the creation of high exit barriers. However, not all customers may embrace these technological progresses and prefer the traditional banking services. If this progression continues at the current pace, the industry will be highly serviced and product innovated. However, customer must make greater use of these technological advancement as with mobile telephony if the industry is to be further product/service diversified.
4.2 Industry Analysis for First Citizens
The industry analysis aids in the determination of factors that determines the banking industry profitability. Porter’s Five Forces Analysis is an assessment that is used to understand the current competitive position and the future attractiveness of the industry, this is seen in figure.
The threat of substitute is numerous and includes companies that offer financial services such as insurance companies, Unit Trust Corporation, Island Finance, investment banks, credit unions etc. Some non-financial institutions such as furniture stores and car dealerships are also threats since they offer credit. These substitutes offer similar service and products without the regulatory requirements of banks, which makes their process faster than banks. These substitutes have encroached on the banking industry profitability, however, with the recent downturn of the economy, customers have returned to banks since it is perceived to be more stable. In addition, to nullify the threat of substitutes and sustain the industry’s profitability banks have also formed alliances with other financial institutions.
The bargaining power of customers is medium but increasing as a result of a wide variety of substitutes, similarity of products and lower customer loyalty (due to logistics). However, it is counteracted by high switching costs caused by the time and inconvenience of transferring accounts to other financial institutions and a large number of customers. It is perceived, however, that the advanced technology and the increasing number of substitutes, have reduced switching costs, this is true to some extent, example retail deposits but in terms of loans, corporate deposits etc. the switching cost is high.
The bargaining power of suppliers is also medium and increasing. Although there are a large number of suppliers for general resources, there are a small number of suppliers for the critical resources of banks, for example, ABMs, system applications, money counter etc. which makes switching arduous and time-consuming.
From the PEST analysis, it seen that the banking industry’s market is more opened and there is a relaxation of requirements. This results in the threat of new entrants being medium to high and is expected to intensify if there is further dismantling of barriers/requirement. Consequently, it is easier for a large foreign institution to enter into the market, example, the acquisition of RBTT by RBC and the entry of Bank of Baroda, these institution will with have the necessary capital investments and brand recognition to do so. However, for a local institution it is harder because of the high brand building expenditure and extremely high capital investment. This threat is somewhat counteracted by high exit barriers and high switching costs. The banking industry presently has a saturated market and one would find that is difficult to gain market share to become profitable thus, entrants are focused on a niche market segment. Furthermore, these entrants are large enough to operate as loss leaders.
The above four factors that shape strategy, collapse into rivalry amongst existing competitors (as seen in figure). The fact that the banking industry exhibits oligopolistic cooperation in order to maximize profit, lower cost and maintain status quo, is another indicator of maturity. Examples of this type of cooperation are:
Establishing a code of conduct in which all banks must adhere when dealing with customers
Technological sharing of networks e.g. linx to facilitate ATM transactions.
Offering of similar interest rates and products
In addition, banks have to form strategic alliances in order to counteract substitutes to improve the value system e.g. insurance companies and mutual funds.
An analysis of the existing competitive rivalry is restricted to four banks. These competitors are identified using Porter’s strategic group analysis (see figure).
From figure, competitors in First Citizens’ market scope operate in the same segment and offer similar type products. These banks collaborate to protect the profitability of the industry, especially in the area of interest rates, customer service quality and non-competitive processes. The prediction of the competitor environment can be analysed using Grant’s Framework for competitor analysis, this can be seen in figure.
4.3 The Industry Life Cycle
From figure, it is seen that the banking industry is in its maturity stage. This can be sustained over an extensive period, in which market share can only be increased by attracting the competitors’ customers. In addition, a strategy in the mature banking industry, is the tendency of banks to consolidate e.g. with insurance companies, security companies; acquire or merge e.g. the acquisition of RBTT by RBC and CMMB by FC.
However, banks fight to maintain its market share by creating high exit barriers for its customers. Recently, customers are extremely sensitive to interest rates, therefore in an effort to retain its customers, one would find that banks in the same market segment (figure) would have similar interest rates. For example, if Central Bank decrease the reserve requirement all banks will decrease its rate to match each other. In a stage of maturity, there are areas in which it is more economical to collaborate than to compete, this brings about greater efficiency at a lower cost e.g. Linx, Transunion and Trinidad and Tobago Interbanking payment system (TTIPS).
4.4 Key Success Factors
In order to be successful in the banking industry there are some key factors. These include:
Effective Regulatory Systems
Relevant Products and Services
Competition which breeds greater innovation and by extension efficiency
5.0 THE DYNAMICS OF THE INTERNAL ENVIRONMENT
5.1 Resource Analysis
FC Bank has approximately 1300 staff members and a well-experienced and knowledgeable senior staff. However, succession and service quality is a concern because of the high turnover of junior staff. In recent times, staff members are no longer interested in a job for life, therefore the bank is retooling its processes to incorporate transient staffing arrangement. In addition, the bank has developed a management trainee, corporate resourcing and mentoring programmes for school and university graduates. Leadership competencies, 360 degree feedback and career development programmes are also implemented for junior staff and management.
The bank has a large customer base in excess of 400,000 accounts. Retail banking customers constitute the majority of the customer base. The consequence of this is that it involves higher operating and fixed costs, in addition, to achieve economies of scale both market share and size has to sufficient. Notwithstanding the deposit garnered from these customers, it represents low cost funds to the bank that are then used for lending.
Although customer loyalty generally has improved, they are however flighty and could change base on simple interest rate difference since they are sensitive to this (as discussed in Porter’s five forces). Recently, the bank has embarked on work to improve its image and reputation.
FC has intensified its relationship with society in adherence to the adage of Corporate Social responsibility in a very significant way. This is also in adherence to the code of ethics established by the Bankers Association, in which First Citizens bank sponsors events:
Environmental: Citizens in Action to restore the Environment (CARE), which assists in the restoration of the environment. In this regard, internal staff competition are held to widen community interaction and to increase social and environmental awareness (this improves the appearance of the bank).
Youth and Education: Bursaries to Tertiary Institution. The bank engages in developing school libraries and is a major sponsor in junior achievement.
Sports: First Citizens Sport Foundation, which raise awareness through clinics and sport education seminars. It is the sole sponsor of the National Sports Foundation, which deals with sports education, seminars and recognition of achievers in the Hall of Fame and Annual Sports Woman/Man of the Year which honors all the achievers in all sports.
Culture: The banks sponsors programmes in all cultural/religious events such as, Divali Nagar, Eid-ul-Fitr, Tobago Heritage etc.
The bank has twenty-five branches strategically located across the country, with three in Tobago. In addition, an excess of eighty ATM supports these branches, with a vast number of these in off branch locations.
FC bank has the leading edge in online real time banking network and is the leader in Internet Banking technology and communication network. Its Ethernet and communication network, which incorporates both voice and data, also contributes to the bank being considered as a Technology leader. In fact FC has won the South Trinidad Chamber of Commerce Technology Leadership on three occasions in the last five years, an award that has been designed for technology companies. The bank’s vast network of ATM and POS machinery provide significant reach to its merchant and customers alike and is fully networked on a local and internal scale. The bank has been able to leverage its technology leadership to enhance value for merchant and customers. This can be gleamed from the merchant e-banking which allows corporate and commercial customers to transact business from their offices (paying bills, salaries, ACH etc.). The value of technology capital is also seen with the implementation of mobile POS, which is significant for distributors and the service sector.
5.2 Value Added
FC Bank’s value chain is depicted in figure using Porter’s Value Chain analysis. The bank has concentrated mainly on marketing, sales and services. The use of technology has been incorporated to achieve a level of service and convenience to provide value to the customer. The cost to provide such value to the customer is important however, the risk to serving customers is just as important. The critical factors in this value system are the linkages between skills of staff, risk management, information systems, flexible and responsive policies/procedures to add such value.
Information technology is FC bank’s core competency especially since they are the leader in this area. FC uses the technological advancement to increase its value chain and to achieve a higher level of customer service than its competitors. Owing to the highly leveraged technology at FC, the level of efficiency, high ratings by customers have been improved, although, the market share has remained stable since the industry is in the mature stage (industry life cycle).
The use of technology is also the bank’s distinctive capability, since the bank uses its technology e.g. mobile POS and corporate internet banking, to increase the value chain of its customers. Figure below depicted how elements of FC bank’s outbound and marketing logistics becomes incorporated into the customers e.g. restaurants and distributors inbound logistic of their value chain.
Internet banking, mobile POS etc.
First Citizens Bank Value Chain Distributors Value Chain
Restaurants Value chain
Figure showing the connectivity between First Citizens Value Chain and that of its Customers
5.3 McKinsey’s 7S
FC bank currently has a bureaucratic (top-down) that does not aid in quick decision-making, which is crucial. Structure is the key to effective execution of strategy. Is the structure does not support strategy in terms of VMOST then the strategy implementation will be difficult. Despite its best efforts to change, the bank structure is still overly bureaucratic.
The bank has to decentralise both vertically along different levels of the organisational hierarchy and horizontally amongst managers and non-managers based on expertise and experience. In doing so, authority and responsibility will remain with those in the position, who possesses the necessary skills to implement decisions, ideally front line staff. Currently, the credit-decision making process is based on limited level authority by staff and the bureaucratic staircase can hinder the effectiveness in the lending/investment process. Simiarly, as a result of Government regulation (Central Bank regulations) and the general risk adverse culture of the bank, several to-down controls exist hindering the smooth processing of intricate transaction. If centre delegating decision-making authority is given to frontline staff e.g. senior management increasing authorisation limits on loans granted by line managers, the processes in the bank will more efficient and less time consuming.
FC bank is a performance-driven learning organisation, therefore all of its systems should be taken into consideration if further development is to occur. The three essential areas are:
Human resource systems
Rewards are based on SMART principle and pre-determined organisation and individual targets. However, the appraisals are based on individual and team performance and are done on a quarterly basis to identify areas foe training and development. In addition, the performance is also measured by balance scorecard with gaps identified to re-prioritise efforts. Human resource records however, are not automated via a modern HRIS system and therefore quick and effective decision-making is negatively affected. To further hasten the decision-making the top-down system needs to be changed to a bottom-up system that integrates the individual and team performance, training and development.
Organisational performance systems
The bank has two models to assess its performance:
The strategic planning model
This evolves from the vision and mission of the bank and long-term strategies are developed for three years on a rolling basis. On an annual basis strategies are reviewed analysed and adjusted as necessary. Three exercises inform the business planning process for the ensuing year and provide key inputs into budgetary allocation which support the execution of the said strategies.
The bank’s information system is highly interactive, accurate, accessible and easily interrogable. In spite of the high use of technology customer service staff has not embrace the use of technology to deliver value added. There is high use of the bank’s office management system for communication e.g. email and calendaring. However, managers and staff have not grasped the opportunity to use these systems for work flow efficiency e.g. loan origination systems and electronic loan application and credit authorisation.
Style is influences in part by structure. The top-down structure of organisation has bred an elitist atmosphere with different layers of management having varying degrees of power and influence. Managers do not seem to exhibit a supportive role and communication is mostly top down to their support staff. In addition, feedback to employees on performance of organisation is done via newsletters, team briefing and staff meetings.
Generally, the management style is not of a participative nature and this can have negative effects on employees’ involvement and satisfaction. There is an over abundance of procedures within the system which leads to an inordinate amount of time and effort spent on administrative processes thus reducing the cycle time for customer service.
Staff development utilises:
Employee assistance programme (EAP)
360 degree for developmental purposes
In addition, the tools used in developing staff are:
Individual development planning
Leadership competencies model – there are seven areas the bank utilise and develop staff; they are customer focus, teamwork, innovation, initiative (getting results), integrity, entrepreneurship and sales and marketing. These are to develop staff in order to develop leadership skills but FC has to create the structure, systems etc. to motivate and encourage employees to develop along these lines.
Multiple skilled employees are essential in a learning and performance driven organisation. The bank is becoming predominantly a sales driven organisation, with risk management and decision-making being critical to its success in the area. Training in developmental programmes in marketing, sales, negotiation and dispute resolution are provided by the bank to further develop skills in these areas. However, the structure of the bank is a barrier to the proper dissemination of skills because of compartmentalisation of information. The bank however, has been a leader in the development of individual staff and expense significant sums on both internal and external training. The education assistance plan provides bank sponsored tertiary education up to and including the masters level for qualifying staff, this facility has benefitted numerous staff members.
Using Johnson and Scholes “Development Strategies” model the direction used by FC bank should be maintained. The bank has focus on identifying market segments and adopted a market penetration and developmental and diversification strategies. These strategies should be suitable, acceptable and feasible to all stakeholders, employees and customers and should be based the bank’s outstanding customer service, innovation and its core competency of technology.
However, the bank’s strategy of leading customer satisfaction through innovation has seen it derive value from its leadership position from electronic banking including internet, POS and mobile banking.
The confluence of three failed financial institution formed FC Bank, and its phoenix-like resurrection to a pronounced position within the banking industry fraternity in the region and awards won, is a source of pride for the organisation.
6.0 S.W.O.T ANALYSIS
Figure shows the SWOT analysis for FC Bank, based on this and for sustainability of competitive advantage, the following factors are crucial:
Investments for further development of technology since it is ever-evolving especially at the strategic and tactical level to maintain FC as the leader
Quick response time to customers’ request to synchronise with industry norms
Strong image/brand and performance driven culture
High degree of flexibility and responsiveness
Improve decision-making capabilities of front line staff and succession planning
At the centre stage of Patagonia Company stands its most valuable pillar and founder, Yvon Chouinard. Yvon saves is a man believed to be saving the world, one fleece jacket at a go. Being a climber, surfer, am entrepreneur, an environmentalists and a known philanthropist, he certainly stands out as one of the few business men who attained success based on his own terms of doing business. Based on his tender age experience as a climber, Yvon realized that he was capable of making more environmentally safe, cheap and effective climbing equipment than what was available in the market. Patagonia, the company that he formed makes exceptional gear as a market leader in the same with worldwide sales soaring above 240 million US dollars annually! Chouinard leadership at Patagonia has basically been a fearless one which has enabled the company to uphold innovation in its corporate practice as well as embracing new changes like when it switched to the use of organically grown cotton as well as other forms of recycled materials alone in its production process. His fearless qualities have also ensured that the company can manage to give away a small percentage of its annual gross sales to the other small scale works that are not profit oriented and maintain the profitability of the company. In “Let my people go surfing”, Yvon shows how by keeping the determined spirit of an explorer, one can blend work, play and social duty and remain successful. Through his easy leadership, Yvon has managed to curve a reputation of unsurpassed quality, long term environmental strategies and a maverick innovation plan in the company. Even the face of the challenging business world, Yvon is still into surfing and generally adventure but surprisingly maintains record success in his business.
One of Yvon’s philosophies is that “You have to be true to yourself; you have to know your strengths and limitations and live within your means” (Chouinard, 2005). Yvon says that though he tried to look at herself just like a climber, surfer and blacksmith, he had to accept that he was also a businessman and was going to remain one for a long time probably. He however decided that if he was to stay in business, he was going to operate not by the normal rules of business but by his own terms, be serious but make his work enjoyable on a daily basis. He also realized that the terms under which he was going to operate were suppose to allow him and his employees climb one stair of their progress one at a time, allow enough freedom for their employees to dress the way they want, even bare foot if it would make them happy! And create some spare time for him to surf the waves, sky the powder or take care of issues at home. In other words he cultivated a culture in Patagonia where there was distinction between the family, the work someone did and play. Even though the company profits grew from 20 million dollars to 100 million dollars between the 1980s and 1990, he and his wife Melinda kept all the money in the business (Chouinard, 2005). The growth in the company just excited everybody and they never failed to do what they could to maintain that level of growth. Upward vertical mobility was very real since even new employees in lower paying jobs like in the warehouse or retail stores had the opportunity and indeed rose to better paying positions in the company. Yvon established a fast-growing organization which in turn helped with outsourcing of the skilled labor that they needed. Despite the growth, Patagonia staff members still managed to keep their own cultural practices. People surfed at lunch hour; they played volleyball on the sand behind the building.
When it came to the realization of Yvon, that Patagonia was likely to make a billion dollars in profits if the market mix remained as it was for some time, he decided that 10 percent of their pre-tax profit or 1 percent of their profits would go towards environmental rehabilitation and rejuvenation projects annually. His passion for environmental safety and sanity made him to decide that the Patagonia was going to start using recycled papers, an action which saved the company 6 million gallons of water, 3.5 million kilowatt of electricity and also helped keep off 52, 000 pounds of pollutants from the air. This measure which took place in 1990 also helped the company to help save about 14,500 trees from being used as fuel (Chouinard, 2005). Under his leadership, Patagonia worked together with other entities like Wellman and Malden mills to come up with recycled polyester which the company used to come up with its PCR Synchella fleece.
Later, the world financial recession came and hit hard at the company to an extent that they had to cut down on their spending to stay afloat. This is the time; Yvon realized that the company had exceeded its resources as well as its limitations. He realized that the company was dependent on a growth that it could not sustain. Re-thinking the company priorities and instituting new practices became a priority. The recession called on the company to break its rules and make use of the very resources it had deemed unsafe for the environment, a scenario that forced Yvon to organize several employee seminars in different places where they could observe the environment, ask themselves capital questions why they were in business, what they needed to do as a company to reduce environmental degradation and global warming, the culture that everybody at Patagonia was brought up in and the values they both shared as individuals. While the company managers were concerned about the interventions that would take care of the cash-flow crisis, Yvon brought to their attention slowly and bit by bit, the business’s environmental ethics and even values. With this he taught his entire staff the values he had leant as a surfer and climber that “You have to be true to yourself, acknowledging their strengths and weaknesses while trying to live within their means” because if the company tries to be what they are no, there was likely to be a mentality of “Having it all” which could be the final nail on the coffin and the business is dead!
Yvon Chouinard was in all aspects a very inspirational leader because he had followers! All his employees followed his lead without complaints. By allocating some time for play and adventure even for him, he showed one aspect of his weakness” He cannot work without playing/having fun!” This made him approachable. He used his intuition to appropriately gauge the right time to instill in his employees the values he had leant as a climber, when the financial crunch was threatening the company’s existence. He tried to capitalize on what made them unique as a company, him as the manager, owner and leader of the rest of the employees. They all had been brought up in a culture of environmental ethics. He influenced them into surfing every lunch time. Finally, his inspirational leadership skills come in because he showed tough empathy to his employees in the sense that he cared passionately about the work they did but had to be realistic with them that without operating within their limits and exploiting their strengths and weaknesses, they were headed for a hard day in office as a business. He cultivated excellence as well as innovation by adopting the environmentally safe modes of production, was a source of optimism and enthusiasm in his free style method of management. Finally he encouraged his employees to have high inspirations by putting in place structures that allowed even junior clerical workers to rise to higher ranks with more pay. He was therefore very inspirational in all means. Yvon was a leader who was driven by ethics hence an ethical leader at the same time. He encouraged his employees to involve themselves in environmental restoration programs and even take responsibility by committing a percentage of the company’s profits to the same. Striving for a balance between work, the family and play was also at the center stage of his influence as a leader. He was therefore very ethical and inspirational in his approach to issues. His leadership also has an element of contextual init because he managed to build a team identity at Patagonia. Their production method, the games they played and the central values to which all the employees subscribed to made them an outstanding lining in a fabric of similar companies in the US.
When the company faced an adoptive challenge due to the financial crisis which was calling on it to ignore its values and embrace the use of ‘environmentally unfriendly’ resources, he mobilized his employees in different teams let them pick out the values that put them together and to identify the adaptive changes in that case. Through his guidance, they realized it was necessary to live within their means. He “Got on the balcony” and studied the pattern of change which was imminent, Identified the adaptive change by looking at the risks which the current pattern of doing business posed if they were to persist with it and he regulated the distress that came with the new change by taking the employees to far off places sometimes even next to mountains or under trees to reduce stress and help them absorb the realities of the new change before making informed decisions. His contextual leadership skills pushed him to seek a bigger picture of the implications of the financial crunch on Patagonia and he maintained a disciplined attention seeking the suggestions and discussions of his team and through this, gave the work back to the people so that they can own it and protected the voice of the people from below by creating a forum where people could exchange and discuss freely without suppression of any kind. There was no blame game and he believed that because they had succeeded together, no fingers were supposed to be pointed at anyone but all needed to build a consensus and realize that operating within their means was the most convincing way out.
Sustainable Development in Businesses
Organizations the world over are faced with a challenging issue of creating a balance between the need to make a profit and the need to preserve the very same resources from which they get their profits. However it has become paramount and critical for organizations to have policy approach geared towards the use of resources without compromising their future availability. Sustainable development is that policy approach and it broadly touches on three things: a broad view of social, environmental and economic outcomes, a long term perspective concerned with the rights of future generations and an inclusive call to action that requires everyone to take charge of their actions. Some organization CEOs have been reluctant to embrace this. This paper is an argument in favor of sustainable development and the need for organization CEOs to make it a part of their policy needs.
An organization is structured basically from its human resource. An active and productive human resource in an organization is also the desire of every CEO. Sustainable development requires people in an organization to be competitive in order to drive success and create innovation. This gives an edge to the company even in the market share and general welfare of the company including profitability. When employees think of the future and ways to improve and optimally give back to the environment, they come up with highly innovative ways to tackle challenges within the organizations (Casper, 2009).
A company that has innovative human resources is always likely to drive success according to Casper and this can be noted when a effort is put into encouraging people within the organization to embrace environmental challenges of the day. A progressive CEO also considers the health and wellbeing of his employees. There is no better way to do that than to embrace sustainable development as it broadly tackles the needs of a worker’s health and wellbeing. It is very important to have a clean environment in the workplace for everyone in the organization and can only be effectively tackled when there is a sense of optimal resource usage in a business. Therefore, once a company takes that issue to their most valued human resource, the benefits are great because a certain culture is instilled inside the company.
Energy is a highly scarce commodity. Every company strives to get energy very cheaply so as to reduce overhead and drive profits. This may compromise the importance of an organization to put into consideration the need to conserve the sources of that energy. Even though it is a critical commodity it does not warrant the CEOS to use unorthodox and harmful ways to get it. This positions the organization as greedy and may be harmful to the image it portrays to the general public and to its customers (Malone & Pasternack, 2002).
This brings the importance of sustainable development to the minds of CEOs and the policy developers in an organization. Energy projects are very capital intensive and have a long gestation period. They therefore have a direct bearing on the environment and ecology at large. A lack of sufficient energy impacts badly on the economy and on the lives of people. Hence it is of paramount importance that the sources of energy are used in a wise and sustainable manner to fairly impact the people and to drive the economy of a country.
Pollution of energy sources, especially the non-renewable ones, is a threat even to the national security of a country. The sectors that offer jobs that are energy affiliated are significantly affected and an employment situation may present itself and this is a threat to the security and national wellbeing of a country. It is imperative therefore that those ceos sustainably use the energy resources if they are patriotic nationalists. The economic growth realized will only serve as a plus to the organization as this means more business and hence profits and the overhead costs are greatly reduced.
Organizations expand and have growth targets for the future that should impact the lives of future generations. A future-oriented ceo is the one who has the capacity to embrace sustainable architecture. This is a bit costly when considering the capital required. But when viewed from an angle of the need to conserve the environment and the future’s positive impact on the lives of future generations, it is worth putting in maximum effort. The design for architecture should put into consideration energy consumption, employees health and well being, plus maximum utilization of available resources. For example, instead of using electricity for lighting and heating, the organization may employ the use of solar energy for the same utilities. In addition, the material for construction that is recycled, such as reclaimed lumber, and low volatile organic compounds, may play a big role in the reduction of harmful emissions in the environment.
An organization can also incorporate waste management that is progressive and places into consideration the issue of environment. The current trends show that governments the world over are going to enact legislation barring people from using certain materials for the construction of buildings and this may be a step ahead of the rest. Obviously this will be profitable then since the price of materials required will have shot up due to inflation and demand as the others try to grapple with the government requirement. It is therefore prudent for a ceo to use environmentally sustainable construction since it is likely to drive profits in the future (Casper, 2009).
Human health and sustainable development are inexplicably linked and go hand in hand. It is the desire of every organization to have healthy and able employees. This reduces medical bills due to insurance, reduces interruptions during work and positions the company for future growth and development. However the threat to the health of people is very real when viewed from the angle of the manner in which big companies and corporations are either inadvertently or knowingly engaging in activities that are harmful (Malone & Pasternack, 2002). Productive CEOs must come up with ways of stemming this and there is no better way than to embrace sustainability of the sectors that massively affect health.
There is a notable change in demographics, consumption and behavior in people. Most of them are moving towards towns where companies are situated and this poses a threat to their health if the issue of waste management and harmful gaseous emissions by companies is not properly checked. As a company’s broader task to embrace corporate social responsibility, a progressive and future oriented ceo should press for policies geared towards ensuring that the heath of people is a priority. This positions the organization to have a good image when viewed by people and it enhances its customer base through that (Casper, 2009).
The governments of today and the international community at large, in its last gasp to enhance sustainable development, are coming up with laws to govern the use of resources. This has made it necessary for companies to try and make policies fit into the legalities or face strict penalties. In a country where these laws exist, there is more pressure from human rights organizations to make them stricter than they are. Some have gone to the extent of inserting in the constitution the basic right of a clean healthy environment so as to stress the importance (International Law Commission, 2003).
Due to this pressure across the board, it is imperative that an organization embraces the need for sustainable development. This will reduce friction with the law and greatly reduce any legal costs that the organization may have. This is also beneficial to a country’s development because it enables compliance with environmental treaties that it has signed and also ratifications of the United Nations (International Law Commission, 2003).
In most countries where use of resources is not closely watched, the less privileged in society are most affected. This includes the youth and the women and children. This group forms the foundation for a country’s growth and if not consistently checked can be a disadvantage to the economy of the country (Malone & Pasternack, 2002). This group of people is paramount to the security situation in every country. The youth are known to create chaos in a country where unemployment levels are huge. This is a future problem being propagated today and it threatens the future of organizations.
In light of this problem, organizations should therefore embrace sustainable development to position themselves for future markets. The available resources should be used carefully to realize this goal. The organization stands to benefit security-wise and the country is likely to realize economic growth hence benefitting the organization further. Also people once faced by such problems resort to mass action and this is dangerous to organizations’ reputations especially if it deals in sensitive products such as food (Malone & Pasternack, 2002).
To sum up, sustainable development is an aspect of current time and any ceo who seeks to position his organization for future growth and development should embrace the task of environmental conservation. The many aspects of the business are invariably touched in one way or the other by the issue and any business leader who ignores these risks could well be considered retrogressive or insensitive in his quest to grow business wise. Also through sustainable development, three important issues are affected positively: the environment, finances and social welfare. These three issues are interrelated and form the pillar of growth in any organization. Therefore business leaders should welcome sustainability (IANS, 2008).
Ethics and Business
In this post Enron era, managers are still struggling to find a fit between ethical codes of behavior in the workplace. They also are identifying practices that are not only ethical but consistent with organizational productivity and sustainability, both in the short run and the long run. Ethics, a word derived from the Greek word, “ethos,” meaning a way of living, can be termed as an accepted code of behavior in the workplace. Ethics are mainly informed by society values whereas a business operates in terms of their economic, social, cultural and political diversity. Despite the lack of generally accepted workplace ethics worldwide, managers should develop strategic plans in their organizations that would promote basic human rights, while at the same time, improve organizational teamwork and productivity.
Strategic planning refers to the systematic identification of an organization’s short, medium and long term goals, followed by the development of action blueprints on how to achieve them (Gray, & Larson, 2006). The first approach that I would take on ethics in the workplace is to ensure the observance of basic human rights of all stakeholders involved in the business. This is based on the premise that managers of organizations would interact with stakeholders such as employees, suppliers, debtors, creditors, financiers, customers, government and society in general.
Impact of ethics on various stakeholders of the business
It is universal knowledge in psychology that human beings tend to build relationships and develop confidence in people who treat them fairly. Paying suppliers at the right time after delivery of goods or services creates supplier confidence regarding the organization. To maintain and safeguard this relationship, a supplier will strive to honor his delivery contracts to the corporation. This will ensure a continuous production of goods in the organization. This has the capacity to reduce any loss that can emanate from unsatisfied demand due to internal inefficiencies.
A manager, who is ethical in terms of the way he or she sources for finances for the organization, is likely to develop a good credit rating. This ensures that the company can access finances when the need arises on short notice as a result of the manager’s reputation for having excellent collateral. Communicating to a customer in the right way, offering the right service at the right price and being open to a client about a product is likely to develop the confidence of such a customer towards the company and its brands. It is a well known fact in the field of marketing and psychology that a satisfied customer acts as a voluntary promoter of the company and its products to other people. Such a customer recommends the product to family and friends. This action increases the organization’s client base leading to growth of sales and profitability. To achieve this, managers must come up with a clear customer focused strategy on how employees are supposed to talk to customers and how they are supposed to serve them (Sison, 2008).
The public forms the market base on which a business thrives and managers should ensure that the organization is not engaged in unethical practices that may negatively affect society. It should carry out activities that promote growth and the development of society. This is a long term investment by the company since a well developed society provides the organization with a wider customer base for its goods while at the same time ensuring sustainability of the organization in the long run. This understanding has in the recent past culminated to a move by a number of organizations to achieve brand positioning on corporate social responsibility.
The shareholders of the organization are affected by both ethical and unethical actions of any of the stakeholders of the business. The managers are only custodians employed by the shareholders to take care of their investment. Consequently, when they engage in unethical practices within the organization, such as embezzlement of funds, managers lose the shareholder’s confidence in them since such unethical behavior can lead to the collapse of an organization.
Finally, when many people refer to ethics in the workplace, they have employees’ behavior in mind. Observance of basic human rights in organizations ensures that employees feel secure in carrying out their duties. This peace of mind influences them to be more productive. Once managers treat their employees fairly, such employees are likely to remain motivated. It would also ensure that employees have negligible, if any, work related stress. Many people can attest to the fact that when working in an organization where a person feels valued and respected, an employee executes his duties in an enhanced manner leading to higher productivity and profitability. To achieve this, managers should come up with ways and means of creating a good work environment where there is no abuse of employees by the employer and where basic human rights are respected and observed.
How to promote ethics in the workplace
Implementing strategic plans on ethics requires accommodation of diverse behaviors from individuals. Some organizations thrive in utilizing employee’s diversity to generate unique products and services instead of trying to standardize their behavior. In the post Enron era, organizations are paying more attention to the issue of ethics in the work place when developing their strategic plans. To do this, they start by collecting views among their employees and other stakeholders. This helps in understanding the social and cultural diversity of an organization’s stakeholders. For instance, bowing slightly before shaking hands with senior individuals is treated as a sign of respect in some cultures. In other cultures, it is seen as a symbol of slavery and abuse. Consequently, it is only after understanding individuals’ cultural orientation that managers can develop a fit in workplace ethics which is not only inclusive but also consistent with the organization’s strategic mission.
Ethics in the workplace can be promoted by strategically developing an organization’s culture that supports ethical behavior. This is based on the principle of the need for association by human beings. This helps employees in developing a sense of belonging to the company and to its culture. To fit in the work environment where they spend many of their waking hours, employees are likely to take up the code of behavior portrayed by senior managers. As a result of this, if the top managers are corrupt, disrespectful or posses any other vice, employees are likely to follow suit. A healthy corporate culture such as one that promotes quality in their employees’ ways of delivering services and interaction with all business stakeholders is likely to increase profitability in the long run. A good and ethical corporate culture ensures that senior members of the company act as role models for junior employees who will most likely strive to maintain ethics in such a workplace.
Workplace ethics can be promoted by ensuring that an organization has satisfied employees. The satisfaction may be as a result of proper remuneration. Consequently, managers should not only view an employee’s salary as a cost, but they should also view it as an investment in ensuring that the organization retains highly skilled employees in the long term. Hard working employees who contribute a lot to the company feel cheated when the salary they receive is too small. This makes them feel justified in their corrupt activities (Swartz, & Watkins, 2003). The organization should also have a good work environment.
Another factor that managers should consider is proper orientation of employees. This may demand the use of a professional alongside reliable managers in the orientation process of new employees. Such a set up ensures that the right ethics code is clearly communicated. When carrying out their duties, new employees compare their actions with what they were taught on the first day rather than what their colleagues are doing (Wiggins, 2006). This ensures that unethical individuals in the organization do not pass the vice to new employees.
What is ethical is interpreted differently by different people. Managers should come up with a set of ethical behaviors in the workplace in collaboration with employees. Efforts should be directed at sensitizing employees on what is termed unethical in such organizations. The organization should develop benchmarks on progress of the employees in terms of ethical behavior in the workplace. This is because, like any other strategy, a strategic plan in promotion of ethical behavior should be monitored and controlled after implementation. Those who follow the ethics code should be consistently recognized and rewarded in order to motivate them to maintain ethical behavior in and outside the organization.
In conclusion, it is worth noting that ethical behavior as indicated above affects the productivity of the organization. It affects the interest of all the stakeholders of the business. Despite the lack of specific attributes to good ethics, it is worth noting that good ethics should promote the achievement of an organization’s goals and objectives. They should be entrenched in the organization by the management in collaboration with their employees. Continuous control and the monitoring of strategic plan implementation progress are both vital as they help in keeping employees and other stakeholders on course.