Author: Meghan Harrison
Nursing homework help
Develop a health promotion plan, 2-3 pages in length, addressing a specific health concern within your community. Then, enlist the participation of a selected individual or group in an educational session about that health concern and associated health improvement strategies.
For this assessment, you will plan for and enlist the participation of an individual or group in a clinical learning activity based on a health promotion plan addressing a particular health concern affecting members of your community.
The first step in any effective project or clinical patient encounter is planning. This assessment provides an opportunity for you to plan a clinical learning experience focused on health promotion associated with a specific community health concern. Such a plan defines the critical elements of who, what, when, where, and why that establish the foundation for an effective clinical learning experience for the participants. Completing this assessment will strengthen your understanding of how to plan and negotiate individual or group participation.
Demonstration of Proficiency
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
Competency 1: Analyze health risks and health care needs among distinct populations.
Analyze a community health concern that is the focus of a health promotion plan.
Competency 2: Propose health promotion strategies to improve the health of populations.
Explain why a health concern is important for health promotion within a specific population.
Establish agreed-upon health goals in collaboration with participants.
Competency 5: Apply professional, scholarly communication strategies to lead health promotion and improve population health.
Write clearly and concisely in a logically coherent and appropriate form and style.
Note: Assessment 1 must be completed first before you are able to submit Assessment 4.
The first step in any effective project or clinical patient encounter is planning. This assessment provides an opportunity for you to plan a clinical learning experience focused on health promotion associated with a specific community health concern. Such a plan defines the critical elements of who, what, when, where, and why that establish the foundation for an effective clinical learning experience for the participants. Completing this assessment will strengthen your understanding of how to plan and negotiate individual or group participation. This assessment MUST be satisfactorily completed to complete Assessment 4 (live face-to-face presentation of the plan). These assessments (Assessment 1 and 4) meet the three-hour clinical learning experience required in this course.
To prepare for the assessment, consider various health concerns that you would like to be the focus of your plan, the populations potentially affected by that concern, and individuals or groups in your community who may be willing to take part in a presentation about that concern and suggested strategies for health improvement.
As you begin to prepare this assessment, you are encouraged to complete the Vila Health: Effective Interpersonal Communications activity. The information gained from completing this activity will help you succeed with the assessment. Completing activities is also a way to demonstrate engagement.
Consider inviting a community member or group to participate. Possible health concerns include, but are not limited to:
Medication reconciliation to prevent readmission.
Individual or family disaster preparedness.
Heart disease prevention (high blood pressure, stroke, heart failure).
Tobacco use (vaping, e-cigarettes, hookah, chewing tobacco, or smoking) cessation.
In addition, you are encouraged to:
Complete the Vila Health: Effective Interpersonal Communications simulation.
Review the health promotion plan assessment and scoring guide to ensure that you understand the work you will be asked to complete.
Review the MacLeod article, “Making SMART Goals Smarter.”
Complete this assessment in two parts.
Part 1: Health Promotion Plan
Choose a specific health concern as the focus of your health promotion plan. Then, investigate your chosen concern and best practices for health improvement, based on supporting evidence.
Identify populations potentially affected by this health concern. Determine what their related concerns may be and explain why addressing this health concern is important for health promotion.
Part 2: Individual or Group Activity Participant Recruitment
Identify an individual or group among the affected population who may be willing to participate in an educational session about your chosen health concern and associated health improvement strategies. Then, research and document their potential learning needs and health promotion goals. Participants may include individuals, groups, or other community members.
Contact the selected individual or group and secure their agreement to participate in the educational session.
Meet with the individual or group to describe the session and collaborate in setting expectations for session outcomes, establishing agreed-upon goals, and suggesting possible revisions to the plan.
Confirm, with the individual or group, a date and time for the educational session and document the name and contact information (e-mail or phone) of the individual or group representative.
Document Format and Length
Your health promotion plan should be 2–3 pages in length. In a separate section of the plan, identify any participants and be sure to include their contact information.
Support your health promotion plan with peer-reviewed articles, course study resources, and Healthy People 2020 resources. Cite at least three credible sources.
The requirements outlined below correspond to the grading criteria in the scoring guide, so be sure to address each point. Read the performance-level descriptions for each criterion to see how your work will be assessed.
Analyze the health concern that is the focus of your health promotion plan.
Consider underlying assumptions and points of uncertainty in your analysis.
Explain why a health concern is important for health promotion within a specific population.
Examine current population health data.
Consider the factors that contribute to health, health disparities, and access to services.
Establish agreed-upon health goals in collaboration with participants.
Write clearly and concisely in a logically coherent and appropriate form and style.
Write with a specific purpose and audience in mind.
Adhere to scholarly and disciplinary writing standards and APA formatting requirements.
Before submitting your assessment for grading, proofread it to minimize errors that could distract readers and make it difficult for them to focus on the substance of your plan.
Write a detailed one-page narrative (not a formal paper) explaining the health assessment information required for a diagnosis of a 17-year-old boy has come in for a check-up after a head injury during a football game. He has indicated that he would like to be able to play in the next game, which is in 3 days. Explain how you would respond to the scenario as an advanced practice nurse using evidence-based practice guidelines and applying ethical considerations. Justify your response using at least 3 different references from current evidence-based literature.
Nursing homework help
Contact the hospice office manager and set up an appointment to interview either him/her or the physician.
Complete and submit the pre-set interview questions
How long have you been in business?
What degree(s) do you need to operate your business?
What are the type(s) of clients’ you serve?
What regulations/license(s) are you governed under?
Are you bound by HIPAA rules/regulations? If not, how do you maintain security and confidentiality of the patient/client health record?
How do you ensure the completeness, timeliness, and accuracy of records?
Do you have an electronic health record? if yes- what is the name of system? If not, what type of filing system do you have for patient/client health records?
What does the role of a health information management/medical record professional look like at the organization?
HIM 1800 – PPE I
Interview Assignment [#x]
Substance Abuse and Mental Health Treatment Center
Interviewee: [First and Last Name] – [Title]
[Facility Name], Inc. started over 30 years ago in Las Vegas, Nevada, it has grown into a national company located in nine states. [Facility Name] Florida was established in 2001 and has centers located in Hillsborough and Pinellas County. [Facility Name] provides a wide variety of human services both in residential and outpatient environments. Their programs include outpatient counseling, substance abuse treatment, juvenile justice treatment programs, mental health services and case management programs. According to [title], [First and Last Name] licensure varies according to position. Those positions requiring state licensure include Clinical Social Workers and Mental Health Therapists, addiction professionals require certification by the state. [Facility Name] clients include those with substance abuse issues, mental health issues, the homeless, veterans and those criminally involved.
[Facility Name] is governed by licensing requirements of the state of Florida. These licenses include, residential level II (Dept. of Children and Families), level V, residential treatment, outpatient licensing, case management, intervention and after care. [Facility Name] is also bound by HIPAA rules and regulations. According to [ First and Last Name or Mr/Ms ] [Facility Name] uses a combination of computer and paper based health records. I enjoyed my interview with [First and Last Name], she was warm and welcoming and very detailed in her responses to my questions.
Non-Banking Financial Institutions (NBFI) v/s Banks in India – Why NBFI are doing much business than Banks? A study of New Delhi based Upper and Middle Class Consumers.
Master of Business Administration
In the era of globalization and liberalization the development of financial sector has played and important role in the economy of India. With the services offered by banks and non-banking financial institutions (NBFI) the life of consumer in India has completely changed. Borrowing is one of the important aspects that have changed the whole scenario of Indian society.
Change in the trend of culture of upper & middle class consumers, change in the behaviour of consumer regarding borrowing and change in the norms of banks and NBFI regarding borrowing has made life of Indian consumer very comfortable.
This research shows how non-banking financial institutions are fulfilling the demand of upper & middle class consumers and how they are doing more business than banks and why consumers rely more on NBFI rather than banks in India.
This research uses questionnaires, interviews of consumers and direct sales agent of NBFI to examine the consumer borrowing and role of financial institutions.
The research concludes that consumers are relying much more on NBFI and it is not risky & difficult to borrow loan because of policies & norms regarding loans and availability of flexible financial options.
CHAPTER – 1
This chapter is introduction about the research topic. It highlights the aims and objectives of the research. It also tells about the structure of the dissertation and the summary of this chapter.
1.2 BACKGROUND INFORMATION
Each and every country has its own financial system. Financial system usually consists of financial market, financial intermediaries and financial product or service. Finance in simple words means ‘money’ but finance is a source which provides funds to a particular activity. A financial sector/system acts as an agent to make sure that funds flow from the areas of surplus to the deficit area. A financial market is a place which creates financial assets and exchange of money for goods and services. Financial market consists of foreign exchange market, capital market, credit market and money market. (Web 8)
Money is a fascinating thing which attracts human to a great extent. Over thousands of years the process of creating money and using money is making human enthusiastic. Financial intermediaries play an important role in building economy of a country. Financial Intermediaries includes banks, financial institutions, non-banking financial institutions (NBFI), investment companies, pension and mutual funds. (Web 9)
Financial sector plays an important role in organizing and properly distributing & sharing the savings. Financial sector act as a passage or tube which transfers the financial resources from net savers to net borrowers .ie. from the person who spend less as compared to their earning to those who earn less and spend more then their earning. (Web 10)
Indian financial system consists of huge network of banks and financial institutions (including non-banking financial institutions) and range of financial instruments. From the last two decades there have been great improvements in Indian Financial system and there is a huge supply of banking and other financial facilities provided to large population of India. (Web 10)
A safe and sound financial sector is required to maintain the growth of an economy. With the help of globalization and change in technology the operating environment of banks and other financial institutions has changed significantly. Due to competition and change in customer demand there is increase in product innovation and change in strategy of banks and financial institutions. In order to face the competition and meet challenges Reserve Bank of India (RBI) has also changed its regulations and provided a new framework. Reserve Bank of India (RBI) is trying to develop a strong, competitive, stable and powerful banking system so that it can help in growth and development of the economy. (Web 11)
According to Sarkar (n.d.) a strong, diverse, efficient and flexible financial system plays an important role in the economy of a country. A developed financial system maintains high level of investment and promotes growth in the economy. The financial system in India consists of financial institutions, financial market, financial instruments and services. Indian financial system is divided into two segments- organized sector and traditional sector which is also called as informal credit market. In organized sector financial services are provided to the community by large number of financial institutions which are mainly business organizations. And financial institutions that are providing specialized or provide some extra services are called as banking or non-banking units. Reserve Bank of India (RBI) is the apex institution and regulates the credit. Financial institutions include public and private commercial banks, cooperative banks, development banks, regional rural banks. Where as finance & leasing companies, LIC (Life Insurance Corporation), GIC (General Insurance Companies), provident funds, mutual funds, post office banks .etc. are non-banking financial institutions in India. (Sarkar, n.d., pp. 1)
RBI is the central bank of India and was established in April, 1935. RBI acts as Government banker, agent, adviser and also act’s as banker’s bank. RBI is the controller of the credit which means that RBI has power to change the volume of credit created by banks. (Web 12)
The profitability of banking sector is improved because of reforms set by banking system which results in high operating and net profit. With the entry of private banks there is a huge competition for public sector banks for loaning of funds. With the entry of non-banking financial institutions (NBFI) and Development financial institutions (DFI) the competition in sourcing the funds is also increased. (Chanda, 2005, pp. 31)
NBFI act as an intermediary between lender and borrower and provide better, different services than normal banks. NBFI includes investment companies, finance corporations, chit funds, hire-purchase finance companies, loan companies, leasing companies, mutual benefit funds. All of these NBFI have the ability to provide large amount of financial services to wide range of customers from small borrowers to established companies. (Chanda, 2005, pp. 36)
Indian consumers are changing their habits at a fast rate and they are borrowing money to buy the product they wanted. Because of easy financing options they don’t have to think if they can afford a product or not. Consumer finance is a win-win situation for every one and now they don’t have to wait for years to save their money and upgrade their living standards. (Agarwal and Mittal, 2004, pp. 6)
The Buy Now Pay Later culture is very much common in India now a days. Consumers are loosing their fear of borrowing. Even if a consumer wants to buy a home, home loan financing is easily available. Falling interest rates, increasing loan duration and reduced monthly installments are making all these things possible for consumers. (Agarwal and Mittal, pp. 6-8)
The banking sector is one of the most important sectors in Indian financial sector. Over 80 percent of funds which flow in the financial sector are because of banking sector. (Sarkar, n.d., pp. 1). NBFI are entering in the financial sector because of inflexibility of banks and their less competition amongst them. Kotak Mahindra, Citi Financial, Ashok Leyland Finance, Sundaram Finance .etc. are the big players in this field and are growing rapidly at faster rate and are taking good position in financial sector. In respect to all these things, the purpose of this study is to find why these institutions are doing better business than public and private banks in India.
1.3 AIMS AND OBJECTIVES
This research is planned to understand and examine the trend of upper class and middle class Indian consumers in taking loans and their reliance on banks and non-banking financial institutions, particularly in today’s competitive environment. This research is done to achieve the following defined objectives:
- To compare and contrast the role of banks and non-banking financial institutions (NBFI) in India economy.
- To evaluate the role of both banks and NBFI for borrowing in Indian developing economy.
- To understand and examine the banking and financial sector regulations in India in post liberalization period.
- To evaluate and analyze the emerging consumer culture in India.
- To understand and examine the trend of upper and middle class Indian consumers in taking loans.
- To examine the policies of banks /non-banking financial institutions regarding offering loans to consumers.
- To identify how NBFI are fulfilling the aspirations of upper and middle class in India.
1.4 STRUCTURE OF DISSERTATION
There are 5 chapters in this dissertation.
Chapter 1: Introduction
This chapter introduces the research topic. It outlines the aims and objectives of dissertation, overview, structure of dissertation and finally summary of the chapter.
Chapter 2: Literature Review
This chapter talks about the literature review. Discussion of available literature related to the topic is done. The aim of this chapter is brief about various concepts on which this dissertation is based. The literature is available from various books, online journal articles and websites.
Chapter 3: Research Methodology
This chapter discusses about various research methods and data collection methods. It discuss about research design, quantitative research, qualitative research, advantages & disadvantages of various methods, limitations, validity & reliability.
Chapter 4: Findings, Analysis and Discussions
This chapter analyses all the data collected using different data collection methods. All the data is critically analyzed and discussions are made on the basis of literature which is related to the objectives of research. Data presentation is done using various methods like tables, graphs, charts and pie charts .etc.
Chapter 5: Conclusion and Recommendations
This chapter concludes the research by providing a conclusion on the basis of findings, analysis and discussions. This chapter also discusses the limitations faced during research and recommendations for future research.
This chapter was an introductory chapter aimed to give reader a brief idea of what this research is all about. It highlights introduction, aims, objectives and finally structure of the dissertation.
CHAPTER – 2
Aim of this chapter is to discuss the literature related to the research topic. This chapter discusses about financial institutions regulations in India, culture of upper & middle class consumers in India and worldwide, what makes consumer to borrow and strategies & policies of financial institutions regarding credit.
2.2 FINANCIAL INSTITUTION REGULATIONS
2.2.1 Financial Institution Regulations Globally
The Changing scenario of banking sector around the world, in the light of globalization has significantly drawn the attention of researchers and practitioners. They have raised important issues regarding corporate governance regulation and banking institutions as corporate governance is related to banking regulations. In this context the research of Alexander (2004) titled Corporate Governance and Banking Regulations requires worth mentioning here.
The research of Alexander (2004) addresses the issues of corporate governance and banking institutions. Alexander (2004) begins by analyzing the upcoming international rule of bank corporate governance. Alexander (2004) provides a framework for how bank supervisor and bank management should act together in relation to the management of banking institutions and its impact on financial stability. Further, Alexander (2004) has analyzed corporate governance and banking regulation in UK and USA. Alexander (2004) concludes Financial Services and Market Act 2000 has authorized FSA (Financial Services Authority) to fill in the gaps to enhance corporate governance because traditionally UK corporate governance was not focused on special role of banks and financial institutions. (Alexander, 2004, pp. 1-2)
In USA, the federal and state statute & regulations regulates the corporate governance for banking institutions. In order to manage the responsibilities of senior management and directors a framework is provided by federal regulation. There is governance problem in banks and financial companies in US. In order to provide financial stability institutions and banks, the bank regulator must establish governance standard in regards to national banking law. (Alexander, 2004, pp. 1-2, 37)
In this era of globalization, banking and financial industry is greatly affected by major changes and it results in increased competition, less profit margin, pressure to cut the price, products having short life cycle. (Alexander, 2004, pp. 1-2, 37)
However, when it comes to comparison of financial regulations in UK and USA, it is revealed that regulation of financial system in UK is not exact as it is in USA. Evidently in USA the Securities and Exchange Commission has wide ranging regulations, and is stated as too much. Further, it is also stated that formal and strict USA rules & procedures do not allow desired flexibility and pace. However, interestingly so far new system in UK provides settlement between the self regulation and statutory regulation to make sure that financial market works in proficient and systematic way. (Web 1)
Apart from UK and USA, the regulations of financial market are changing constantly all around the world. For .eg. In Europe the membership of EU changed the main concerns of government while facing the problem of changing or executing the regulation of financial system and it is revealed that issue was the assistance from the jurisdiction. Quinn (1992) says that “harmonisation of banking rules in the EU, the co-ordination of countries own regulatory standards and centralisation of an EU integrated financial market are needed to enable swift reaction to any future market failure”. (Web 1)
2.2.2 Financial Institution Regulations in India
Financial system in India consists of specialized and non specialized financial institutions which further involves organized and unorganized financial market and deals in financial instruments & services and it helps in transferring funds. In finance money is exchanged with a promise to pay back in future. Narayanan (2005) says that in product market a buyer can easily find if a product purchased by him is defective but it is difficult to find the defects when a loan is taken. (Narayanan, 2005, pp. 1-2)
If we compare Banks and Non-banking Financial Institutions (NBFI) with non financial industries, both banks and NBFI can change or remove the risk factor of their assets more quickly than non financial industries and also banks can easily give loans to clients without taking into consideration the previous debt problems. Financial market easily allocates the resources efficiently and effectively. The financial market face the problem that it is controlled by others because some persons have some information that other does not have. In order to solve this problem there is requirement of corporate governance so that it can be assured that supplier of finance get their return on investment. (Narayanan, 2005, pp. 1-2)
India has a strong financial system. After India got freedom it inherited a diverse setup in regards to institution and market. The purpose was to mobilize savings and to increase investment rate. (RBI, 2003, pp. 3)
Financial reforms were introduced in 1991 because India faced the crisis of balance of payment in 1991 so several reforms were introduced to come out of the crisis. India faced this problem because it was heavily dependent on the public sector and industrialization strategy and both of them were not able to deliver the growth in competitive environment. Later in 1980’s India tried to expand the role of privatization and reduced the direct tax but it didn’t helped. Later the reforms were introduced in June 1991 to recover from the crisis of balance of payment. (RBI, 2003, pp. 9)
After the end of crisis Indian banking system made a considerable progress functionally and geographically. New bank facilities were introduced and the pattern of lending was changed. The feature of reform was ‘gradualism’ because it enhanced micro stability and the same time encouraged micro economic linkages. (RBI, 2003, pp. 5-8)
Currently the institutional composition of financial system in India is illustrated as three constituents: banks either domestic or foreign, owned by RBI, government or private and regulated by RBI; Financial & refinancing institutions set up under a separate law or under companies act and owned by RBI; Non-banking financial companies/institutions owned privately and regulated by RBI. (Reddy, 2002, pp. 4)
On the development of banking and financial sector reforms in India Reddy (2002) comments that reforms have changed the form of organization’s, ownership model, domain of financial institution operations in terms of assets and liabilities. Less availability of low cost fund has resulted in increasing competition for resources for both banks and financial institutions and further with the entry of banks in field of lending and financial institutions are making an attempt to pay out the short term funds has resulted in increased competition. (Reddy, 2002, pp. 4-5)
Finally Reddy (2002) says that the aim of financial sector reforms in India to set formal & semi formal measures which aim to strength the banking system as well as providing safety and reliability with the means of superior transparency, responsibility, answerability and public trustworthiness. (Reddy, 2002, pp. 6-7)
However on the other end Patel (2004) argues that in spite of the establishment of market reforms in India since early nineties the government concerns in the financial sector is not lessened in correspondence to its exit from other feature of economic activity and therefore it is too large to justify the presence on the basis of involving systematic risk. Patel (2004) further puts that during early years of India’s development there might have been some good reasons for ownership of government in intermediaries but now it is causing some damages. (Patel, 2004, pp. 5-6, 28-29)
Now India has proper intermediaries and very well commercially oriented. According to Patel (2004) “A combination of directing resources of intermediaries in fulfilling a quasi-fiscal role for government, extra-commercial accountability structures and regulatory forbearance (arising out of an implicit overarching guarantee umbrella) has mitigated the essential corrective effect of market discipline in both lending and deposit decisions. Coupled with persisting government involvement in intermediation and an implicit support scaffold, this has resulted in an aggravation of the problems of moral hazard that is a normal feature of financial systems.” (Patel, 2004, pp. 29)
Commenting on the government role in liberalized economy Echeverri-Gent (2001) says that reducing state economic interference does not lessen the importance of state in economic development. And in addition to its role of maintaining stability in economy the state continue to play small but more important role to design and modify the activities of economy by creating incentives. There are different ways that are used by state in order to create the incentives; it involves authorization of property right, market microstructure which involves matching the investors demand with the price and volume in effective and efficient manner. (Echeverri-Gent, 2001, pp.1) (Giridhar, n.d., pp. 1-3)
Echeverri-Gent (2001) also states that incentives created and recreated by state using political process are present in part of economic result. And politics explain efficiency and fair behavior in market are promoted by which state institution. (Echeverri-Gent, 2001, pp. 1)
In relation to the above fact Ramesha (2003) finds that currently in India there is a dual control for credit cooperative and banks. The state government looks after and regulated all the issue related to administration where as Central Bank of India (CBI) supervises and regulates the banking operations. As a result there is some conflict in taking legal decisions between state government and central banks of India. Ramesha (2003) argues that it is not possible to separate the financial & administrative areas for regulations and even if it is possible it acts as an obstacle in the effective supervision and control. (Ramesha, 2003, pp. 10-11)
Further according to Ramesha (2003) central bank has power under Banking Regulation Act to keep money for specific purpose and to handle vital aspects related to the performance of commercial banks. There is need of Registrar of Cooperative Societies to get involved in the function and difficulties of cooperative banks. The central bank is not in a position to supervise credit cooperatives and banks. Therefore dual control affects the function of urban cooperative banking sector, supervision & regulation quality. Therefore Ramesha (2003) finds that beneath this rule of duality of control the urban cooperative banks might result in neither cooperative nor commercial bank. (Ramesha, 2003, pp. 10-11)
According to Chakrabarti (2006) the fundamental role of legal reforms in maintaining the growth of economy and financial progress is strongly voted and accepted in India. Where as it is difficult to find what basics of legal system have an effect on financial system and how. Reviewing the literature on law & finance and evaluating the India’s legal & judicial system it seems that excellent protection is provided to the investor’s right. (Chakrabarti, 2006, pp. 12, 15-20)
According to Porta et al there is best protection provided to the creditor in India by Indian legal system in contrast to creditor rights. (1998 in Chakrabarti, 2006, pp. 13)
But execution of these laws is below to the satisfactory level. Further it is found that law which deals with public enforcement of securities is weak and courts in India are very slow and has loads of ongoing cases. India is still fighting with the problem of red-tapism and bureaucracy which are obstacles for business and foreign investment in India. Chakrabarti (2006) says that Indian small & medium sector rely on informal network and institution on the basis of trust and reputation for financing rather than counting on legal system to issue contracts and settle disputes. (Chakrabarti, 2006, pp. 23)
Finally, Rajan and Shah (2003) says that there is problem in the regulations of banks, insurance companies and non financial institutions. There are a lot of problems related to the government guarantees, public sector ownership, processing of information & risk taking. Therefore according to Rajan and Shah (2003) there is requirement to solve all these problems by obtaining good regulatory system, and obtaining world class regulations. Thus Rajan and Shah (2003) suggests that dealing with these problems will provide information processing system, reducing the fiscal problem, increasing the flow of risk capital in the system. (Rajan and Shah, 2005, pp. 46)
2.3 CULTURE OF UPPER AND MIDDLE CLASS CONSUMERS
The word culture has several meanings, in Latin it means “tilling of the soil” whereas in most western language culture means “civilization” or “refinement of mind”. In simple words culture means way of life, art, behavior and beliefs. (Hofstede and Hofstede, 2005, pp. 2-4).
According to Mooij (2004) culture is glue which joins groups together, without culture design it will be difficult for people to live together. It’s only the culture which defines a human community, its individuals and social organizations. (Mooij, 2004, pp. 26)
Where as according to Kluckhhohn “Culture consist in patterned way of thinking, feeling and reacting, acquired and transmitted mainly by symbols, constituting the distinctive achievement of human groups, including their embodiments in artifacts; the essential core of culture consists of traditional ideas and especially their attached values” (1951, pg 86 in Hofstede, 2001, pp. 9)
Each and every individual is a product of its culture and its social group therefore they have to act in certain manner to live in their social cultural environment. Culture cannot be separated from an individual neither culture can be separated from historical events/situations. (Mooij, 2004, pp. 26)
Culture is found in local street, in your city, state, and country. Small children, youngsters, adults, older people have their own culture and most of the times share the culture as well. According to Williams culture is a way of life, people, group or humanity. Culture is not something we absorb- it is something that is learned. (1983b:90 in Baldwin et al, 1999, pp. 4-7)
Culture includes shared beliefs, attitudes, norms, roles and values. These elements are basically transferred from generation to generation. Culture includes values, rituals, heroes, symbols. Values are basically feeling of a person having plus and minus side. It deals with evil v/s good, dirty v/s clean, ugly v/s beautiful .etc. values are acquired by a person at very early age in their lives. Values are visible until they become evident in behavior. In contrast to values, rituals are related to social acts, ceremony or something related to religion. Rituals are carried out by an individual for their own sake and usually involve paying respect to other & ways of greetings. Heroes are persons alive or dead, real or imaginary whose characteristics are highly appreciated in culture and most of the times serves as a model for behaviors. For eg. Mahatma Gandhi in India or Bill Gates in USA. Symbols are words, gestures, pictures or objects that carry a particular meaning and are recognized by only those people who share a particular culture. It involves national flag or any particular dress or hair style .etc. (Hofstede and Hofstede, 2005, pp. 6-8) (Hofstede, 2001, pp. 9-11)
The culture of people around the world is demonstrated in wealth & celebrity and this is particularly true about people in western countries. According to Schor (1998) “Instead of emulating folks with a similar income, people are taking their consumption cues from television characters, relatives, friends and co-workers whose income often far exceeds their own”. Commenting on this trend Schor (1998) states that this can get expensive because it seems that their culture worship wealth and celebrity. (Web 14)
There are 3 layers of culture. The outer layer consists of explicit culture and it involves language, food, houses, monuments, market, fashion and art. These are the symbol of deeper level of culture. Middle layer consists of norms and values. Norms is basically sense of what is right and what is wrong. Norms can be written laws or social control where as values determine what is good and what is bad. Values help in making choice from existing alternatives. And the third core layer is assumptions about existence which is related to the ways that deal with the environment with the available resources. (Trompenaars and Hampden-Turner, 2005, pp. 20-24)
Hofstede and Hofstede (2005) has divided cultural layer as national level, gender level, generation level, social class level and regional/ethical level. National level is related to ones country or the country where a person belongs and with nation they have their culture, community. Gender difference is basically based on gender .ie. male or female. In some societies the culture of male is different from female. For eg. Women are not suitable for some particular jobs which are meant for men only. Generation level is separating grandparents, parents and children. For eg. Younger generation has no respect for the values of elders. Social class level is associated with individual’s profession and education because education and profession are the powerful sources of cultural learning. Regional level is based on person’s region and religion. (Hofstede and Hofstede, 2005, pp. 11-12)
Today consumers are very much concerned with their identity, ego or superego which totally depends on their culture and most of the times related to the luxuries of life. Human needs are totally related to the culture. Needs like Psychological, safety, self actualization and esteem needs are very much important for consumers of each class. Consumers feel more powerful if they have symbols of power or prestige possessions. For e.g. Prestige possession for consumer is luxury car, big house, frequent travel abroad/holidays abroad. Clothes satisfy functional need but fashion satisfies social need. The behavior of consumer is not only determined by their needs but also by their surroundings. Consumers in same culture can do different things for different reasons. Ownership of luxury items shows the status symbol where ownership of cheap watches show low income of person. (Mooij, 2004, pp. 136-140)
2.3.1 Culture of Consumers Globally
Schor (1998) also comments that how you save and spend totally depends on the reference that you choose and it rules the culture of upper and middle class, particularly in western culture of world. In order to make his observation solid Schor (1998) presents example of Americans, where he shows his concerns regarding consumerism. Schor (1998) states that Americans are spending and consuming as if there is no tomorrow, and the worst part is that they are not paying cash for it. Consequently, Schor (1998) cites that debt of personal credit card has doubled in last four years. The bankruptcy has reached on to the highest point and people are trading financial security for short term satisfaction. (Web 14)
Schor (1998) also points out that the assets of an American family is $10000 and savings have fall down very quickly in last 10 years. In other words the western culture today commanded by influencing consumers, which forces the people to believe in wealth creation & celebration and in result it leads to the tendency of high borrowing. (Web 14)
Consumer research has given some evidence that within each social class, there are some specific lifestyle factors which involves beliefs, attitudes, activities and behavior. And all these factors help in distinguishing between the members of one class from other class. There are usually three main classes upper class, middle class and lower class. (Schiffman and Kanuk, 2000, pp. 307)
A product can also express the value of consumer. For e.g. A house is not only to live but it tells something about the owner as well. Different towards food is also a part of the culture. Some people buy food from small shops where as some buys from expensive supermarket. Product usage and ownership also determines cultural values. (Mooij, 2004, pp. 233-236)
In India the position of consumer in society is defined by the clothes they wear, the shoes, the accessories .etc. and all these things determines the class and power of a particular person. People do not wear in public what they wear in private, but in USA even Pr
1. Overview of the automobile sector
Five forces analysis
Competitive Rivalry between Existing Players: High
Competition between existing automobile companies is high. Although the automobile market was dominated by the three big auto manufacturers in US, Toyota and Honda in Japan, the situation is changed. With the growing demand in emerging market, the emerging competitors in China and India may drive an intensified price competition. However, the competition could also focus on the safety, warranty and financial services etc.
Threat of New Entrants: Medium
Although the entrant barrier is high for the automobile industry because the requirement of capital and technology, an increasing number of automobile manufacturers are emerging in China and Asia due to the economic expansion and growing demand. However, these automakers are in the development status and may not catch up the leading technology in Japan and US, so the threat from new entrants is medium.
Threats of Substitutes: Low
Customers could choose to switch to transportation means other than automobile such as bicycles, buses and subways. However, the automobile is still the favourite despite the relevant high cost than other mentioned transportation means because its flexibility, comfort and convenience.
Bargaining Power of Suppliers: Low
In automobile industry, the component supplier has little bargaining power because the manufacturer could switch to other suppliers easily. On the other hand, the components are generally low value and the suppliers find it difficult to bargain with automakers.
Bargaining Power of Customers: High
The competition in the automobile industry is intense as mentioned above. So the customers have many choices on the brands and models. Customers care about the quality, price, safety, comfort, appearance of the car. Recently, customers are also more and more concerned about the environmental effect of the automobile and the energy efficiency. So the customers get more and more bargaining power in automobile industry.
2. Toyota Motor Company
2.1 Overview of the company
Toyota Motor Corp. is one of the largest and leading automobiles manufacturers in the globe. It operates in three main business segments; the two biggest are automobile and financial services whereas the third one is comprised by many smaller other divisions. It is spread worldwide as it has 50 manufacturing facilities in 27 countries and regions
Toyota designs, manufactures and sales passenger cars of several types and utilities, trucks, tractors and material handling equipment, minivans and other car accessories. Its products can be divided into 2 main categories, conventional and hybrid vehicles. The company sells its products under Toyota, Lexus, Hino and Daihatsu brands
The company is also engaged in the financial industry as it provides financing to its customers and dealers. It is also involved in housing, marine, e-commercial, ITS and biotechnological activities.
Toyota sells its vehicles in more than 170 countries and regions worldwide. Toyota’s primary markets are Japan, North America, Europe and Asia. It is headquartered in Toyota City, Japan and employed around 316,121 people as on March 31, 2008
Toyota’s strategy can be summarised under three key principles; growth, efficiency and stability. These are the three priorities the company’s management will pursue to achieve future sustainable growth and increase the economic value.
Growth will be achieved through continuous investment mainly in hybrid vehicle segment to meat the increasing demand. Efficiency is mainly focused on cost management and further reduction in order for the company to be able to provide high quality products in affordable prices and maintain its competitive advantages. Stability will be ensured by maintaining a solid financial base. Within the economic downturn it is important for Toyota to maintain sufficient liquidity in order to continue to finance its investments in research and development of new technologies, which is an integral and essential part of the company’s advantages.
As Toyota operates in the global market its competitors come from all around the world. Its major competitors are BMW AG, DaimlerChrysler AG, Fiat S.p.A., Ford Motor Company, General Motors Corporation, Honda Motor Co. Ltd., PSA Peugeot, Renault S.A., Volkswagen AG and many others
- Strong overall financial performance
- Strong reputation and quality
- Strong position is Asian market
- Research and development
- Production pipeline system and cost management
- Diversified product portfolio
- Financial services are still undeveloped
- Huge expenses on pensions and post-retirement benefits
- Increasing demand for hybrid and environmental-friendly cars
- Expansion in emerging Asian markets
- Financial and other non-auto division development
- New car models
- Global economic crisis
- Strong competition in automotive industry
- Yen and US dollar exchange rates
- Tight environmental regulations on carbon emissions
- Problems with specific components of sold cars. (Recent brake problem)
2.1. Key Financials Analysis
Net Income Available to Common
Net Cash Flow Operating Activities
* IMPORTANT – First year to report losses
* Stable increase in sales – Decline in 2009 greatly affects income
* Severe decrease in cash flow from operating activities, nearly 50%
* Very big difference between sales and operating income points out severe cost expenses for the company. As this differences is constantly increasing it is not far from the truth to say that Toyota is gradually loosing its competitive advantages in cost efficiency against its competitors.
* General trend in key financial s shows a steady and permanent increase until 2008 and a sharp decline in 2009, due to severe problems of economic recession and its great impact on automobiles industry.
This trend applies for almost all financial s, pointing out that the company’s performance as a whole followed a movement like this.
2.3. Multiples analysis
Price To Earnings
Price To Book
Price To Cash Flow
Price To Sales
* Multiples follow company’s general trend, namely increase until 2007 and then decreasing sharply
* Consistent with overall picture of company, multiple analysis show the economic downturn of the entity from 2007 onwards
* Point to mention: negative P/E ratio. Market’s expectation about company looks really slim. The economic crisis, alongside with its severe problems generating income and its recently damaged reputation, create really unfortunate future prospects for Toyota. The negative P/E ratio and specifically its magnitude (-22) implies that nobody is neither willing to pay to buy the company’s share nor expecting any profit generation.
* Very sharp decline as well; 31.62 units is something extremely noticeable. If we focus on decline itself, it shows an extremely quick unfavorable turn of the market towards the company.
2.4. Company’s performance
Return on Equity
Operating Profit Margin
Total Assets Turnover
Net Sales % Working Capital
EBITDA / Interest Expense
Long Term Debt/ Common Equit
Valuation – Investment
Earnings Per Share
Dividend Yield – Close
* Negative profitability in 2009
* Fluctuating sales/working capital as a result of fluctuation if investments (working capital)
* Gearing increase in 2009 at the same time with high decrease of interest cover
* Stable and quite low liquidity
2.5. Cash Flow analysis
Cash Flow Operating Activities
Cash Flow Investing Activities
Cash Flow Financing Activities
Effect of exchange rates
Net Cash Flow
* Severe decrease in cash flow from operating activities, nearly 50% which vividly affects its operating income
* Extreme decrease in investing activities around 70%, probably caused by cash shortage and policy change. The company issued a new project with main goal to improve profits and cover operating expenses and as a result we see a large negative impact in new investments.
* Financing activities exhibit a stationary trend over the past few years indicating the stable financial policy of the entity.
* Adverse effects of exchange rates during the last two years indicating the risk the company runs because of the Yen’s depreciation to the U.S dollar and the Euro.
2.6. Stock Performance
The company’s share performance seems to move according to the index, with the trend to over perform it constantly. We can see the decline of the share’s price, which started right before the end of 2008, following the global economic recession. At the turning point, which is in the beginning of 2009, we observe a relatively high trading volume, probably indicating the forthcoming upward movement. It is also really significant to point out the extreme high trading volume observed during the first months of 2010, followed by a new decline of the share’s price. This reflects the problems that Toyota is facing nowadays. There is a considerable lack of trust from the market towards the company which is mainly caused by its severely damaged reputation and loss of quality.
3. Ford Motor Company
3.1 Overview of the company
A . Company profile
The group operates in two segments: Automotive and Financial Services. For the automotive segment which consists of Ford, Lincoln, Mercury and Volvo has a main operating activity in manufacturing, sale and service of component for cars and trucks.
The Financial services segment is included of financing, insurance and leasing regarding to cars, trucks, industrial equipment, construction equipment and other activities. The company has operation in North America, South America, Europe, Africa and Asia- Pacific.
B. Strategy Analysis
· One Ford
The Company has initiated the new strategy called “One Ford” which has detail as follow:
o ONE TEAM focuses the significant of team work in order to reach the automotive leadership. The measurement is satisfactory of business partners, employees, investors, and related companies.
o ONE PLAN: The four-step plan has been established which composed of: balance between cost structure and revenue; develop new product follow customer preference; develop balance sheet status and finance the plan; and cooperation around the world to leverage company’s resources.
o ONE GOAL: That is “to create an exciting and viable company with profitable growth for all”.
Ford has started the restructuring business process before the economic crisis which the Company has reduced the excess capacity, closed some unprofitable plants and lower excess workforce. In addition, Ford has improved the product line in term of higher quality, more safety, use less energy and more economic.
* Affordable Fuel Economy: Focusing on deliver fuel efficiency engine to the market. For example, the 2010 Ford Fusion is now America’s most fuel efficient midsize sedan for both the hybrid and conventional gasoline models.
* Electrification strategy: plan to bring pure batteryelectric vehicles, next-generation hybrids and a plug-in hybrid to market quickly and more affordably over the next four years.
* Safety leadership: Ford got totaling 16 models picked from the Insurance Institute for Highway Safety which more than other brands.
* EcoBoost™ Engine: delivers significant gains in fuel economy along with a great performance drive feel.
C. Peer Group
Ford’s peer group is Daimler AG, Fiat Spa¸ Honda Motor Company Limited, Motors Liquidation Company, Nissan Motor Company Limited, Toyota Motor Corp and Volkswagen AG.
D. Ford’s SWOT Analysis
l Wide geographic
Operate throughout the world and has a strong market in North America, Europe and Asia. Sales of each region of 2008 are 49%, 39% and 12% respectively. The well diversified market of ford reduces the risk of economic problem in specific area.
l Brand royalty
Ford has renowned reputation about quality and also owns other renowned brands such as Lincoln, Mercury and Volvo.
l Quality car
Ford owns totaling 16 models of car that rated as safety car by the Insurance Institute for Highway Safety
l Product Recall
Experienced many recalled products due to the quality of defective cruise control switch which may cause fire. Even though there is no fire cases reported but the Company’s reputation is negative affected.
l Negative operating result
l Low gross margin
GSK’s long-term debt increased by 115.5% in 2008, which may lead to problems such as heavy interest payment, risk of having too little working capital and even increasing possibilities of bankruptcy.
l Too much long-term debt
This may lead to problems such as heavy interest payment, risk of having too little working capital and even increasing possibilities of bankruptcy.
l Expanding market in emerging market
Ford has a plan to expand its sale in the emerging market which has great buying power in the future.
l Eco-friendly engine
Ford has high reputation in the eco-friendly engine such as hybrid engine which has very promising market.
l Fuel efficiency
Ford found another opportunity in the market for fuel-efficient in small and middle car.
l High competition
Due to new competitor, lower demand and excess capacity.
l Economic crisis
Economic crisis and regression in USA where is the main market of Ford caused severe effect to the Company.
3.2. Key Financial Analysis
Scaling Factor : 1,000,000 USD
Net Sales or Revenues
Earnings Before Interest And Taxes (EBIT)
Interest Expense On Debt
Net Income Available to Common
ST Debt & Current Portion of LT Debt
Long Term Debt
· Net sales decreased from 2007 about 15% as the economic crisis in the State which is the main market of Ford. The Company has had substantial losses from operation since 2006.
· Ford has high outstanding of long-term loan which may causes liquidity deficiency or bankruptcy if the Company still has continuously loss in the future.
· As a result of net losses from operation since 2006, Ford has had negative shareholder’s equity since then.
3.3. Multiples Analysis
MONTHLY HISTORICAL MARKET PRICES
P/E Ratio (High)
P/E Ratio (Low)
P/E Ratio (Close)
* P/E ratio turned to be negative since net losses from operation since 2006 and also the market price has continuously decreased from 8.58 in the beginning of 2006 to 2.29 at the end of 2008.
* P/B ratio had negative value in 2008 from the negative book value of Ford.
3.4. Company’s performance
Return On Invested Capital
Operating Profit Margin
ASSETS UTILIZATION RATIOS
Net Sales Pct Working Capital
EBITDA / Interest Expense
LT Debt Pct Common Equity
· Profitability ratios do not show the good performance as Ford has had net loss from operation since 2006.
· Leverage ratios also go in the same trends as a result of negative equity and high outstanding balance of long-term loan.
· Liquidity ratios present that Ford still can generate cash to supply its working capital but if consider to the long-term debts Ford may cannot provide enough cash to support its debt payment since these ratios are still in the low range compared with its debt outstanding amount.
3.5. Cash flow analysis
Scaling Factor : 1,000,000 USD
Net Cash Flow From Operating Activities
Net Cash Flow From Investing Activities
Long Term Borrowings
Inc(Dec) In ST Borrowings
Reduction In Long Term Debt
Net Cash Flow From Financing Activities
· The Company cannot generated sufficient cash from operation and had negative net cash flow from operation. Moreover the Company had to pay interest expenses for loans and had high net cash paid for financing activity.
3.6. Stock market performance
· Ford shares have been traded lower than SP500 since 2001 until 2010. Especially since 2006 that the operating results had continuous substantial losses.
4. Honda Motor Company Limited
Honda Motor is one of leading automobile manufacturers in the world. The company develops, manufactures and markets automobiles, motorcycles and power products. The company also provides financing services to the dealer and customer for the sale of products. Honda has global operations in areas including North, South and Central America, Asia, Middle East, and Europe with its headquarter at Tokyo in Japan.
Honda Motor has three strategies. They are “Staying Close to Customers”, “glocalization” and “five region strategy”. Staying close to customers mean the maintenance of the qualities of a small company, Provide value product with flexibility and efficiency as a small company does and maintain global reach and technology advantage as a large company does is the drive to the future growth of Honda. Glocalization means the effort to launch subsidiaries in regions that could best meet the demand of local customers and expand the subsidiaries as the local demand increases. Five region strategy requires the operations focus on five areas the world. They are North America, South America, Europe/Middle East/Africa, Asia/Oceania and Japan. The management decisions are served to suit the situation in different areas. The advanced R&D capacity equips the Honda to provide flexible products to adjust the need of these regions.
The company operates through four business segments: the automobile business, motorcycle business, financial services, and power products.
The automobiles business division manufactures passenger cars, multi-wagons, minivans, port utility vehicle, sports coupe and mini vehicles. Honda’s automobiles use gasoline engines of three, four or six-cylinder, diesel engines and gasoline-electric hybrid systems. Honda also offers alternative fuel-powered vehicles such as natural gas, ethanol, and fuel cell vehicles. In 2008, the company sold 3,925,000 units of automobiles.
The motorcycle business produces a range of motorcycles, including scooters, electric-motor-assisted bicycles, sports bikes and large touring cycles. Honda’s motorcycles use gasoline engines developed by Honda that are air or water cooled, two or four cycled, and single, two, four or six cylinder. In 2008, the company sold a total of 9,320,000 units of motorcycles.
Honda offers a variety of financial services to its customers and dealers through its widespread finance subsidiaries.
Honda’s power products manufactures a variety of power products including power tillers, portable generators, general purpose engines, grass cutters, outboard engines, water pumps, snow throwers, power carriers, power sprayers, lawn mowers and lawn tractors (riding lawn mowers). Honda also manufactures the major components and parts used in its products, including engines, frames and transmissions.
The globalization of the Honda motor makes it face the global intense competition. The competitors include Ford Motor, Nissan Motor, Toyota Motor, Volkswagen etc.(in the automobile sector) and Yamaha Motor, Harley-Davidson etc.(in the motor vehicle industry).
l Global diversification
The company operates a total of 397 subsidiaries, and 104 affiliates all over the world.
l Leading market position and good brand image
Honda is one of the largest vehicle and motorcycle manufacturers over the world with strong brand strength.
l Strong Research and Development capacity
The large investment in R&D could equip Honda the capability to differentiate itself in the intense competitive market.
l Declining Market Share in Sector
Evident of decline in unit sales and lost of market shares in the automobile industry.
l Low employee productivity
Honda has a weak proportion on the number of employees and the revenues.
l Growing demand in Asian market
Honda has taken measures to occupy the huge potential Asian market.
l Growing demand in hybrid electric vehicles
The company’s emphasis on hybrid technology innovation will capture market trends as an opportunity to enhance its market share.
l Global competition
The competition would result in price pressure and thus reduce the profitability.
l Tightening emission regulations
The emission standards will cause Honda to occur more costs in product development, testing and manufacturing process design.
4.2. Key Financials Analysis
Scaling Factor : 1000000 JPY
Net Income Available to Common
Net Cash Flow Operating Activities
l The operating income reduces dramatically, approximately 80% from the previous year’s result. This result is caused by the severe decline in the sales and the consequently increase in inventory cost.
l Before 2009, all the s are in a healthy and steady upward trend. But in the fiscal year ended at 31st march 2009, the volumes all experienced a dramatic decline. They are caused by the sales plunge.
l The declines trends are due to the economic recession caused by the financial crisis because the demand in Japan, US and Europe shrank. The automobile industry faces a severe challenge and most companies in the sector reported unsatisfactory results.
4.3. Multiple analysis
Price To Earnings
Price To Book
Price To Cash Flow
Price To Sales
l Although the P/E ratio increases significantly, it’s not a good sign. The increase in P/E ratio is not due to the high expectation of the investors and the fundamentals such as growth opportunities. Instead, the soaring P/E is the result of the plummeting earnings to common shareholders.
l The price to book ratio and price to sales declined in 2008 and 2009, indicating the declining
4.1 BACKGROUND TO THE RESEARCH PROBLEM
For almost three decades practitioners, academics, consultants, and research organizations have identified “attaining alignment between IT and business” as a pervasive problem, Luftman and Kempaiah (2007). Gutierrez,Nawazish,Orozco,Serrano and Yazdouni (2007) add that despite the wide acceptance of strategic alignment (the strategic use of Information Technology), there is no consensus on how to achieve alignment and with few references that detail the process, there is no common agreement on the term alignment. Terminology such as linkage Henderson and Venkatraman (1993) harmony, integrated, linked, and synchronocity Luftman and Kempaiah (2007) have been suggested and used.
Steiner (1979b) points out that there no consensus as to the meaning of strategy in the business world. An example of the definitions which he uses include the following Steiner (1979a):
- Strategy is that what executives do they that empower the organization.
- Strategy is the direction the organization takes which is aligned with it’s purposes and missions.
- Strategy consists of the important activities necessary to realize these directions.
- Strategy answers the question: What should the organization be doing to achieve success?
- Strategy answers the question: What are the means to end?
Mintzberg (1994), says that people use “strategy” in several different ways, the most common being:
- Strategy is a plan, a “how,” a means of getting from here to there.
- Strategy is a pattern in actions over time; for example, a company that regularly markets very expensive products is using a “high end” strategy.
- Strategy is perspective, that is, vision and direction.
- Strategy is position; that is, it reflects decisions to offer particular products or services in particular markets.
Porter (1998) states that strategy positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company and that strategy, is the creation of a unique and valuable position, involving a different set of activities, requires that trade-offs be made in competing, to chose what not to do and involves creating “fit” among a company’s activities. Fit has to do with the ways a company’s activities interact and reinforce one another.
To improve the strategic management of information technology, Henderson and Venkatraman (1993), developed a framework which they called the Strategic Alignment Model (SAM). This model was defined in terms of four fundamental domains of strategic choice namely business strategy, information technology strategy, organizational infrastructure and processes and information technology infrastructure and processes. The model is defined in terms of two fundamental characteristics of strategic management namely the strategic fit (the interrelationship between external and internal components) and functional integration (integration between business and functional domains).
Luftman (2001) improved on the Henderson and Venkatraman (1993) SAM model by developing the Strategic Alignment Maturity Model (SAMM). The model measures IT–business alignment maturity. Six interrelated components for assessing alignment maturity are identified. These are communications, value, governance, partnership, scope and architecture and skills. The scores an organization achieves for these six components of maturity are then compared to a five-level maturity model to denote the organization IT-business alignment maturity Luftman (2001).The levels range from level one to level five where level five is the highest level of maturity. A higher alignment maturity correlates with higher firm performance measures Luftman (2001).
Tying performance measures to strategic goals is a critical step Fonvielle and Carr (2001). A tool to measure performance and to align strategic goals within organisations is the Balanced Scorecard (BSC). The BSC was developed by Kaplan and Norton (1992) to overcome the business’s reliance on financial measures. They contend that reliance on only financial measures does not give a complete overview of the organisations measures. The BSC provided a framework to look at strategy, used for value creation from four different perspectives these being financial, customer, internal business process and innovation and learning Kaplan and Norton (1992).One of the principles recommended by the authors, is that for an organization to be focused on strategy, there needs to be alignment among departments to the strategy of the organisation. The alignment sequence recommended by Kaplan and Norton (2006) starts when the corporate headquarters articulates enterprise value proposition that will create synergies among operating units, support units and external partners. This sequence includes aligning IT strategy with the business strategy.
Inability to realize value from IT investments is, in part due to the lack of alignment between business and IT strategies
Alignment is frequently focused only on how IT is aligned with the business and not vice versa, the organisation only sought one method to improve alignment and that there is no effective tool to gauge maturity of IT-business alignment
Surveys reveals that the greatest gap occurs in organisation alignment when compared to other strategic management problems
4.1 STATEMENT OF RESEARCH PROBLEM
Business and IT strategies at PRASA need to be better aligned.
4.1 What is passenger rail agency of south africa (PRASA)?
Appendix A, gives a comprehensive overview of the historical context and the introduction of PRASA taken from the companie’s business plan. Following is a summary of the key issues
PRASA was created by Government to advance its agenda for the transformation of the public transport system into a vibrant, efficient one, As part of its strategy, PRASA (2009), to secure the future of its business, PRASA will focus its resources and energies during the current medium term expenditure framework (METF) on the following three Strategic Priorities:
- Service Excellence within Metrorail, Shosholoza Meyl and Autopax
- Property and Asset Development, and
- Technology Upgrade or Modernization of its key transport systems
The key objectives identified by Government in addressing the challenges of passenger rail transport moving forward PRASA (2009) are as follows:
- Sustainable passenger rail service delivery;
- Improved performance of passenger rail services in terms of the quality and levels of services to passengers;
- Improved efficiency in the delivery of services;
- Improved effectiveness of asset management;
- Effective targeting of subsidies to achieve desired socio-economic & transport objectives;
- Improved oversight by Government; and
- Improved accountability to the users.
4.1 Why prasa? PASSENGER TRANSPORT CHANGE IMPERATIVES
1..1 The Public Transport Challenge
After many years of neglect, the existing commuter transport system, inherited from the apartheid past, has reached saturation levels and is unable to satisfy passenger demands while its infrastructure is not able to meet the requirements of a rapidly changing and modern society. The dysfunctional institutional arrangements have meant poor accountability in the provision of public transport services, which were found to be largely disempowering. Government’s socio-economic and transport policies could not be supported adequately by such institutional arrangements. The country is seeking to move away from the current commuter-based transport provision into a more integrated public transport system that meets growing and changing passenger demands in an efficient, effective and sustainable manner. The twin challenges for public transport is to simultaneously transform through meaningful integration whilst at the same time enhancing capacity through upgrading and modernization to meet long-term need PRASA (2009).
1..2 Inadequate Passenger Service Provision
Passenger rail in South Africa faces many challenges as a result of a long history of inadequate investment in rail rolling stock, infrastructure and operations as well as the loss of appropriate managerial and technical (engineering) skills within the industry. The shortage of such critical skills has a direct negative impact on the delivery of services. In the urbanising metropolitan areas the provision of new rail corridors has not kept pace with the rapidly changing urban landscape resulting in limited coverage in key areas of urban expansion with the consequential loss of significant market share. Over time, commuter rail services have continued to fail to respond adequately to changing passenger demands PRASA (2009).
1..3 Customer-Centric Delivery
A dynamic and customer-centric public transport system is required where passengers contribute to and shape the service delivery agenda. The need for a Passenger or Quality Charter and the emergence of strong, vibrant structures championing both the interests of passengers and public transport transformation are vital to the development of a public transport system that will effectively respond to the travelling needs of passengers. The past few years has seen the emergence of vibrant, community-based structures championing public transport transformation and demanding quality services from Government and transport service providers. This movement seems to be growing and shows the determination of South Africans to participate in the construction of a transport system that will effectively respond to their demands PRASA (2009).
4.1 PRASA Vision, Mission & Values
A provider of integrated public transport solutions for improved mobility
Two fundamental principles underpin the vision:-
Integration – PRASA should facilitate integrating individuals and communities, enabling a better quality of life through access to socioeconomic opportunities
Mobility Solutions – PRASA should connect individuals and communities through the provision of public transport solutions that are founded on an integrated network of mobility routes PRASA (2009)
Sustainable Public Transport Solutions through Service Excellence, Innovation and Modal Integration PRASA (n.d.)
The mission reflects four key intentions:-
Service excellence – superior performance that is safe, reliable and affordable, that makes a lasting impression, and builds brand loyalty – both internally (employees) and externally (customers) – that adds benefit to the passenger.
Sustainability – a focus on sustainable development in business that considers not just the financial ‘bottom line’ of prosperity and profit, but also the other ‘bottom lines’ of environmental quality and social equity.
Mobility solutions – reframing the basis of business delivery, favouring innovation, integration and partnerships
Integration – safe, seamless & dignified travel experiences across all modes of public transport, PRASA (n.d.)
The values that will guide PRASA, which will underpin the performance ethos of the organization derived from and are guided by the fundamental and progressive human values of the Constitution of the Republic of South Africa:-
Service Excellence, Participation, Integrity, Fairness and Innovation, PRASA (2009)
4.1 OPPORTUNITY FOR Passenger Services
1..1 Commuter Rail Services
The provision of efficient and affordable public passenger transport services is integral to Government’s drive to create employment opportunities, stimulate economic development and reduce levels of poverty. Enhanced mobility will facilitate greater access to socio-economic opportunities for the urban and rural poor whilst contributing to an efficient transport system to the benefit of all South Africans – highlighting the need for a vibrant public passenger transport network to support sustainable growth and development PRASA (2009).
Commuter rail has the potential to be the most efficient, affordable and safe mode of travel. It plays a significant role in key Metropolitan areas such as Cape Town and has the potential to become an important public transport player in all metropolitan areas, significantly contributing to an efficient and reliable public transport system in these areas. Despite the acknowledged increase in the growth of car-ownership and usage, public transport and walking continue to dominate the mobility needs of the majority of South Africans and this is likely to continue for the next decade. Metropolitan areas in South Africa are experiencing rapid urbanization. Rail is in a unique position to facilitate greater integration between land use planning and transport infrastructure provision, and providing security, to private and public sector investment, of stable long-term public transport provision. This is vital to creating sustainable communities where people’s access to economic and social opportunities is improved. In this context, railway lines need to be positioned, located, aligned with evolving spatial developments and formalised within the statutory planning processes undertaken primarily by local government. The creation of PRASA and the integration of rail and road-based transport services will, over time, provide the user with public transport choices – moving away from a market of captive users to one where dignified travel choice is a real option PRASA (2009).
1..2 Inter-City / Regional Passenger Services
Historically, long distance rail and road based services have not received the attention required to make them demand responsive in key market areas including migrant workers, students, tourists and occasional travellers. The Department of Transport’s Public Transport Strategy Action Plan notes that: – There is a significant potential for the growth in migrant worker long distance public transport provision. The dominant generators of migrant movement are Gauteng and KZN The increase in tourism provides opportunities for segmenting the market that build upon the strengths of both long distance rail and coach operations. Rural areas in South Africa are undergoing a process of economic and social restructuring with a shift in emphasis towards rural trade and agro-processing. These factors reinforce the need for a public transport service sector that responds to the emerging needs of these rural / regional development nodes since transport links between the rural trade areas and the rural regions (hinterlands) remains unreliable, rendering access to services and emerging economic opportunities extremely difficult. This lack of access will continue to trap many in the poverty cycle. Government’s decision to consolidate passenger rail entities and road-based long distance bus services into a single entity, PRASA, reporting to the Department of Transport are underpinned by a number of key drivers. The recognition by Government that rail consolidation was required to deal with the under-performance of rail passenger services as well as the historical under-investment in the passenger rail business. Institutional arrangements did not promote efficiency and accountability and significant change was required to overcome the inherent institutional dysfunctions that had been created. Confusion existed between the contractor and regulatory functions implicitly embodied in the SARCC/Transnet relationship PRASA (2009).
The critical need for sustainable funding to reverse the decline in commuter rail levels of service being experienced by commuters has been identified. This funding profile was captured in the National Rail Plan, which was accepted by Cabinet in December 2006, where the funding and investment requirements were identified for passenger rail over the following ten years PRASA (2009).
4.1 PRASA Objective
PRASA (n.d.) primary objective is:
To ensure that at the request of the Department of Transport, rail commuter services are provided within, to and from the Republic in the public interest; and
To provide, in consultation with the Department of Transport, for long haul passenger rail and bus services within, to and from the Republic in terms of the principles set out in section 4 of the National Land Transport Transition Act, 2000 (Act No.22 of 2000)”..
4.1 Strategy of prasa
PRASA (2009) objectives are supportive of the Board of Control’s (BOC) key performance areas as seen in figure 2 below
Figure 2 Key Performance Area and Strategic Objectives
BOC Key Performance Area
PRASA Strategic Objective
Contribute to Government’s objective of safe, affordable, accessible and reliable public transport provision
Service Excellence in the provision of integrated best practice public transport solutions that are affordable, reliable, predictable and operationally safe
Investment in infrastructure to contribute to growth and development
Asset Utilisation – ensuring the productive investment in, and use of, assets and the property portfolio through the application of total life-cycle management practices, processes and procedures to all assets
Provision of sustainable quality services
Service Quality & Passenger Growth – sustaining dependable and superior customer service benefit that achieves a high customer satisfaction
Financial effectiveness to maximize operational efficiencies
Financial Effectiveness – ensuring efficient and effective deployment of available resources to achieve the required results and outcomes through the productive use of all resources
Corporate Governance & Legislative compliance
Governance and Compliance – ensuring controlled compliance to statutory requirements by entrenching a culture of corporate governance practices and accountability as well as Fraud Prevention within PRASA
Contribution to the achievement of Government’s socio-economic goals
Strategic Sourcing through an effective and efficient supply chain management process and promotion of broad-based economic empowerment and industrial policy objectives
Human Capital Resources Development
Learning and Growth – ensuring that the appropriate knowledge and skills are acquired and maintained to sustain change and improvement for the betterment of the organization through developing human capital development processes to build human capital capabilities
4.1 CHALLENGES FACING PRASA
1..1 Consolidation / Turnaround / Restructuring
The sequential amalgamation, in quick succession, of the SARCC, Metrorail, Shosholoza Meyl and Autopax bring with it the normal challenges that are posed when merging disparate organizations in related but different operational arenas.
A key driver in Government’s decision to consolidate these entities into a single delivery arm of the DOT was to effect operational and asset “turnaround” of what were acknowledged to be declining businesses, albeit, some with the potential for growth. Linked with both these processes is the need to internally restructure the various businesses to align them with the new mandate given to PRASA through the amendment to the Legal Succession Act that was promulgated on 23 December 2008 PRASA (2009).
1..2 Sustainable Funding
The ability to provide the requisite level of funding (substantial) to address both the investment capital and rapidly expanding operational requirements to affect the mandate is fundamental to the successful performance of PRASA. The integrated passenger transport plan requirements will need to be developed. Fully motivated funding requirements, covering both operations and investment capital, in line with the 5-year financial plan requirements of the various Integrated Transport Plans (ITPs), will be developed to begin to align the funding requirements with statutory plan requirements. The approved funding base makes no provision for two key activities that need to be accommodated:
The incorporation of Autopax, an operating company that is currently materially dependent upon Transnet Limited for funding to re-capitalize and sustain the business going forward.
The acquisition of new rolling stock. Analysis has indicated that the rolling stock refurbishment and upgrading programs are not maintaining pace with the requirements to buy time before the inevitable purchasing of new fleet becomes unavoidable.
While the profile reflects a rising trend in investment funding support, the allocation of these funds to the different asset classes (Rolling Stock & Infrastructure) will need to be reviewed. A careful balance needs to be struck to ensure that the sustainability of the asset base is not compromised PRASA (2009).
1..3 Ageing Rolling Stock and Infrastructure
PRASA (2009) reports that the prolonged under-investment in passenger rail of almost thirty years is manifestly experienced in the deterioration of the general rail asset i.e. Rolling Stock and Infrastructure (Signalling and telecommunications, electrical systems, perway). This has resulted in a situation where services are experiencing continued decline, primarily due to poor availability and reliability of rolling stock and ageing infrastructure. The lack of investment in the asset base has also had a negative impact in the skills base of the passenger rail industry over a period of time. For example, the average age profile of commuter coaches is 40 years and has been left behind by international advancements in rail technology over the past few decades. The life expectancy of railway rolling stock is of the order of 54 years. The railway industry norms are that the coaches will be upgraded at half life (27 years) and overhauled every 9 years, so as to ensure the structural and sub-systems integrity is not compromised by metal fatigue, age, wear and tear or environmental condition. Thirty-three percent (33%) of the commuter rail fleet is already above 36 years and therefore would be uneconomical to upgrade.
1..4 Human Capital Development
Human capital development is generally understated and under-rated in supporting the development of an organization. It is a multi-faceted process that requires clear understanding to enable human capabilities to be built that will support the key performance drivers of the business and ultimately the business results that can be expected from that performance.
The key challenge for PRASA is to formulate human capital development processes that facilitate and fast-track the appropriate human capital capabilities at all levels within the organization that will enable delivery on the key drivers of which, in the case of PRASA are :
- increased productivity (operational efficiencies),
- improved service quality (service excellence),
- customer focus and
- innovation in the provision of integrated public transport solutions
The nature of the various operational divisions, while related and providing synergistic opportunities for service co-operation and delivery, are by their very nature, different business environments, each requiring a specific set of human capabilities to perform optimally. PRASA needs to provide guidance in the process framework that delivers this requirement PRASA (2009).
1..5 Change Management
The finalisation of the PRASA consolidation process, the turnaround and restructuring necessitate that a number of parallel change management processes are undertaken. Numerous change management processes will be identified that are needed to combine the five organizations into a consolidated organization. The very ability of PRASA to ensure effective implementation of such processes becomes critical as is the capacity of the organization (including divisions and subsidiaries) to manage them successfully PRASA (2009).
1..6 Leadership & Skills Development
There is currently an acknowledged shortage of key skills as well as a lack of depth of skills in critical areas within the organization. For PRASA to meet the expanded mandate of supporting government’s socio-economic and transport objectives in both urban and rural contexts, the organization will need a focused approach to human capital development, on leadership development, talent management and the progressive training of a strong base of key skills that will lay the foundation for sustaining rail passenger transport sector PRASA (2009).
1..7 Rail Technology Development
PRASA, of necessity, will need to become a technology based organization that blends best practice policies with intelligent asset management philosophies to leverage organisational productivity and efficiency gains to provide shareholder value. PRASA recognises that technology upgrade is critical to the modernisation of South Africa’s railways and is well aware that the capacity for technology upgrade may not be immediately available in South Africa or the African Continent as a whole. Technological obsolescence is a major factor that will inhibit PRASA from delivering on its mandate. A rail technical strategy that guides technological renewal, upgrading, replacement and development over the next 30 years is a critical requirement. The average age of the metropolitan rail commuter networks/system in South Africa ranges between 60 – 80 years and still supports 1940/50’s technology. The system in SA is showing serious age related condition decline with increasing systemic risks and technological obsolescence. Railway systems are designed for an extended economic life, but it is acknowledged that the current ad hoc investment flows into the ageing system in South Africa are not productive in terms of future demand, operational performance requirements and escalating maintenance costs. Global technology advancement in rail has moved beyond the limited application of heavy rail, regional and long distance passenger rail. Various new rail based technologies of alternative applications have evolved globally to ensure the competitiveness and attractiveness of rail solutions. If South Africa is serious about ensuring environmentally friendly and energy efficient transportation for its cities to counter growth in private vehicle travel, congestion and spiralling cost of fossil fuels, a selective conversion of appropriate new and improved rail based and mass transit technologies needs to be evaluated, introduced, and established in South Africa ensuring that these take their place in the hierarchy of public transport service provision. The technological needs of PRASA over the next 30 years need to be clearly articulated and incorporated into PRASA’s long-term planning if passenger rail is to be sustained over the longer-term. The development of a rail technology strategy, together with the appropriate migration requirements over this period will assist in guiding decision-making in much critical technology upgrade or replacement areas within the organisation. The phased implementation of the strategy will be captured in each of the Business Plans roll-outs over time PRASA (2009).
4.1 RESEARCH AIM, QUESTION, SUB-QUESTIONS AND OBJECTIVES
The aim of this research is to understand to what extent alignment between Business and IT strategies exists, at the Passenger Rail Agency of South Africa (PRASA).
The research question derived from the problem statement is
What can PRASA do to improve business and IT strategies, alignment?
The sub questions to answer the main question are:
- What are business and IT strategies?
- What is alignment between business and IT strategies?
- What factors contribute to an alignment gap between business and IT strategies?
- What factors contributes to an improved alignment between business and IT strategies?
Objectives of the research
Based on the sub questions the objectives of the research are to
1. Analyse the Business’s and IT strategy
2. Carry out a literature review on the alignment between Business and IT strategies.
3. Analyse the factors that contribute towards Alignment Gap
4. a. Establish strategic alignment best practice.
b. Formulate a methodology for aligning Business and IT strategies.
c. Propose recommendations to improve PRASA’s Business and IT strategies alignment.
4.1 CURRENT STATUS OF THE RESEARCH AREA
The literature review will be based on the research into alignment of business and IT strategies. There is a plethora of research available on the alignment of business and IT strategies. Chan and Reich (2007) have carried out comprehensive research on this topic.
4.1 Business and IT strategies
1..1 Business Strategies
Croteau and Bergeron (2001) define business strategy as “the outcomes of decisions made to guide an organisation with respect to the environment, structure and processes that influence it’s organisational performance”. Hambrick (1980) states that business strategies may be textual, multivariate or typological.
Henderson and Venkatraman (1993) architects of the SAM model, view strategy as involving both strategy formulation (decisions pertaining to competitive, product market choices) and strategy implementation (choices that pertain to the structure and capabilities of the firm to execute it’s product market choices).The SAM model presents two business strategy perspectives where business strategy is the driver namely strategic execution, and technology transformation. figure 3 presents the key attributes of these perspectives.
Figure 3 Attributes of Business Strategy perspectives (Henderson & Venkatraman 1993)
Role of top management
Role of IS management
One of the six components of the SAMM Luftman and Kempaiah (2007), is partnership which includes IT’s role in defining the business’s strategies. Both of these models (SAM and SAMM) are about aligning business and IT strategies and can be criticised because it does not define what business strategy is.
Kay (1996) says that there is much debate on the substance but that
The iPod is perhaps the most talked about technological product in recent times. It has set sales records that have lave literally destroyed the predictions of all analysts by superseding everyone’s expectations. The interesting issues concerning this topic is how the iPod impacted not only the digital music electronics industry, but was also responsible for the turnaround of a company on the brink of bankruptcy.
It is this very fact that makes the growth and life cycle of iPod an experience in itself and one that creates a sense of wonder at its success. But how did all this come about and just why did the iPod do so well? These are questions that we look to find answers towards whilst shedding light on the internal pressures faced by the parent company Apple.
The paper takes the reader through the history of the parent company Apple and its declining fortunes until the introduction of the iPod. This revolutionary innovation then dictated the pace at which the organisation was able to turn itself around to become one of the more successful computer companies in the world today. The report also looks at how Apple as a company defines itself with the onset of the iPod boom – can it still call itself a computer company in the literal sense of the word or does it now see itself entering a diversified phase of business operations and hence, would need to re-think it’s overall business strategy and core competencies.
The views of different writers expressed through the paper help in building an understanding of the pressures the company has undergone over the last decade and why it has taken the decisions that it has. The paper revolves around the growth of the iPod as the key driving force for all major business and technical decisions, it understand how it had to be re-modelled and adapted to the market needs and demands. The paper also paints the competitive landscape at different stages of the growth cycle and how this impacted or did not impact the iPod.
Finally, the paper looks at the varying consumer tastes, the positives drawn from the product itself and what lies in store for the future of the product and the company. The methods used to create a deeper understanding of the iPod environment were through a variety of primary and secondary sources. Some of this is discussed in greater detail in different section of the paper. However, for the purpose of this report, the researcher took great care in trying to put together different pieces of work by various writers so as to be able to provide more holistic and all-encompassing view of the real scenario that surrounded the iPod boom. On a more generic note, most writers and experts within the industry agreed that the success of this product was unrivalled by others of its kind in recent times.
Success stories always find their way to centre-stage. But what makes a journey even more interesting is when accompany that finds itself in some level of difficulty turns the tide and jump starts its engines to climb to the top of the success ladder. Apple’s is one such story. Whilst the problems that affect it lie in the background, the phenomenal success of its iPod has people fascinated. Marketing gurus swear by the growth of this innovative product that provided the perfect solution to a generation that was technologically familiar and defied competition to control every conceivable bit of the market that it entered – the digital music space, and made it its own. How and why is what we attempt to discover.
The history of the iPod dates back to the January of 2001. Apple had just introduced ‘iTunes’ – a programme that enabled Accusers to burn music off audio CD’s and convert them into music files on their computer systems as digital audio files. This provided users with the flexibility of creating libraries for their music files, clubbing favourite songs in order and in time to come, download them to portable devices.
This natural extension saw the introduction of the iPod in the month of October 2001. Unlike other portable devices in the same range, the iPod was the first of its kind to store music files on a hard disk similar to a computer. Other devices used flash cards and detachable storage devices that could not hold as many bytes of data as the iPod did. Infect, the first few iPods had a 5GB storage space, which equated to the storage of approximately a 1000 songs. The question to be asked at this stage was if the software for writing music to the computer was developed keeping the iPod in mind? However, sources within the company maintain that the iPod was only conceptualised 6 months before its release date. Whatever the truth might be, the two scenarios complemented each other beautifully giving consumers the best of both worlds and a logical extension to the process of listening to music.
In November 2001, the first iPods were shipped to waiting buyers and byte end of the year, 125,000 iPods had been sold for a price of $399.Within a year, other computer companies as well as large retailers were selling iPods as value-adds. Dell, Best Buy and Target were some of the more prominent names at this stage and had dedicated sites and sales teams pushing for iPod sales.
By June 2003, Apple had managed to sell 1 million iPods, which could download music from both Macs as well as PCs. Interestingly, by the end of 2003, one of its largest resellers Dell; had decided not to sell anymore iPods and instead launch its own version of the iPod called the DJ(Digital Jukebox). In order to download songs from the Internet, Dell partnered with a company called Music Match that offered that service.
By mid-2004, 6 months after it hit the 1 million mark, Apple crossed the 2 million mark in iPod sales but the peripheral market was just getting warmed up to the portable devices segment. In addition to thud by Dell, HP announced that it was repackaging the 4G iPod and selling it as a PC friendly device. Motorola launched its next generation phones that would be iTunes compatible. In one of the more recent statistics of the iPod wave collated in October 2004, there were some interesting findings. Apple held 82 per cent of the digital market across all music players and 92 per cent of all hard-disk based music players.
The nearest competitor to the iPod was the device launched by Creative. They had a 3.7 per cent market share. In addition, 2 million iPods are being sold every 3 months. The music industry too has gained immensely through these sales. The total number of downloads have been clocked at a 150 million which equates to 4 million per week. The latest iPod has a mechanism that enables the storage of digital photographs as well as music. Today, Apple figures have registered total of 6 million iPod sales. That’s a fascinating growth path, which would make any marketing professional envious of replicating that kind of success.
On careful consideration though, it took very long for iPod to really drive its sales figures to the kind that it was able to achieve in the years 2003 and 2004. Until then, the figures were good, but not something to write home about. The turning point for Apple came with the introduction of the third generation iPods. This is apparent since it took almost 2 years for iPod to register its first million in sales and soon after the launch of the 3G iPod in Tokyo less than 6months later; Apple was able to register its second million in iPod sales.
Interestingly, the sales figures recorded over the 3-year period were averse to any form of competition from companies such as Creative, Dell, river etc. They sold cheaper products but not for a moment, did they encroach upon the market share that was and is still monopolised by iPod. Apple has also utilised an aggressive marketing strategy towrope in different age groups by using the draw of celebrities and song choices. For instance, in late October 2004, Apple unveiled what was called the U2 iPod. Apple conducted a promotion exercise in sync with the release of U2’s song – Vertigo.
The new iPod was designed with black casing, a red wheel and a back cover that had the engravings ofU2 with the band signatures. It is little things such as these that have made the iPod such a role model for marketing strategists. The unique blend of having a great product and infusing the right level of awareness and visibility to sell it to the masses. In the chart below, the growth path of the iPod from its inception, to the end of 2004shows how sales surged in 2003 after the release of the 3G iPods as mentioned earlier.
Not to mention, as the iPod sales soared, so did the number of downloads for music. Initially, the software iTunes needed tube bought in order to write songs from audio CD’s to the computer, following which they could be downloaded to the iPod. In 2003, Apple introduced an online music store that enabled iPod users to download music directly from the Internet. This worked in 2 ways – it provided users with an increase in choice of music that they would like to have downloaded as well as simplified the procurement of iTunes. No more dada user have to buy a software, install it onto the computer and then use it to burn music off a CD and finally onto the hard disk of the iPod. Simplifying this process for millions of users had its positives as can be seen from the graph above.
The first big jump in sales was in October 2003 when the PC version of the music store went live. This enabled far more users to be able to download songs onto their computers and diluted the monopoly of Accusers. 2 months later, in December 2003, following a lot of media hype and attention being given to the iPod and a corresponding increase in Christmas sales, more and more people began downloading songs from iTunes. And in between July 2004 and October 2004, Apple registered growth of song sales from a 100 million to a 150 million.
It must be noted that in many instances within the paper, the use of iPod and Apple is synonymous. After much deliberation, the researcher decided that it was important to approach the paper from the perspective of the parent company Apple. Any impact that the environment would have on Apple would be reflective in the iPod strategy. At the same time, in circumstances that would affect the company both positively and negatively, would subsequent effect the iPod and vice-versa.
Aims and Objectives
The aim of this paper is to understand the growth of the iPod through the years. It all began in the year 2001 and it has been a short journey to success. But how long will this be able to continue, what is the future for the product, how will it fend off competition and how will it impact Apple in the longer run. We all know that it has been apathy-breaking journey for Apple as it picks itself up from the doldrums of declining computer sales with its innovative invention that saw it spring back into the limelight. It is also the endeavour of this paper to highlight how important an impact the iPod has had on Apple alone and why can’t other company’s model the same success story.
The Success of the iPod
According to Haddad, Charles (2002),the iPod is one of the most revolutionary products to hit the computer and electronics market place. He believes that the only way forward for Apple is to diversify its product range and move from being a niche computer manufacturer to providing technology that understands the gap between technology and entertainment. He quotes how the market share for Apple in 2002 had remained at 3 per cent for a number of years. In order to move it from there, it was imperative that they looked beyond the computer industry since it was reaching a saturation point in most developed markets and the level of competition from across the globe was making it extremely difficult for large computer manufacturers to survive.
Digital handheld music players were a growing market in 2002. There were few players in the market place and industry experts such as ID Chad stated that demand would grow by 74 per cent over the next 3 years. In retrospect, they weren’t right – but only because the demand has recorded triple digit growth since 2002. In addition, the anticipated sales for 2002 were pegged at 12 million units of all kinds of portable digital music devices. Haddad brings up an important point about how the level of competition within the digital handheld music products industry was still at a minimalistic stage in comparison to other industries where companies such as Microsoft and Intel who had taken over the PC market.
He believed that the next generation of buyers were more interested in a product that was different, satisfied their requirements and at the same time, was ‘cool’ and suave to have. Especially in the case of handheld devices where consumers would cart it around with them, this need for trendy and sophisticated gadgets was of the utmost importance.
At the time of writing his article, Haddad had researched the iPod when music files were downloadable only from a Mac. The iPod sales were still consistent and looking positive during that stage but Apple had not introduced downloading files onto PC’s at that stage. Once that happened, iPod sales grew dramatically. The iPod was never intended to lift the flailing computer business of the parent company but overtime, Haddad statements would hold good, as the iPod would grow to become one of the most successful products ever launched by a computer company.
(Haddad, Charles, iPod, You Pod, Will We All Pod? Business Week Online; 7/3/2002)
Teething problems with Strategy?
With the degree of success that the iPod has seen over the years, there have been few instances that writers have been able to find a chink in the armour of this hugely successful product. One such writer is Salk ever, Alex (2004). In the first of his articles – ‘Apple’s slow boat to China’, he discusses how the Chinese economy is one of the most lucrative investment decisions for businesses the world over and how Apple has failed to take advantage of this huge opportunity. He begins by using the views of consultants who have worked within the Chinese market place for decades now and seen it evolve over the years.
He quotes Merrill Weingrod who works with a marketing consultancy – China Strategies. When Salk ever asks Weingrod how lucrative the Chinese market is for product such as the iPod, he answers saying that the market potential for men’s electric shavers is $300 million annually. Weingrod believed that the Chinese have the buying power to spend $200 to $250 on luxury shavers today which are not a necessity by any standing. This was just an indication of their mind-sets and how much they were willing to spend and for what. He reiterates this by stating that the Chinese population measures 300 million in terms of the number of cell phone subscribers across the country. They pay an average of $200 for their handsets and connectivity.
In addition, the average Chinese employee earns far less than his / her American counterpart and yet, he / she is willing to pay larger proportion of their salary towards buying luxury goods. This equates to the buying potential and eagerness amongst the population and above all – a prospective consumer. One who is constantly on the lookout for the infusion of luxury goods into the market so that he /she can go ahead and purchase it, provided there is a need of course.
In addition, the Chinese economy is the fastest growing economy in the world with its GDP growth rate pegged at 9 per cent annually. It has one of the largest middle-class societies in the world with disposable income that is growing as fast as their growth rate. With every factor in the book of marketing pointing towards the Chinese market, Salk ever is dismayed at Apple’s strategy to stay out of this market and not undertake an aggressive marketing strategy that would tap it’s he potential.
The only real steps that Apple has taken towards entering this economy is to ensure that iTunes Music software is downloaded onto every Manufactured by China’s second largest computer manufacturer – Founder Technology. It is an ironical decision considering the consumer who would purchase the machine would have little access to the iPod on which he could have downloaded his / her music. Besides this decision with the Chinese industry, Apple hasn’t taken any more steps towards making any investment decisions in this region. There was one instance when they almost toyed with the idea of opening an iTunes Music Store but then retracted any steps made in that direction.
The figures that Salk ever quotes are astounding to the reader. According to him, at least .3 present of the population of China has disposable income that equates to that of an individual in the US who would earn approximately $25000 to $30000 annually. That figure translates to approximately 60 million people today and will grow to 3to 4 times that number over the next decade. With the increasing middleclass and the ability to buy products that others around the world can afford, very soon the Chinese middle class would equal the entire population of the United States.
So what do the Chinese see these new gadgets in the market place as? According to market analysts Bryan Mama company that tracks the buying of cell phones in Asia, but based in Singapore, the number of cell phones that are replaced are astounding. The Chinese people like to replace their cell phones 6 to 12 months earlier than consumers in North America and Western Europe. Gadgets are seen as a status symbol of sorts. Owning the latest models makes individuals feel like they are popular and wanted, according to the company.
Chinese consumers also tend to go for gadgets that are sleek, suave and trendy. According to Salk ever those are the kinds of words that would define the iPod but they don’t find any place in the market. He tries to look at the picture from Apple’s perspective. As a company, Apple’s strategy is to consolidate and preserve its position in the markets that it is strong in. In the bargain, it would not look to invest in new markets such as China. In fact, Apple has a miniscule presence across the entire length and breadth of Asia. If Japan is taken out of the equation, Apple draws less than 10 per cent of total sales from this region.
Naturally, it is not an area of too much interest for the moment. Whilst Apple takes a back seat to proceedings in this region, competition in the form of Sony, Motorola and Creative have made inroads into the Chinese market. As an example, Motorola entered the Chinese handset market early and in the first quarter of2004, it was proud to declare that it has achieved a market share of 40per cent. It had the first mover’s advantage introducing a technology that few others were brave enough to take into this country many years back and today it has paid off. The Chinese market is known for its penetration problems. The researcher agrees with the insights that Salk ever has provided into this untapped region and understand the problems that Apple faces in the future lest it not take steps in this direction. The level of investment required at a later date where the market is abuzz with competition would be significantly higher. It makes completes sense for companies to invest in China at this stage and there is no reason why Apple should not be one of them.
(Salk ever, Alex, Business Week Online; 7/22/2004)
In another article by Salk ever albeit on a different issue, he adopts similar stand on the problems that will plague Apple. In his article, ‘iPod: Leader, but Not Ruler’, he states that the sales figures by Apple are either over-exaggerated or are inaccurate since there isn’t enough evidence that the data being collated is validated. Apparently, data in countries in Latin America, India, South Korea, Eastern European Taiwan are difficult to validate and not easy to obtain. There are also other areas across Asia, including China where data retrieval and collation is not as accurate as it is made out to be. So when Apple boasts of global sales and achieving market shares across the world in excess of 50 per cent across the electronic market (MP3 players), they may very well be over the top.
To evidence his findings, Salk ever looks at the various methods that companies use to collate market data that can be passed onto consumers and other business prospects. On one hand, they can utilise the services of US market research companies such as the NPD group that solely dedicates its efforts to the US retail economy. On the other hand, companies such as Apple can resort to asking OEM (Original Equipment Manufacturers) and component manufacturers how many pieces they are taking to the market place. Whatever may the case be, according to Salk ever, Apple doesn’t quite have accurate information omits global market share.
He confirms that Apple is certainly a global leader but not dominant. This could have been a very interesting report but the only flaw with his research is that he fails to document enough evidence either through statistics or through credible sources that can allow him to judge with some level of certainty that Apple’s iPods are infect facing tough times ahead.
To be fair to Salk ever though, he does introduce the subject of the growing competition of iPods outside the borders of the US from Asian electronics companies. In the coming years, cheaper labour costs of the Asian companies will allow them to create inexpensive models of the iPod and compete on price aggressively. In addition, Salk ever states that the Asian consumers who are growing to the largest consumers of entertainment products, prefer smaller sized iPods. This is not in sync with Apple’s strategy since they plan to introduce larger and heavier models of the iPod in the coming few months. And even if iPod does take the cue and invests in smaller models in time, it would have lost outing comparison to other digital music manufacturers. But Salk ever does summarise his studies by admitting the dominance of iPod within the digital market place, yet cautions against rising competition and price sensitive market in the near future.
(Salk ever, Alex (2004) Business Week Online; 5/27/2004)
Curzon (2005) has an equally interesting point of view. He believes that the iPod boom would not be able to sustain the success that it has experienced for much longer. His rationale is based around stock prices and other statistics that he discovers about Apple which point towards changing tide in the coming years. Curzon promotes the concept that Apple as a company is on the decline once again and encourages people to sell their shares now since they would lose money in the coming few months lest they hang onto them. He begins by mentioning the usual success stories of the company – the last 2 years have seen iPod sales rise more than twenty times from 219,000 units towards the end of 2002 to over 4 million units at the end of last year. In fact, Lehman Brothers had initially projected iPod sales to be approximately 3million units at the end of 2004.
They had to revise their figures closer to the end of the year and pegged it again at 4 million units for the year 2004. Apple on the other hand clocked 4.5 million units for the year ending 2004, ahead of anybody’s expectations. Another indication of the progressive rate of success is how the number of downloads from the iTunes rose from 50 million to 200 million. Finally, the biggest turnaround statistic lies in how the company almost went bankrupt after the dotcom era a decade ago and last year, recorded sales figures in excess of $3 billion with no debt on their financial statements.
What makes very interesting reading is how Ken Curzon describes the decline in the demand of iPods and correspondingly, with the parent company as well. He states that after the Christmas rush for buying iPods, in all probability consumers will not be willing to spend as much money on it. As he puts it – “Holiday shoppers are more enthusiastic about higher prices, but once the holiday season ends, they usually don’t like to spend money on products that are priced at a premium”. In keeping with the same, Curzon predicts that in the first few months of 2005, the rate at which consumers buy iPods would drop gradually at first and then, more drastically later in the year. Lehman Brothers too have declared that they expect a 14 per cent drop in sales figures over the course of the year.
In another case, Curzon talks about how on one hand, the sales of iPods have certainly been increasing in conjunction with an increase in market share, but the parent company Apple has seen a decline in its market share from 2 per cent to 1.9 per cent. The ‘Apple Stores’ are an over-riding success because of the iPod and its driving consumers tithe stores. But although the number of footfalls across these stores has doubled, the number of consumers buying Apple PC’s has remained constant. Additionally, Apple’s revenue figures in comparison to other computer companies are very average. For a company that is on the biggest ride of its business life, it records a growth rate of 33 present in comparison to HP’s 29 per cent. And what makes this look more dismal according to Curzon is that the operating margins for the previous year were declared at 3.94 per cent. This was far lower in comparison to HP’s 5.2 per cent and Dell’s 8.56 per cent.
(Curzon, Ken, Esquire; Mar 2005, Vol. 143 Issue 3, p112)
Somehow, Curzon does shed light on certain statistics that project Apple’s performance in a questionable light but on closer observation, it appears that the facts have been manipulated to project a negative perspective to the progress of Apple. The researcher believes this tube the case since there are many individuals who constantly try and influence the market forces through published writing such as this to ultimately try and manipulate the performance of the stocks. For every negative statement that Curzon was able to highlight, there appears tube an equally positive explanation for the same.
For instance, decline in market share by .1 per cent is not necessarily a negative impact on the company. It depends on the marketing strategy of the company – is it trying to move out of certain markets and invest in others. Additionally, in saturated market places such as the US, any form of product diversification would have an impact on the market share as well. So there are considerations that need to be taken before any conclusions can be made. At the same time, the researcher believed it important to include Curzon’s work since it was one of the most recent articles on the iPod that sounded warning bells and tries to get the reader to see the success story from a different perspective.
So where exactly is Apple headed towards now? According to Murphy(2004), a significant contribution of Apple’s success can be attributed to the iPod and hence, any future success parameters would also be defined by the iPod. The competition amongst the computer industry is very intense with players such as Microsoft for software, Dell, HP undim for hardware and a host of other system integrators and competitive channel partners. Due to a diminishing market share as mentioned earlier of under 2 per cent, the total business worth of the company has fallen to half that of its sales revenue.
The only light in this dark tunnel is the fact that the stock price at Apple has almost doubled over the past 2 years. But can the parent company depend on single product offering and expect to piggyback ride it all the way tithe bank? It’s not possible says Murphy. There will come a time in the near future when sales of iPods begin to decline, competitive forces take over with lower priced products and existing markets begin to get saturated.
Some of these products would come from companies such as HP,Dell, Sony, Creative, Gateway and Rio, each offering a product that is significantly cheaper and has greater memory storage in comparison tithe iPod. For instance, Creative has launched a new product that also has a longer battery life and also has white earplugs similar to those of Apple, taking a leaf out of Apple’s trendy design. At the same time, it has been seen that consumers have complained about the lack of availability of iPods in the stores. And to make matters worse, Apple hasn’t been able to confirm a deadline by when they would be made available.
Times will change gradually. As Murphy mentions – the pricing of the iPods over time will fall significantly and Apple would need to sell more and more iPods just to maintain the revenue figures. For instance, there is an assumption based on pricing that Apple would need to sell at least 20 per cent more iPods in the coming year to be able to sustain the same level of growth over the year. This should not be a problem currently considering growth is predicted to rise to 70 per cent but in time, this could certainly become an issue. If looked at differently, Murphy argues that falling prices of products are fine as long as business efficiencies were rising. 4 years ago, when the sales figures of Apple were 4 per cent higher than they are today, the operating profits of the company were at 9 per cent of total sales. Today, that figure has come down to 3 per cent. In addition, the number of employees added over the past 4 years has gone up by 32 per cent and the sale per employee has significantly decreased from $930,000 to$674,000.
For apple to be able to sustain its growth and maintain a leading position in the market place, it cannot depend wholly on the iPod revolution. Its notebooks and desktop products account for 64 per cent of its current sales as a company. But except for the month of June that recorded a 14 per cent increase in revenues, the rest of the year remained much the same in terms of sales. This is worrying for Apple since it doesn’t have too many back up measures to fall on should they land in trouble. To tackle some of this problem, Apple had introduced a series of Apple stores across the US, UK and parts of Western Europe.
These stores hosted the latest introductions by the company including all models of the iPod and its peripherals. The rationale lay in ensuring that consumers would walk into these stores with the excuse of looking at the iPods and at the same time, browse around and take look at the range of other Apple products as well. Unfortunately though, this move didn’t bring in the kind of sales that Apple management had predicted. When Apple was asked about this stagnancy that was creeping into their product lines, they said that 50 per cent of all buyers at their new stores that they have introduced are new consumers and they propose to build relationships through their product quality and peripherals and increase their market share of repeat buyers.
Interestingly, Murphy is one of the only writers on this subject who believes that the main fault of Apple’s moderate performance lies with its CEO Steve Jobs. Over the course of its business history, Apple has always ensured that its software configures only with its hardware and no others. For instance, the Mac operating system can only be run on Mac computers. In comparison, the Windows Operating systems can be used on a variety of different hardware systems making it a more universally accepted operating system. The time for niche solutions in not the way forward. Apple must realise that the money lies in the numbers and they can in no way get to those numbers by limiting access to their software.
It really is a Catch-22 situation for them. In much the same way, the iPod can only play music that has been downloaded from iTunes. What happens when the iTunes faces intense competition from other music download software companies in the near future? Are we saying that the iPod would only have limited access to music and perhaps, not the entire range of mus
ABSTRACT OF THE THESIS
Any activity undertaken by a buying firm to improve supplier performance, supplier capabilities, or both and to meet the buying firm’s short and/or long term supply needs can be termed as supplier development activity.
A study by the Harvard Business School concluded that a primary reason for declining US competitiveness is that US companies invest less than foreign rivals in intangible investments such as supplier development. Half of the companies fail in this supplier development effort if executed. As supplier development help in increasing competitiveness and is not successful every time if implemented, it is essential to examine supplier development and factors which result towards the success of supplier development.
This paper will examine aspects associated with the success of supplier development strategies within different set of industry. This research will put forward a specific set of aspects are significant contributors to supplier development; also this paper will show that some factors of supplier development have significant influence on other factors of supplier development.
Data from the population of buyers and suppliers will be collected to test the extent of relationship between significant factors and success of supplier development process. Agreement was noted between dependencies of success of supplier development process on several factors. Recommendations to supply managers and purchasing manager will be provided regarding upper management involvement, enhanced communication with their suppliers, recognition of their suppliers and development of strategic processing instead of reactive processing will be offered.
This thesis is a report of ethnographic study of critical factors for supplier development strategies. The study was based primarily upon the survey with supplier development managers and professionals involved in this field. This first chapter of the thesis will discuss the context of the study, intention of the study, describe the importance and will present the overview of the methodology used.
Background of Study
A global economy is emerging and resources are concentrated on core business rather than the diversification which show the way towards outsourcing. Outsourcing is increased from $91 billion to $416 billion in 20 years (Tunstall, 2002), and it is expected to increase further. In 2009 the value of outsourcing deals in logistics area were projected to $ 80 billion (Hyatt, 2009) which shows the intensity of use of suppliers. Due to this voluminous use of suppliers buying companies have to rely on their suppliers to deliver defect free product in a timely and cost effective manner. To compete in their respective markets, buying firm must ensure that their supplier capability equals the expectations (Krause & Ellram, Success factors in supplier development, 1997). When a supplier is incapable of meeting the buying firm’s need the buying firm has three alternatives: (1) Bring the outsourced item in house and produce it internally, (2) Resource with a more capable supplier, (3) Help improve the existing supplier’s capabilities. All the three strategies can work. (Handfield, Krause, Scannel, & Monczka, 2000). Supplier development is defined as
Any effort of a buying firm with its supplier to increase the performance and capabilities of the supplier and meet the buying firms supply needs. (Krause & Ellram, Critical elements of supplier development, 1997)
When the suppliers are innovative and exclusively supplying a product then the supplier development option comes into the picture. When a company is using a supplier, it is necessary to have a good relationship with them. The Harvard research suggested that supplier development started very late in USA but it was started very long ago in the Japan. Toyota, Honda and Nissan implemented these supplier development activities in their plants a long back.
Although similar research has been done previously, the theme of research was same but this new research is capable to generate new knowledge , First the populations is different and for the variety of reasons they will be having different opinions and attitudes than the previous cohort . There might be a different type of interaction in between me and those to which will generate the new idea, the sample data is from different set of industry and places so the research context will be totally different from the previous researches. Even the subject might be same but the contextual issues are very different.
The Problem Statement
Supplier development requires both supplier and buyer to commit their maximum to get the maximum out of the program. Even though both the sides agree that the commitment is required it is not necessary that supplier development program in which they are involved will be successful. In early 90’s companies start reducing the number of direct suppliers and began evolving from adversarial relationships to more cooperative ones with the remaining suppliers. (Hartley & Choi, 1996), Approximate one-third projects are failed due to supplier’s underperformance. So the success in the supplier development is not a foregone conclusion. Supplier development is considered as a long term business strategy and there are various factors which affects this long term strategy. These factors not only affect the end result of supplier development process but also influence each other. This research tried to establish the critical success factors for supplier development and their inter-relationship with each other. Regression models approach helped to develop the interrelationship among critical success factors. Anyone especially supplier development manager and procurement professional can refer the model over the wide range of circumstances and structure. The main objective of the research paper is to create the model for critical success factors for supplier development strategies.
Large number of companies does the supplier development and they fail as well at surprising rate. Not all supplier development initiatives are successful – in fact, as many as 50% are not successful, due to poor implementation and follow-up. (Handfield R. , 2002) The failed efforts consume tremendous amount of resources over months or even years. As multiple studies have shown over half of the supplier initiatives fails. This failure takes a toll that is not only financial but also psychological. Failure demoralizes employees who have been labored diligently to complete their share of the work. As the supplier development success factors depends on both the parties so a dedicated study is required to find out what factors make the supplier development process a success.
In 2000, according to the study 53% of the companies claimed that they are involved in the supplier development program but it was found that only 20% of the companies are contributing for the financial support for the suppliers and only 14% of the companies are putting their employees in the suppliers place for the development purpose. Eleven percentages of the companies are giving the chance to the suppliers to come at the buyers place and learn. Only 11% of the companies are having the formal program for supplier development, others are doing it without any of the formal program. (Anonymous, 2000). It shows that even though companies are involved in supplier development program but not fully implementing in an appropriate way.
In General Motors, after implementation of supplier development program supplier productivity was improved 50%, lead time was reduced by 75%, and inventory reduction happened around 70% during their one week workshops. On one project alone, Honda of America’s Best Practices (BP) team reduced a supplier’s costs by more than $200,000 per year by changing the layout of a welding process. Furthermore layout change might increase the efficiency of supplier and ultimately give advantage to buying company. (Hartley & Choi, 1996). Also one of the purchasing pro for a power tool producer said that in three years of developing suppliers, his company has seen quality rejects fall from 38.4% down to 0.5% while supplier on-time delivery has risen from 76% to 97.5%. Likewise, another proponent of supplier development cites an average supplier quality metric of 98.5% and on-time supplier delivery at 97%. They claimed to have “improved quality, response time, prices and cycle time improvements,” The VP for a major California-based computer maker talks about how assistance from his firm allowed one subassembly supplier to “ramp up to 50,000 pieces per month in only six weeks.” (Anonymous, 2000).Although it took only 6 weeks to ramp up the production but usually supplier development is very time consuming and long process which consumes plenty of resources, so it is very much required to do it correct first time. To get the results mentioned above -$200,000 saving /year it is essential to learn what are the success contributors and failure contributors of supplier development.
Overview of Methodology
A structured survey questionnaire with five-point Likert scale was developed. Web and email were used to circulate and gather information regarding what group of supplier development professionals thinks about supplier development activities. Survey was divided in 6 small sections and every section was having 3 questions. Total of 20 questions were mailed to random sample of 300 supplier development professionals. The survey solicited about a single instance of supplier development performed by them. Survey was face validated and content validated with the help of thesis chair and committee. Of 300 surveys circulated 50 usable responses were obtained, which provides the perception of large group of supplier development manger regarding the nature of their supplier development project. The responding population represents a wide range of industry types. Also before e-mail survey set of interviews with supplier development managers was conducted. The interview was designed to validate the success factors collected after reviewing literature review and to help focus on reliable, important success factors which have extremely high control on supplier development success.
The research study was conducted at San Diego State University during the end of the fall semester-2009.
- This research was limited to supplier development manager who updated their resume on resume bank.
- This research was limited to professionals in North America continent to reduce cultural differences within the population used in the study.
- Multiple Regression model was used to prove the interdependency in between critical factors instead structural equation modeling.
- Survey instrument was developed with the help of existing instruments. This will allow us to compare new results with the old results.
- This research was limited to 3 questions per factor to keep instrument short.
This chapter will review the past researches that serves as the foundation for the thesis report presented. The research papers are basically associated with critical factors associated with success of supplier development. The research paper will present purpose and rationale for writing research paper on supplier development strategies. Following will be the review of literature on Strategic process, Upper management involvement, Supplier recognition, Effective and enhanced communication and commitment of suppliers. The chapter will conclude with a summary of literature. Examples of the key word used while finding the scholar research papers were supplier development, supplier relationship, supplier evaluation, supplier management, supply chain management and buyer-supplier relationship. Combinations of keywords were used to get different research papers. Search engine used during literature search were SDSU library search engine and Google scholar. (Ekholm & Pashei, 2009).
First document application of supplier development comes from Toyota in 1939. Toyota discussed the need of working together with suppliers to improve collective performance. Thereafter in 1963 Nissan implemented first supplier development project, Honda joined the club in 1973 (Monczka, Handfield, Glunipero, & Patterson, 2009). It is essential to understand the significance of each factor and the role it plays in supplier development process. Past researches can be categorized in (a) Theoretical, (b) Conceptual, (c) Empirical, (d) Conceptual and Empirical. Table 1 gives the brief of past literature which were identified. Previous to mid 1990’s, the supplier development literature consisted mainly of theoretical studies covering cases of several companies and surveys and the purpose was to learn the barriers which comes in the way of supplier development. In 1990s the research moved towards establishing relationship in between various supplier development constructs where in 2000 the research moved towards influence of supplier development towards innovation and purchasing strategy (Easton, 2000).
In today’s business increased trend of reliance on supplier is observed. Most of the buying firms need to pursue aggressive strategies in order to increase the future rate of capabilities improvement. (Monnczka, Trent, & Callahan, 1993) Having mentioned that supplier is becoming increasingly critical to the competitive success of US firms, there are several reasons behind that. First manufacturers are beginning to focus on their core competencies and areas of technical expertise. Second, developing effective supply base management strategies can help counter the competitive pressures brought about by intense worldwide competition. Third, Suppliers can support directly a firm’s ability to innovate in the critical areas of product and process technology. Study showed 95% of business unit sample indicated supplier contributions were increasing throughout in terms of importance. There was a 232% increase in people from 1989-1990 who agreed with the statement that suppliers are extremely important to the achievement of competitive market strategies. More and more people started to outsource and started rely on suppliers. There was a growth of 15% of people from 1991-1992. Furthermore for each sample period, respondent projected and increasing dependency on suppliers for future product technology. More and more companies started to use supplier development process. Some of them are HP, Epson, Apple Computer, 3M, and BMW etc. Strong belief is supplier warrants improvement. If improvement does not occur firms across many industries may lose market share to competitors who are able to maximize supplier performance input. Sample was non random so the result can be generalized. Thus the trend is towards increasing reliance on supplier to help achieve competitive market strategies. This reliance on suppliers and improving their performance was initially documented from Toyota in 1939. Toyota discussed the need of working together with suppliers to improve collective performance. Thereafter in 1963 Nissan implemented first supplier development project, Honda joined the club in 1973 (Monczka, Handfield, Glunipero, & Patterson, 2009).
Supplier development was ubiquitous in Japan and Korea for number of years but less evident in US firms due to perceived lack of instant return on investment allied with setting up resources required to make it successful. Interestingly this practice was recognized early in the 1900 in the US automotive industry when Ford required improving supplier capacity (Krause, Handfield, & Tyler, The relationships between supplier development, commitment, social and capital accumulation and performance improvement, 2006). In 1970s other Japanese automakers implemented the system and made their own modification like Honda developed a program called BP (Best practices). Review of case studies by (Sako, 2004) allowed examining differences in between supplier development activity in Toyota, Nissan and Honda. In 1939, Toyota purchasing rules stated that- Toyota suppliers must be treated as a Toyota branches and Toyota must continue to do business with these suppliers without switching to others and also develop the suppliers if required. Toyota bifurcated supplier development activities into TPS (Toyota Production System) and TQC (Total Quality Control). TPS was having different existence from TQC which allowed suppliers to take advantage of continuous improvement. Hyundai also realized that their small suppliers cannot again and again recruit engineers thus they sent engineers from their own shops to improve suppliers productivity. Hyundai do not financially support their suppliers but offer personnel support (Handfield, Krause, Scannel, & Monczka, 2000). Nissan also implemented supplier development program which were significantly different from Toyota in the terms of number of point of contacts for suppliers, approach towards sharing the ideas and one to one training strategy during program. Honda and Nissan unified the TPS and TQC offering a single point of contact (Sako, 2004). The common features of the supplier development programs at Honda, Nissan and Toyota are multiple channels for supplier development to transfer both tacit and explicit knowledge. Tacit knowledge is more difficult to accumulate as it needs closer interactions especially face to face with suppliers and more time thus it is difficult to replicate tacit knowledge (Clarke, 2007). In contrast to these companies in Japan, the suppliers in US and Europe distrust the buyer’s intention and also buyer’s don’t have identical level of authenticity as in Japan to act as trusted well wisher who can suggest their suppliers how they should invest their resources (Sako, 2004).
A recent study from Harvard school concluded that primary reason for declining USA competitiveness is that US companies invest less in supplier relations and development thus considering these points from Japan the supplier development was adopted in Eastern countries like UK and USA (Monnczka, Trent, & Callahan, 1993). Supplier development activities were transferred to USA as buying firms commissioned their own plants in USA due to government regulations. By 1996 General Motors had completed supplier development projects with over 2000 suppliers and claimed productivity improvements over 50%, lead time reduction of up to 75% and inventory reduction of 70% (Hartley & Choi, Supplier development: Customers as a catalyst of process change, 1996), (Clarke, 2007). By 2001 John Deere was involved in 426 different projects with 92 different supplier development engineer and delivering annual saving of $700,000 along with improvements in quality, cost and delivery. By 1994, Allied-Signal expected to save up to $300,000 from supplier development activities and also expected for increase in shares price (Monnczka, Trent, & Callahan, 1993). At Deere and Delphi, a $100,000 investment in supplier development yields at least three to ten times the original investment (Nelson, Moody, & Stegner, 2005). This illustrates that large firms adopted supplier development and it became strategic tool for them to improve quality, reduce cost and improve the delivery. The basic development process started with reduction in supplier base and then developing the remaining suppliers. Also it was adopted in service based companies from product based companies. But more focus was on the product based companies. Service based relies on the competitive pressure of market forces instigate supplier performance to a greater extent than product based firms and that then to use. In UK most companies rationalized or optimized their supple base to include fewer total suppliers. Western countries were not getting involved in direct supplier development; Japanese companies were successful because they were involved in direct supplier development. Toyota is purchasing product from the same supplier since 1937. GM adopted this strategic supplier development in Europe. Motorola and Ford also adopted similar kind of supplier development
Countries and large firms started to realize the benefits of supplier development, they recognized that supplier development must be worth if it’s emerging everywhere in Japan. From the national perspective, benefits of supplier development were improvement in domestic suppliers, reduction in off shoring and increase in GDP (Krause & Ellram, 1997). From the corporate and large firm perspective, supplier development helped in improving quality, reliability and manufacturability of new design. Besides that supplier development also helped in knowledge sharing and improved collaboration. Furthermore responsiveness to customer needs and market dynamics also increased with supplier development (Krause & Ellram, 1997). The data gathered with 527 purchasing executives by (Krause D. R., Supplier development: Current practices and outcomes, 1997) revealed that supplier development attributed to timely delivery, completed orders, reduction in defects & scrap and reduced order cycle time. Research by (Blonska, Rozemeijer, & Wetzels) established that supplier development guide towards getting a preferential buyer status and supplier adaptability. Supplier adaptation is perceived as an attainment of a goal of supplier development aimed at supplier performance improvement (Blonska, Rozemeijer, & Wetzels). With help of two in depth case studies (Reed & Walsh, 2002) established that supplier development activities enhance technological capabilities in their suppliers. Also some of the firms expected technological improvement should follow from improved business processes. Supplier development also helped in developing mutual trust in between buyers and suppliers (Reed & Walsh, 2002). As mentioned earlier this increase in reliance was due to improvement in performance after implementing supplier development program. BMW strives to be 20% above industry average in quality performance. Management believed supplier development made it possible to attain that quality standard and increase in revenue (Rhodes, Warren, & Carter, 2006). Also in Honda dramatic improvement was seen in product quality since Honda began to develop suppliers in North America, In 1985 quality level was 7000 parts defective per million and In 1995 quality level was increased to 100 defective parts per million (Berlow, 1995). A team of purchasing professionals from Honda of America worked with 12 stamping suppliers to reduce cost by $4million in six months in 1995 with its supplier development efforts (Berlow, 1995).
In the context of supplier development, suppliers and buyers state that they want to practice more supplier development methods to enjoy its benefits but there are myriads of barriers that hinder the effective supplier development strategies. Research by (Lascelles & Dale, 1989) utilizing survey responses from UK based suppliers to 3 major customers in automotive industry illustrated that poor communication and feedback, unstructured quality improvement programs, credibility of buyers, misconception regarding purchasing power and supplier satisfaction are the foremost barriers in the supplier development programs. Also in an empirical study with 89 minority goods and service providers (Krause, Ragatz, & Hughley, Supplier development from the minority supplier’s perspective, 1999) demonstrated that the main barriers towards minority owned supplier development are poor communication, non-profit situation and racial biases. Results also indicated that small minority owned suppliers were less positive about supplier development activities as compared to large minority owned suppliers (Novak, 2008). Survey by (Handfield, Krause, Scannel, & Monczka, 2000) on supplier development strategies with 84 companies established several other barriers apart from already mentioned that deter supplier development strategies. It includes Lack of supplier commitment, insufficient supplier resources, lack of trust, and poor alignment of organizational cultures, unsupportive upper management and insufficient inducement to suppliers. Research by (McDuffie & Helper, 1997) established that supplier development might fail if suppliers are not having a strong identification or if suppliers are not dependent on buyers. It will show the way to break down in learning relationship. Another major barrier towards supplier development program found from research by (Forker, Ruch, & Hershauer, 1999) is difference between perceptions of buyer and suppliers about supplier development practices. These differences in perception are due to disparity in understanding in preference, intention, and process of supplier development program (Forker, Ruch, & Hershauer, 1999). Supplier might agree initially for the proposal but later fail to implement due to difference in understanding. This problem can be cured with the help of clarification of issues.
Researchers came up with number of conceptual models for building solutions to overcome these barriers. A ten step generic process model was developed based on the examination of in-depth response to open ended survey questions. Such a model was a step towards strategic supplier development. It was ranging from identification of critical commodities for development to systematically instituting ongoing continuous improvement. The model also suggested proposition that firms competing in markets characterized by high rates of technological changes and high level of competition are more likely to be involved with this model (Krause, Handfield, & Scannell, An empirical investigation of supplier development: reactive and strategic processes, 1998). This model was slightly changed by proposition of seven steps generic model (Handfield, Krause, Scannel, & Monczka, 2000). Also it was found most organization deployed first three steps but was less successful in deploying later stages. Similar to previous model a process oriented four step generic supplier development model was proposed. This model was designed to help suppliers sustain and continue the change process and effectively build the capability for improvement within the organization (Hartley & Jones, Process oriented supplier development: Building the capability for change, 1997). This model also increases the supplier’s capability to act on its own and the improvement effort will continue once the buying firm finishes its activities (Wagner S. M., 2006). Also supplier structure was developed on the basis of specific vendor development strategy. Conceptual link was generated in between generic business unit strategies based on framework proposed by Porter and generic supplier development strategies, in other words linkage between supplier development strategies and company strategies (Chakraborty & Philip, 1996). Execution of case study of five firms by (Dunn & Young, 2004) results in a process model that enables the buyers to pinpoint specific areas where improvement is required. Highlighting these small areas can impact on long term strategic supplier development initiatives.
A review of the conceptual model and context of supplier development resulted in the identification of several elements that appear to be critical to the success of the supplier development program. These comprise of effective and enhanced communication, supplier commitment, top management involvement, strategic processing and “long term commitment and supplier recognition/rewards” (Krause & Ellram, 1997).
What is supplier development, why is the supplier development critical, what made this required to study and how the factors might affect the supplier development?
“Big things happen when you do little things right” (Don, 2000). In this case if small generic steps for supplier development are deployed correctly then it can contribute towards success in supplier development. (Handfield, Krause, Scannel, & Monczka, 2000) Developed seven step generic process map for set up supplier development activities. These are recognized as (a) “Identify critical commodities” (b) ” Identify critical supplies (c) “Form a cross functional team” (d) ” Meet with supplier top management” (e) ” Identify key project” (f) ” Define details of agreement” and (g) “Monitor status and monitor strategies”. A discussion of each as follows.
Identify critical commodities and suppliers
Upper management involvement is vital to assess the relative importance of commodities and services procured by business unit. A corporate level executive committee analyzes the ‘purchasing portfolio’ developed during strategic process. This analysis is extension of company strategic planning (Handfield, Krause, Scannel, & Monczka, 2000). As a result critical commodities are identified and warranted for supplier development activities. Steps adopted here are mainly observed in strategic approach supplier development where in reactive approach respondents skip this step in supplier development process (Krause, Handfield, & Scannell, An empirical investigation of supplier development: reactive and strategic processes, 1998).
Choosing which supplier to develop is a critical task again because supplier development involves resources such as money and time, thus the decision should be strategic not reactive (Gordon, 2008). (Handfield, Krause, Scannel, & Monczka, 2000). Many situations exist which are not mutually exclusive but warrant supplier development. To decide which situation needs supplier development is calculated judgment. Companies have formal supplier measurement system with help of which they assess supplier’s performance. If any gap is found in measured and expected results, these suppliers are identified for development process where in reactive approach respondent skip this step in supplier development activities (Krause, Handfield, & Scannell, An empirical investigation of supplier development: reactive and strategic processes, 1998). Also buying firm carefully evaluates supplier’s quality, volume, delivery cost performance, launch readiness and potential kaizen opportunities to identify a prospective supplier development program (Novak, 2008).
Hence, Strategic processing and upper management involvement have significant influence on the outcome of this first step of supplier development-identifying critical commodities and suppliers. These two will be among the variable of interest in the research thesis.
Form a cross functional team
Each firm must develop their suppliers according to their requirement. For example, some firms need managerial assistance and some need technical assistance. Thus it is essential to evaluate each supplier individually to create a plan that benefits both supplier and buyer (Daghfous, Campa, & Hamde, 2008). As a result to face this complex challenge of developing dissimilar suppliers, innovative ideas are required to break down knowledge barrier between buyers and suppliers and to facilitate a transition of knowledge transfer from buyers to suppliers, a cross functional team is necessary to form (Blindenbacj-Driessen, 2009). Before approaching suppliers and ask for enhanced performance, it is also important to build up cross functional consensus and build up their own house before expecting commitment from suppliers (Monczka, Handfield, Glunipero, & Patterson, 2009). In particular commitment of buyers and strategic approach is essential for buildup of cross functional consensus. Also a buyer must establish its supply chain strategies and roles of procurement so that the business objectives are clear. Hence, Commitment and strategic process have significant influence on the outcome on creation of cross functional team. Therefore, these two will be among the variable of interest in the research thesis.
Meet with supplier top management
Upper management involvement again prevails but this time it is of supplier’s side. Cross functional team must meet upper management of supplier side and establishes stra
Nokia’s Competitive Policies In Handset Industry in Asia
Chapter 1. Introduction
The progress of technology has altered our daily life routine dramatically. In recent 2 decades, people have seen the big convenience brought by colour TVã€ telephoneã€ laptopsã€ mobile phone and etc. Among them, the contribution of mobile phone is especially prominent: given the integration of technologies of Internet, laptop, and communication etc, the small and good looking handset will enable us ubiquitous application of modern multi-functions. The advantage of 3G even further attracts our minds with colourful imagination.
During the upgradation of our living style, we owe a lot to the companies of the handset industry, especially those popular giants including Nokia, Motorola and Samsung. When they change our living successfully, they realize their developing targets as well. For example, according to the Fortune Global 500 in 2005, Nokia and Motorola ranked 130th and 138 respectively1. Thus, they are recognized by the society.
It’s unpredictable for a company to achieve great goals without correct strategies to employ. In the fierce competition of handset industry in China, the correct competitive strategies are required for the participant to win market shares. Surely, sometimes the right strategies are difficult for survival. Nokia, as the no. 1 in the handset industry of China, is certainly the biggest winner through exertion of correct competitive strategies.
As is mentioned above, the competition in handset industry in China will become even more fiercer along with the emerging trend such as the advent of 3G, the alteration of distributing channels, and the improved leval of industrial centralization etc. So competitors should promptly adopt relevant changes of their competitive strategies to adapt to new environment.
This dissertation aims first to analyze the competitive strategies already employed by Nokia
1 Accessed on Feb.23rd, 2007, The List of Fortune Global 500 in 2005 http://brand.icxo.com/brand500/top500_1.htm
During the progress of Chinese handset industry. To confirm whether the competitive strategies are acurate, I use Porter’s 5 forces theory as the frame to anatomize the factors such as Economies of scale, Product differentiation, Capital requirements, Cost disadvantages, independent of size, Access to distribution channels, Government policies, and Competitor’s Retaliation. Thereby, the rationalities of Nokia’s competitive strategies in Chinese handset industry may be authenticated.
According to the great lots of evidence collected from website newspapers and catena, new trends of handset industry appear gradually. To grasp the future flux on market share and industrial environment, it is necessary for Nokia to nip in the bud.
As a natural extending of the aforesaid analysis on competitive strategies, this paper also expounds the reason causing the new industrial trend in Chinese handset industry and suggests the probable strategies Nokia may adopt.
As is well known, according to the Moore’s law, the chips of the handset is developing at a very rapid speed. Moreover, the handset is still influenced by the fluky vanguard fashion. It is not easy to survive in the fluctuate market, and say nothing of being leading company in the industry. I wish textual analysis might benefit the readers to recognize the industrial situation and use Nokia for reference.
This text takes a logical sequence to discuss the total analysis, so the chapters are in turn as follows: Introduction to Reportã€Introduction on Nokia Corporateã€ The Mobile Handset Industryã€Industrial Analysis Using Porter’s 5 Forces Theoriesã€ Analysis on Nokia’s Competitive Strategiesã€Evolution of Nokia’s Competitive Strategies and Conclusion. The content of each chapter encircles its name, and the detailed discussion will be deployed in the following chapter.
Chapter 2. Introduction on Nokia Corporate
With hundreds of years’ development, Nokia has successfully realized its industry transform within the world-wide range, and gradually established its leading position in the handset industry in China as well as in other area of all the world. The whole experience is full of legendary color, as is introduced as follows:
Section 1. Nokia’s Developing History
1ã€Brief Review on Nokia’s History
According to the introduction from Nokia’s autobiography, the roots of Nokia go back to the year 1865 with the establishment of a forest industry enterprise in Southwestern Finland by mining engineer Fredrik Idestam. Other relative events were the foundation of Finnish Rubber Works Ltd in 1898 and in 1912 Finnish Cable Works began operations. After decades of operation, the three companies were merged to form Nokia Corporation in 1967.
The world’s first international cellular mobile telephone network, NMT, was introduced in Scandinavia in 1981 and Nokia made the first car phones for it. At the beginning of the 1980s, Nokia strengthened its position in the telecommunications and consumer electronics markets through the acquisitions of Mobira, Salora, Televa and Luxor of Sweden. In 1987, Nokia acquired the consumer electronics operations and part of the component business of the German Standard Elektrik Lorenz, as well as the French consumer electronics company Oceanic. In 1987, Nokia also purchased the Swiss cable machinery company Maillefer.
In the late 1980s, Nokia became the largest Scandinavian information technology company through the acquisition of Ericsson’s data systems division. In 1989, Nokia conducted a significant expansion of its cable industry into Continental Europe by acquiring the Dutch cable company NKF.
In 1992, Jorma Ollila became the CEO of entire Nokia Group, who made a strategic decision to concentrate solely on telecommunications in the coming Digital Age. Thus, during the rest of the 1990s, Nokia continued to divest itself of all of its non-telecommunications divisions. This strategic shift consolidated the foundation for Nokia to become a worldwide famous leading company in telecom industry.2
2ã€Nokia’s Performance in Recent Years
After the strategic shift in 1990s, Nokia has established its leading position in the global telecommunication market. Every business item, especially mobile phone item, has exhibited high-speed of development ever since.
At present, Nokia comprises four main business groups: mobile handsets, multimedia, enterprise solutions, and networks. Among them, the mobile handset is the pillar business for entire group operation.
According to annual report of 2005, Nokia´s net sales arrived at EUR 34 191 million3, realizing an increase rate of 12.56% when compared with EUR 30376 million in 20004. Among the total net sales, sales of mobile phones reached EUR 20811 million, occupying 60.87% of the total net sales. In 1992, the mobile handset business only account for 20% of the total sales of entire group.
Nokia´s operating profit for 2005 reached EUR 4 639 million, representing a 2005 operating margin of 13.6%, and Operating profit in mobile handsets decreased 5% to EUR 3 598 million (operating profit of EUR 3 786 million in 20045), representing a 2005 operating margin of
2 Accessed on Feb.23rd, 2007, The History of Nokia 1865-2002, http://r2.nokia.com/nokiahistory/index.html
3 Accessed on Feb. 23rd, 2007, Key data of Nokia http://www.nokia.com/link?cid=EDITORIAL_4026
4 Accessed on Feb. 23rd, 2007, Annual Information 2000, http://www.nokia.com/A4126501
5 Accessed on Feb. 23rd, 2007, Annual Information 2004, http://www.nokia.com/A4126497
17.3%. However, in comparison with the EUR 83 million in 19926, the operating profit of mobile handset in 2005 represents more than 43 times increase.
As is recognized by the global consumers, Nokia brand was ranked 16th among The World 500 Most Influential Brands in 2005 by the World Brand Lab.
According to the Fortune Global 500 in 2005, Nokia group ranked 130th and represented no. 1 among the Industry of Network and Other Communications Equipment, taking a position higher than any other competitors.
From the aspect of mobile handset, till Sept. 2006, Nokia captures 35.1% of the global market. According to the Gartner institute, Motorola was in second place, with market share of 20.6%, and Samsung of South Korea saw its share of the world market fall to 12.2 % from 12.5 in third quarter 2005. 7
Obviously, Nokia has firmly established its leading position in its industry and has become the world’s leading provider of mobile telephones.
Section 2. Nokia’s Development in China
The year Nokia traded with China can be traced back to 1950s. And later, until 1985, Nokia opened its first branch in Beijing to initiate its development of early stage in China.
In 1995, Nokia set its joint venture in China to produce large scale of GSM system equipment. Then, in 1997, Nokia deliver China the first GSM 1800 network. Soon later, in 2000, Nokia started up the Chinese GPRS network that is first one compatible with newest business
6 Martti Haikio (2003) NOKIA THE INSIDE STORY. Published by Edita Publishing Ltd and Nokia Oyj, Copyright 2002, Chinese Edition First Printed in Sept. 2003. pp.272-273.
7 Accessed on Feb. 23rd, 2007, Nokia is top mobile phone maker for Q3-Gartner, Nov. 23,2006 http://telecomasia.net/article.php?id_article=2793
standards in the world.8
In 2001, Nokia invited its main global partners including mainly hardware providers to invest about RMB 10 billion together in Star Net Industry District in order to form integrated production capabilities and to decrease cost.9
During 2003, Nokia released 15 styles of handsets and ranked no.1 of the GSM mobile handset. As is reported, the top 3 brands of GSM in 2003 are Nokiaã€Motorola and Samsung, with market shares respectively 17.23% ã€16.46%ã€and 11.81%.10
When entering into the new century, Nokia strengthens its cooperation with China in the field of communication technology and takes active part in the development of Information Industry in China. At the same time, Nokia commits itself to employment and cultivating of the local talents.
To the end of 2004, Nokia arrived at no. 1 of the whole handset sales in China. In 2005, the rising trend continued. It is calculated that Nokia captures 25.8% of domestic handset market share in 2005, realizing 10.8% more than in 2004. By contrast, the second brand Motorola only gets 8.7% of market share11.
After decades of tillage, Nokia has really established its leading position in the handset industry in China; it is believed that Nokia will actualize greater success in the mobile
8 Martti Haikio (2003) NOKIA THE INSIDE STORY: Beijing Strategies of Nokia, Published by Edita Publishing Ltd and Nokia Oyj, Copyright 2002, Chinese Edition First Printed in Sept. 2003. pp.234-236.
9 Accessed on Feb.23rd, 2007, Explore Star Net Industry District, by Wangshucheng, Huoxiaoguang, Yujingzhong, Source from Xinhua Agency. Yesky.com-Chinese IT website, http://www.yesky.com/135/215635.shtml
10 Accessed on Feb.23rd, 2007, Synthesized analysis report on handset in China by YiGuan, Jun. 29th, 2004, http://www.c114.net/zhuanti_simple/3g/Read_3g.asp?action=3gzlk&styptID=3&articleID=26
11 Accessed on Feb.23rd, 2007, Domestic Handset Market Share Declines March, 28th, 2006, http://www.chinamobile.gov.cn/200603/61242.shtml
communication market in China under the 3G era.
Chapter 3. The mobile handset industry
As is well known, competitive strategy is the outcome resulting from competitive environment. Without given circumstance, it will become meaningless to discuss whether the employment of certain competitive strategies by some enterprises is successful. Therefore, before anatomizing the competitive strategies of Nokia, we need to describe the notion of mobile handset industry and its main composing elements.
—What is a mobile handset
A mobile or cellular phone is a long-range, portable electronic device for personal telecommunications over long distances.
Most current mobile handsets connect to a cellular network of base stations (cell sites), which is in turn interconnected to the public switched telephone network (PSTN) (the exception are satellite phones). Cellular networks were first introduced in the early to mid 1980s (the 1G generation). Prior mobile handsets operating without a cellular network (the so-called 0G generation), such as Mobile Telephone Service, date back to 1945. Until the mid to late 1980s, most mobile handsets were sufficiently large that they were permanently installed in vehicles as car phones. With the advance of miniaturization, currently the vast majority of mobile handsets are handheld. In addition to the standard voice function of a telephone, a mobile handset can support many additional services such as SMS for text messaging, email, packet switching for access to the Internet, and MMS for sending and receiving photos and video.12
2. Brief Introduction on Global Mobile Handset Industry
Broadly speaking, the mobile handset industry consists of upstream suppliersã€whole handset
12 Accessed on Feb. 23rd, 2007, Mobile phone Definition Introduction, Sirchin-The Free Encyclopedia And Other Stuff Beta. http://www.reference.sirchin.com/?wiki:directories:mobile-phone
manufacturersã€network operatorsã€ downstream distributorsã€terminal retailers etc. From raw materials to handset product, from hardware suppliers to software providers, from the handset per se to service and content providers, mobile handset industry can be identified as the whole value chain encircling the handset’s substance concept.
From the narrow sense, mobile handset industry consists of the companies engaging in producing hardwareã€componentsã€and accessories of handset¼Œas well as assembling handset.
As is well known, the world’s largest mobile handset manufacturers include Audiovox, BenQ-Siemens, High Tech Computer Corporation, Fujitsu, Kyocera, LG, Motorola, NEC, Nokia, Panasonic (Matsushita Electric), Pantech Curitel, Philips, Sagem, Samsung, Sanyo, Sharp, SK Teletech, Sony-Ericsson, T&A Alcatel and Toshiba. And the world’s largest mobile phone operators include Orange SA, China Mobile and Vodafone. According to report on global mobile market in Q4 2005, the top 5 manufacturing companies are Nokia, Motorola, Samsung, LG, and Sony-Ericsson, with their global mobile handset market of 35%, 16.3%, 12.1%, 7.2% and 6.9% respectively13.
As is calculated, the mobile handset sales continue to grow worldwide, going up from 482.5 million in 2003 to 561 million in 2004. This growth rate is expected to gradually slow down over a period of five years. The estimated growth figures for these five years are—10% in 2005, 7.7% in 2006, 6.4% in 2007, 4.8% in 2008 and 2.6% in 2009.14
Clearly, the global handset industry has been growing fast and will continue to grow for next 3 years. However, the rate of industrial growth will calm down, a status leading to prudential optimism.
13 Accessed on Feb.23rd, 2007, Big Six Dominate Expanding Mobile Phone Market, by John Leyden. Feb.28th, 2006, http://www.theregister.co.uk/2006/02/28/gartner_mobile_market_2006/
14 Accessed on Feb.23rd, 2007, Changing Faces of The Global Mobile Handset Market –2007, Research and Consultancy Outsourcing Services, March 2005, Pages: 95 Researchandmarkets
3. Mobile handset Industry in China
Since China ushered in mobile handset in 1987, the handset users has reached 0.443 billion people, with the penetration rate of 33.9%; and the business revenue from mobile communication has occupied about 50% of whole revenue from telecommunication. Mobile communication has grown to be the main impetus of industrial development. 15
—3.1 Network operators
After many years of evolution, there are now 6 network system operators in China: Chinatelecomã€Chinanetcomã€Chinamobileã€Chinaunicomã€Chinasatcomã€and Chinatietong. Till May 2004, Chinamobile is No. 1, because it occupied more than 30% market share according to the business revenue. According to the 2005 annual report, Chinamobile achieved revenue of 243.04 billion RMB and net profit of 53.549 billion RMB, with customers covered 0.257 billion16.
—3.2 Overview of industrial developing situation
Chinese mobile handset industry keeps its rapid development in recent 5 years, and this trend is forecasted to be extended in the coming years. According to the MII, the handset output from year 2000 to 2005 is 52.57ã€83.97ã€120ã€186.44ã€231.75ã€303.67 million units respectively. The relevant yearly increasing rate reaches 59.73%ã€ 42.91%ã€55.37%ã€24.30%ã€31.03% respectively. Along with the high-speed increase in handset output, the handset users reaches 0.3934 billion people, and the popularization rate of mobile handset increase rapidly, arriving at 30.3 units per hundred people. However, compared with 60-odd units per hundred people in western developed countries, the future increasing space for handset is still optimistic.17
15 Accessed on Feb.23rd, 2007, The address on the Seminar of Constructing Green Handset Culture by Mr. Xiguohua, vice Minister of Mii of China in 21st Nov 2006, Beijing, on Website of Ministry of Information Industry of the People’s Republic of China
16 Accessed on Feb.23rd, 2007, the financial highlight, http://www.chinamobileltd.com/
17 Accessed on Feb.23rd, 2007, Comment on the 2005 development of handset industry in
China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html
2001-2005 Handset Output in China83.97120186.44231.75303.6759.73%42.91%55.37%24.30%31.03%050100150200250300350200120022003200420050.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%OutputYearly Increasing Rate(%)
(Note: Amounts in millions of units. Source: Comment on the 2005 development of handset industry in China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html)
Simultaneously, China has gradually become the export base of mobile handset. According to the statistics of MII, the handset export in 2005 is 228 million units, occupying 75% of total handset production. Compared to the 43.3% of export rate in 2000, the higher rate for export in 2005 indicates the excess capacities of handset production and the advent of market maturation in China.18
It is estimated that in 2006, the output of handset will arrive at 0.34 billion units including 0.25 billion for export purpose19. Generally speaking, the developing trend of handset industry in China will maintain rapidã€healthyã€and harmony progress.
18 Accessed on Feb.23rd, 2007, Comment on the 2005 development of handset industry in China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html
19 Accessed on Feb.23rd, 2007, Comment on the 2005 development of handset industry in
China, Website of Ministry of Information Industry of the People’s Republic of China http://www.mii.gov.cn/art/2006/03/15/art_62_8307.html
—3.3 Brand vendors
As is reported (Aug.13/2002, People’s Post Newspaper), Chinese mobile market was totally occupied by foreign brand handsets before 1998. According to the result of investigation on consumer products in main cities in China in 1998, the market share of mobile is as follows: Motorola 37.3%, Ericsson 28.6%, Nokia 15.6%, and the left 20% market share was distributed among other foreign brands such as Philips, Siemens, Alcater, and Sony etc.20
Following the market booming of handset, Chinese domestic brand vendors began to dissatisfy their original position of OEM only. In addition, with the reformation of approval system, more domestic powerful competitors enter handset industry. As is reported, there are now about 70 companies granted license to produce mobile21.
Although domestic brand vendors showed its competence and achieved brilliant performance in 2003, due to the lack of core technology and small scale of production, their total domestic market shares begin to fall down from the zenith of 60% in 2003 to 40.6% in 2005. And the ranked top 3 domestic brands occupy only 17.5% shares in comparison with 31.6% in 200322.
According to the 2005 rank on sale of GSM handset in China, the top 10 brand is in turn as follows: Nokiaã€Motorolaã€Samsungã€Birdã€Amoiã€Sony-Ericssonã€Lenovoã€TCLã€Koncaã€Haier. Among them, top 3 brands occupy 60.05% of domestic market share, a number overpassing the total result of domestic brands23.
20 Accessed on Feb.23rd, 2007, The competitive situation in handset market in China, http://www.china-qg.com/articleHistory/yingXiao/4/275.html
21 Accessed on Feb.23rd, 2007, Handset Market Increasingly Open, by Zhugangqi, Nov. 29th, 2006, http://www.cww.net.cn/consultation/shownews.asp?nid=207
22 Accessed on Feb.23rd, 2007, Market Shares of Foreign Handset Increasing Rapidly, Mar. 21st, 2006, Source: MII. http://www.ccw.com.cn/news2/mobile/htm2006/20060321_09RRM.htm
23 Accessed on Feb.23rd, 2007, Domestic Rank of Handset Sales, by YiGuan, Source: CNETNews.com.cn, http://www.cnetnews.com.cn/news/review/story/0,3800057985,39445251,00.htm
The following is the overview on the major participants, which probably possess potential capacity to challenge Nokia:
Motorola is known around the world for innovation and leadership in wireless and broadband communications. Motorola came to China in 1987 when it opened a representative office in Beijing. In 1992, Motorola (China) Electronics Ltd. was established in Tianjin, a major manufacturing base where Motorola produces mobile phones, two-way radios, wireless communications equipment for the Chinese and global markets. 24
Today, Motorola has one holding company, three wholly owned companies, five joint ventures, 16 R&D centers and 25 branch offices across China. At the end of 2005, the number of employees exceeded 10,000, and the total cumulative investment in China reached US$3.6 billion, making it one of the largest foreign investors in China. Investment in R&D has reached US$600 million.25
The goal of Motorola’s China strategy is to build China into world-class production and R&D bases. While pursuing and maintaining market leadership in both mobile devices and infrastructure equipment, Motorola continues to develop businesses in digital trunking, broadband products, solutions and services.
As a runner-up in the mobile industry, Motorola keeps fighting its way for market leading position all the while. Undoubtedly, relying on its high-tech R&D and cogent brand, Motorola can be qualified as the strongest challenger for Nokia in the mobile handset manufacture industry, no matter in China or in global market.
24 Accessed on Feb.23rd, 2007, Motorola China is the biggest wholly foreign invested enterprise Source: Tianjin Developing District Investment Net, Jun. 26th, 2003, http://www.investteda.org/zxzx/tdtzdt/t20051025_6324.htm
25 Accessed on Feb.23rd, 2007, Motorola in China, http://www.motorola.com.cn/about/inchina/inchina_en.asp
Since it’s founding in 1938, SAMSUNG (Group) has maintained a mission statement that responds both to its own change, and to new developments in the world. After unremitting struggle for decades, the company grows from a domestic industrial leader into a global consumer electronics powerhouse.
Following its management philosophy-“We will devote our human resources and technology to create superior products and services, thereby contributing to a better global society”, Samsung achieves quick pace of development. And Samsung’s brand value, a key engine of business growth, increased to US$8.31 billion in 2002 from US$6.37 billion in 2001 and was recognized by Interbrand Corporation as the fastest growing global brand.26
As one of its emphasized fields, Samsung endows mobile handset market with great efforts. It was reported that the expenditure of total R&D in Samsung reached 5 billion USD, including 2 billion especially for mobile handset R&D. Moreover, as an industrial newcomer compared with Nokia and Motorola, Samsung adopt several special developing strategies to overtake advanced companies, for example:
ô€º Samsung prefer cooperation with strong technology leader to research alone. Samsung plays more attention on how to obscure know-how in shorter period, and to avoid confrontation with powerful competitors. Then, through reverse engineering, Samsung can absorb the newest technology with high efficiency.
ô€º Based on owned technology, Samsung inclines not to further dig, but to emphasize on developing additional value of product in order to occupy the market rapidly. It’s not difficult to understand that Samsung’s mobile handset exhibits first design and fashionable appearance, the important feature attracting majorities of users. This feature benefits Samsung to be among global top 3 brands of mobile handset.
26 Accessed on Feb.23rd, 2007, Samsung’s Managing Philosophy, http://china.samsung.com.cn/public/gongyi.asp?sm=menu7
ô€º Expand rationally based on technology on hand. At present, Samsung has occupied already 65% of CDMA market in Korea, and the target at 20%-30% CDMA market share in China has become its next step, which means about 7.5-11million handset units. Believably, along with the deeper cooperation between Samsung and Qualcomm Incorporated, which is the owner of CDMA patent, Samsung will achieve more opportunities on market of CDMA handset, which is used by nearly 1/3 of global mobile user.
In conclusion, Samsung, as an active and ambition participant in mobile industry, has found a unique way to boom, and has grown to be an important industrial power unable to be neglected.
3.3.3 Indigenous Brands
Before 1998, domestic handset comes into the market in the form of joint ventures. During that period, they just assemble international brand handset. After 1998, domestic handset companies began to produce handset through OEM (Original Equipment Manufacturing) for international brands such as Samsung of Korea and SAGEM of France, which still not entered into China at that time. Simultaneously, some companies began to launch its own handset brand such as EC528 of Eastcom. In 1999, the market share of indigenous brand handset is less than 3% in China. However, until 2003, indigenous mobile handset arrived at its height of development, with a market share of 60%.
However, indigenous brand soon began to decline all- the- round, with a market share of less than 40% at the end of 2004. During 2005, this declining trend continues, with 10 more percent market share lost than 2004 at the year-end.
Relying on indigenous marketing advantage and OEM technology, domestic mobile handset manufacturers, as a whole, have grown up and gradually captured medium and low-end market. Although they encounter fierce competition and face present embarrassment, and even 3
brands that is Kejianã€ Pandan and Gaoke fade away in 200527, certain individual brand still actualize rapid development against the current and emerge. It is Lenovo that achieved 4.1% market share and ranked 7th in 2005; by contrast, its market share rises to 6.5% with a rank of 4th in June 2006 (from IDC report), an achievement invigorating all indigenous brands. 28
Considering the advantages of indigenous brands such as: flexible distributing- channelsã€sensitive price reflectionã€strong end-user networks and deep understanding of domestic fashion trend¼Œwe have no reason to doubt the future of indigenous handset development. In addition, Chinese government has shown its resolution to support domestic handset companies; surely the relative policies will be improved further. It is believable that indigenous brands, as a whole, will soon rally to enhance their market position.
Generally speaking, due to the recent situation of handset industry in China including the advent of 3G, all the brand vendors are adjusting each competitive strategies referring to individual inherent and existing advantages. In a word, new turn of reshuffle on handset industry in China is unveiling.
27 Accessed on Feb.23rd, 2007, March 16th, 2006, by Pengxuzhi, http://mobile.csonline.com.cn/jzsl/200512/t20051228_423095.htm
28 Accessed on Feb.23rd, 2007, Lenovo handset’s market share, Source: IDC, http://telecom.chinabyte.com/243/2576243.shtml
Chapter 4. Industrial Analysis using Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is arguably the most influential analytical model in analyzing industrial environment. Logically, it will greatly facilitate comprehending the rationality of Nokia’s competitive strategies to use Porter’s Five Forces model to analyze the competitive environment where Nokia is operating in China, before expounding Nokia’s detailed competitive strategies.
1. Theory Brief
Five Forces Analysis is a method used to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but focuses on an industry. It looks at five key forces namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.
Porter’s five-force model is arguably the most influential analytical model in strategy. In practice, it is best applied to cases in which strategic decision-making is closely associated with industry conditions.
Porter’s Five Forces of Competitive Position
New Market Entrants, e.g.:
• Economies of scale
• Proprietary of product differences
• Brand identity
• Switching cost
• Expected retaliation
Supplier Power, e.g.:
ô€º Differentiation of inputs
ô€º Supplier concentration
ô€º Presence of substitute inputs
ô€º Switching costs of suppliers and firms in the industry
ô€º Importance of volume to supplier
Competitive Rivalry, e.g.:
• Industry growth
• Fixed costs/value added
• Intermittent overcapacity
• Product differences
• Brand identity
• Switching costs
• Corporate stakes
Buyer Power, e.g.:
• Buyer choice
• Buyer information
• Ability to backward integrate
• Substitute products
• Buyer switching costs relative to firm switching costs
Threat of Substitutes, e.g.:
• Relative price performance of substitutes versus firm concentration
• Switching costs
• Buyer propensity to substitute
29 Henry Mintzberg, Joseph Lampel, James Brian Quinn, Sumantra Ghoshal, (2002) THE STRATEGY PROCESS Concepts, Contexts, Cases FOURTH EDITH Prentice Hall, Upper Saddle River, New Jersey 07458, pp95.
The only deficiency with his model lies that the same analysis often applies equally well to more than one company (hence, the notion of “strategic groups”). And Porter’s emphasis on the importance of external context is balanced by Barney’s insistence that sustainable advantage depends as much or more on the internal resources of the firm. As Jay Barney argued that sustainable competitive advantage is not the product of correct position in the external environment but is derived from the firm’s internal resources. More specifically, resources must meet four criteria to confer sustainable comp
The report has two sections; the first will focus on critically analysing the principals of Personnel Management (PM) and Human Resource Management (HRM) and the similarities and differences between them. Furthermore, John Storey’s (1992), Guest’s (1987), Beer and Spector’s (1985) points of difference will be provided and adapted to a Subway franchise. Finally, the appropriate recommendations on how the company could improve its HR procedures.
The second will focus on context of Subway Franchisor Corporation which is currently the leading fast food company in the US, winning numerous awards since it was founded in 1965 by a 17 year old Fred DeLuca. It provides nutritious menu choices, flexible food options on its gourmet breads, sauces and toppings. The company also specialises in wraps, tortillas and salads as well as a variety of drinks.
According to Subway’s official website (subway.co.uk), their mission is to supply good quality food and service, and also provide the tools and knowledge to entrepreneurs to gain competitive advantage over other fast food companies. It is important to understand Subway’s role as a franchisor. This report is not based on an analysis of the Subway Corporation, the franchisor, but rather on an individual Subway franchisee.
1 Personnel Management
The history of PM began around the end of the 19th Century; a concept closely connected to the contradiction in relations between companies and their employees. It is believed that PM evolved through phases:
- Welfarist (until 1920s) – Characterised by an “emphasis on the provision of welfare facilities” and efforts “made to create the ideal factory” (Cumming, 1993, pp.4-5).
- Personnel Administration (1930s) – “In the form of recruitment, basic training and record keeping” (Armstrong, 1996, p.32).
- Development (1950s) – Management of employee relations becomes the critical contingency factor of PM due to the rise in TU membership and collective bargaining. A wider range of personnel services were provided (Armstrong, 1996).
A broad definition of PM is a function concerned with putting in place, the processes and procedures to make sure the organisation has the right staff at the right time so it can operate at a very basic level. Similarly, Cole (2002) describes PM as the function of management that has to deal with the recruitment, employment, training, redeployment, safety and departure of employees.
1.1 Functions of Personnel Management
PM tries to maintain fair terms and conditions of employment, whilst efficiently managing day-to-day, personnel activities at the operational level. Heavily based on administrative tasks; It involves hiring and developing employees so that they become more valuable to the organisation. More specifically, the functions of PM are identified by Armstrong (1996) in Appendix 1. In broader terms, the functions include:-
- Conducting job analysis, recruiting and selecting and handling promotion internally.
- Training based on legal requirements of Health and Safety procedures, risk assessment.
- Remuneration: making sure the correct wage/salary is paid at the right time (Cole, 2002).
- Providing benefits and incentives.
- Appraising performance, resolving disputes in the form of grievance and discipline.
- Monitoring absences and sickness using techniques such as the Bradford Factor (identifies the number and patterns of absences).
- Redundancy: “administration of and dismissal procedures” (Cole, 2002, p.26)
1.2 Advantages and Disadvantages of Personnel Management
Identifying people as the central function of an organisation which need controlling and allocated effectively (Bach, 2005), is the key advantage of PM as it is essential to the survival of the organisation. As previously mentioned, personnel managers can identify staffing gaps and assign the “right number and type of people the organisation needs,” (Armstrong, 1996, p.28). Furthermore, it is a very methodical. There are clear ideas of what has to be done in certain situations implying that there is transparency and consistency in the way individuals are treated.
The advantages of PM may however also have negative implications. For example, Maslow (cited in Strage, 1992) identifies that individuals are different with different needs. The model is inflexible and standardised, dealing with each employee and every organisation in a certain way. This may not be appropriate for all employees or organisations. PM has often been described as routine and very process driven. This may be ideal for large organisations however not for smaller firms. The process is costly and time consuming to manage effectively. Finally, the culture and individual values of the workers are not considered, along with the adversarial relationship (the wanting of different things) between workers and management.
2 Shift from Personnel to HRM
In the 20th Century there was a broad discussion whether or not HRM represents “a fundamental change in people management” or it just “a phase of PM” (Beardwell and Claydon, 2004). Some theorists emphasised a transformational shift from PM to HRM (Spector, 1985). Tyson and York (1993) believed that people are a business’s most important resource and that the achievement of organisational goals depends mostly on this. At the same time others believed that HRM was just a next step in PM development caused by historical and environmental factors (Bach and Sisson, 2000). It was stated that in PM, employees are seen as a variable cost, while HRM shows that they are a variable asset to the organisation. However, some theorists argued that change in name didn’t bring a change in reality, therefore HRM was described as ‘an old wine in new bottles’ (Armstrong, 1987) and as ‘a wolf in sheep’s clothing’ (Keenoy, 1990).
Theorists tried to answer these questions by identifying similarities and differences between two approaches of people management. Legge (1995) identifies following similarities:-
- Both emphasise the importance of integration.
- Both linked employee development with the achievement of organisational goals.
- Both sought to ensure that the right people were in the right job.
- Both gave the responsibility of people management to line managers.
2.1 Beardwell and Claydon Model (2007)
In contrast, Beer and Spector (1985), Guest (1987) and Storey (1992) compared the models and identified several points of difference which are summarised in a single model developed by Beardwell and Claydon, (2007, p.13). It examines differences between them in 5 perspectives seen in Appendix 2.
2.2 John Storey’s Model (1992)
Another model, underlying the previous one was made by John Storey, who identified 27 differences between PM and HRM. These points are grouped into four categories: beliefs and assumptions, strategic aspects, line management and key levers (Appendix 3).
- Clearly identifies the differences between the two.
- Shows consideration to organisational culture, strategies, leadership.
- Identifies a two dimensional map: “interventionary/non-interventionary and strategic/tactical” (Armstrong, 1996, p.62)
- Companies often combine both approaches and therefore cannot be characterised under just one.
- Organisation’s beliefs and assumptions as these are often invisible and non-tangible (Beardwell and Claydon, 2007).
3 Human Resource Management
HRM presents a variety of different styles and models. Storey (1989) identifies its two types: ‘hard’ and ‘soft.’ Later, Michigan Business School (MBS) and Harvard University developed two different basic models, which have been very influential in the interpretation of HRM (Beardwell and Claydon, 2007): ‘Matching’ model associated with a ‘hard’ approach and ‘Harvard model’, in connection with ‘soft.’ These two particular models underline the two main concepts: “Matching” model became a basis of best-fit school of Strategic Human Resource Management (SHRM), whilst “Harvard” model’s ideas contributed to best-practice approach. These will be discussed further.
3.1 Soft/Hard approach to HRM
The ‘hard’ approach stresses the importance of close integration of HR policies, and activities and systems of business strategy. Also, the emphasis is placed on cost-reduction strategies (Schuler and Jackson, 1987). Furthermore, it detects the strong from the weak i.e. those whose attributes and skills help the company to achieve strong strategic positioning and competitive advantage. The ‘soft’ approach recognises employees as valued assets to attain competitive advantage through their commitment, high quality, adaptability, performance and their skill set. Employees are proactive through collaborations and participation. Soft and hard approaches are very contrasting especially when implementing a single approach. Soft and hard approaches show an obvious gap between what would be characterised as rhetoric and reality.
3.2 Matching Model
The model is developed by MBS (Fombrun et al.,1984). It shows an interconnection between different environmental forces (political, economical, cultural), business structure and strategy and HR policies and practices. It emphasise a close relationship between the last two (Appendix 4). The model is associated with a ‘hard’ version of HRM that is characterised by using HR in order to meet business objectives. Two basic assumptions form a model (Beardwell and Claydon, 2007):
- Effective way of people management is not universal: it depends on the particular organisation.
- Employees should follow the same business views as managers and the owners in order to maximise organisational performance.
- Takes into account the influence of external factors on an organisation and its HR polices.
- Emphasises ‘tight fit’ between HR and business strategy that leads to competitive advantage (Beardwell and Claydon, 2007, p.7).
- Business level strategy and HR strategy could not be linear (Bratton and Gold, 2001).
- Fails to generate employee commitment (Purcell, 1995, cited in Storey).
- Excessive fit could be a disadvantageous to achieving goals (Boxall, 1996).
3.3 The Best-Fit Model
Best-fit model belongs to contingency school of SHRM that explores the link between stages of organisational development, strategy, HRM policies and practices (Boxall and Purcell, 2000). There are several best-fit models: life-cycle model (Kochan and Barocci, 1985), competitive advantage models (Schuler and Jackson, 1987 and Miles and Snow, 1984) and configurational perspective (Marchington and Wilkinson, 2002; Delery and Doty, 1996).
3.3.1 Life-Cycle Model
The model matches HR policies and practises with the stage of organisational life-cycle (Appendix 5). In the start-up phase, HR polices should be flexible and attract talented and skilled employees. The growth stage should have more formal HR procedures, efficient management and organisational development. The maturity stage is characterised by cost control, HR strategy and, finally, in the decline stage, the company shifts to rationalisation with a reduction of workforce and redundancy implications (Kochan and Barocci, 1985).
3.3.2 Competitive Advantage Model
The model links HR systems and organisational strategy. Porter (1980) argued that firms could follow only three generic strategies: cost leadership, differentiation or focus strategy. Schuler and Jackson (1987) matches these with a firm’s HRM polices (Appendix 6). The emphasis shifts from long-term focus, coordination and broad career path under the innovation strategy to fixed job descriptions, immediate focus and continuous training under quality enhancement and to short-term focus and minimal level of training under the cost reduction strategy (Schuler and Jackson, 1987). Miles and Snow (1978) classify companies into four distinct strategic groups (defenders, prospectors, analyzers and reactors) and base their response to three major problems: entrepreneurial, engineering, and administrative. Their competitive advantage framework (Miles and Snow, 1984) links three of these strategies with firms’ HR practices (Appendix 7). Application of their model to the organisation increases business performance.
3.3.3 Configurational Model
Contingency school was criticised for its lack of sophistication, because of its attempt to relate only to one variable. Configurational model is a more complicated approach that focuses on multiple independent variables that effect HRM strategy. This approach represents “non-linear synergistic effects and higher order interaction” to maximise performance of the company (Delery and Doty, 1996, p.808). The model emphasises internal congruence with organisational systems such as management style, finance and culture (Paauwe, 2004) as well as their vertical integration with strategic configuration (Marchington and Wilkinson, 2002).
3.3.4 Advantages of Best-fit model
- Analyses the influence of external environmental factors on organisation and its HR practises.
- Emphasises congruence and coordination between internal HR practises (Delery and Doty, 1996).
- Matches HR system with strategic management processes (Schuler and Jackson, 1999).
3.3.5 Disadvantages of the Best-fit model
- Ignores unique characteristics of individual businesses that could be the main source of competitive advantage (Beardwell and Claydon, 2004, pp.48-49).
- Ignores employee interests.
- Simplicity of classical approach in describing competitive strategies.
- Lacks sufficient attention to dynamics (Boxall, Purcell, 2000, p.187).
3.4 Harvard Model
The ‘soft’ approach Harvard model described by Beer et al. (1984) provides one of the first major statements on how managers should practise SHRM (Appendix 8). The analytical framework consists of six basic components: situational factors, stakeholders’ interest, HRM policy choices, HR outcomes, long term consequences and a feedback loop through which outputs flow directly into the organisation and to the stakeholders. It is associated with the goals of flexibility and adaptability and implies that communication plays a central role in management (Storey and Sisson, 1993).
- Recognises and incorporates a range of stakeholder interests (Armstrong, 2003)
- Recognises the importance of trade-offs.
- Widens the context of HRM to include employee influence, the organisation of work and the associated questions of supervisory style (Armstrong, 2003).
- Fails to show corporate or business strategy as key determinant of HRM strategies and polices (Tyson, 2006).
- This model does not explain SHRM functions in a detailed way (Loosemore, Dainty and Lingard, 2003).
3.5 Best Practice: High Commitment Models
These models are tools which are used to enhance company’s overall performance in improving employee spirits, behaviours, lowering labour turnover and absenteeism. The aim is to improve productivity, encourage high levels of expertise, and enhance quality and efficiency (Claydon et al. 2004). There are two approaches: the best practice SHRM and universalism. The best practice according to Guest (1989) has four objectives: strategic integration, commitment, flexibility, and quality. These objectives mentioned are required to achieve:-
- High job performance,
- Good problem solving among employees,
- Lower employee turnover
Another model is Pfeffer’s (1994): ’16 HR practices for competitive advantage through people,’ later changed to ‘seven practices for building income by putting people first’ (Appendix 9). This type of model signifies that HR enables organisations to adapt and innovate to gain a competitive advantage. With the universal approach, “the concern is with how close organisations can get to the ideal of practices,” (Claydon et al. 2004) the assumption being that the closer a company gets, the better the company performs.
Other best practice models vary depending on the relationship of organisational performance. This can be seen in Appendix 10.
Limitations of best practice models are: difficulty in determining whether or not the HRM practices lead to enhanced organisational performance or whether it is the current financial position which leads to increases in performance. It is also very difficult to determine how organisations with tight financial control operate within highly competitive markets and how they can “invest in some of the HR practices advocated in the best practice models” (Storey, 1995). Other limitations include: improved performance through efficiency and its tight financial control could be associated with the ‘hard’ HR policies as mentioned in Storey’s 27 points of differences. According to Boxall and Purcell (2003) “high commitment models tend to ‘fudge’ the question of pluralists goals and interests” (Boxall et al, 2003) which has also led to negative comments of how best practice models assist with the organisations overall performance.
4 Subway’s Approach to Human Resource Management/Personnel Management
In this part we explore and critically evaluate Subway’s Leicester based franchisee’s HR practises and procedures and assess their PM and HRM characteristics. Manny’s Classic Subs Limited is a typical example of Subway UK based franchisee. HR practises in this company are conducted by the HR manager and Managing Director (MD), which include planning, advertising, interviewing, recruitment and selection, disciplinary procedures, training, payment and wages review, rewards system and retention. Some fundamental HR procedures are communicated from the head office; however, the way in which they are implemented depends on the management of individual franchisees. In this particular firm HR procedures are still being developed.
4.1 Role perspective
There are several top management roles such as the MD, Restaurant Managers, and Company Secretary. These are however, not clearly defined. When looking at lower roles: within the stores themselves, there is a high level of specialisation. The specific roles include:
Sandwich Artist – involves customer service, paperwork accuracy, cash register, equipment usage, product preparation and taking phone orders.
Shift Leader – involves supervision of sandwich artist, deals with customer complaints, delegating work, enforcing policies and dealing with staffing issues.
Assistant manager – involves hiring, training and supervising procedures, weekly inventory and paperwork, food service certification, service counter marketing
(Subway Operations Manual, 2009)
According to Storey (1992) and Guest (1987), characteristics of PM can be seen at the lower levels and HRM at the top levels. It can however be said that the level of standardisation is high in general. This is because strict guidelines are passed down from the corporate Franchisor to each Franchisee in relation to its operations. In addition to this, communication throughout the company is direct in reference to HR approaches. This could be associated with the size of the company and with the stage within its life cycle. This company has 46 employees and therefore classified as a small firm. In addition, Subway is in the growth stage because it was established two years ago and its market share is still growing.
4.2 Training and Development
A two week training program, in the corporate headquarters, in management, book-keeping and personnel procedures, is offered to new franchisees. Plus an additional 34 hours of job training at a nearest subway (Subway Staff Handbook, 2009). In contrast, staff training is provided by the local managers or supervisors however, when training employees in first aid, they are sent in groups to St John’s Ambulance to attend a four day training course in advance first aid. Preliminary courses are also organised before sales training. This way of controlling access to courses when training staff relates directly to PM.
Furthermore, the Subway Staff Handout (2009) states that employees could be sponsored to obtain relevant qualifications that may be beneficial to their development within the company.
4.3 Recruitment and Selection
The recruitment processes within Subway include e-recruitment (company website), job fairs and word-of-mouth from current employees. They clearly identify what they want from candidates especially in relation to punctuality, accuracy, communication, ability to take direction and follow rules and most importantly, customer friendliness.
The selection process begins once the company has received candidates’ applications. The HR manager identifies the key characteristics of a candidate for example, age, availability and previous work experience. On the second stage of selection, the HR manager selects appropriate candidates for a telephone interview to discuss in detail the requirements of the role. The candidates that match the company’s criteria are then invited to a face-to-face interview; ultimately leading to the selection of one candidate and the signing of the contract. The company contract is simple and generic as it applies to most employees. All requirements included within this contract are clearly stated implying a personnel approach.
4.4 Employment relations
Managers treat employees according to the business needs. The main focus is on company stakeholders especially customers, who they believe is the “heart of their business” (Kang, 2009).
Internal relationships between staff are fundamental to the company. If conflicts occur, they are de-emphasised and the main role for management is to manage climate and culture. This is a reflection of the HR approach.
4.5 Monitoring and Control
Subway adopts a personnel approach to monitoring its employees so that all procedures and regulations set by senior management are followed. The monitoring system used is called KADCAM which ensures every transaction is processed accordingly and any errors within the process line inform the manager that employees are not following the rules.
4.6 Pay and Rewards
Wage starts at £7 per hour for all staff apart from store managers, after a trial period. These are then reviewed annually and depend upon company results and in accordance with the HR approach; pay is also based on individual performance. Company policy also includes promotion for suitable candidates with an appropriate level of experience and essential competencies (Subway Staff Handbook, 2009).
The first section of the report critically analysed PM and HRM and evaluated the similarities and differences between the two approaches. It was identified that PM sees employees as a cost and the objective is to minimise this. In contrast, HRM approach argues that people are a valuable asset and its practices are aimed to increase the employees’ commitment. They allow for HR policies to fit company strategy and ensure the company maximises business performance.
In the second part of the report Subway’s approach to people management is analysed using comparative frameworks by Beer and Spector (1985), Guest (1987) and Storey (1992) and identified features of both personnel and HRM approaches in Subway.
According to the company’s life cycle which is at the growth stage, and strategy involving maximising return on investment and providing excellent customer service (Subway Staff Handbook, 2009); they have relatively appropriate HR strategies in place. However, in order for them to adapt to the changing dynamic environment, they could improve and develop some of their procedures.
From speaking directly with staff at the franchise, it was identified that the employees are given a high level of empowerment. When management first implemented this, staff members were allowed to give out free upgrades but weren’t given appropriate instructions on procedures. It is recommended that management provides training and supervision (in the form of instruction booklets) before employees are empowered.
Subway currently closely controls its staff, but it could shift from PM, monitoring approach to nurturing in order to build trust between the company and its employees.
As this franchise in particular is in the development stage, some HR procedures such as rewards and promotions are not clearly identified yet. The company could improve this in order to increase enthusiasm within employees, thus leads to achievement of organisational goals.
Subway already emphasises the importance of teamwork however this can always be improved and develop for example by the use of team building workshops. They could also have an additional rewards set for teamwork as opposed to just individual rewards.
Finally, rate of pay is fixed as there is no difference between weekend and week pay. Separate teams are allocated to work weekends and mid-week. With a separate team just working on the busier weekends, dissatisfaction may occur. In compliance with other fast food companies within the UK, a recommendation would be to increase the hourly pay rate for the members that work on the weekends.
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