Harley Davidson Case Study

Harley Davidson, established in 1903, is the largest manufacturer of motorcycles in the United States. While Harley Davidson dominates the moto market in the United States, it is very small compared to the international market which is infiltrated with large Japanese firms such as Kawasaki, Honda and Yamaha who produce various categories of motorcycles. Harley Davidson has deep rooted brand equity in the United States and remains loyal in it’s style. It has also remained consistent in manufacturing only heavyweight motorcycles. By showcasing only a single model type, Harley Davidson has established itself as a leader in the United States market.

Other international markets, especially Europe and Asia, produce many lines of sports motorcycles (street bikes, scooters etc), as this meets the demands of these markets. Harley Davidson classifies their bikes into three main heavyweight categories (1) Touring Bikes, (2) Custom Bikes, and (3) Sportster Bikes. More than half of Harley Davidson’s revenue is generated from sales from within the United States, with a much smaller presence in Europe, Asia and Latin America. Harley Davidson has tried unsuccessfully to acquire additional motorycle companies twice since its origination but ultimately has continued to keep its product lines simple and focused around a few primary products. Description of Data and Sources

Initialal research was conducted on the history of Harley Davidson Motorcycles by researching their website. Data was then obtained from a variety of sources including industry journals, annual sales reports, and company websites. By comparing sales and annual (10k) reports to those of its competitors, we were able to determine market patterns and explain the market structure in which Harley Davidson Motorcycle competes. Sales reports
compared units sold by the Harley Davidson , as well as competition among firms internationally displayed by the type of bikes sold and in which geographic areas.

Explanation of Methods
In order to establish initial market structure and competitiveness, we collected data on the total units of Heavyweight motorcycles sold in 2012 in the United States. We gathered data on the numbers of units sold by Harley Davidson’s top three competitors, which we learned were Honda, Kawasaki and Yamaha, respectively. In order to establish a price per unit, we took the median price of each firm’s heavyweight inventory and then took an average based on these figures.

The number of units sold multiplied times average price per unit gave us an accurate reflection of over sales for 2012 when cross referenced with annual report data. Our data had some limitations as some firm’s data did not highlight units sold or sales revenue from the heavyweight market. We had to deduce and infer with the data we were given. Another limitation in data collection came when gathering information about price mark up and marginal cost. We sought information from industry experts who had insight in this area. Analysis and Results

The C4 four-firm concentration ratio of .880 indicates that there are only a few firms who produce most of the industry’s output. The heavyweight industry is highly concentrated. Most of this industry’s output is produced by Harley Davidson, Honda, Yamaha and Kawasaki. The Herfindahl-Hirschman Index (HHI) is 3,586 out of 10,000. This suggests that there are multiple firms in the industry who consume a considerable part of the market share. The top four firms account for almost 40% of the market. This number would deter an investor when considering a possible merger. Demand and Pricing Structure/Lerner Index

The Lerner Index for a Harley Davidson is .25 and the mark-up is 1.3. HD charges a price 25% over the marginal cost or 1.3 times the actual marginal cost. In other words, for each dollar paid from the consumer towards the purchase of a new motorcycle, $.25 is markup. Market Structure

Harley Davidson (HD) Motorcycles have many different aspects that contribute to the market structure, specifically the classification of motorcycles by size, the number of firms in the market both national and international, brand equity merchandising which includes entry to the apparel, accessories and licensing markets, barriers to entry and various merger attempts in the past.

HD Motorcycles are classified into heavyweight classes such as Touring, Custom, or Sportster. In 2011 Touring motorcycle accounted for 92,002 bikes out of a total of 233,117 bikes sold for Harley Davidson (Harley Davidson Inc., 2012). Second leading in sales were Custom bikes at 91,459 bikes (Harley Davidson Inc., 2012). Overall, Harley Davidson sold 152,180 units in the United States and 80,937 units internationally for FY 2011 (Harley Davidson, Inc., 2012).

In international markets Harley Davidson sold 83,505 units compared to 151,683 units in the United States (Harley Davidson, Inc., 2012). Outside of the United States, sales in Europe and surrounding regions were the second largest region for Harley Davidson with 44,340 units sold in 2011 (Harley Davidson, Inc. 2012).

Units sold in the Asian Region came in third at 21,416 units, and the least number of units sold for Harley Davidson was in the Latin American Region, at 7,247 units. All regions saw an increase in the number of units sold from 2010 to 2011 but the United States still remains responsible for 68% of total units sold (Harley Davidson, Inc., 2012). In 2012 HD experienced continued growth as they sold 145,391 units globally in the first 6 months; this is a 9.3% increase from the year before. Retail sales also increased by 12% in the US with a 16.5% increase in Asia/Pacific and a 58% in Latin America (Harley Davidson, Inc., 2013). Harley Davidson has seen steady growth in recent years.

Harley Davidson has not always sustained yearly growth. As the economy was slowing slipping during the recession of 2008, Harley Davidson was forced to make some decisions in order to survive. In 2009 Harley Davidson announced they would discontinue the Buell Motorcycle brand from their line to focus all of their resources on producing their primary products in order for Harley Davidson to stay afloat (Crowe, 2009). In 1994 Harley Davidson became a 49% owner in Buell Motorcycle Company, a company that was founded by a former Harley Davidson engineer, Erik Buell (Autoevolution, 2013).

In 1998, four years after entering business together Harley Davidson purchased an additional 49% of Buell Motor Company leaving the creator with only 2% ownership (Autoevolution, 2013). Harley Davidson would continue operating with Buell motorcycle brand for the next eleven years creating over 17 models of innovative motorcycles, however in 2009, as profits decreased, HD made a decision to end business with Buell.

In 2008, during these same difficult economic times, Harley Davidson acquired an Italian motorcycle company MV Agusta for $109 million hoping to increase sales and market expansion overseas in an area dominated by Japanese competitors (Barrett, 2010). Shortly after acquisition the market tanked and Harley Davidson had recorded $162 million in losses with the MV Agusta line (Crowe, 2009). The relationship lasted just over a year before Harley Davidson decided to sell the brand in 2009, at the same time it discontinued its relationship with Buell.

Finally, accessories and licensing sales is another segment of the market heavily dominated by Harley Davidson. During the economy crash while bike sales slowed revenue generated from the sales of apparel and merchandise helped to contribute to the overall bottom line for Harley Davidson. In 2012 $69.3 million was generated from the sales of general merchandise trademarked as “MotorClothes” was up 12.8% from FY 2011 (Harley Davidson Inc., 2012).

Summary and Conclusion
Although Harley Davidson dominates the market in the United States, it has been the smallest in Europe and the 4th in Asia/Pacific region which is dominated by Japanese brands. One reason for Harley’s smaller market share in the Europe and Asia region is that the company cannot produce enough motorcycles to meet the demand and its prices tend to be higher than competitive models. Shortages of Harleys lead many consumers to purchase competitive bikes as there are 2-year waiting lists for some Harley models (“Company spotlight: Harley-Davidson”).

This would lead us to believe that Harley Davidson acts as a leader in a Stackelberg Oligopoly as it chooses its level of output in the market. In the United States Harley Davidson is one of a few firms that create motorcycles for touring or cruising. Harley Davidson produces differentiated products and remains the leader in selling them. Competitor firms such as Honda and Yamaha sell a significantly smaller number of motorcycles in the US markets compared to Harley Davidson. Barriers to entry have been exemplified by companies such as Polaris and Triumph who have tried to enter the market but remain at 2-3% of market share.

Market Percentage
In United StatesUnits Sold
(in K units)Revenue (in M $)
Harley Davidson57%161$2,500

Autoevolution. (2013). Buell Brand History. Retrieved from http://www.autoevolution.com/moto/buell/history/

Barrett, R. (August, 2010). Harley Davidson takes beating on MV Agusta. Retrieved from http://www.jsonline.com/blogs/business/100759404.html

Company Spotlight: Harley-Davidson Motor Company. (2006). MarketWatch: Global Round-up, 5(10), 14-19. Crowe, P. (November, 2009). Harley Davidson and Buell – Unfinished Business. Retrieved from http://thekneeslider.com/harley-davidson-and-buell-unfinished-business/

DATAMONITOR: Harley-Davidson, Inc. (2011). Harley-Davidson, Inc. SWOT Analysis, 1-9.
Delmont, J. (2013). LEANING INTO THE CURVE. Dealernews, 49(1), 20. Harley Davidson, Inc. (January, 2012). Harley Davidson Earnings, Retail
Motorcycle Sales Shows Continued Strength. Retrieved from http://investor.harley davidson.com/phoenix.zhtml?c=87981&p=irol-newsarticle&ID=1651657

James B. Kelleher, R. (2013, June 30). Harley-Davidson looks beyond the aging white male. St. Paul Pioneer Press (MN)
M.L. Johnson The Associated, P. (2013, June 10). Stripped-down Harley-Davidson rebounds from recession. Charleston Gazette (WV). Motorcycle Daily (August, 2010). Victory Motorcycle First Ride. Retrieved from http://www.motorcycledaily.com/2010/08/2011-victory-motorcycles-md-first-ride/ Motorcycle USA. (February, 2008). Victory Motorcycle History. Retrieved from http://www.motorcycle-usa.com/690/2587/Motorcycle-Article/Victory-Motorcycle-History.aspx

Muller, J. (2013). Return of the Indian. Forbes, 191(1), 36-38.
(2013, February 14). StockCall Study on Polaris Industries and Harley-Davidson: Recreational Vehicle Companies Raise Dividends. PR Newswire Europe.

Cafes Monte Case

The company located in Milan, Italy.
It was found by Mario Salvetti as a manufacturer and distributor of premium finest coffees. The company faces a hard decision that may affect their future. The company wants to know whether or not they should keep working in the same investing. An important meeting was there among the top management team’s members to discuss the future of the company. The company’s performance was good in 2000. Profit was shown at the financial statement. Giacomo Salvetti the CEO of the company needs to decide which to choose as the business strategy for the company: 1) Keep working in the premium coffee market.

2) Transfer to the private brands market.
The current capacity of the coffee production in 2000 was 350,000 K/M , with added additional capacity of 150,000K/M. The cost of the additional units was 6 billion liras. More facts about the profitability and the liquidity were required beside the cash flow and the profit plan to quantify strategic alternatives and to help in making this decision. The idea of changing was not easy to the CEO to accept without a clear image of the financial consequences. The report was provided by the marketing manager showed that the premium market is very volatile.

On the other hand, the private brands market is more stable. (Full capacity at the price of 8,800 liras). Price is lower in the private market than the premium. The volume is depending of the number of retailers. ( Every additional retailer need at least 500,000 K/Y). The report was provided by the manufacturing director showed that costs are different in each amount of the volume and quality of beans. These costs include the cost of beans, labor and fixed cost. The company is able to save 65% of selling costs, 75% of R&D costs and 50% of administrative costs, if they choose the private brands market.(Director of strategic planning). Private brands’ retailers will pay slowly- 90 days instead of 30 days. (Financial officer).

I took the sales price as the current price 8,800 liras. Most of the expenses are decline compare to what they were in 2000 beside also the profit. Marketing expenses were no longer there because the marketing percentage became 0% in this volume of the private market. The reason of having this decline is the gross margin of the private market comparing to the margin of the premium market. Sales price and cost in private market are less than what they are in the premium market. Cash flows are not stable during the year. It looks vary from quarter to another. In the cash flows, the retailers will pay in 90days (3months) period of time as what it is in the private market. The cash opining was 50% in the first month and 25% in next 2 months. The other expenses were divided by the 12 months equally.

Variable and selling costs are showing in page(5).
I don’t recommend the full transition to private market. The profit will be lower than what it is even if it is less volatile. There is no reason for the company to lose its premium market if the profit is low, too. I would support the chance of mixing the premium and the private markets together, because of the profitability there.

Borland Software Corporation Case Study

A)Intangible assets are operational assets that lack physical substance. However, the future economic benefits that are derived from intangible assets are usually less certain than tangible operational assets. Due to this uncertainty, the valuation of these assets rely upon multiple estimations, therefore the reliability of the information may not be as accurate. Additionally, the relevance of the data in the decision making process comes into question since the future benefits are unknown. Copyrights, franchises, goodwill, patents, and trademarks are just a few examples of intangible assets.

Under Generally Accepted Accounting Principles (GAAP), intangible assets including patents, trademarks, copyrights, franchise agreements, customer lists, license agreements, order backlogs, employment contracts, and noncompetition agreements should appear on a company’s balance sheet. GAAP requires intangible asset recognition (apart from goodwill) on the balance sheet if the said asset arises from contractual or other legal rights or is capable of being separated from the acquired entity.

B)The value of goodwill in a company’s balance sheet captures the unique value of a company as a whole over and above its identifiable tangible and intangible assets. Goodwill can only be recognized as an asset on the balance sheet when a company engages in the acquisition of a whole of portion of another company. The value of goodwill is a residual value that is calculated by subtracting the fair value of the acquired company’s net assets from the fair value of the consideration exchanged (or purchase price). Additionally, if the goodwill is developed internally (as opposed to purchasing another company), the costs incurred is expensed not capitalized.


C)i)December 31, 2006253356= 57.1%

December 31, 2007226688= 41.7%

ii)26.5 million of impairment was recorded against our CodeGear reporting segment

iii)CodeGear,26509= 39.4%

iv)In the text is says that they consider various data points when determining these values such as discounted cash flows and market comparable transactions. This should be done at least annually

v)Loss on Impairment of Goodwill26,509

vi)On the statement of cash flows it shows that the impairment of goodwill was under the operating activities. Its shows that it is giving the company a loss of 26,506 in 2007

vii)If there is a loss on impairment by goodwill and this has an effect on the cash flow statement I think that it should known to everyone in a footnote. It would be understandable if this amount is minute and not shown but if it large and ongoing it is something that needs to be known and dealt with.

D)i)December 31, 2007(31658/544017) = 5.82%
December 31, 2006(40521/443899) = 9.13%
ii)The gross amount if recorded intangible assets at December 31, 2007 was $68,205
iii)Primary cause of the decrease in the value of intangible assets, net on
Borland’s balance sheet from 2006 to 2007 was amortization. All intangible assets are amortizable and that’s why total accumulated amortization for 2007 was higher than 2006.

iv) Amortization Expense$ 8,863,000
Accumulated Amortization$8,863,000
E)Software development cost was not capitalized in 2007 balance sheet. It was feasible because they were not selling any third party software and as soon as software was considered for technological feasible they put it up for sale. Analysis

F)Borland accounts for these expenditures by expensing the production costs of the advertising the first time the advertising takes place. The costs from funding certain activities of the reseller channel are treated as advertising expenses.

i) 2007
Total advertising expense including funded advertising

$2.3 million
$2.8 million
$4.4 million
Total advertising expense / Total revenues

Total advertising expense / Selling, general, and administrative expense

ii)This table shows that advertising spending has decreased each year. When taken in proportion to total revenues and general expenses, the percentage that composes advertising expense decreases each year. Since advertising costs are expensed the first time the advertising takes place, this may not represent an actual decrease in advertising, just a decrease in new
advertising campaigns.

iii)Looking at the assets of the company may help to show fluctuations in the current value at least in terms of book value. Even more so, the company’s stock price will help to see where investors see the current value of the company and its brands.

G)i)For the purchase of Segue Software, Inc, the purchase price was allocated to the acquired assets and liabilities based on their estimated fair values on the date of acquisition with the remaining classified as goodwill. The developed technology, customer relationships, agreements, and trademarks are all amortized over their respective periods. These amortizable intangible assets were calculated using the income approach by estimated the expected cash flows from once the projects become viable and discounting them to the present value.

ii)131,663/141,456 = 86.93%

iii)In process research and development is research and development acquired from Segue Software, Inc that had not reached technological feasibility and had no alternative use. This amount was charged to operating expense upon completion of acquisition. The value was computed using the income approach by estimated the expected cash flows from the projects once commercially viable and discounting the cash flows to their present value.

v)On the cash flows statement, an outflow of $115,939 million is reported for the acquisition. This amount is different because the statement of cash flows only reports the amount of cash that actually changes hands.

H)i)Based strictly upon the figures on Borland’s financial statements, it seems as though the company has had a record of poor financial performance from the years 2005 to 2007. The company’s net income reported an increasing loss in all three years ($29,832 in 2005, $51,953 in 2006 and $61,673 in 2007). Also, according to the Borland’s balance sheet more than half of the company’s assets are either goodwill or intangibles. Since these intangible assets have a more uncertain economic benefit than other tangible assets, the financial condition is not as strong as it initially seems on the balance sheet.

However, a closer inspection of the financial statements gives an explanation that doesn’t reflect Borland’s financial condition as poorly. Much of the company’s operating expenses come from research and development and expenses relating to goodwill and intangibles (36% in 2007, 32% in 2006, and 31% in 2005). This is technically a violation of the matching principle, but it is a necessity since the future economic benefits of goodwill and intangibles is uncertain. This results in increased expenses and lower earning in the current periods and decreased expenses/increased earnings in the future. The statement of cash flows shows that Borland spent a large portion of its expenditure on acquisitions of different companies (Legadero, TeraQuest, and Segue Software), technologies, and investments that include goodwill and intangibles, which further supports this analysis.

ii)The market’s perception of Borland’s value over the period from April 1, 2007 to March 31, 2008 is a negative one. The overall trend shows a decrease in value of Borland’s stock price (beginning approximately 5.4/share and ending roughly 2.0/share), indicating negative perception of Borland’s value. Borland’s market capitalization at the end of 2007 was about $218,927,916 [(total common shares outstanding) * (stock price) = (72,975,972 shares * $3/share = $218,927,916). The book value of equity is $202,070,000; therefore the market value estimate is greater than the book value by about $16.9 million as of December 31, 2007.

iii)After reviewing the analysis in parts h. i and h. ii, it is clear that the current value of Borland’s goodwill and other intangible assets is undervalued. Although current earnings are low due to increased expenses in the current periods, the high market capitalization over the book value shows that investors believe the value of the company will be higher in the future.

iv)In Borland’s May 7, 2008 press release regarding Q1 2008 data, the company states that the goodwill impairment charge of $13.3 million associated with CodeGear is an infrequent occurrence and was required by GAAP standards. Borland did not believe that this accurately portrayed the financial status of the company’s normal operations and thus should be excluded in any investor’s assessment of the company. Borland has a valid point in this statement since these goodwill impairments affect the financial documents but do not arise from the core operations of the company.

Commercial law case analyse

Commercial Law
Term Paper (Case Analysis)

Pro-Gordon C. Johnson

June 18, 2013

9th Edition
Chapter 5-Case 5
Summary: Marie-Claude operated a bowling alley in a commercial area that was adjacent to a residential area. Many small children used the parking lot near the bowling alley as a playground, and Marie-Claude was constantly tell these children leave the parking area maybe they will get injured. However, one six years old boy climb onto the flat roof of the bowling alley and while he is running, tripped and fell to the ground. But Marie-Claude continued to order the child off the roof by several times when he was on the roof.

Analysis: this situation can apply on Trespassers of Occupier Liability and Negligence of the concept of Foreseeability through the Supreme Court of Canada. For plaintiff: the occupier of the building warns the child of any dangers that exist on the property. Meanwhile, according to the concept of Foreseeability part, a very small child of tender years would not be held liable in tort, but children in their early teens, depending upon the extent of their maturity and level of understanding, nay very well is held responsible for their actions.

This case belongs to unintentional acts of a person caused injury to others. For defendant: Owners of buildings, construction sites or those who construct dangerous structures on their premises in neighborhoods where small children live have a special duty to protect the children from harm or injury. On the other hands, the outcome for this situation maybe is Compensatory damages or Nominal damages. For compensatory: the loss suffered by a person in a negligence case in the loss of or damage to property. For nominal: when a person trespasses on the land of another without inflicting physical damage to the property.

Chapter 7-Case 3
Summary: Armstrong Aggregates Co. wrote a letter to Bishop on May 2nd offering to sell him 200 tons of scrap mica at $180 per ton. Bishop received the letter on May 3rd. A few weeks later, Bishop checked the price of mica which is $185. On May 22nd, Bishop wrote to this company that is accepting this offer. But this company did not receive this letter until May 30th. And Armstrong refused to sell mica to Bishop at $187 instead of $180 because the price was increasing.

Analysis: This situation should belong to Offer and Acceptance Section. An offer is not valid until it is received by the offered, and the offeror is not limited by the offer until such time as it is accepted according to Communication of an Offer. So in this case, Bishop received the letter on May 3rd, before May 3rd, it is not bounded. On may 22nd, Bishop wrote to this company and accepted this offer. According to Acceptance of an Offer, the acceptance must take the form if certain words or acts in accordance with the offer that will indicate to the offeror that the offeree has accepted the offer.

In addition, the acceptance of the offer takes place when the letter of acceptance, properly addressed and the postage paid, is placed in the postbox or post office. So for Bishop (defendant), it obeys the rules of an offer and acceptance. For Armstrong Aggregates Company (plaintiff), they cannot change their offer by increasing the offer because Bishop had already accepted the offer and sent to this company on May 22nd. Meanwhile, the company did not communicate with Bishop about change the price. Therefore, this action is not valid and this company should still accept this offer at $180.

Chapter 10-Case 2
Summary: Habitation Apartments Ltd. borrowed $500,000 from their Good Times bank and secured the loan by way of a three-year mortgage on its apartment building. And the president of the corporation personally guaranteed repayment of the loan. Several years later, as a result of dispute between shareholders and a new president and Board of Directors were selected by the shareholders. As part of organization, they rearrange its mortgage loan with the bank. The bank agreed to extend the loan for a further three-year term but at a higher interest rate. A year later, as a result of tenant problems and a high vacancy rate, the corporation was unable to meet its mortgage payments and the mortgage went into default.

Analysis: This case should address in the Guarantee of Assumed Liability section. The guarantee always involves at least three parties: a principal debtor, a creditor, and the guarantor. The guarantor’s role in a guarantee agreement is to provide a promise of payment in the form of a contingent liability. In this case, Habitation Apartment Ltd and the bank are only two parties and they do not have formal writing document. Because of the unique relationship between the parties, the guarantee must be in writing to be enforceable.

For plaintiff: the Habitation Apartment Ltd should mortgage on its apartment building, because the president of the corporation guaranteed repayment of the loan and they should obey their contract. For defendant: before the contract come into effect, the leader of the bank should consider these problems, for example, the interest rate will be go up. They should tell the corporation this situation will happen and a condition that must be satisfied. In addition, they should as their original contract to conduct their liabilities no matter they rearrange the financing or increase their interest rate. The corporation of the apartment should return repayment as the original interest rate.

Chapter 13-Case 4
Summary: Hansen admired a sports car that Sports Motor Sales Ltd. wished to sell. Hansen informed the company salesman that he would buy the automobile if he could obtain a loan from the bank to cover part of the 17000 asking price. The salesman agreed to hold the car until Hansen could check with his bank. And Hansen discussed a loan with his bank manager and he said he would be prepared to make a 5000 loan through approval from the regional office. As a result, Hansen then entered into a written agreement with Sports Motor Sales Ltd. Then both parties signed the agreement. A few days later, the bank manager said he had problem with the loan approval. As a result, he could lend 4000 instead of 5000.

Analysis: According to Condition Precedent, when a condition precedent is agreed upon, the agreement is prepared and signed; only the performance is postponed pending the fulfillment of the condition. Once fulfilled, performance is necessary to affect discharge. If the condition is not met, it then has the effect of discharging both parties from performance. Because the loan approval has some problems, both parties did not fulfill the condition of the approval, so the Moto Sales Ltd. should charge for this mistakes. At the same time, a Material Alteration of the terms of existing agreement has the effect of discharging the agreement and replacing it with a new one containing the material alternation.

The alternation of the terms of the existing agreement must be of a significant nature before the contract will be discharged by the change. If the loan approval has some problems, so the bank can agree Hansen to discharge it and replace it with a new agreement. So the bank does not need to give himself 1000 short. In addition, according to Novation, the parties may also discharge an existing agreement by mutually agreeing to a change in the terms of the agreement or to a change in the parties to the agreement, so at least one party should agree to substitute or replace it.

Amway India Case analysis


Assignment Presented to
Dr. G. N. Braithwaite-Sturgeon as per the requirements of
International Marketing ADM4328 M

University of Ottawa
January 22nd 2013


Amway, a North American Multinational, subsidiary of Alticor Inc. has over the years become one of the leaders in the 90 billion dollar direct selling industry through its use of multi-level marketing and creation of networks of independent business owners and sales. Founded in 1959 by Jay Van Andel and Richard DeVos, the company grew and captivated interest on an international level, especially in developing countries due to its ability to provide entrepreneurship opportunities. Amway’s range of 450 products and services are distributed worldwide in over 90 countries in a variety of sectors such as: wellness, beauty, home care, commercial, insurance, education and nutritional care. India’s growing economy made it one of Amway’s many targeted countries, and, in May 1998, Amway India commenced its business operations.

After 36 million dollars of investment in the Indian market, in 2002, Amway India came under some legal issues when Indian officials and the State Government of Andhra Pradesh registered a criminal complaint against Amway India Corporation and concluded their creation of a chain of distributors was operating against the Act Prize Chits and Money Circulation of 1978. Today, in 2013, Amway has continued its operations within the country and has even expanded into a 100 million dollar colour cosmetic segment. Business is booming but Amway Corporation’s future endeavours within India hang in the balance of its legal conclusions.


Despite the fact that Amway Corporation has experienced tremendous
international success, they are now facing legal concerns in India with respect to their direct sales practices. These legal issues tied to the creation of a chain of distribution that may be in violation of the law as defined in and prohibited by the Prize Chits and Money Circulation Schemes (banning) act of 1978, have the potential to negatively influence their profit margins and bottom line, and in turn, affect the corporations reputation and international brand. All of the Corporation stakeholders are experiencing uncertainty with the company’s future in India.

SWOT Analysis

Internal Analysis
– Amway’s Starter Business Kits are available at a low investment cost and are fully refundable within 90 days. This along with the corporation’s free and extensive training seminars make it accessible and enticing for potential distributors and independent business owners. – Amway Corporation has a large distribution network and international coverage. – Aggressive product launches with products backed with a 100% customer product Refund Policy create an image of low financial risk to the consumers.

– Limited sales approach – direct selling
– Negative consumer perception- impression of pyramid selling scheme – Amway’s is illustrating an ethnocentric marketing strategy; it is using the same strategy in India as it is in the United States with no adaptation.

External Analysis
– The Corporation has a national and international scope because of its ability to provide entrepreneurship opportunities at the micro-level globally – an impressive market opportunity for Amway in the direct sales sector. – India’s economy in booming, increasing disposable income. – There is a large focus on materialistic possessions and beauty in Indian
women within the country’s urban and metropolitan areas, making it easy for distributors and IBO’s to sell a variety of Amway products.

– Legal policies change from one country to another; India’s laws could prevent Amway to continue its operations in that particular country. – Government policies can change at any moment and inhibit the ease of operation in a specific market. – Little to no control over the marketing and sale of their products: Independent business owners have a lot of freedom to make those decisions. – Competitors such as other multinationals or corporations (Ex: Avon and Mary Kay) create threats for market share.


Option #1: Planned Exit of the Indian Market & Exploration of Other Potential Markets. Main Pros:
– If Amway were to implement a planned exit of the Indian market, it could sell off its current existing products while they still were able to execute business within the market and not experience any unexpected losses. – Amway Corporation would not have to spend additional time, effort and money in legal litigations and negotiations. – The corporation’s time could be focused on exploring other potential markets within neighbouring countries with fewer legal restrictions on the distribution of their products. – If neighbouring countries are tapped, the existing investment in India’s manufacturing plants and machinery can still be used for fabrication of products for neighbouring countries.

Main Cons:
– Neighbouring countries could present little to no interest in adopting business practices from Amway Corporation, or could present little to no profit for the company due to the varying national economic situations. – Loss of the 36 million dollar investment (including the 17 million state-of-the-art manufacturing facilities invested in India. – Extremely large loss on potential profits in that particular market. – Loss of direct and indirect jobs for the Indian citizens.

– Failure in such a large market could harm the company’s image within the minds of the consumers.

Option #2: Continue Business and Expansion in India
Main Pros
– The company could continue making profits within the country while fighting the legal battles. – Little to no research or change needs to be made to the business model or marketing strategy. – The expansion will create more jobs and revenues, benefiting both India’s citizens and the corporation itself.

Main Cons:
– Amway could be forced out of the market if the court supports the government’s view that the corporation is in violation of the Prize Chits and Money Circulation Act. – Product lose is possible if Amway is forced out of business within the country; the IBO’s and distributors could keep all products they have on hand, instead of giving it back to the corporation. – Further investment in legal fees would be incurred.

– Loss of time and human capital would be lost to the investment in winning the legal litigations.

Option #3: Continue Business and Expansion in India with Ethocentrism; define a new marketing or distribution plan for its business in India that complies with the country’s legal constraints. Main Pros:

– The company could continue to operate within the country, maintain its market share. – Amway India would benefit from India’s growing economy and large population. – If Amway had global integration with local responsiveness, they could attain a larger market share and increase sales. – There would be little to no investment on legal issues.

Main Cons:
– Amway would have to invest in environmental scanning.
– There would be an initial investment in marketing costs to alter and implement a new marketing strategy. – The new marketing strategy could ultimately fail, leading to loss in marketing investments.


After careful consideration of the options listed above, the recommendation that I would give to Amway Corporation would be option #3; to continue business and expansion in India while developing a ethnocentric marketing strategy – a marketing strategy specific to that country in compliance with its laws on product distribution. It is important for Amway to continue its operations within India as it is a market that presents many current and future opportunities. This option presents the most benefits to the company’s future success within the market and illustrates the lowest risk and least amount of potential loss.

The implementation of option 3# is as follows:

Short term (0-6 months)
Within the short term, Amway India would continue its regular proceedings within the country. It would have to do extensive environmental scanning to develop a deepened understanding of India’s economical, social, environmental, technical, and most importantly its legal aspects. I would also recommend that in the first six months, Amway Corporation should develop further market research, to enable them to ensure a positive corporate image within the minds of the distributors and the consumers.

Medium Term (6-12 months)
Following the research phase, Amway should develop the Indian Marketing Strategy; a strategy that complies within all of the political and legal requirements for sound business practice.

Long Term (12+ months)
Lastly, Amway Corporation will put in place its new Marketing strategy for
Amway India. It will have to monitor its results and make minor changes along the way.

*All information taken from textbook and lecture notes

Cottrill case study


Judy Stevens, purchasing supervisor at the Cottrill Inc. plant in Columbus had to take a decision whether she wanted to change cottrill’s paging service from its current supplier Tallant to Saxton Wireless or wanted to remain with Tallant. She had to finalize her decision in few hours.


Cottrill was established in the mid-1800s and was the one of the largest corn refining operations in North America. The company operated six wet-milling plants, four in the United States and two in Canada. The Columbus plant had been operating for over 20 years and employed more than 100 people. Cottrill’s purchasing department had to ensure that the plant ran efficiently and was responsible for replenishing a variety of supplies at the plant, ranging from chemicals to communications equipment. A current initiative for Cottrill, and particularly for the purchasing department, was reducing the level of working capital. This had been a focus in the purchasing department for over two years, and the departmental target was an annual decrease of $300,000.

The majority of Cottrill’s products were manufactured through a continuous flow process. Therefore, downtime at the Columbus plant was extremely costly and was estimated at $200,000 per hour. In an attempt to minimize plant downtime, management implemented an automated software program and an electronic pager system 12 years ago. The software program, called Production Messaging, monitored Cottrill’s equipment. The plant had a total of 20 pagers, and this number included a variety of different models.


Several recent events had caused Judy to become dissatisfied with the current arrangement with Tallant. In June, Judy contacted Tallant with a routine request to replace a broken pager. Judy was dissatisfied with Tallant’s service, feeling that she spent too much time on the phone arranging the order and it took Tallant over a month to send out the replacement pager. Judy contacted Tallant again in September to replace another pager. She was informed that Tallant no longer carried this model and that the option of renting the pager hardware would be discontinued in the near future. Judy ordered a comparable product, valued at approximately $150, but felt a little unsettled by the new information. Cottrill’s budget was tight and she preferred renting this equipment instead of purchasing for cash flow reasons.


In late October, a Saxton sales representative, Natalie Hopkins, contacted Judy to present a proposal outlining the benefits to Cottrill of switching to Saxton’s services.


Per-Unit Comparison of Service Terms for Tallant and Saxton

Tallant Saxton Monthly fee for airtime (per pager) $16.95 $13.95 Monthly fee for phone number (per pager) $1.95 None Monthly fee for equipment rental (per pager) $11.90 None Yearly maintenance fee (per pager) $60.00 None Service provided (no additional cost) 1-800 # help line Direct sales representative In order to confirm that Saxton’s pagers would be compatible with the relevant applications in the Production Messaging software a trial was scheduled for the first week in November. Unfortunately, the pagers did not immediately function with the Production Messaging software. However, after several attempts to solve the functionality issue, Cottrill’s systems group resolved the snags in the hardware and reworked the connection after completing some reprogramming.


1-Judy can decide to switch to Saxton.
2-She can remain with Tallant.
3-She can call an urgent meeting with Tallant and discuss with them the issues she has with them and ask them to improve their service and also to continue the option of renting pager hardware. 4-The monthly fee for Saxton is $279. Judy can think of having Saxton wireless for one month testing period before terminating the contract with Tallant. So the fear of having the same issue to happen again like at trial time can be minimized. In the meantime, she can also search for other wireless system options which may be better than both Tallant and Saxton.


1-Saxton will reduce the cost up to $5244 per year than Tallant. This is very important for Costrill as they are trying to reduce their working capital. Saxton will also provide a direct sales representative in case any issue arises; it will save time and will be more important in case of emergency. 2-Tallant has established reputation in the area of in-plant wireless messaging system and are working with Cotrill for 12 years. They have much more experience, so are more reliable than Saxton.


ServiceBestNot very good
FunctionalityNot certainCertain
ReputationNot establishedestablished


I would recommend Judy to go for alternative 4. Saxton is lower in cost and better in service than Tallant. By spending $279 she can make sure if Saxton is fulfilling all the requirements of Costtrill. It will also give her time to compare functionality and reliability of both systems.

The “IDEO” Case

1. Why has IDEO been so successful? What is the most difficult challenge it faces in conducting its research and designing its products? IDEO is successful because helps other companies to be successful. I think they put a lot of efforts in research and market analyzes to get a deep and detailed idea about what consumers really want and need. They use a broad and various set of research methods like customer observation, customer interviews, prototyping and also let people participate in the design process (usability tests at each development stage). To put the customer first is one of the key success factors nowadays to meet their needs and to be successful. By designing products which consumers really want, IDEO guarantees sales. They also have an own research methods, for example the “human-centered research method”.

By researching deeply, IDEO gathers detailed, accurate and precise information about customer´s needs. If you know and understand what consumers want, you can design a product that exactly meets their needs and will be highly accepted by consumers. Many companies don´t put consumers first and don’t ask them what they really want. That is why they get stuck. IDEO designs “from the outside in”.

2. In the end, IDEO creates great solutions for companies that then receive all the credit. Should IDEO try to create more brand awareness for itself? Why or why not? IDEO should not try to create more brand awareness for itself. Its core business is to do market and customer research, design products for other companies and to consult them in a very specific niche. Brand awareness for the company itself is not needed because they are operating in a B-to-B area, not the B-to-C area.

Case Analysis: Employee Attitudes

1. Which of Schwartz’s 10 values are driving the behavior of managers at Bain & Company, Home Depot, and Best Buy? Provide examples to support your conclusions.

Bain’s management is driven by he Schwartz’s values of power and self- direction. In a downturn, he chose to go against the grain and take advantage of the situation, hiring people instead of laying off which allows him to snatch up recently unemployed or underemployed quality candidates. His approach is clever and keeps him ahead of the competition. He also spreads out from the market in recession and looks for opportunities in emerging ones. In the case of Home Depot, the management is driven by universalism, lowering the target goals for the employees so they can more easily achieve bonuses when business isn’t booming. This also touches on security, in that they are building loyalty and dedication within their workers.

Best Buy chose to bring their employees into being part of the solution. The value of universalism is seen here as they encourage their workers to think globally to solve a problem. While I understand that this approach has value, making employees part of the solution fosters a feeling of team spirit and working together, I believe it could also backfire, leaving employees feeling they must help solve company financial issues or they could be left without a job. I am not sure Best Buy’s approach is enough.

1. How would you describe Steve Ellis’s affective, cognitive, and behavioral components of his attitude toward managing in a recession? Be specific.

Steve Ellis’s attitude toward managing in a recessions contains an affective component, reflecting emotions and feelings towards his ideas. His affective component is positive, optimistic and enthusiastic. His cognitive component, which reflects his beliefs about this situation, is shown as his belief that doing the counter intuitive thing by hiring and expanding to other markets will result in better power and profit, regardless of the recession and certainly when the market recovers. His behavior component, how he plans to act in this situation, is clever, insightful and strategic based on experiences and instincts he has gain during his career.

2. How are Home Depot and Best Buy trying to increase employee involvement? Home depot and Best Buy are trying to increase employee involvement in similar and also different ways. Home Depot cut the targets employees needed to hit to achieve a bonus, allowing the bonus to still be possible in an economic downturn. They are ultimately creating loyalty and a feeling of working for a company that values and understands its employees. Best Buy is bringing their employees into the management process by taking their feedback and using that to create processes and policies that help manage costs during the recession. This also can create loyalty and a sense that the company values the employees.

3. Use Ajzen’s theory of planned behavior (Figure 6–3) to analyze how managers can increase employee performance during a recession. Be sure to explain what managers can do to affect each aspect of the theory.

Managers must first change the employees attitude about their work. They can create engagement by seeking feedback, making employees a part of the solution. They can create a level of loyalty and a feeling of being respected by being honest about the company’s financial state, long term goals and challenges. They can also do as Jet Blue did and show the employees that everyone is affected, from the highest ranks, by lessening salaries at the top and spreading the negative impact fairly throughout the organization. Next they need to convince the employees that the behaviors they want the employees to harbor are important to the employees.

They can do this by tracking process and showing them results of the behaviors, keeping communication open to allow updates, bringing the employees into the process so that they understand the bigger picture impact of their individual and group behavior. Finally, they must convince the employees that they have some control over the outcome. Show them that every change has an impact and give them some decisions to make. Allow them to choose between equally important processes.

4. Based on what you learned in this chapter, what advice would you give to managers trying increase employees’ organizational commitment? I believe that a good manager has the ability to inspire individuals and teams, has a strong ability to recognize strengths and weaknesses in individuals and teams and capitalize on the strengths while lessening the impact of the weaknesses. Managers must always communicate the goals and objectives, repeating often to keep the focus on them.

They must recognize achievement with pay, but also recognize the other things that drive and motivate employees, like awards. In my company, sales people are always rewarded for high achievement with money, but many of the other teams appear more satisfied with awards relating to recognition, promotion, sitting on committees, etc. Managers must foster teamwork, and allow working conditions that give a good work life balance. They should encourage work to be a fun, fulfilling part of the employees’ lives, not a job.

Groupon case study

Question # 1

How has an understanding of consumer behavior helped Groupon grow from 400 subscribers in Chicago in 2008 to 60 Million subscribers in 40 Countries today?

Goupon figured out that people were looking for simplicity in purchasing deals. They determined what people wanted and that they would purchase

these items at a discounted price. They brought these deals to peoples hometowns and made it easy to try new things at a discounted price. Their concept was

genious the model was a win for everyone. Consumers received discounts, merchants obtained new customers without the cost of advertising and Groupon

generated revenue at the sametime creating value in the marketplace.

Question # 2

What is Goupons Promise?

Any customer can return a Groupon no questions asked even if they used it.

How does the Groupon Promise affect a consumer’s perveived risk and gognitive dissonance? The guarantee gives the purchaser

peace of mind. The purchaser knows that if they are unsatisified in any way they can just return the item for a refund even if they

have used it and are unhappy with the purchase. This allows the purchaser to make the purchase without the fear that they will be

wasting their money if they are unhappy.

Question # 3

Describe the Five-Stage purchase decision process for a typical Groupon user?

problem recognition – When the consumer wnts or needs something or has a problem that requires a purchase. infomation search – when the consumer shops for the desired product or service alternative evaluation – a consumer arrives at a final set of product choices and then must evaulate them based on individual need. purchase decision – the consumer has considered all the options and has come to a decision. evaluation – the consumer has made the purchase and must now evaluate if it was the correct decision.

**The Five Stages of the Consumer Buying Process, By Carl Hose, eHow Contributor,http://www.ehow.com/info_7896069_five-stages-consumer-buying-process.html web.

Question # 4
What are the phychological and sociological influences on the Groupon consumer purchase decision process? The recession has increased the importance of thriftiness therefore people are becoming more consious of spending and also on saving. People are looking for deals and ways to save money. Groupon can greatly influence purchasing decision because it gives them the opportunity to do something they enjoy but at the same time be conscious of saving money.

Question # 5
What challenges does Groupon face in the future?’ The first challenge Groupon is facing is customers purchasing coupons but not using them. The fear is that this will leave a bad taste in their mouth and they will cease to use Groupon or recommend it in the future.. Also some customers use the coupons and for whatever reason they don’t use Groupon again.

The second challenge Groupon is facing is managin their growth. The company has expanded into Europe, Latin America, Asia and Russia. They have accomplished this by buying out other local daily deal services. The third and final challen Groupon is facing is an extraordinary level of competition. Part of the problem is the technology that they use is not very sofisticated and easy to copy.

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Hiring a Plant Manager at Dynamo Industries Case Analysis

As the plant is facing two major issues in terms of higher production cost and poor worker relations, the candidate should possess good interpersonal skills as well as knowledge on production processes and management techniques. It would definitely be an advantage if the candidate is promoted within the ranks as this sends good signal within the organization about opportunities for personal growth for the employees. My rank ordering of my top four choices for the Pittsburg job is George Martin, Kathy Joyce, Frank Hall and Jay Davis. George Martin is currently the plant manager for Dynamo. George well with handling stress and interpersonal skills but he did poorly on the ability to resolve conflict. Kathy Joyce is currently a plant manager for Dynamo. She has the experience in the job and the company. She scored well on all areas and in most they build her capability to meet the job description. She also scores well in approaching stress and ability to succeed as a manager. Her overall interview ratings are good and her performance and her scores are not the highest.

My third choice is Frank Hall. His scores on work samples were among the highest and he scored in the normal range for intelligence and high on handwriting. Frank’s interviewer skills were high. His personality profile concerns me because ability to manage stress is mandatory in management positions and he fall in the low area. Otherwise he is in the medium range for all other personality testing. He also has experience in the field and as a plant manager. My fourth choice would be Jay Davis who is an assistant plant manager and has experience in management through this position in both St. Paul and Atlanta. He scores well in most of the personality profiles but a major issue was interacting with others and it might be a problem for working with other work related conflicts. He scored highest in intelligence, which leads me to believe he can meet the standards of the job descriptions. He was the lowest in work sample scoring, but highest in promotability which is keeping him from being in the top position for the job. My changes would include dropping the handwriting.

Another suggestion is to explain what the purpose of the intelligence test is or stop using it. There should also be better explanation of the criteria of the interviews. The personality profile is excellent and putting more emphasis on this would be a good idea. Also, it would be better to have an idea why each of the people applied for the position and why they feel they can do the job. In Conclusion, Looking at the various rating and the interview scores, two candidates stand out on overall selection to be selected as Plant Manager George Martin and Kathy Joyce. However, I would prefer Kathy Joyce because other than the selection evaluation scores, she is an employee of the company already.

The Medicines Company – Case Analysis

The Medicines Company is ready to launch a recent drug acquisition, Angiomax, into the market, however its CEO Clive Meanwell is uncertain as to the appropriate price to charge for the drug. Angiomax serves as an alternative drug to heparin, a low-priced anticoagulant commonly used for patients undergoing angioplasty. While Angiomax has proven to be a more effective drug for both high-risk and very high-risk patients, the Medicines Company is challenged by the need to convince customers to pay a steep price premium for this new drug, especially given that heparin is widely accepted and only costs $2 per dose. Angiomax will be a critical addition to the Medicine Company’s overall product portfolio, and its successful launch has potential to help turn the company around during a time of financial instability.

First, the recent IS-159 acquisition turned out to be unsuccessful, leaving the Medicines Company highly dependent on the successful sale of Angiomax. In addition, the company is currently under scrutiny by public investors due to an unexpectedly sharp decrease in stock price. Lastly, managed care organizations and the government are pressuring pharmaceutical companies to lower drug prices given these institutions cover the majority of prescription drug costs for patients. Under these circumstances, it is crucial that Meanwell strategically price Angiomax and tie it’s price directly to a strong value proposition for hospital pharmacists and cardiologists, who make up the key segment that will need to be convinced to pay a premium for the drug.

Recommended Pricing

In order to set the fair price for one dose of Angiomax, it is necessary to estimate the value that Angiomax creates for hospital pharmacists. The clinical trials indicate that Angiomax treatment is more beneficial than heparin for both high-risk and very high-risk patients, thus the first step in pricing is to calculate the average impact on angioplasty costs for hospitals if they were to replace heparin with Angiomax. These estimates, indicated in Table 1 of the Appendix, indicate that replacing heparin with Angiomax will result in hospital savings of $714.67 on average per patient. Taking into account the fact that on average 1 patient requires 1.45 doses of Angiomax, a fair price of Angiomax suitable for budget-conscious pharmacists can be calculated. The calculation requires that the $714.67 be added to the actual cost of $8 per 4 doses of heparin, and then divided by 1.45 average doses of Angiomax per 1 patient. The result is $498.39 per 1 dose of Angiomax, which is the recommended price for the Medicines Company.

Pricing Strategy and Rationale

The Medicines Company should use a consumer value-based pricing approach in order to address the value added to high and very high-risk patient procedures as opposed to a cost plus or competitive parity pricing approach. While cost plus pricing is an easy pricing approach used for B2B marketing, it would not allow the Medicines Company to accurately assess the demand for Angiomax and would ultimately lead to lost profits. In addition, a competitive parity pricing strategy would result in the Medicines Company pricing well below the cost to produce Angiomax to meet heparin’s low cost of $2. This approach would allow the Medicines Company to be more competitive in pricing with is best suited to create value to doctors by reducing the chances of additional costs from angioplasty and allowing hospitals to continue to profit from the predetermined insurance reimbursement. At a price of $498.39 per patient, the Medicines Company should employ a skimming pricing strategy in order to cover the costs of producing Angiomax.

The target customer segment should be the 38% of doctors that are unsatisfied or weakly satisfied with the effects of heparin, and who can influence pharmacists to pay a premium for a more effective drug. The company can then capture the majority of profits from Angiomax sales upfront and eventually drop prices as newer drugs enter the market and diminish the value of Angiomax. It’s possible that starting at such a high price will fail if consumers cannot be convinced of the value in Angiomax and are unable to justify cost in comparison to the significantly lower price of Heparin. An alternative pricing strategy would be penetration pricing, which would allow the Medicines Company to sell Angiomax at a lower price in the early stages and eventually bring prices up over time. The advantages of penetration pricing would include making an easier case for lower pricing to budget-conscious pharmacists and doctors not convinced of Angiomax’s benefits. However, in the long run it will likely be difficult to increase the price of Angiomax to the extent that it would sufficiently cover production costs.

Product Positioning & Launch

There are two key factors that will enable the Medicines Company to effectively communicate the value proposition of Angiomax to customers. First, Angiomax has a patent that makes it impossible for competitors to directly mimic the drug and sell it to hospitals at a lower price until 2010. Second, there are key pieces of evidence resulting from the clinical trials, which imply that Angiomax is a premium product needed to reduce complications for patients undergoing angioplasty. The important results include

: · Number of deaths reduced by 33.33%

· Instances of heart attacks in angioplasty reduces by 27%

· Need for a repeat angioplasty reduced by 15%

· Instances of major bleeding decreased by 66%

The above positioning statements can be leveraged by the sales teams that Meanwell has hired in discussions with both pharmacists and cardiologists in the targeted hospitals that account for 92% of all angioplasty procedures. Marketing efforts should target pharmacists with a focus on the economic benefits of Angiomax for hospitals and doctors with a focus on the reduced side effects and overall effectiveness of the drug. In addition, the company should continue to focus on low-cost yet effective educational efforts via channels with which there has already been success, including medical publications, trade shows, and weekend getaways.

Case for critical thinking: A flood of decisions

1. What information sources (or potential information sources) could have been used to assist with the decision-making process for Wivenhoe Dam in this case? Potential information sources that could have been used to assist with the decision-making process for Wivenhoe Dam


-Sought advice from Water Grid Manager
-Water Commission
-DERM (Department of Environmental Resource Management)
Managerial decision-making
Problem avoiders
Problem solvers
Problem seekers
Approaches to decision making
Classical decision model
Behavioral decision model
Judgmental decision model

2. With references to decision-making theory covered in the chapter, describe the type of managerial decision-making evident in this case, and the conditions under which decisions were made.

Managerial Decision Making
*Problem avoidably
*Problem solvers
*Problem seekers
Decision conditions:
*Certain environment
*Risk environment
*Uncertain environment

3. Evaluate the decisions made in the case in relation to the classical, behavioural and judgmental heuristics approaches to decision-making that are outlined in the chapter. Which model do you believe best describes the situation and subsequent decision-making process in this case? Justify your answer? Approaches to decision making

^Classical decision model
^Behavioral decision model
^Judgmental decision model
Case decision
*Classical decision model
Problem: it was the flood that damage Brisbane and Ipswich
Possible alternative: Not releasing flood waters.
Consequently threatened stability of dam
Optimizing decision: Release of flood waters being aware of potential damage.

SWOT Analysis:

*New technology
*They set priorities
*Manage time

Lack of communication
Problem solving

*Professional engineer

Natural disaster (climate change)
Damage roads and homes.

People should make wise decision to save the lifes of the others.

Pets.com Case Analysis


In this report I will analyse Pets.com’s short lived success as America’s number one online supplier of pet foods supplies and accessories. I will also identify what actually went wrong and present a refreshed offensive marketing strategy to the board of the company. It was unbelievable how a public listed company led by some of the world’s best business executives, draped by all the funds that any company in the world would envy, partnered with the world’s number one e-commerce company and became America’s pet industry icon can lose everything in less than two years after its first introduction.

In my opinion some of the major factors that contributed to Pets.com failure were: 1. Bad strategic decisions made by the previous leadership including underestimating the cost of operations and overspending on marketing. The management was so obsessed grabbing the market share but at the same time losing their focus altogether on their actual goal and objectives, which is generating revenue for the company and become profitable to ensure sustainability.

2. Despite its success in building brand recognition, Pets.com overestimated the market trend and power of the internet. They were also overconfident in estimating the market real potential and risk due very shallow and weak market research. When everyone was rushing to jump onto the internet e-commerce guaranteed-for-success bandwagon, Pets.com did not realize pet business was not that simple but in fact more complicated compared to selling books and clothes online. After all the costly marketing promotions and advertisements, overnight popularity, having the most complete online product offerings and latest technology at their disposal, still in the end Pets.com failed to show much added value and differentiators in the eyes of the customers.

3. Completely ignored the power of traditional brick and mortar business model. Pets.com failed to understand their rivals strengths and weaknesses well. Better customer care, satisfying personal shopping experience and fast delivery are some of the advantages physical stores had over online pet portals. Pet owners appreciation of these traditional values affected typical pet-owners’ readiness and willingness to completely abandon their friendly and trusted around-the-corner neighbourhood pet store.


The previous company did not bring up a good proposal in opposing its competitors. It was so obvious that they ignored the fact that traditional pet store was very much controlling the pet food and supplies market. Underestimating the strengths and advantage of their more traditional brickand-mortar based rivals like Petstore, Petsmart and Petopia was the first biggest mistake they had done.

Competitor Analysis Petopia.com

1. Heavily funded by Petco, market leader in pets accessories and supplies industry 2. Well established physical stores plus e-commerce business model 3. Leverage on Petco’s good and well known reputation as supplier of quality pet products and its commitment to animal care.

4. Petopia will gain invaluable access to Petco’s extensive network of chain stores which both companies can cross-promote each other:
a. Have nationwide coverage with 465 chain stores all over US b. Strong international presence with 100 stores globally
5. Potential Pes.com future international expansion thru strategic alliance with another major investor Groupe Arnault (linked to renowned LVHM Moet Henessey Loius Vuitton) PetSmart.com
1. Already a successful brick and mortar business on its own right. Considered as Petco’s main brick and mortar competitor
2. Joint venture with e-commerce entrepreneur Bill Gross of Idealab become direct competition to Pets.com-Amazon’s team up.
3. Well established physical stores plus e-commerce business model 4. Strong back-end warehouse and delivery systems with already 500 stores nationwide and 100 outside US.
5. Strong brand name, marketing clout, close vendor relationships and efficient product portfolios and fulfilment systems that would greatly benefit their online business. Petstore.com
1. Funded by venture capital firm Battery Ventures
2. Rely entirely on the power of e-commerce. Work on the same business model as Pets.com, establish a leadership position with ‘category killer’ domain name 3. Just like Pets.com, Petstore relied heavily on advertising and promotions 4. No physical store establishment

At the end of the day, after the big dotcom bubble burst, only Petopia (now owned by Petco) and PetSmart survived. Petstore and Pets.com itself succumbed to the dotcom bubble burst. Two most obvious factors that set apart the two victors and losers are: 1. PetSmart and Petopia had a strong back-end warehouse backing and chains of physical stores that in the end reduce distribution costs, storage, ensure satisfactory delivery period and value-add traditional shopping experience and satisfaction. Unlike the two, Pets.com and Petstore.com relied entirely on the internet of which later compromised basic pet owners’ needs and customer satisfaction.

2. Pets.com and Petstore relied heavily on funding from venture capital firms while Petopia and PetrSmart already have strong infrastructures and customer network they can always depend on if anything goes wrong over the internet. This proves deadly when Pets.com failed to gain enough added capital injection to save them from becoming dotcom bubble’s biggest casualty.

It is very important for us to re-align our goal and strategically repositions ourselves in this industry. The following SWOT analysis shall analyses our key strengths and weaknesses.

Pets.com’s SWOT Analysis


1. Huge cash to spend. Heavily funded. Backed by Amazon.com. 2. Direct access to Amazon.com’s network resources and e-commerce skills and expertise, so technology skills and know-how is not an issue.

3. Strategic alliance with Yahoo!, GO.com (Disney), Discovery TV network (Animal Planet) and association with the American Veterinar Medical Foundation can be a very strong network positioning strategy.

4. Pets.com is the most recognizable domain name, highly visible website with most comprehensive website content and best design. Pets.com website is so popular in the internet and mainstream media that at one time becomes the most visited pet supplies website in the world.

5. Most competitive price and service offerings (plus free delivery). Able to offer quality products of which becoming today’s key plus factor to the passionate middle-class and high income pet owners.

6. Largest stock keeping units (SKUs) in America to ensure reliable supply and on time delivery to customers.


1. Competitors offer similar products. Pets.com still could not find key market differentiator. 2. Huge expectation on online marketing and promotion. Specialized team to maintain up-todate and latest website content and information may incur increasing administration costs. 3. Pets.com have weak brand name as compared to more established rivals. 4. Pets.com don’t have physical stores presence nationwide and globally. 5. Reliability and security on the internet can halt and even destroy online business almost overnight.

6. High transportation costs and insurance liability due to free delivery policy to customers regardless location
7. Geographical factors, warehouse location and distance may result to 2-3 days for orders to reach American homes


1. Pets.com can leverage further on Amazon’s full potential-market penetration and trustworthy e-commerce reputation
2. Can take full advantage on average American pet owners passion and spending habits on pet food and supplies
3. The right time to tap into the world’s fast growing and lucrative national and international markets.
4. Can take advantage on the fact that most trusted and high quality pet foods are produced in the US
5. Can take advantage on average American pet owners’ hectic lifestyle. Promote cost and time saving.
6. Average American pet owners are economically stable. Price is not a big issue. 7. Develop own brand name and proprietary products


1. There will always be a better competitors’ website content and offerings 2. Don’t underestimate internet capabilities-consider problems at remote sites and countryside 3. Simpler user-friendly blogs, mobile applications and smartphones can replace website 4. Increasing transportation and shipping costs

5. Transportation risk-lost and damage
6. Internet customer bad experience, unfavourable comments and reviews can sabotage any 3 online business that is not ready and fully prepared
7.Growing e-commerce safety concerns can influence internet users to just browse and shop at competitor’s outlet
8. Competitors physical stores at almost US neighbourhoods-providing more human approach (touch and feel) and faster delivery time
9. Hard habit to break-still many pet owners prefer visit local neighbourhood stores than buying online
10. Competition by any brick and mortar neighbourhood establishment Pet supplies are not books. People only order pizzas online-Amazon.com strategy may not work at certain environment and condition. Pets.com need to show better value-add and pull-factor.


Pets.com have the best products to offer and the technology to drive this online business model to success, but in the end not understanding the consumer’s real needs, behaviour and spending habits can prove vital to the company’s survival and relevancy.

According to study reports by The NPD Group, Inc. and Media Metrix (NASDAQ: MMXI), 75% of pet owners who access the Internet are aware of online pet stores, up from 55% in September 1999. Twenty-seven percent have shopped at an online pet store, while 14% made an actual purchased at an online pet store.

Study confirms that almost three times as many pet owners become aware of online pet stores from television advertising compared to last year, while fewer are learning about sites from surfing the Web. Though television advertising in the category is growing, consumers are still more likely to find out about pet e-tailers from some online source, such as clicking on a banner ad or direct link from another site.

The good news for marketers is that while category penetration is still low, customer satisfaction is high. Among the 14% who have purchased, a whopping 97% of them are satisfied with their buying experience. More than two-thirds reported being very satisfied (68%), up from just over one-half in September of 1999 (53%). The majority of consumers who have shopped at pet store sites said they are likely to shop again in the next three months (59%), and half would make a purchase sometime in the future (49%). Not surprisingly, those consumers who are very satisfied with their buying experiences at online pet stores in general are much more likely to make a purchase in the future than those who have not.

The Pet Industry

In 1998, pet industry is a US53billion a year marketplace. Worldwide estimates run about $51 billion, and growing at a rate of about 15 percent a year. By the end of 2004, online pet-product sales alone should total more than $4.5 billion. Pet food, accessories and supplies tops US household shopping list with Pets leading with USD23 billion a year, Toys US21billion a year. Music recording US13 billion a year and Retail books at US 12 billion a year. Expert prediction is the pet industry may grow to US28billion a year business by 2001.

1. 60% of American households own at least one pet and 40% own more than one pet. Statistics in 1999 shows 53 million are dogs and 59 million are cats.
2. American families with children age 5-15 likely to own pets and families with children younger than 18 will grow over the next several years
3. Even though online shopping for pet foods and supplies are still new to the consumers, nearly 30% of internet users purchase online pet products. Pet owning households wealthier than average thus able to spend more on pets (65% household earning US60000 or more are pet owners). Almost two-thirds of all American households have at least one pet, and that translates into an estimated $23 billion a year in pet expenditures in the U.S. alone. 4. Veterinary,boarding,grooming,training yielded higher margins.

5. Most pet owners buy on impulse during regular shopping trips and they are less price sensitive 6. US pet owners sought veterinary care at least once a year of which 92% are on dogs and 78% on cats care. Between 1991-1999 US vet expenditure grew 9.5% annually 7. By mid 1990s supermarket pet food began losing market share amid growing concern for pet welfare and nutrition. Non-premium low nutrient levels supermarket brands hold 55% of market share mostly thru grocery and convenience stores. They anyhow demonstrate slow annual growth and small gross margins. Premium levels on the other hand promote healthier diet but risk restricted distribution. From 19940-1999 they contributed to 18% annual growth and own 25% of market share.

8. Supermarkets prefer to stock profitable goods but they face problem with space to store bulks. Pet supply stores on the other hand have the storage advantage. Despite that brick-and-mortar margin still low between 2-4%.

9. Internet and retail commerce trends shows estimated 97 million households are using internet worldwide. By 1998-60% households on internet at least once a day compare 35% year before. Surfing the internet has become part of part of daily American life. In 1998 internet companies in the US generated USD301.4 billion revenues from the internet and internet commerce alone contributed 1/3 of total revenue equals to USD101.9 billion

10. Even though pets product online just started in 1999, survey shows high level of satisfaction among online shoppers. More than half of 30% internet users purchase online pet products, more than half very satisfied. Survey shows:

a. 68% are females
b. 40% bought toys for pets online
c. 30% bought foods/treats
d. 26% non-food accessories
e. 17% health products
11. The main reasons why they buy online was convenience but experts claim it is limited to small market only and it is also outweighed by higher costs and longer waits.


When more than one company offers the same kind of product, each company only receives a percentage of all sales of that kind of product. This percentage is called a “market share,” and any effort to take some of the market share away from one company and bring it to another is called an offensive marketing plan.

Marketing is all about building relationships. It’s about educating (and maybe even entertaining) your customer. While we must not deny the growing influence of the internet, Pets.com must not underestimate the power of traditional pet business model.

Alternative strategies that could improve Pets.com:
1. Decrease the advertising and marketing budgets
a. This will create opportunity to relocate funds elsewhere such people development and customer care
b. Ability to make-up for low sales volume
c. Wasting less money on expensive marketing promotions
2. Open warehouses and brick-and-mortar establishments to increase distribution a. Ability to ship products in shorter distances to reduce transportation costs and risks b. Provide faster delivery time may increase competitive advantage c. More readily available products for easier delivery or for exchanges 3. Redo pricing structure for more competitive prices

a. Make profits on the product not on the inflated shipping costs b. Pets.com can offer ‘free shipping’ promotions without selling at price below costs c. Consumer’s assurance on Pets.com product quality will keep existing customers and introduce new ones. Customer satisfaction leads to customer loyalty. 4. Invest the use of new media such social networking and blogs. This may attract younger generation of pet owners

5. Introduce subscription and loyalty program. Other than improving customer retention it can also be used qualification tools to offer free delivery or charge based on geographical location and distance.

6. Improve Pets.com brand name. Association with Amazon and Animal Planet may prove very useful in attracting loyal fans.
7. Collaboration with vets and animal clinics promoted as local distributors can reduce delivery time and stock availability.
8. Identify specific target groups. For example individual consumers will more readily use products used by government facilities and pet care professionals.


The failure of Pets.com was not because the online business model. In fact it was more to mismanagement of funds, business planning based only on short term analysis, poor market understanding and research, underestimating traditional rivals and overestimating the power of internet. It was a classic case of bad strategy.

The failure to face the challenge. “If you fail to identify and analyse the obstacles, you don’t have a strategy. Instead, you have a stretch goal or a budget or a list of things you wish would happen.” Pets.com was an early entry in the immature online shopping industry and was uncertain whether a substantial market niche even existed. No independent market research preceded the launch of Pets.com. Instead, the management chose a “land grab” strategy focused on increasing its market share then finding ways to make a profit. The “land grab” strategy presupposes that your market is large enough or will grow fast enough so that revenue allows a profit before seed money runs out.

Pets.com wished that it would magically become profitable while it waited for the market to mature. During its first fiscal year (February to September 1999) Pets.com earned revenues of $619,000, yet spent $11.8 million on advertising. It failed to realize its problem would not be gaining market share, but generating revenue to sustain it until it could place adequate resources into market share focused strategies.

Mistaking goals for strategy. “Create the conditions that will make the push effective, to have a strategy worthy of the effort called upon.” When the company did turn its focus to its business model, it created unrealistic conditions in which to operate effectively. For example, Pets.com offered a guaranteed $4.95 shipping to anywhere in the United States. Unfortunately, Pets.com initially only had one distribution warehouse in California and every shipment to the East Coast cost more than $4.95 and therefore shipped at a loss. It lost money on nearly every sale because, even before the cost of advertising, it was selling merchandise for approximately 1/3rd the price it paid to obtain the products. During its second fiscal year the company continued to sell merchandise for approximately 27% less than cost. The company had it sites on being the number one online pet supplier but failed to leverage key strengths to build on other than a very costly push for brand recognition.

Bad strategic objectives. “A scrambled mess of things to accomplish—a dog’s dinner of goals. A long list of things to do, often mislabeled as strategies or objectives, is not a strategy…Good strategy, in contrast, works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes.” As I researched Pet.com history, I was amazed by the number of “strategies” the leadership claimed. Not all inclusive, CEO Julie Wainright and executives focused on numerous initiatives in an attempt to stand out from the competition.

1. Strive to offer a huge variety of product offerings; it listed more stock keeping units than any other online pet supplier
2. Offer abundant editorial advice from veterinarians, animal lawyers, breeders, scientists, and pet experts
3. Extend its brand offline in the Pets.com print magazine
4. Develop and offer its own proprietary brand of Pets.com pet supplies 5. Acquire a key competitor, Petstore.com
6. Create alliances to allow Pets.com to offer animal health insurance, be the featured petstore on the Yahoo! link to pet health advice, be a part of the Go.com (Disney) network, and establish charitable foundations.

These all seem like good objectives, if focused on one at a time. They also seem like objectives fueled by capital but not sustained by revenues. The management of the company appeared so focused on several objectives that it never developed a solid business model focused on being profitable and generating sustainable returns.

Fluff – “Superficial abstraction…designed to mask the absence of thought.” According to analyst Jacques Chevron, “Pets.com failed to give its prospective customers a reason for its existence. Its tongue-in-cheek advertising claim (“Because pets don’t drive”) seemed like an  admission of its lack of a reason for being.” Pets.com seemed focused on being the most comprehensive site for pet owners that it failed to be successful in any of its objectives. While it continued to claim it was the one-stop site for all pet needs, it never established a reputation as being good at anything other than advertising.

1. Pets.com: Rise and Decline of a Pet Supply Retailer by Dr Omar Merlo 2. The Rise and Fall of Pets.com: ”Because Pets Can’t Buy” by Cara L.O Peters (University of Georgia) and Marilyn J. Okleshen (Minnesota State University) 3. Pets.com failure and its causes http://my-espace09.blogspot.com/2009/01/petscom-failureand-its-causes.html 4. Pet & Pet Supplies Stores Industry Statistics Research Report – Anything Research 2010. 5. US Pet Market Outlook – Packaged Facts 2009.

Case Study Importance of Accounting Standards

The importance of accounting standards
A PricewaterhouseCoopers
Case Study
PricewaterhouseCoopers was created in July 1998 by the merger of two firms – Price Waterhouse and Coopers & Lybrand – each with historical roots going back some 150 years and originating in London. PricewaterhouseCoopers, the world’s largest professional services organization, helps its clients build value, manage risk and improve their performance. Drawing on the talents of more than 140,000 people in 152 countries, it provides a full range of business advisory services to leading global, national and local companies and to public institutions. These services include audit, accounting and tax advice; management, information technology and human resource consulting; financial advisory services including mergers & acquisitions, business recovery, project finance and litigation support; business process outsourcing services; and legal services through a global network of affiliated law firms. Five things you didn’t know about PricewaterhouseCoopers

1. To meet their growth targets they need to hire 1,000 people a week across the world. 2. They will be the largest professional services firm in critically important emerging markets: Russia and the Former Soviet Union, India, China, Singapore, Malaysia and Latin America. 3. The high technology practice will yield revenues in excess of $1 billion with over 2,500 technology clients. 4. Work with Financial Services clients will represent more than 20% of PricewaterhouseCoopers’ international revenues. 5. They are already investing $200 million a year in new technology. A global enterprise

The new, combined organization is the result of the continuing growth in the international economy. Companies are seeking to re-define themselves to thrive in the market-place where mergers and acquisitions are increasingly important and many companies now operate without geographical boundaries. A large-scale global enterprise such as PricewaterhouseCoopers needs a solid infrastructure to meet its clients’ expectations. One element is a powerful database developed by PricewaterhouseCoopers that shares ‘best practice’ information with all its offices around the world. PricewaterhouseCoopers is also harnessing all available technology to ensure any of their advisers can work with their clients anywhere in the world, allowing them to be fully effective in serving the clients’ needs immediately. They offer businesses around the world both a wider range of services and a more integrated service than has ever been possible. This service also provides a solution to business problems of a scale and complexity that are greater than ever before. An integrated team approach

They provide a fully integrated team to tackle a company’s diverse problems. At PricewaterhouseCoopers, there are six service lines or departments which cover different areas of specialization. They are: Assurance & Business Advisory Services

Management Consulting Services
Tax & Legal Services
Financial Advisory Services
Global Human Resource Solutions
Business Process Outsourcing.
PricewaterhouseCoopers may work on one of these areas and find that the client requires help and solutions to issues in other areas. They are able to provide an integrated team of experts to give advice and offer a range of possible solutions. The first and largest of these service lines, the Assurance & Business Advisory Service is now considered in more depth. ABAS – Assurance & Business Advisory Services

At PricewaterhouseCoopers the global practice they call ‘ABAS’ provides a broad range of services which fulfill three core business needs: 1. Assurance – They conduct audits and provide assurance to clients on the financial performance and operations of their businesses. 2. Global Risk Management Solutions – They help clients to manage their business risks and thereby improve financial performance. 3. Transaction Services – They offer advice to clients about their significant transactions such as mergers & acquisitions activity. Some of the most exciting organizations from the world of banking, commerce and government come to them for advice. The client list is dominated by household names, with particular strengths in communications, financial services, retail, energy and manufacturing sectors. Assurance

Assurance is the largest part of the UK practice for PricewaterhouseCoopers and generates income from a combination of audit and business advisory assignments. In addition to an audit, many clients require business advisory services. For example, they may provide advice on joint ventures or mergers, helping companies to ‘float’ their company on the Stock Exchange or assess whether the technology or systems in place provide an accurate means of reporting the financial data. Auditing

In order that shareholders and other interested parties can make informed judgments as to the financial health of a company, it is a legal requirement that all companies have their financial facts and figures checked. This is known as an audit and must be performed by an independent registered firm of auditors. The auditors use guidance from the Accounting Standards Board to state whether in their opinion the financial information presented by the company is a ‘true and fair’ representation of that company’s financial health. The primary reporting responsibility of the auditors is, however, to the shareholders, not to the company’s directors. It is interesting to note the difference between ‘true and fair’ and 100% accurate. It is not the role of the auditors to check every individual transaction performed by a company and therefore the auditors cannot state that the figures are 100% correct, merely that, in their opinion, they are ‘true and fair’. Legislation and regulation of companies

The accounts of a company are designed to show both the performance and its current financial position. All company accounts in this country need to be produced in accordance with: 1. The Companies Act, 1985 for UK, for Pakistan Companies ordinance 1984 and 2. Accounting Standards:

Statement of Standard Accounting Practice (SSAPs)
Financial Reporting Standards (FRSs).

In essence these standards set out:
What information should be included in a company’s accounts How this information should be presented.

The Companies Act / Ordinance, decrees that companies must produce accounts for publication. The Accounting Standards Committee devised SSAPs. In 1991 the Committee was replaced by the Accounting Standards Board, which develops FRSs. The Board is gradually replacing SSAPs with FRSs, which are issued when the Board identifies a need. These two sets of standards encourage greater clarity so that the reader can fully understand the information represented. Accounting standards

FRSs are expected as business becomes more complex. How these different standards are applied varies with the type of business conducted by a company. As for any company the shareholders’ interests must be protected. The following examples of SSAPs and FRSs demonstrate the consideration that must be given in drawing up financial accounts in order that interested individuals, such as financial analysts, can clearly judge a company’s performance and position. Key standards will be considered in this and the following section. SSAP 12 Accounting for depreciation

Companies invest in assets (such as machinery) in order to produce goods or services to sell. These are known as fixed assets. In the case of the gas or oil industry, an oil rig is a fixed asset – the company must own an oil rig to supply oil or gas. All companies have some form of fixed assets although the dependence on these assets varies with the type of business. Another example could be machinery for manufacturing a car, or a building in which employees work. In this example, Global Oil has built an oil rig for £50m. In its balance sheet, cash will be reduced by £50m and fixed assets will increase by £50m. In 20 years time (the ‘economic life’), the company knows that the oil rig will need to be replaced. By the 20th year, the value of the oil rig in the company’s balance sheet will be zero. Thus, the value of the oil rig will reduce each year by a set amount (£2.5m in this example). This is known as depreciation and the annual depreciation figure is shown in the profit and loss account. SSAP 12 states that the economic life of a fixed asset should be reviewed regularly and should be stated in the notes to the accounts, together with how the rate of depreciation was determined. FRS 11 Impairment of fixed assets and goodwill

FRS 11 is a new standard and deals with any loss in value to a fixed asset, for example through damage or downturn in the economy. This is known as impairment. For example, if a pipeline from Global Oil’s oil rig is damaged, the supply of oil or gas is reduced or stopped until repairs are made. Thus the ability of the oil rig to produce oil or gas is less than expected and the fixed asset’s value is reduced. Global Oil must therefore make a general reduction in the value of the asset and charge the loss to the profit and loss account. FRS 11 states that all companies must reassess the value of their fixed assets on a regular basis to establish whether the figure in the balance sheet is a ‘fair value’. FRS 1 Cash flow statements

There are three main statements in a company’s annual report and accounts – the profit and loss account, the balance sheet and the cash flow statement. For example, while Global Oil may be highly profitable, without any cash it will be unable to pay its employees or suppliers. Clearly, when Global Oil sells oil to its customers, it needs to ensure it receives prompt payment. Cash is the lifeblood of a business and it is therefore important for a company to issue a cash flow statement. FRS 1 sets out the format and contents of a company’s cash flow statement. Accounting standards continued…

FRS 3 Reporting financial performance
This is a highly complicated standard. Essentially FRS 3 serves to make sure the information presented in a set of accounts is clear. Companies must issue a report stating the financial performance for review by its shareholders. Consistency and ease of understanding these reports allows the reader to compare the data for similar companies. This would allow a potential investor to compare competing oil or gas companies before deciding which company’s shares to buy. In this example of Global Oil, there are three subsidiaries: International Gas, International Oil and International Petrochemicals. Each of these different companies or subsidiaries must also produce their own set of accounts as should the parent company, Global Oil.

FRS 3 states how a company must set out the financial reports and accounts, the type of information that should be provided and where it should be categorized in the company statement of accounts. FRS 3 Exceptional items

FRS 3 consists of several other sections including a note on ‘exceptional items’. These are one-off situations and may result in either a profit or loss to the company. These are included in a separate section in the profit and loss account. The reasons for incurring an exceptional item are various. Examples include the general costs involved in splitting up or de-merging a utility company, such as telecommunications or gas, into their separate components. In this case study, Global Oil decided to move its head office to Edinburgh. As this move is not expected to happen regularly in the normal course of business, the cost is regarded as an exceptional cost. Although this cost is included in the profit and loss account, it is clearly marked as exceptional so that shareholders realize that a marginal reduction in profit is not a result of a reduction in revenues. FRS 3 also states that exceptional charges must be shown separately in the profit and loss account and detailed in the notes to financial statements. SSAP 25 Segmental reporting

Segmental information gives a breakdown of the different industrial sectors in which a company is involved and allows the reader of the accounts a much better understanding of where the money is made within the different parts of the company. This information may also be provided on a geographical basis if this is relevant. This standard is mostly applicable to the biggest public limited companies or if the company has a banking or insurance division. So for Global Oil, the financial information should detail the amount of business generated in oil refining, gas and petrochemicals. It should also provide information on the different geographic areas in which it operates. SSAP 25 states that the annual report and accounts for a company needs to provide a geographical and industrial breakdown of the following information: Turnover

Operating profit and loss
Net assets.
SSAP 9 Stocks and long-term contracts
Stock is an asset on the balance sheet and is essentially the product that a company will sell. In the case of Global Oil, its stock is oil and gas. SSAP 9 deals with how to value this stock on the balance sheet. Typically the value on the balance sheet would be the cost to produce and refine the oil into a marketable state. However, if the price of oil drops to a value below these production costs, then Global Oil cannot sell the oil at a profit. In these circumstances, the value of the oil stocks on the balance sheet must be reduced to the sale price minus all transaction costs. This is known as the net realizable value. SSAP 9 states that a company must value its stock at whichever is the lower value – the cost to produce versus the net realizable value. Conclusion

The example of Global Oil demonstrates the financial reporting standards that must be considered when preparing a company’s accounts. More standards are expected as the complexities of business transactions grow and accounting practice adapts to keep up with these changes. Such changes already observed in business are the use of derivatives and financial ‘instruments’. At PricewaterhouseCoopers, the ABAS teams are experts in their field of knowledge and exercise their judgment in interpreting how these standards apply to different companies. The implementation of the standards can vary according to the type of industry and even between companies in the same industrial sector. In order to ensure the best possible interpretation, the ABAS teams need to have a good understanding of the client’s business and industry sector.

Medmira Case

MedMira Case

Course: Marketing Planning

What changes in the environment made it possible to consider the launch of an OTC Aids Test? Be specific. MedMira is known by developing and manufacturing quality diagnostics to prevent and control the spread of infectious diseases. All tests used a flow-through membrane technology and were fast and easy to use. Medmira was distributing rapid HIV tests in Canada, United States, South Africa, Latin America and China, and selling them to hospitals, pharmacies and aid groups. One of the focuses of MedMira was to expand to Over-the-Counter market as there happened some changes that made it possible to consider this attempt: New infections were happening and about 3.1 million people were dying from HIV. This adds a higher preoccupation to the government and specialists on the health sector and pressure to arrange a solution.

During the 80’s, there were few available treatment and when people knew they had the virus they would see it as a death sentence. Nowadays this idea is disappearing as technology is more advanced, it is a “more manageable illness” and there is an increase of information available about HIV.

Due to legal approval of the tests, MedMira was able to distribute rapid HIV tests in Canada, United States, China and European Union. This is a step closer of entering the OTC market.

Rapid testing was expected to grow between 20 to 30 per cent of the market. This expected growth was also related to a higher approval by governments as there were changes in the society acceptance and technological improvements on this area.

Comparison factor as Medmira’s first rapid HIV test for OTC, Miracare, had a big success in China and this could happen in the rest of the world. Due to this accomplishment, international demand for this product has increased.

Prepare a SWOT analysis for MedMira Aids Test.
The following SWOT analysis contains the most significant and strategically important internal and external conditions that MedMira faces. The Internal is divided into strengths and weakness and the external is divided into opportunities and threats: Internal

-HIV test market leader
-Easy use
-Ethical concerns
-Cannibalization of revealing G2

-Partnership with HA
-Open door for testing other diseases
-Growing rapid test market

-Ethical concerns
-Possible partnership of HA with competitors
-Entry costs

MedMira has some internal strengths by being a HIV test market leader, specially selling to hospitals, and suitable for at-home use. The Aids test is also easier to use and faster on getting the results relative to the competition, result of this was a higher international recognition. Relative to weakness aspects, there are some ethical concerns such as the possibility of testing without another person’s authorization that is a negative aspect. Apart from this, in case MedMira is able to enter the OTC market, there is a possibility of cannibalizing the sales of Reveal G2 to laboratories and hospitals, as the products would be considered as “substitutes” as they practically have the same objective. One of the opportunities is the partnership with Home Access and develop a revised version of HA’s Consumer Advocate System.

This partnership would eliminate the ethical concerns MedMira couldn’t address and would also help to remain competitiveness, build a barrier to entry of other firms on the phone support system and reduce courier costs. Another opportunity is if MedMira could enter the OTC market, it would be an open door for rapid tests of other infectious diseases that are worth millions. For last, the development of the rapid test market is a favorable trend to higher sales and profits, which is seen as a good opportunity. If Home Access, which possesses a patent on phone support system, joins with one of the competitors, MedMira will eventually lose competitiveness with this partnership, being one of the main threats.

For last, entry costs on the OTC market are high and it is not clear if the company could afford the expansion at this moment. To conclude this analysis, the partnership would have a positive impact in the society. Because if consumers are able to buy rapid tests, this could prompt people to be tested earlier in a faster, easier and more accessible way, which would reduce the instances of transmission.

Ducati Case Study


Being a motorcycle company that produces high performance, highly successful racing motorcycles, as well as motorcycles for the commercial market, has proven to be a winning strategy for Ducati. This case focuses on Ducati Corse, a subsidiary of Ducati Motor Holding S.p.A. that manages racing teams, bike development, promotions, and sponsorship areas of the company. Ducati Corse is a relatively small organization that encourages cross-departmental integration with its internal teams to achieve the best motorcycle design and racing outcomes as possible.

Ducati started racing in the new MotoGP Circuit during the 2003 race season. With unexpected positive racing results, Ducati took the data collected from the 2003 racing season and changed too many aspects of the bike in 2004. The 2004 racing season proved to be far worse partially because Ducati failed to test all changes made. Looking forward to the 2005 season, Ducati is debating whether to switch to a modular design for their racing motorcycle that would, over time, lead to grander designs for Ducati.


Question 1: What is the organization trying to achieve?

Ducati is after a competitive advantage, via learnings from previous races, which has produced a new product design process that will allow modularity of their racing motorcycle. With success on-track, Ducati believes they can achieve increased commercial sales through a popularity increase, which comes from the surge of interest following a winning race or season. Ducati engineers collect and use enormous amounts data from previous races and tests along with rider feedback to build a winning combination of bike attributes that are specifically tuned to the nuances of the ride.

Question 2: How would you describe their operating environment?

The Ducati operating environment is informal and small when compared to competitors. With most departments under one roof, the company has a siloed feel to it. Ducati has hired top graduates, who have an intense passion for motorcycles. Ducati encompasses three main principles: a data-driven approach to problem solving, a clear priority in solving problems, and frequent face-to-face communication. The importance of face-to-face communication cannot be underestimated and Ducati Corse, being a small operation, can seize the advantage of having a small floor plan, more direct personal relationships, and close geography to push operations that are more efficient.

Question 3: Who are their customers and how does this affect their decision?

Ducati’s customers are in-market, sport motorcycle enthusiasts looking for a high performance bike. They also have customers, likely race fans, who may one day consider a Ducati for purchase, but may not necessarily be in the market for one now. Customer-wise, Ducati has a primary focus on the Western European and North American markets. If Ducati can win on the track, marketing has additional opportunities for promotion via traditional and non-traditional media. It is crucial that Ducati performs well on-track to give customers additional assurance and confidence when applying purchase rationale that they are buying a high performance machine.

Question 4: What at this point is the current dilemma?

The current dilemma is whether or not to take a modular approach to their GP5 design for the 2005 race season. In the past two years, they applied an integrated design approach, which had made small design changes very expensive, but resulted in high performance. This pushes Ducati Corse to evaluate the risk of taking a modular approach, which offers ease of manufacturing and the ability to change one aspect of the bike at a time, but could result in a compromise of performance.

Question 1: What accounts for Ducati’s success?

The perceived performance of the street bikes was positively influenced by successes on the track, which was intimately intertwined with sales. The two played well together because Ducati realized increased off track sales as they continued to win on track. Ducati’s success was a combination of Ducati engineers’ passion for their work, their detailed attention to the design process, and a well-defined, developed method called the “Ducati Method.” The “Ducati Method” helped lead to modular design via extensive use of CAD and simulation technology to optimize the design before physically developing the components followed by intense testing to validate the design.

Question 2: How did Ducati use data?

Processing, interpreting, and using real-time data is a complex task which the Ducati engineers employed with the help of other departments. They utilized rider feedback from the races, videos of each race, track tests, data on race performance, and functional data acquired by on-bike sensors. Ducati used the data from the track to identify problems that could not be detected in simulation. This type of data is excellent for measuring relative performance, evaluating structural stress loads, drivetrain torque, and system temperatures. However, it can be greatly influenced by the driver and environmental conditions. Data of this volume proved difficult to sift through, and additional staffers were hired to tackle it for the 2004 season.

Question 3: What is your assessment of their approach?

We feel that Ducati’s approach was ineffective due to the lack of a structured plan with clear priorities. Ducati Corse tried to solve more problems than they were able, which seemed to result in missed opportunities even though each team member was hungry for success. They were overconfident with the positive results of the 2003 season, and that proved faulty for 2004. Ducati did not give themselves enough time to test everything and should have researched why they performed so well in 2003. Their decision to make big changes to GP3 in order to make GP4, despite initial success of GP3, is not comprehensible. The company should have taken an incremental approach to design changes to improve the design.

Question 4: What options do they have to improve the performance in both the short and long term given their capabilities?

What are the strengths and weaknesses of these options? In the short term, the company can continue to do parallel testing and make incremental changes to the design rather than making big changes. The strength in this is that improvements would be progressive in nature, but the downfall could be that you cannot always predict or assure riders’ confidence levels and it would not simplify the design process. In the long term, they should continue with the modular design development. They cannot effectively pull off an entirely new modular design in-between seasons. The strength in this is that calculated steps toward better performance will more so guarantee movement in the right direction.

Since this would be a new, large-scale design approach, it would require more testing, analysis, and validation before it could be successfully implemented. Question 5: Should they go to a modular approach…what should they do? The modular approach is a positive change for Ducati. With it, they have the opportunity to build a greater amount of flexibility in the engineering framework in order to provide higher results on track. This change would allow them to more easily make greater strides in performance with less effort and effect on other systems – all of which could translate to higher off track sales.

Question 1: What do you want to do?

Ducati should strive to accomplish a modular design for the 2005 racing season, while working on evolutionary improvements to the current bikes as a backup plan. Ducati might want to consider re-weighting the importance of data that delivered via the riders during the race season. Perhaps focus their feedback on ergonomic features of the bike, while taking hard data from engine and subsystems to measure the performance of the bike. This will help to fine tune the changes and deliver an increased amount of on-track victories moving forward. Finally, we would need to consider the design options from commercial standpoint and will only support those design changes that can be implemented in commercial bikes.

Question 2: What will it take and what approaches, tools and techniques will help?

Leaving enough time to analyze the data from the current and previous racing seasons will help Ducati to use the information to the best of their ability. Improvement of this nature will take many calculated improvements. The continued use of concurrent engineering and computer-aided design will help Ducati to stay on top of technological changes in the marketplace. The use of classic engineering tools: team structure, design reviews, effective accelerated testing, careful planning, utilize Plan Do Check Adjust and lean the problem solving. Also, more component level testing needs to be done before full system level testing is done because the eventual use of the models will be in the commercial motorcycle industry. Thus, the engineering team should collaborate with manufacturing and follow the concurrent engineering model.

Question 3: How will this impact decision making, product development, and operating structure?

Switching to a modular design will help Ducati in their decision making process by focusing on the advantages and disadvantages of each individual change as opposed to many all at once. The modular design will allow for smaller development teams which can work more independently and possibly even have competing teams develop variants of a given component. The product development process will become more integrated company-wide even though the product itself will be less integrated and more modular. The operating structure of the Ducati environment will effectively remain the same.

Question 1: What can you take away from this case study?

There are a few overall takeaways with this case. First, effective communication done with respect is of utmost importance to effective engineering operation. Second, the need to use tools, systems, along with human feedback, provides a balance of the use of human and mechanically collected data and is most beneficial when analyzing an operation. Finally, a proper root cause analysis of any problem must be done before designing a solution.

Question 2: What can you take away from the decision making approach?

Ducati benefited from taking a step back and altering their approach, moving from integrated to modular design. It is not easy to be without a robust design, or a product that can function over a broad range of conditions, but Ducati kept their organization flexible enough to be able to do so quickly and have it based on real-time results. Management is making decisions and changing approaches based on learnings from past mistakes and what competitors are doing, which will only serve to enhance their product offerings in the future.


Ducati was already a successful company before taking the brave step of altering a process that had been in place for years. They had always brought in top talent, with the passion to make the company a force on the track and extremely desirable to consumers off the track. It was time to take the company to the next level and deliver consistent results on track. The engineering approach and internal collaboration led to a modular design and a more flexible approach. This renewed way of design and manufacturing is a sign that Ducati will be successful for years to come not only because they can change, but because they have the leadership and personnel who are willing to take risks and put the company ahead of any personal interests.

Starbucks Case Study

Part I: Defining the Manager’s Terrain

1. What has made Starbucks’ culture what it is? How is that culture maintained?

Every organization has a culture, a way that those in the organization interact with each other and with their clients or customers. A strong culture will influence what employees can do and how they conceptualize, define, analyze, and resolve issues.

In order for Starbucks to reach and maintain a highly strong culture, which is a culture in which the key values are deeply held and widely shared, we have to analyze the source of this organization’s culture which is the reflection of the vision or mission of the organization’s founder. Starbucks mission and six guiding principles, as stated in the company’s webpage are the following:

Our mission: To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.

Here are the principles of how we live every day:
Our Coffee, Our Partners, Our Customers, Our Stores, Our Neighborhood, Our Stakeholders.

Howard Schultz and other Starbucks senior executives are responsible to maintain culture as it is in Starbucks, they have worked hard to introduce the key values and guiding principles into the Starbuck culture. That is the reason why no matter which Starbucks store you go to, in the world, there is a strict quality control of Starbucks products which is a common culture to all stores.

Starbucks culture is emphasized by keeping employees motivated and content. Partners as they are called are a key value for the Organization and this unique relationship of Top Management with their employees has created a strong socialization process in which new partners adapt and learn the

Organization’s way of doing things effectively.

It is important to appraise culture through the seven dimensions of organizational culture. In many organizations, one of these cultural dimensions often is emphasized more than the others and essentially shapes the organization’s personality and the way organizational members work. For instance, at Starbucks the focus is an example of people-oriented culture, this means the degree to which management decisions take into account the effects on people in the Organization. As mentioned above, Starbucks really cares about their relationship with their partners, Howard Schultz is consumed with his vision of Starbucks that means showing the good that a corporation can do for its workers, shareholders, and customers. Starbucks is a great example of a people-oriented culture, Starbucks provides all employees with health care benefits, stock options, and many other benefits.

2. Describe some of the specific and general environmental components that are likely to impact Starbucks.

Any organization will interact with its environment, either specific or general, and these forces will play a major a role in shaping managers’ actions.

The specific environment includes those external forces that have a direct and immediate impact on managers’ decisions and actions and are directly relevant to the achievement of the organization’s goals. The main ones are customers, suppliers, competitors, and pressure groups.

Customers: Organizations exist to meet the needs of customers. Customers obviously represent potential uncertainty to an organization. Their tastes can change or they can become dissatisfied with the organization’s products or services. Starbucks business philosophy is don’t just give customers what they ask for or what they think they want. Starbucks responds to customers changing demands by offering more than 30 blends and single origin coffees, besides that you can get Starbucks merchandise, fresh food, among other products in their brand portfolio.

Competitors: All organizations have one or more competitors. In Canada you’ve got Tim Hortons as a major competitor, and another example would be Shangahi Xing Ba Ke coffee shops which was imitating Starbucks creating customer confusion in the Chinese market. These type of situations will arise with competitors trying to imitate your product, same example happened in Santa Cruz, Bolivia when a small book store started brewing Starbucks coffee, they had the Starbucks logo, same products, even the napkins said Starbucks, but it was an imitator, it was a major success in the Bolivian market, a month later Starbucks headquarters heard about it and stated they had no official licensed coffee shop in Bolivia, so that bookstore which transformed into a coffee shop soon changed its name in order to avoid a potential lawsuit. The coffee shop experience was a clear niche in the Bolivian market waiting to be exploited, that is why Starbucks in now opening their first official Coffee shop in Santa Cruz Bolivia, and as soon as that news came out, a major competitor also announced the opening of their official Juan Valdez coffee shops right besides Starbucks.

Public pressure groups: Public pressure groups also influence the actions of Starbucks. That is why Starbucks contributes positively to communities and environment through their CSR programs that also includes general environment components. Starbucks works and involves their partners to build stronger communities and conserving natural resources. Starbucks donates to local charities, gives health benefits to employees, introduced recycled paper cups, provides assistance to coffee farmers, all this actions are a response to general environment conditions that might affect the company, like socio-cultural and technological conditions.

Part II. – Planning

1. Make a list of Starbucks’ goals. Describe what type of goal each is. Then, describe how that stated goal might affect how the following employee do their jobs:(a) a part-time store employee- a barista-in Winnipeg (b) a quality assurance technician at one of the company’s roasting plants; (c) a regional sales manager; (d) the senior vice president of new market; and (e) the president and CEO.

Long Term Goal is set to expand to 15,000 US stores and 30,000 stores globally. Total Net revenue growth of 20 percent and earnings per share growth between 20 and 25 percent. Help define society’s pop culture menu.

These three goals mentioned in the study case are financial, growth, and expansion goals. They are centered in elevating the customer experience and into investing in new stores and expecting for a high productivity in sales of these new Starbucks which will elevate revenue by their expected goal percentage.

Part-time store employee – a barista in Winnipeg. – The barista is the face of Starbucks so, in order to achieve Starbucks goals these baristas have to be adequately trained to maintain the highest quality possible in beverages. Quality Assurance Technician at Roasting Plant.- Coffee beans need to be inspected through-out the roasting process, the smell and color have to be according to Starbucks standards. In order to achieve stated goals above, production will increase and quality may not stay uniform, which is why these technicians will have to pay special attention. Regional Sales Manager. – In order to increase net revenue sales department will have to develop action plans that will yield these results. Senior Vice-president of New Market.- A new market will have a different demographic, that is why strategies will have to be adjusted to these new markets, and probably add some special flavor or ingredient that will identify that culture with the Organization.

President and CEO. – Their major objectives should be to review results and whether goals are being met, according to new information make changes to plans.

2. What competitive advantages do you think Starbucks has? What will it have to do maintain that (those) competitive advantages?

The competitive advantage is what sets an organization apart; that is, its distinct edge. Starbucks has created a cultural phenomenon, and that explains why millions of customers buy an overpriced coffee every day. Starbucks has found a way to appeal to every customer demographic, creating customer loyalty. Having conquered the coffee business, Starbucks continues and will continue to grow worldwide and will maintain their competitive advantage just by giving the customer a product and service they want before they even know they wanted it.

Part III. – Organizing

1. What examples of the six organizational structural elements do you see discussed in the case?

Organizational structure is the formal arrangement of jobs within an Organization. When managers develop or change the structure, they are engaged in organizational design, a process that involves decisions about six key elements: work specialization, departmentalization, chain of command, span of control, centralization and decentralization, and formalization.

As Starbucks continues its global expansion and pursues innovative strategic initiatives, managers must define what work needs to get done and create a structure that enables work activities to be completed efficiently and effectively.

The first organizational structure mentioned in this case study is Work Specialization. This term refers to the degree to which activities in an organization are subdivided into separate job tasks. Like many start-up businesses, Starbucks organized themselves as a simple structure based on each persons’ unique strengths. Zev Siegl was the retail expert, Jerry Baldwin took over administrative functions; and Gordon Bowker was the dreamer. Starbucks grew and Jerry recognized that he needed to hire professional and experienced managers, that’s when Howard Schultz joined the company, bringing in his skills in sales, marketing, and merchandising.

As Starbucks had expanded, its organizational structure had to change to accommodate that growth, that is why Schultz relied on Departmentalization, which means that job tasks are grouped together in a coordinated way, every organization has its own way of classifying and grouping work activities, and Starbucks has a clear Functional Departmentalization in its central headquarters in Seattle Washington, it counts with a President of Starbucks US, president of Starbucks Coffee International, 4 executive vice-presidents, and 29 senior vice presidents. In addition to the president of Starbucks Coffee Canada, Colin Moore, the senior vice-president positions include senior vice-president of finance, senior vice-president of coffee and global procurement, and senior vice-president of corporate social responsibility.

Now, it is also clear that Starbucks does work with a Geographical Departmentalization as well, the zone offices oversee the regional operations of the retail stores and provide support in human resource management, facilities management, account management, financial management, and sales management. The link between the zone offices and each retail store is the District Manager who oversees 8 to 10 stores apiece, which is down from the dozen or so stores they used to oversee. Apparently, the span of control has decreased in order for managers to work efficiently and effectively.

The chain of command in Starbucks retail stores are under the direction of assistant store managers and store managers. These managers are responsible for the day-to-day operations of each Starbucks location. Decentralization is also present in Starbucks, we have to keep in mind that an organization is never completely centralized or decentralized, this concept is relative, not absolute. There is a clear example in how District Managers are working out in stores, and mobile technology allows them to spend more time in stores and still remain connected to the office.

2. Give some examples of the types of communication taking place at Starbucks.

Communication within an organization is often described as formal or informal. Howard Schultz visits at least 30 to 40 stores a week, which gives partners a chance to talk with the top guy in the company. Jim Donald also likes to get out in the field by visiting the stores and roasting facilities. This is an example of formal, upward, and downward communication happening at Starbucks.

Despite these efforts, communication needed improvement, which created Starbucks Broadcast News, an internal video newsletter that conveys information to partners about company news and announcements. Another implementation was an internal communication audit which asked randomly selected partners for feedback on how to make communication in the company more effective, this is another example of Formal, downward, upward, lateral communication.

As in any other company, Starbucks will also have an informal communication which is not defined by the structural hierarchy. This is when employees talk to each other, this is very important as it fulfills two purposes in any organization which are social interaction and by creating more efficient channels of communication.

IV – Leading

1. Describe in your own words the workplace environment that Starbucks has tried to create. What impact might such an environment have on motivating employees?

Starbucks has worked hard to create a workplace environment in which employees or as they call partners are encouraged to and want to put forth their best efforts. Howard Schultz says we all want the same thing as people- to be respected and valued as employees and appreciated as customers.

Starbucks centers employee relationship as a key for success, it demonstrates this called relationship through an attitude survey which gives employees an opportunity to give their opinion about their overall satisfaction, to what degree they feel that they are connected to the company. Starbucks states that they want their employees to be adaptable, self-motivated, passionate, and creative team players.

Analyzing Starbucks workplace environment, it starts at the beginning of the Human Resource Management Process, in which Starbucks makes sure that competent employees are identified and selected, they provide up-to-date training and then ensure to retain competent and high performing employees. Schultz knows that Starbucks success is heavily dependent on customers having a positive experience in its store, so that is why the partners are the most important asset as any other organization where the employees play an important role in organizational success.

The challenge is keeping these employees motivated, in order to keep having an environment where people want to work for Starbucks, Starbucks must motivate employees with a good compensation and benefits. Having loyal and happy employees makes them more committed thus offering higher levels of customer service.

2. Describe Howard Schultz’s leadership style. Would his approach be appropriate in other types of organizations? Why or why not?

Leadership is the process of influencing individuals or groups toward the achievement of goals. Howard Schultz says that being a great leader means finding the balance between celebration success and not embracing the status quo. Being a great leader also means identifying a path we need to go down and creating enough confidence in our people so they follow it and don’t veer off course because it is an easier route to go.

Howard Schultz has led Starbucks since 1982, he has allowed the company to successfully grow and meet and exceed its goals and to do so ethically and responsibly. He is clearly a transformational leader who stimulates and inspires his employees to achieve extraordinary outcomes. It is evident that Schultz is a transformational leader as Starbucks recognizes the importance of having individuals with excellent leadership skills throughout the company. Starbucks offers many leadership training programs for upper-level managers as well as to hourly employees to develop leadership skills. Schultz’s leadership style has given Starbucks higher level of productivity, employee satisfaction, creativity, goal attainment, and follower well-being.

Schultz’s approach might not be effective or appropriate in other Organizations. The belief that a certain style will be effective in other organizations is a belief that is not always right, because leadership may not always be important. Research has shown that in some situations, any behaviors a leader exhibits are irrelevant.

1. Robbins, S., Coulter, M., Leach, E., & Kilfoil, M. (2012). Management. New Jersey: Pearson. 2. Starbucks Case Study Sheets, Management Essentials Class.

Case Law and the Doctrine of Precedent

In this essay I will be discussing several points of interest that will help me answer the given question. My first point is on the Hierarchy of the courts. In this point I will explain the different ‘levels’ there are in the English system. My second point is Stare Decisis and what it is. This point is made up of several questions that I will answer; why have binding precedent? What has to be followed? That is Obiter Dicta and Ratio Decidendi? What is persuasive precedent and who uses it and how it is used? When is a judge bound? Can the Stare Decisis be avoided? And lastly: How has Stare Decisis handicapped the development of the English law?

The hierarchy of the courts
The English system is made up of a hierarchy of courts. Hierarchal means that the courts which are high in the system hear appeals from the ones below them. The decisions made in the higher courts are of great importance. The bottom courts are known as foot soldiers and are at the bottom of the system. Some courts in this rank are the Magistrates court, the Youth court, the Coroners court and the County court.

These courts hear cases daily and are which the average person will find themselves in for debt, injuries, car accidents and low level criminal offences. They are of a good amount of importance because they make decisions for justice daily. These courts however have little impact on the development of law except as a source for cases which may then be heard or appealed to higher courts. Since these courts are the lowest they do not bind any other court except themselves.

There are two courts on the higher level. The High court which deals with cases pertaining to civil matter of unlimited value and the Crown court which deals with serious criminal offences. The High court has four sections: the Chancery division which deals with matters pertaining to equity, the Family division which deals with family matters, the Queen’s Bench division which deals with civil matters and the Divisional court who hears the appeals from civil prerogatives of the lower courts. The High court is not bound by its previous decisions but it can make precedents for the courts below it. Like the High court, the Crown court is bound by all higher courts. It doesn’t make binding precedents but their judgments form persuasive precedents when a High court judge sits in the Crown court. It
also is not bound by its past decisions.

The Court of Appeal is the next step higher. This court is the most important of the hierarchy even though it is not at the top of the system. This court is important because it hears appeals from lower courts in both the criminal and civil matters. There are three judges who sit to hear an appeal. Two of these judges must be Lord of Justices of Appeal. The third judge could either be a judge from the High Court or the Supreme Court. The name given to the head of the Court of Appeal is the Master of the Rolls.

The Supreme Court is the highest appellate court in the hierarchy. It hears cases on appeal from the Court of Appeal. Sometimes the appeal will come straight from the High Court or the Crown Court. This only happens if there is a case which involves the important question of the law. The people who sit in the Supreme Court are called Justices of the Supreme Court. There are at least three to five Justices who sit to hear appeals. It the case is very important than seven sit to hear the case. There can only be at most twelve Justices in the Supreme Court.

The Privy Council is the highest court in the Commonwealth nations and civil appeals. Some of the judges who sit in the Privy Council are those which make up the Supreme Court. The Privy Council is not a part of the hierarchal system and so its decisions do not bind the English Courts. Even though the decision of the Privy Council does not bind English courts, the judges are the same that make up the Supreme Court of England; there is a section of the Supreme Court that is persuasive precedent. Following the case of R v James Karimi (2006) the Court of Appeal found out that in certain circumstances the Privy Council can bind the English courts and overrule previous precedent.

Stare Decisis
Stare Decisis means ‘to stand by things decided.’ Stare Decisis is one of the main things that makes up the case law system. This makes judges bound to follow the previous decisions of higher courts in similar cases. This simply means that judges must obey previous judicial decisions of higher courts.

This question is often asked: Why have Stare Decisis and why not let judges use their own conscience and wisdom to decide a case? As with everything there are advantages and disadvantages of creating something. The advantages of having Stare Decisis are that it promotes certainty, consistency and predictability. Professor Geldhart said that certainty is promoted by consistency of judicial making. Similar cases should have the same outcome.

Certainty promotes predictability and this reduces the possibility for trial because everyone will know how certain cases will be decided.it also limits the potential for the declaratory theory to take effect. The theory is put into place to reduce judges who are not elected not to make law. The role of the judges is to apply and interpret. Law is made in Parliament and it represents the will of the people who elect the members of parliament. It also promotes justice. This type of justice is Aristotlean justice. This means that fairness is given equally of legal principles. The system is the same for everyone and so similar cases should be dealt with the same way.

Disadvantages are that it makes the law rigid and inflexible. The law is not able to develop and is stuck. Precedent binds even if it is old and outdated. The discretion of the judge is that he must follow and abide by the decisions made by the judges before him no matter how old or outdated it may be. This also makes the law stuck and not develops to meet the modern day changes. The amount of case law precedent adds up to uncertainty. Case law and its precedents are contained in thousands of reports starting from the middle ages. It is difficult for lawyers and courts to go through them and find similar cases. It is not easy for judges to find the binding part (Ratio Decidendi) of any case.

Ratio Decidendi is the reason for coming to the decision. This is the principle in which the court uses to make a decision. The ratio is the rule expressed by the judge to the extent that is necessary for the judge to come to his decision. Obiter Dicta are the things said by the way and other things which so not make up part of the decision making.

When is a Judge Bound?
As I stated earlier, a court must follow the decision of a higher court and its earlier decision. The system works in a way that makes binding precedent operate in a way to tie the hands of the judge. When the ratio binds any part of a court depends on the original decision that was made. The Supreme Court binds the Court of Appeal, which binds the High Court which binds the Magistrates, Crown and County court. Courts also bind themselves because of its earlier decisions. The only exception is the Supreme Court who makes its own decisions and is not bound by any other court because it is the most senior.

Before 1966- Judicial Precedent
HoL announced that they would no longer consider themselves absolutely bound to follow their previous decisions. Binding precedent remains the foundation of the English System of case law. The earlier decisions were based on conditions which no longer triumph and in modern conditions the law ought to be different.

Judges are bound by similar cases. Judges in the latter case are bound to apply the same ratio used in early court where the two cases were based on the same issue. If the matter of a case is similar but has facts that similar to al later case, they differ and the issues are not all similar and the court is then not bound to apply the earlier precedent. This is called distinguishing.

Can the Doctrine of Stare Decisis be avoided?
Reversing occurs when a court higher up in the hierarchy downturns the decision of a lower court in the same case. A decision made in a certain case by the Court of Appeal will bind all future lower courts and it would bind itself. This can be avoided id the appeal went straight to the Supreme Court who would reach a different decision. The court of Appeal’s decision would have been short-lived precedent and the Supreme Court decision will take place of the previous one.

Overruling is replacing one precedent with another which helps develop the law. Reversing is where a higher court substitutes a principle made by a lower court in the same case. Overruling involves a higher case substituting a principle set down by a lower court in a different and earlier case.

My conclusion is thus; the principle of Stare Decisis has handicapped the development of the English Law because it makes the law rigid and inflexible. The law is not able to develop and is stuck. Precedent binds even if it is old and outdated. The discretion of the judge is that he must follow and abide by the decisions made by the judges before him no matter how old or outdated it may be. This also makes the law stuck and not develops to meet the modern day changes. The amount of case law precedent adds up to uncertainty. Case law and its precedents are contained in thousands of reports starting from the middle ages. It is difficult for lawyers and courts to go through them and find similar cases. It is not easy for judges to find the binding part (Ratio Decidendi) of any case.

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Bombardier Case Preparation

Bombardier is a successful company in the transportation industry. Bombardier has two divisions; The Aerospace and Transportation divisions.

Bombardier Aerospace is the third largest designer and manufacturer of commercial aircraft in the world, and one of the leading producers of regional aircraft. The company encountered some challenges because of the company’s growth strategy by acquisition.

The main problem was communication problems among systems which were different for each acquired company because Bombardier Aerospace became a “textbook silo organization” after acquiring with other companies. Addition to this problem, low visibility of inventory and lack of integration between its legacy systems was also important problem to the company.

Symptoms of the problem were process delays, sequential activities, low inventory turns, supplier proliferation and price inconsistency, and multiple Bills of Material (BOM).

The company found a solution for this problem that changing Bombardier Manufacturing System (BMS) which was the group of IT applications to support manufacturing activities to an Enterprise Resource Planning (ERP) system.

· First ERP Implementation: After $130million spent, first ERP implementation discontinued mid-project in 2000. Failure of this attempt:

•Focusing the implementation on inappropriate business processes •An outdated company vision
•A weak sponsorship model
•Insufficient involvement of internal employees.
•Employing too many consultants who having a limited knowledge of the business to assist in the project.

· Second ERP Implementation (BMIS) Project: In 2001, a group of senior managers authored a project for the BMIS in order to establish a new integrated manufacturing system. BMIS was the first project to realize a wider ERP strategy and a vision of an integrated organization, one company. It would support Bombardier Aerospace’s operations; would focus on the processes that supporting manufacturing, procurement, finance and the engineering data to support these processes.

Issues encountered by Training:

• Lack of process documentation or system functionality for trainers •3rd party consultants prepared training material
•Lack of user friendly, understandable training materials
•Lack of information to employees about necessity of training •Lack of focusing on the roles (e-learning module)
•Incomplete and somewhat wrong data for training
•Lack of explanation of the wider role & consequences of BMIS. •Shorter training time than what was planned

Issues encountered after Go Live:

•Three weeks shutdown to implement new system
•Lack of knowledge of user’s new responsibilities and roles •Blaming new system when encountered problem didn’t solve in a short period of time by support staff •Availability of old system (some managers encouraged employees to use old system) •Lack of implementing General Ledger

•Not using reporting functionality by managers

BMIS was delivered on time and below budget.

After Go Live some issues considered and inadequate areas improved: •Initial training supported with additional courses and training material. •“Day in the Life” training documents developed by management team and these documents improved user’s attitude toward the system.

· Saint Laurent Implementation: After second implementation “Mirabel” project, some of the issues were solved and improved. •The important of user preparation was well recognized.
•Managers of the Saint-Laurel plant were convinced to own this project. •Everybody in the organization got informed about every phase and details of the project. •Communication among employees and management for the project got better. •Users understood the changes introduced by the new processes. •Attendance for the training became priority.

•Users informed about their roles and responsibilities before deploying the new system.

Recommendation: Bombardier needs to apply the best ERP implementation practices which includes; •Understanding of the project by management and users: Bombardier did it on Saint-Laurel project. •Planning project: Bombardier made schedule for all project and applied on their project. •Training: Giving training to users before implementing the new system, and continuing training after implementation to make users to understand new system well. •Utilize mapping data techniques and conduct pilot runs and testing simulations: Bombardiers implemented ERP system on one site at the time.

Netflix case study

Netflix offers online video streaming and DVD rental services for a flat fee to all subscribers. After Reed Hastings, the CEO of Netflix had announced the company’s new strategy of separating its online service and DVD rental services into two accounts for its subscribers, the company’s stock fell to $63 per share from $300 per share and lost 805,000 subscribers in three month. Although facing so many challenges, Reed Hastings choose to continue his new strategies, but with a sincerely apologize for the change and a detailed explanation of why they made this decision and what’s in it for current subscribers. Stock price of Netflix close on yesterday was 312.40.

Problems and challenges Although it seems that Netflix has recovered from the separation strategy, but there still are some problems and challenges are waiting for the company. First of all, Netflix online streaming branch is facing fierce competition from companies like Amazon instant video, YouTube, iTunes store, and Hulu. Second, On-demand TV offering are now hot area, many big-pay TV operator such as Verizon and Comcast Corp are trying to bring on-demand TV to cable users which will offer fresher content than online streaming companies like Netflix. Third of all, The DVD rental branch called Qwikster are now competing with companies like Amazon and Redbox DVD rental. From what we can see in the future, DVD service may finally run out of business and how to minimize the damage to Netflix is a big problem waiting for a solution.

Netflix is offering a flat fee policy, which is cheaper than Amazon and iTunes users and is easier to retain current users. A very distinctive strength Netflix have is that Netflix is also a producer. In this year’s Emmy Awards, Netflix Inc’s groundbreaking political thriller House of Cards
took home an award for directing. As its name shows in Emmy, Netflix may win not only an award, but many potential users. Many people may position Netflix as a company provides high quality shows than other video distributors.

Although the stock price has gone up this year and everyone now thinks Reed Hastings is the one sees the future, the remaining problem is how to survive with a $7.99 monthly flat fee for subscribers and at the same time spending more than $5 billion for the next five years to purchase TV shows and Movie License. Customers always wants more and pay less. Huge amount of spending force Netflix to attract new users in a rapid speed, but attract new users itself will be another big spending. Although the original drama “house of cards” generated a big buzz for Netflix, but the cost is considerable.

New technologies bring opportunities to online streaming video companies. Netflix has mobile app for both Android and ios system and it works well. People want to access to on-demand videos more convenient by using mobile phone and tablets. The trend of globalization gives Netflix the opportunity to grow itself. The fourth quarter of 2012, Netflix gained 3 million new global subscribers.

Competition from Amazon, iTunes, Hulu, Google TV, and cable networks may pose threat to the company. BRAD BEALE, Director of digital video content acquisition of Amazon is known for its ability of picking up successful shows and get the license earlier than other companies. Hulu also spend a lot on bringing new contents in. Although Netflix is cheaper, Amazon offers free instant vedio to prime membership and two-day free shipping for its customers. Also, Amazon, Apple and Google now all offer their own devices for video streaming, such as Apple TV, Kindle Fire. Questions

Q.1. A strong consumer backlash emerged in response to major changes in Netflix’s business model. What are some of the arguments in favor of Hasting’ decision to split the company? What decisions and options are available to Hastings? Were they good decisions? 2- 3 paragraphs Many believe DVD rental business is fading because of new technologies. People no longer want to wait for the DVD to arrive. Instead they want on-demand video services. Slip the company bring price lower for stream only customers and it is fair for them to pay for cheaper price.

Put in account information is easier and benefit is longer. Hastings can choose to change the company back to the old model by listening to customers and close the DVD service a couple years later when the DVD rental industry lost all the business. I think its good decisions because the financial information shows that Reed Hastings made the good decision and wins the game. The revenue grow almost half and subscribers grow even more this year. Works Cited

Laporte, N. (2013, July 1). A TALE OF TWO NETFLIX. Fast Comapny , 177, pp. 31-32. Mint. (2013, September 23). ‘Breaking Bad,’ ‘Modern Family’ win top Emmy Awards. (H. M. Ltd., Producer) Retrieved Septemner 29, 2013, from Mint: http://search.proquest.com.rlib.pace.edu/docview/1434860801?accountid=13044 Peterson, T. (2013, September 23). 2013 MEDIA MAVENS: BRAD BEALE. Advertising Age , 84 (33), p. 1. Ramachadran, S. (2013, September 20). Cable Fights to Feed ‘Binge’ TV Viewers; Comcast, Verizon FiOS Vie With Netflix, Amazon for Rights to Show Complete Series. (Dow Jones & Company Inc) Retrieved September 30, 2013, from Wall Street Journal: http://search.proquest.com.rlib.pace.edu/docview/1434160601?accountid=13044

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Reflective Journal on Ethical Issues for Case Studies

As nurses, we encounter ethical situations everyday regarding patient care. How we handle these situations promote equality while seeking rationality. After reading the two case studies presented, I will discuss in my reflective journal how the ethical issues were presented, the steps taken in the decision-making process to ethically address the issues, the lenses used and how these lenses influenced the decisions made, and also how these can relate to the workplace. The Baird Decision Model is a five step process that guides us through that decision-making process when making ethical decisions. The steps include, being attentive to what is happening, being intelligent, reasonable, responsible, and reflective.

In the first case simulation, Rachel a sixteen year old is giving birth to her first child. The ethical issues presented are that she is a minor, parents are requesting minimal medications during delivery, and the situation could gradually worsen at any moment. The decision-making process involves deciding who is highly impacted from the outcomes of the decisions made by the parents and health care staff.

From there, the use of the Rights/Responsibility lens were used to help make my decisions. Based on these lenses, you must recognize your duties as caregiver. We as nurses must always follow rules and policies. By advocating for the patient, accommodation of parents harming her is not the right choice. The best care possible must be given to prevent harm to Rachel or the baby. By informing the parents of any risks and benefits regarding Rachel’s care, this allows them to make informative decisions. During this process, the parents values are maintained and the patient receives effective care. By using these lenses, the nurse is also trusted to provide safe care to the patient and safe delivery for the baby without unnecessary pain.

My decision was influenced by these lenses because they help determine the value of the stakeholders and the impact it made. In my workplace, concepts from this situation would help because we encounter patients who are minors and patients who have relative with control over their plan of care, such as a POA, or power of attorney. This would guide us toward the right direction for providing safe and competent care, respecting the wishes of the patient, and preventing harm.

In the second case simulation, Allen was brought to the ER by his same sex domestic partner, Yves. The ethical issues presented are as follows, Allen has remained unconscious in ICU without a diagnosis for almost a day and Yves has been prevented from visiting him in ICU by the shift supervisor, per policy. Yves has shown minimal proof that they are actual domestic partners. The issue remains how to best assure access for gay partners of Seva’s patients on equal footing with straight couples. The decision-making process involves identifying the basic rights and liberties. These rights are as follows, the right to notice or know what the rules entail, the right to voice or share concerns, and the right to have agreements honored and not change at any given moment.

The lenses used in this case are Relationship/Reputation lenses. The relationship lens establishes fairness by using authority properly. The reputation lens sorts through the problem and maintains one’s basic liberties. These lenses influenced my decision because I practice fairness regardless of who you are. The best option to fulfill the requirements of both lenses for me were to leave a note on Allen’s chart that the policy was not being followed and Yves is getting access to visit Allen. We have to be careful because there is a thin line that could easily cross over into discrimination which cases regarding same sex couples. We would want to maintain our integrity with the community in regards to similar situations but also abide by the law concerning release of patient information. The concepts in this simulation relate to the workplace every day.

As we take care of our patients, visitors come and go around the clock. Many visitors inquire about the patient’s status. It is our duty to provide safe care and preserve the patient’s right to privacy. HIPAA is governed by state laws. It is a privacy regulation that ensures the safety and confidentiality of health information. As I encourage visitation, I also remind visitors of patient privacy regarding their health records. So as we continue taking care of patients, we must handle diversity, represent company values, and practice fairness.

What is HIPAA?. (2012). Retrieved from http://www.dhcs.ca.gov

Disney Case Study

Section 1
Disney’s corporate strategy till 1994 was rooted on Walt Disney’s vision to “create universal timeless family entertainment.” Disney’s synergistic and coherent strategies supported the enterprise expansions and market growths during this period with stellar financial results as well as the timeless brand image. The strategies and the successful effects can be described into four categories (see Exhibit 1 for Disney’s strategic activities) Control of quality and financials, vertical integration

“Oswald, the Lucky Rabbit” taught Disney the important lesson of total control and vertical integration. Disney established its own distribution house, film studio, music label and so on to better control quality content and costs. Synergies among business sectors with the same corporate culture & value made the communication and production more efficient and effective. Control of Brand Image

To better promote and differentiate itself from competitors, Disney used horizontal integration to promote the same product to gain more customer interests. Disney’s Broadway shows were produced to promote Disney’s brand and parades were used to attract people’s attention. Also, licensing characters was not only about cash flow, but also to refresh them and keep the characters live longer in customer’s mind. Therefore, it was important for Disney to be selective and careful about its copyright and distribution in order to maintain its high brand equity and to completely control the entertainment experiences.

Expand horizontally & geographically with synergies & leverage of resources & capabilities To increase its presence and market awareness, Disney applied horizontal integration to expand potential target segments with cross-promotions. In addition, more contents for adults were produced to expand beyond the “family entertainment” base which offered animation, theme parks, movies and many more that fit into the mainstream market. Geographic Expansion was the next logical step once the United States market was saturated and Tokyo’s positive feedback gave Disney the needed confidence and cash flow to implant the formula elsewhere. Leadership and Creativity

Disney relied heavily on one key executive who had a great vision for the company to manage the creativity of the company. Walt Disney created the animated film then led his theme park vision to create a total entertainment for the whole family. Eisner envisioned the annual 20% revenue growth by implanting leadership and creative market strategies to reach the goal. Section 2

Michael Eisner’s short term goal was to quickly improve Disney’s financial performance by building strong brand equity, bringing back Disney’s corporate synergy, rebuilding deteriorated business lines, maximizing profit business lines, and imposing tight cost control. Eisner strongly believed in preserving corporate values inherited from Walt Disney. All new employees, executives, managers were required to attend culture training program. Eisner encouraged innovative ideas, but the business units had to deliver well-defined strategic and financial objectives. To build synergy and improve operation efficiency among businesses, Disney employed internal transfer pricing policies and introduced corporate marketing, in-house media buying group, library committee, etc. to coordinate and allocate business resources.

Eisner recruited outside top executives to rebuild deteriorating TV and Movie business. To appeal to broader audience, Disney expanded into mature audience market. This strategy quickly turned movie division to be profitable and became the market leader. To maximize theme park’s profitability, Disney updated and expanded attractions at the parks to attract more visitors, and used attendance-building strategies as well as raising ticket prices to offset the investment.

In the long-term basis, Eisner continued to grow Disney’s business in horizontal and vertical dimensions, and expanded its presence worldwide which fruited into Euro Disney. Theme park expansions led to real estate business like hotels and resorts to encourage longer stays and attract major conferences. Furthermore, movie division created Hollywood Pictures and acquired Miramax which led Disney into the mainstream movie industry. Eisner expanded into other types of entertainment such as sports (NHL) and Broadway theater production. The consumer product division opened “Disney Stores” and entered into book, magazine, record publishing business, direct-mail and catalog marketing. Also, Disney formed Buena Vista Home Video to sell videos directly to consumers. Increase Net-Income from1984-1988

In Eisner’s first four years, he aggressively focused on increasing revenue stream, and controlled cost tightly, which directly improved the bottom line. SG&A were maintained at flat level even with the increasing revenues from 1984 to 1988. By expanding movie and TV market to adults, revenues from these two divisions quickly improved. Eisner focused on moderately budgeted movies to keep costs low by identifying good scripts from unknown writers and hiring well-known actors in career slumps and TV actors. Cross promotion of licensing and TV syndication to re-use old materials were implemented to make quick profits. Section 3

Since the company started in 1923, quality, creativity, entrepreneurship, and teamwork have been the core of Disney’s corporate values. Walt E. Disney himself was known for his commitment to excellence and hardworking management style. The corporate structure was very flat and non-hierarchical where practically no one had a title. These values and corporate structure helped Disney to achieve synergy across the company, introduce creative ideas and control quality of the work. However, after Disney passed away in 1966, the corporate values began to fade as the management team in film division struggled to come up with creative and innovative ideas. Pre-1984 years, Disney also had been characterized as family controlled company and as family-oriented entertainment provider. In 1984, Eisner took over Disney as an outsider but he quickly instilled the same corporate values introduced by Walt Disney and simultaneously introduced frictions based on his promise of maximizing shareholder’s return of 20%.

The company structure became more hierarchical as Eisner hired outside talents to run the Disney’s motion pictures and television division, formed a strategic planning group, and introduced corporate marketing group. Eisner put heavy focus on financial performance and at the same time emphasized on expansive and innovative ideas, which created conflicts between financial and creative groups within the company. Furthermore, Eisner broke the tradition of only providing family-oriented entertainment and got Disney into mature audience market.

Section 4
The strategic logic of the acquisition of ABC was due to several reasons. First of all is growth expansion. Disney wanted to grow its entertainment business, and be the #1 entertainment company. ABC had been the top rated network and built a global media network channel. Acquiring ABC would give Disney access to viewers around the world. At the time of the merger, Disney’s business portfolio consisted mostly of cash cows: studios, theme park, consumer products (see Exhibit 2). Disney had significant market share and revenues, but the markets served were experiencing low growth rates, with the exception of internet content which Disney had a very small market share (see Exhibit 3). The media network business was, at that time, still a high growth business with a growth rate of 20.6% (calculated from ABC’s revenue 5 years following the merger), and ABC at that time was the market leader in that segment which would make it a star in the BCG matrix. Given Eisner’s goal of achieving return on stockholder equity of more than 20%, ABC offered high growth rate which fitted very well into Eisner’s plan. Also, ABC’s acquisition complemented Disney’s corporate strategy of vertical integration, giving more control over the value chain.

Instead of relying on partnerships and agreements with various distribution networks; Disney would own distribution network for complete control over its contents, as well as consolidated resources and reduced cost of operations. The acquisition also added to Disney’s horizontal integration as a content provider. ABC had rights to content media different from Disney’s traditional studio business. One such content category was sports, namely the ESPN sports channel, which was the most profitable sports channel at that time, as well as content targeted towards the adult audience. This would also enable cross-promotion between Disney’s content and ABC’s content. Overall, the increased vertical and horizontal integration would open up possibilities for synergy, which Michael Eisner had made a focal point of his management team. There were several well-intentioned strategic reasons why the merger made sense both to ABC and Disney, and they were aligned with Disney’s corporate strategies of fostering synergy, encouraging creativity, controlling quality and improving financial performance.

Section 5
The core corporate strategies of Disney from pre-1995 years continued on through the period 1995-2000: such as synergies across business units, cost control, distribution control, geographic, vertical, and horizontal expansions, etc. After the acquisition of ABC, even though ABC took Disney into other non-related markets, Disney actually maintained the same corporate strategies in terms of expansions with synergies by controlling high quality contents, distribution, and financial aspects of the business units.

However, the acquisition of ABC brought new challenges to Disney at the corporate level in dealing with the corporate strategies at much bigger scales and broader diversities. Disney was already experienced with managing multi-brands like Touchstone, Miramax, and Hyperion, but the association with ABC made the brand equity more difficult to manage due to the incongruent approaches of diversified businesses. Furthermore, the inherent synergies that Disney valued in the previous years became obsolete, thus Eisner had to put more efforts into making sure that “the outsiders” received the injection of Disney’s core values and establishing performance metrics based on synergistic business growth.

Geographically, ABC, CineNova, and Internet added to the global delivery arms putting Disney in good position for international and untapped regions growth. With the international market offering Disney the biggest growth potential, the global access certainly puts Disney in better position than before. Vertically, ABC added distribution channels with more TV and radio network, Club Disney added retail stores at malls, and internet added services for consumers to deal online. Disney’s long term corporate strategy of controlling the production and distribution puts Disney as a corporate in stronger position than before. Horizontally, Disney expanded into other types of entertainment like sports, cruise ships, and mature themed Broadway shows. With wider horizontal expansion and diversification, Disney is in better position to cross-promote at a bigger scale.

Overall, Disney’s acquisition of ABC and other expansions demonstrate good strategic fits with additional resources and capabilities to grow and enter into new markets. However, Disney’s financial performance has been deteriorating with ROE going from 12% in 1997 down to 4% in 2000, whereas ROE numbers were in double digits for the years leading up to 1994. One major area of difference is synergy being much weaker now with ABC acquisition diluting the traditional force behind the synergistic values. So, it appears that Disney is struggling with the execution of the core strategies. Disney’s success will attribute to how well the corporate coordinates the synergies among business units to bring values to each BU in terms of sharing, leveraging, cross-promoting the growth potentials. Disney’s corporate strategies for providing leadership and creativity, as well as tight financial management, will need to continue as the backbones of the company.

Exhibit 1: Disney Strategy Activity Map till 1994

Image Resource: Disney.com

Exhibit 2: BCG Matrix

Exhibit 3: Growth rate for major Disney business units after merger of ABC

Amys bread case study

Case Study Questions
Who are the main players (name and position)? The main Player in this is Amy Scherber and she is the manager and owner. Another main character is Toy Kim Dupree and he is Amy’s assistant manager. 2.

In what business or businesses and industry or industries is the company operating? Amy’s bread is in the business of selling bread products both wholesale and retail. They sell primarily to high quality restaurants, hotels and food shops. 3.

What are the issues and problems facing the company? (Sort them by importance and urgency.) It is hard to make a large profit because Amy pays her employees a higher amount then the other business in her field. She also has to employee about four times as many employees to complete the same job due to the intensiveness provided on each batch of bread. The company is also struggling with the idea of wither to expand or stand pat with their business. 4.

What is the primary problem for the company/organization in this case? The primary problem in this case is the idea of expansion. The problem is that they do not know if they should expand or stand pat. If they do expand how are they going to centralize their business. Are they going to do strictly wholesale or wholesale and retail. 5.

Why have the problem (s) you cite emerged? Identify the causal chain (the events or circumstances that caused the problem-Some will be Internal Weaknesses, others EXTERNAL Threats). This main problem has occurred because they are currently located in a storefront that is not adequate to provide the needs of all their potential customers. The main weakness here is that they are in a bad location for advancement. In their current location they are completing all of the orders that they possibly can. 6.

What are the characteristics of the industry that the company is in and how
is the industry changing over time? When Amy’s Bread first open bread baking was a growth industry. The U.S Department of Commerce reported there was a 12 percent increase in the consumption of specialty breads per capita.

This industry is also very tough to get into there are a great deal of company’s that already have been working with restaurants for a long time. The other problem with the industry is that because it was a growth period many new bakers were trying to enter it and earn a name for them. So the computation for customers is high in the industry and only growing more competitive. 7.

What is the firm’s strategy for differentiation, enabling them to compete within the context of their industry? Amy had a clear goal she wanted to be famous for making a great product and for creating a good place to work. Amy’s product itself was different because she set the highest standards on her quality. They also do not use any machines in the shaping of their bread. Every load of bread was hand crafted and shaped which was why her payroll was so high but it set her breads apart from the average shop. 8.

What are possible solutions to the problems you have identified? Possible solutions to her crisis on where to go or wither to move at all are one she could not move and be satisfied where she is. The second option is she could move to a building that she would be able to produce large amounts of wholesale goods at and not concentrate on retail goods. The third option is she could move to an even bigger place where she could sell retail product and still meet her needs for wholesale. 9.

What are the advantages and possible disadvantages of your solution(s)? If she stays pat then she will be able to turn a marginal profit and meet the needs of her current customers. The disadvantages would be that she would then miss out on opportunity to sell to all the customers that she has on her waiting list and her retail business would not be any bigger.

In second option they would be able to meet all her wholesale needs. The disadvantages would be that she could not sell retail customers any more and she would be paying more for the property. In the third option she would be able to sell both retail and wholesale. She would be in a newly developing retail market with access to foot traffic. She would also be able to meet all her whole sale needs.

To top it off she would be able to design the layout of the building to fit her exact needs. The disadvantages of this are that it is very expensive. She would get everything that she is looking for but at a substantially higher price then the other two options. 10.

Are there any possible problems with your suggested recommendations? What contingencies need to be accommodated? My recommendation would be to choose the third option. It is the most expensive but Amy has already demonstrated that she has a sharp business minded and is able to build business and promote it. The retail space will help spread the word of how good her bread actually is and word of mouth is the best advertisement they could have.

The biggest problem that they could have is if they start to loose customers. A second problem would be if the market begins to shift away from the cravings of bread. Or another problem could be that they simply do not add enough customers to be able to afford the new space. Case Study Analysis Narrative Format

Case title: Amy’s Bread
Student: Nicholas Mustico
Date: 3-18-2013
Course: Management Principles
Firm Overview and Introduction to the Case
(Use this and all headings in your narrative)
In this first section of the narrative, you will provide a brief description of the case subject firm and circumstances for your reader. YOU are the expert.

Your analysis is reliant on the fact that you’ve read the case at least three In the case study of Amy’s bread you get a complete overview of the company. It discusses where they started how they started and the experience that the owner Amy Scherber has. Amy Scherber is the centerpiece of the company she is the founder, owner, manager, and lead baker/chef for Amy’s bread.

Amy is also the main person in charge of the company’s finances and business discussions. Amy is now facing the problem of wither or not she is going to expand her company. She has been able to entrench her business in the tough industry of baking breads. This is a business that is very completive and hard to establish yourself in. Now that she has become establish she has to decide wither she would like to expand to meet consumer’s demands or stay where she is and be happy with what she has accomplished. Internal perspectives

(Use this and all headings in your narrative)
This section of your narrative is used to explain to your reader the internal, factual information about the case subject organization and the problems you’ve identified. Additionally, in this section you need to describe the causal chain. How did the problem arise? What caused it?

The problem in this case would not be a problem if the company had not become as successful as it has. If the company had not become so popular then the small storefront that she had originally solicited would never have become a problem. They did become popular though and now they have to adjust to what they would like to become. No one knows if she had selected a larger site if she would have ever been able to get herself going but if she had then this problem may never have occurred.

Her company now is at a point where they cannot satisfy one additional customer due to space constrictions. Amy’s problem is a hard one to decide on but for a company it is a good spot to be in if you have too much potential business. It is always better to have too much opportunity then too little. *

External perspectives
(Use this and all headings in your narrative)
In this section you will describe the characteristics of the industry in which the subject organization operates. Identify any changes over time, which you believe contribute to the problems you’ve identified. Has the Firm’s Strategy for differentiation within their industry caused, Added to or exacerbated the problems you’ve identified? Amy’s bread is in a very complex and difficult industry to work in. She is in a field that has been “well farmed.” What I mean by that is that there have already been people there doing what she is trying to do.

The business she is trying to sell to unless they are newer then her have all already put someone in place to fulfill their need. She then would have to show these businesses that she is that much better then her computation that they have already employed. Amy’s strategy for differentiation is basically being better then the computation. She is striving to have the highest quality, freshest, and most innovative bread selection. She had made it a point that she will not sacrifice quality for anything else including profit.

Amy was lucky, or smart enough to enter the backing industry when it was on the rise. Consumption of grains had just begun to rise when Amy entered the industry. The U.S Department of Commerce reported there was a 12 percent increase in the consumption of specialty breads per capita. This industry is also very tough to get into there are a great deal of company’s that already have been working with restaurants for a long time. The other problem with the industry is that because it was a growth period many new bakers were trying to enter it and earn a name for them.

So the computation for customers is high in the industry and only growing more competitive. This main problem has occurred because they are currently located in a storefront that is not adequate to provide the needs of all their potential customers. The main weakness here is that they are in a bad location for advancement. In their current location they are completing all of the orders that they possibly can. Then again this is not a problem that most business would not want. Solutions

(Use this and all headings in your narrative)
In this section you will provide a proposed solution to the primary problem/ secondary problems you’ve identified. Possible solutions to her crisis on where to go or wither to move at all are one she could not move and be satisfied where she is. The second option is she could move to a building that she would be able to produce large amounts of wholesale goods at and not concentrate on retail goods.

The third option is she could move to an even bigger place where she could sell retail product and still meet her needs for wholesale. If she stays pat then she will be able to turn a marginal profit and meet the needs of her current customers. The disadvantages would be that she would then miss out on opportunity to sell to all the customers that she has on her waiting list and her retail business would not be any bigger. In second option they would be able to meet all her wholesale needs.

The disadvantages would be that she could not sell retail customers any more and she would be paying more for the property. In the third option she would be able to sell both retail and wholesale. She would be in a newly developing retail market with access to foot traffic. She would also be able to meet all her whole sale needs. To top it off she would be able to design the layout of the building to fit her exact needs. The disadvantages of this are that it is very expensive. She would get everything that she is looking for but at a substantially higher price then the other two options.

My recommendation would be to choose the third option. It is the most expensive but Amy has already demonstrated that she has a sharp business minded and is able to build business and promote it. The retail space will help spread the word of how good her bread actually is and word of mouth is the best advertisement they could have.

The biggest problem that they could have is if they start to loose customers. A second problem would be if the market begins to shift away from the cravings of bread. Or another problem could be that they simply do not add enough customers to be able to afford the new space.

Case Model
Insert a copy of your case model at the end of your narrative. Model the problem and solution by drawing a diagram. Identify the problem, what is causing it, what is making the problem worse (or potentially hiding the problem), and what can be done to mitigate or eliminate it. Use the strategy models to help you think through the steps that must be taken to intervene and solve this problem. Case model

Annie’s Homegrown Video case questions and answers

1) Annie knew what she wanted and had the willingness and determination to see it through. a) Annie’s person characteristics of being health conscious, willing to take chances and focusing on no only her wants and needs, but also the wants and needs of others has helped shape the success of her business. 2) The company evolved into a multimillion dollar leader in the natural organic food industry by identifying the markets and then focused on the top ten markets. In those markets Annie’s company focused on the products attributes, being realistic and willing to take chances while maintaining a high loyalty to its existing customers. In 1998 capital infusion from Consorzio and Fantastic Foods help fuel growth in Annie’s business.

Consumer satisfaction and brand awareness helped get the attention of another investor Solara Capital LLC in 2002. These investors where looking to enter into the organic food market and by investing in Annie’s company they helped the growth of Annie’s business as well. So with the help from loyal customers and investors Annie’s business was able to grow. a) I think that the only growth strategies would be focusing on what the consumer wants and finding ways to provide that. The only other thing that I can see would be trying to get more product placement in stores that they are currently not in. 3) The web site has many unique feature like:

a) Spreading the goodness – finding out what’s new at Annie’s. b) Taste Our Products – give a list of products with descriptions and pictures. c) Recipes and fun tab – recipes and a kids club and a way to get free stuff d) The website its self is very unique and lively, a pleasant site to visit. 4) The web site promote Annie’s mission by having it right on the home screen of the web site. It also promotes her mission be everything that is on each page of the web site, from products to articles to recipes.

Using the case study at the end of the module assess the client’s issues and describe your treatment plan. What ethical issues might arise

Miss E is a 29 year old female whose goal is to lose 2 ½ stone in weight. She has come out of a failed long-term relationship 6 months ago, and revealed that her former partner was very controlling and appeared to want her to remain overweight. Miss E has always struggled with her weight since she was a teenager (from the age of 12 or 13), and her parents constantly pestered her about being unattractive and eating too much. Miss E has tried various diets and invariably has always put the weight back on. She is going on an all girls holiday in 3 months and hopes to have lost the weight before then. Miss E also feels ready to look for a new relationship. Throughout my essay and based on the case study provided, I will intends to look at Miss E’s issues and I shall be describing what course of treatment i believe could be beneficial for her. I will also mention ethical issues as they arise before concluding.

Obesity is a major contributory cause of death in the UK, around one in every 11 deaths in the UK is now linked to carrying excess fat. Of all the deaths in the UK that were linked to excess weight, about 66 per cent were down to obesity, and 33 per cent to being overweight. Being overweight or obese leaves people at high risk of heart disease, diabetes, high blood pressure and osteoarthritis. It also makes them much more likely to develop several types of cancer. The difference between being overweight and obese lies in a person’s Body Mass Index.

The body mass index (BMI) is your weight in kilograms divided by your height in metres squared. if your BMI is between 25 and 29, you would be considered overweight if your BMI is between 30 and 40, you would be considered obese if your BMI is over 40, you would be considered very obese (known as ‘morbidly obese’). A lot of people insist they need to loose weight, whether they’re overweight or not. The truth is, very few people are happy with the shape and size of their bodies, regardless of whether or not they need to loose weight.

To enable further understanding of Miss E’s current situation i will need to gather additional information starting by her weight and height as well as her history about how she is relating to food from the childhood to now, her eating habit and her life style within any social environment, her belief system with regard to food. It is evident that Miss E wants to loose weight, but i am suspected that Miss E has deeper issues than this. Many peoples suffering from weight issues are related to emotional problems that can be acted out through their relationship with food. Binge eating can be one way to reduce anxiety frustration fears and unresolved issues.

Before assessing the case of Miss E, it is important to look at any relevant information about her life that could be used to formulate a successful treatment plan. Miss E has been overeating since she was 12 or 13 and also she had been struggling with it but was unsuccessful as she gained her old weight after every diets. It’s not unusual for people to get into a cycle of dieting, overeating, feeling guilty and dieting again. This is known as ‘yoyo dieting’ and makes weight loss difficult to sustain.

This means that she has a tendency to sabotage all effort gained. For Miss E, eating has become a habit and habits are ruled by the subconscious which is a very strong force and will usually win when in conflict with the conscious mind. Miss E’s parents badgered her of being unattractive and this became her self-image and develop low self-esteem and lack of confidence, this feeling was later reinforced by the behaviour of her ex-partner who wanted her to remain overweight. Hadley and Staudacher (Chap 4, pages 60- 62, Chrysalis notes from module 6 pages 6-7) suggested that there are five common causes for overeating. It will be vital to isolate the reason(s) for Miss E overeating in order to help her through the process of hypnosis.

Miss E’s hidden agenda that she is unattractive and not worthy established a secondary gain of being overweight, this mix of feelings reinforced the habit of over eating in order to replace the missing love, love of herself and from

others. This lack of love could be seen increased with the separation from her previous controlling partner which left her traumatised and anxious about having a new partner in her life. Miss E is going on all girls holiday but she is concerned about her weight, and she want to lose 2 ½ stone in 3 months. It is important to identify if this goal is realistic. The best way to sustain weight loss is to lose 2 pounds a week and based on my calculation the realistic target to be set up for Miss E’s should be around 1.85 stone (12.99 weeks equivalent to 3 months, times 0.14 stones ideal weight loss per week). If a realistic goal is not set up from the beginning of the treatment, there will be a chance for sabotage (again) .

Miss E is going on all girls’ holiday means that she has expectations, she likes to have and enjoy social contacts and changes. She wants to be slim and take pride of body and look into prospective better life and future. She is now looking for another partner this means that she is hopeful and wants to move forward.

It is clear that Miss E has low self-esteem, feeling of uncertainty, and need of love. As therapist our first task should be to boost her ego, self-esteem and confidence in order to ensure that her treatment for losing weight will succeed. Now let’s look into how to design a treatment plan for Miss E’s issues. To begin with, I would have to look at all information required in order to formulate an effective and individualised treatment plan.

First of all I will need to be sure that Miss E is a suitable for hypnotherapy, to be able to do so I will need to gather further information in term of her physical conditions, it would be necessary to identify if her overweight is due to genetic or metabolic factors, from taking any medications or suffering from any severe mental disorders like psychosis, a confirmation from her GP will be requested at this stage. if I realise that there are any physical or mental conditions or a contraindication from the GP to hypnosis, I should refer on Miss E to counselling.

I believe Miss E is suitable for hypnotherapy. I will need to look at her personality and look at her modalities. It is important to build up a good rapport for designing induction screed and to choose what therapeutic approach could be used, direct/indirect and authoritative/permissive. I will need also to understand her belief system and get the full history of her relationship with her previous partner, this information could be explored and ventilated to relieve any traumatic feelings and to give fresh positive meaning by giving it a positive interpretation. Also, by recalling memories of childhood, like her parents badgered her as unattractive and overeating, could be used to recreate and reinterpret rational and positive meanings to reprogram her hidden agendas.

It is important that, as a therapist, to not emphasise or reinforce any of her negative feelings about being overweight, instead, would engage in normalising them and consistently re framing her mind to be confident, to imagine herself with a slimmer figure, to replace the habit of comfort food to a non-fatty food, i.e. eating carrots instead of chocolate when felt lonely or stress. The use of metaphors, analogies, imageries about the benefit of slimness and eating less could be also very powerful. Anchor positive resources in the past and carry them to the present and then rehearse them to the future imaginative situations may give her less importance to food and of having the perfect figure. As discusses previously, i will need to explain that the Miss E expectation of losing 2 ½ stone is not realistic within 3 months time.

It will be primordial to set an achievable target and would incorporate new patterns of behaviour like adhering to new life style, taking regular exercise, an appropriate diet to follow etc… I will also explain to her the concept and principles of hypnosis and how hypnotherapy could be applied to address her issues. I will raise her awareness and help her have a control at her danger points. Danger points are where, when and why she overeat and what feeling and which places trigger her to eat more than her real hunger feeling, because she might be doing so as driven by subconscious that is unaware to self. I would then encourage her to change these danger points by replacing them with healthy means, and new behaviours by using therapeutic suggestions-screed. I would advise Miss E to start a food diary. This homework will again help her to take control over using food and have an idea about its relationship with emotions.

I will create an induction and deepening to match to Miss Es case, either using visual imageries or kinaesthetic modality, i will place her in a special place for therapeutic platform and metaphors like ‘Ugly Duckling’ to building self-esteem and to indirectly ingrain the suggestion of the transition and transformation for better into the subconscious. by carefully worded the script, i will explore Miss E’s reasons for overeating and suggest new ways of thinking through visualisations by reprogramming the subconscious into eating properly, make healthful foods more desirable and make fatty food less desirable and taking pride in her self-image, and to recreate a healthy relationship with food.

It will be the process of replacing the satisfaction or comfort that food gives to her with something that gives as much emotional satisfaction in return. I will also be using her wish to have a new partner and her wish to take pride of her body while she will be on holiday to increase her motivation. It would be also useful to describe the health risks of being overweight and the benefit of loosing the extra unwanted kilos. I will change her habits through direct and indirect suggestions, the suggestions I might use during Miss E’s treatment could be: envisioning the body she wants, imagining how she will feel with her new look and health, imagining how energised and confident she will feel.

These visualisations and many, many more are designed to empower her so that she can take control of her choices. Hopefully she will learn to enjoy the taste of healthy food and stop craving sugary, fatty things. She should also learn to enjoy her body and not see it as a source of anxiety. I will also use ego strengthening on self esteem and cognitive methods. It is important after the screed to get feedback from Miss E, this will enable me to adjust, personalise, prioritise and focus on specific aspects to achieve the best result, the treatment could last between more or less 4 to 6 sessions.

It is obvious by this essay that Miss E is coming to seek help to loose weight but is also suffering from deeper issue like low self esteem and confidence resulting from her parents and ex-partner behaviour. By redefining a realistic goal and by using therapeutic suggestions I am confident that I could help Miss E to achieve her goals. Although, i believe that hypnotherapy would be appropriate to her, it would be perfectly acceptable to advise Miss E to consult a nutritionist and eventually a personal trainer, as well as a counsellor alongside her hypnotherapy treatment.

Case Study Nestlé


Nestle is one of the biggest food companies in the world with sales of $47 billion annually. Nestle has undergone through a huge number of transformation throughout the years. (Palmer, Dunford & Akin, 2009). Nestle manufacture product such as different cosmetics and chocolates that has been long known as a worldwide leader in its business.

To increase its growth in operations, Nestle had picked up other markets for diversification other than the food industry which Nestlé’s first pick item was the cosmetic brand. But after some time, the company had acquired other products like ophthalmic and pharmaceutical. At last, for the expansion the company was required to concentrate on enhancing productivity, business expansion and financial improvement.


1. Did Nestle undergo either first-order and/or second-order change according to the case? Answer listing examples of types of change from the above story.

In the case study, Nestle went through major first order change. One of the first-order changes that occurred was in the 1900’s when Nestle changed its approach to global expansion by acquiring subsidies in other countries. Prior to that, Nestle only operated with sales agents to buy their products out of Switzerland, so they changed their international strategy maintaining the company’s goals and the organizational mission.

During the First World War, this had increased the demand on diary product, Nestlé took advantage of this fact as a way to expand itself into U.S. purchasing American factories, and continuing with their global expansion. In addition to increase productivity and efficiency, during the Second World War Nestle moved out of Europe.

Nestlé in 1974 then started to diversify their products in order to grow as company and increase earnings. Nestlé acquired a cosmetic company that became the major shareholder of L’Oreal. That was the first of different acquisitions of companies out of the food industry. Nestle then entered in the pharmaceutical market purchasing Alcon Laboratories, and enlarged their position in food market acquiring Carnation. Diversifying their products, Nestle drove away from their initial structure and created different products.

2. Brabeck- Letmathe emphasizes the need for incremental approach to change. Do you agree that this what he has done? Discuss the differences and similarities between his view and your view of what has occurred at Nestle, both historically and in recent times.

Yes, I believe Brabeck has incremental change because he believes that change should happen “slow and steady.” If you make all changes happen at once instead of over a period of time then there will be no incremental change. He expanded Nestle with different products, which I think helped them to increase in production. He tried to implement their strengths and make them better. I believe that he could have done this better financially because having too many investors can put a financial burden on the organization. With Brabeck-Letmathe using this approach, it gave the organization a chance to keep the core values and sustain strength rather than changing it entirely.

3. What implications for change managers would apply specifically to Nestle? Outline how the Nestle management team may have reacted to each implication.

Nestle is forced to respond to a competitive mechanisms specially created for managing a specific.

The first implication for change managers within Nestle is the need to be accountable, transparent, and focused on how best to create trust between subordinates and management. From this foundation of trust, both first- and second-order change can be developed. This focus on being trustworthy to alleviate resistance to change and instead invite employees to “own” the change as well as it is critical to making any organization resilient over time.

The second implication for change managers is the pragmatism to look at what initially is perceived as a major improvement in execution and efficiency promised by IT investments and concentrate on their real contributions to the company.

Third, the implications of acquiring L’Oreal and Alcon Labs are diversions for their core business yet Nestle positions these as extensions of their core business of consumer products and succeeds as a result.

The difficulty faced by the change managers to each of these changes is to maintain the balance between the current strategies of the Nestle and the strategies prevailing with the new acquired organization. Another challenge faced by the management is when Nestle has acquired other brands which were completely different from the food brands, it was complex for the management to decide which sequence should follow, so that there will be no compromise on the success of the company. It is very clear from the case study that the CEO of Nestle focus on the long term goals as compared to short term goals. For managers, it was very difficult to work on these kinds of changes.

4. Find three examples of lessons from the front line that are evident in the Nestle case. How could these issues be overcome?

The three examples of lessons from the front line that are evident in Nestle are use of innovative technology, downsizing and acquisitions & mergers. (Joined Up Business, 2011)

Use of Innovative Technology – It is very clear that introduction of IT tool is very significant for managing the operations of the company, but after that the company has not implemented that tool. It is advisable for the company to add IT tools to make the things better and fast.

Downsizing – In simple words, downsizing refers to the elimination of employees in the organization. Downsizing assists in cutting of the cost, but at the similar time points out the issue of worker retention. It is advisable for the company to opt other method of the cost cutting as compared to affecting the employees.

Acquisitions& Mergers – It has been analyzed from the case study that Nestle has earned significant amount from Mergers & Acquisitions. A large number of cultural issues have to be taken care of. In general, when two companies merge in any form, then retention of the employee arises as a significant issue.


In conclusion, Nestle never believed in non- realistic objectives which demanded sudden change. The difficulty faced by the change managers is to maintain the balance between the current strategies of the Nestle and the strategies prevailing with the new acquired organization The Nestle Company has opted for worldwide diversification and initiated purchasing local subsidiaries from the outside market. Once the gaps are recognized it becomes easy to work in upward movement for the growth of the organization, changing any organization is not as simple as it seems to be. Knowledge, skills & expertise are the key areas for any organization undergoing change. At last, it can be concluded that the Nestle falls under the category of fit organization.

Lakshminarayan case (partnership act)

Case Note:
Direct Taxation assessment of income – Section 4 of Partnership Act appellant a registered company entered into an agreement with Mill company appointing its agent for thirty years – amount received by appellant from Mill company were assessed under income tax – appellant contended remuneration received from the Mills company was not taxable as it was not profit or gains from business – following question referred to

High Court – whether under the terms of the agreement the petitioner is an employee of the Mills Company or is carrying on business – whether the remuneration received from the Mills is on account of service or is the remuneration for business – matter decided against appellant – appellant moved to the Supreme Court – Court observed the objects of the appellants in this case inter alia were to act as agents for Government – appellants were therefore rightly assessed for excess profits tax. JUDGMENT

Bhagwati, J.
1. These are two appeals from the judgment and decision of the High Court of Judicature at Hyderabad answering certain questions referred at the instance of the appellants by the Commissioner of Excess Profits Tax, Hyderabad, and adjudging the liability of the appellants for excess profits tax in regard to the amounts received by them as remuneration from the Dewan Bahadur Ramgopal Mills Company Ltd. as its Agents.

2. The Mills Company was registered on the 14th February, 1920, at Hyderabad in the then territories of His Exalted Highness the Nizam. The appellants were registered as a private limited company at Bombay on the 1st March, 1920. On the 20th April, 1920, an Agency agreement was entered into between the Mills Company and the appellants appointing the appellants its Agents for a period of 30 years on certain terms and conditions therein recorded.

The appellants throughout worked only as the Agents of the Mills Company and for the Fasli years 1351 and 1352 they received their remuneration under the terms of the Agency agreement. A notice was issued under section 13 of the Hyderabad Excess Profits Tax Regulation by the Excess Profits Tax Officer calling upon the appellants to pay the amount of tax appertaining to these chargeable accounting periods. The appellants submitted their accounts and contended that the remuneration received by them from the Mills Company was not taxable on the ground that it is was not income, profits or gains from business and was outside the pale of the Excess Profits Tax Regulation.

This contention of the appellants was negatived and on the 24th April, 1944, the Excess Profits Tax Officer made an order assessing the income of the appellants for the accounting periods 1351 and 1352 Fasli at Rs. 8,957 and Rs. 83,768 respectively and assessed the tax accordingly. An appeal was taken by the appellants to the Deputy Commissioner of Excess Profits Tax who disallowed the same. An application made by the appellants under section 48(2) for statement of the case to the High Court was rejected by the Commissioner and the appellants filed a petition to the High Court under section 48(3) to compel the Commissioner to state the case to the High Court.

An order was made by the High Court on this petition directing the Commissioner to state the case and the statement of the case was submitted by the Commissioner on the 26th February, 1946. Four questions were referred by the Commissioner to the High Courts as under :- (1) Whether the Petitioner Company is a partnership firm or a registered firm ? (2) Whether under the terms of the agreement the petitioner is an employee of the Mills Company or is carrying on business ?

(3) Whether the remuneration received from the Mills is on account of service or is the remuneration for business ? (4) Whether the principle of personal qualification referred to in section 2, clause (4), of the Excess Profits Regulation is applicable to the Petitioner Company ?

3. These questions were of considerable importance and were referred for decision to the Full Bench of the High Court. The Full Bench of the High Court delivered their judgment the majority deciding the questions (2) and (3) which were the only questions considered determinative of the reference against the appellants. The appellants appealed to the Judicial Committee. But before the Judicial Committee heard the appeals there was a merger of the territories of Hyderabad with India. The appeals finally came for hearing before the Supreme Court Bench at Hyderabad on the 12th December, 1950, when an order was passed transferring the appeals to this Court at Delhi.

These appeals have now come for hearing and final disposal before us. 4. The questions (1) and (4) which were referred by the Commissioner to the High Court at Hyderabad have not been seriously pressed before us. Whether the appellants are a partnership firm or a registered company the principle of exclusion of the income from the category of business income by reason of its depending wholly or mainly on the personal qualifications of the assessee would not apply because the income could not be said to be income from profession and neither a partnership firm not a registered company as such could be said to be possessed of any personal qualification in the matter of the acquisition of that income.

5. The principal questions which were therefore argued before the High Court at Hyderabad and before us were the questions (2) and (3) which involved the determination of the position of the appellants whether they were servantsv or agents of the Mills Company and the determination of the character of their remuneration whether it was wages or salary or income, profits or gains from business.

6. The appellants were registered as a private limited company having their registered office in Bombay and the objects for which they were incorporated were the following : (1) To act as agents for Governments or Authorities or for any bankers, manufactures, merchants, shippers, Joint Stock Companies and others and carry on all kinds of agency business. (2) To carry on in India and elsewhere the trade or business of merchants, importers exporters in all their branches etc. etc……. 7. Under Article 115 of the Articles of Association of the Mills Company the appellants and their assigns were appointed the agents of the Company upon the terms, provisions and conditions set out in the Agreement referred to in clause 6 of the Company’s Memorandum of Association.

Article 116 provided that the general management of the business of the Company subject to the control and supervision of the Directors, was to be in the hands of the Agents of the Company, who were to have the power and authority on behalf of the Company, subject to such control and supervision, to enter into all contracts and to do all other things usual, necessary and desirable in the management of the affairs of the Company or in carrying out its objects and were to have power to appoint and employ in or for the purposes of the transaction and management of the affairs and business of the Company, or otherwise for the purposes thereof, and from time to time to remove or suspend such managers, agents, clerks and other employees as they though proper with such powers and duties and upon such terms as to duration of employment, remuneration or otherwise as they thought fit and were also to have powers to exercise all rights and liberties reserved and granted to them by the said agreement referred to in clause 6 of the Company’s Memorandum of Association including the rights and liberties contained in clause 4 of the agreement.

Article 118 authorised the agents to sub-delegate all or any of the powers, authorities and discretions for the time being vested in them, and in particular from time to time to provide by the appointment of an attorney or attorneys, for the management and transaction of the affairs of the Company in any specified locality, in such manner as they thought fit.

8. The Agency agreement which was executed in pursuance of the appointment under Article 115 provided that the appellants and their assign were to be the Agents of the Company for a period of 30 years from the date of registration of the Company and they were to continue to act as such agents until they of their own will resigned. The remuneration of the appellants as such Agents was to be a commission of 2 1/2 per cent. on the amount of sale proceeds of all yarn cloth and other produce of the Company (including cotton grown) which commission was to be exclusive of any remuneration or wages payable to the bankers, solicitors, engineers, etc., who may be employed by the appellants for or on behalf of the Company or for carrying on and conducting the business of the Company.

The appellants were to be paid in addition all expenses and charges actually incurred by them in connection with the business of the Company and supervision and management thereof and the appellants were entitled to appoint any person or persons in Bombay to act as their Agents in Bombay and any other places in connection with the business of the Company. 9. Clause 3 and 4 of the agency agreement are important and may be set out in extenso :-

3. Subject to the control and supervision of the Directors, the said Lachminarayan Ramgopal and Son Limited shall have the general conduct and management of the business and affairs of the company and shall have on behalf of the company to acquire by purchase lease or otherwise lands tenements and other buildings and to erect maintain alter and extend factories, ware-houses, engine house and other buildings in

Hyderabad and elsewhere in the territories of His Exalted Highness the Nizam and in India and to purchase, pay for, sell, resell and repurchase machinery, engines, plant, raw cotton, waste, jute, wool and other fibres and produce, stores and other materials and to manufacture yarn cloth and other fabrics and to sell the same either in the said territories as well as elsewhere in India and either on credit or for cash, or for present or future delivery, and to execute become parties to and where necessary to cause to be registered all deeds, agreements, contracts, receipts and other documents and to insure the property of the Company for such purposes and to such extent and in such manner as they may think proper; and to institute, conduct, defend, compromise, refer to arbitration and abandon legal and other proceedings, claims and disputes in which the

Company is concerned and to appoint and employ discharge, re-employ or replace engineers, managers, retain commission dealers, muccadums, brokers, clerks, mechanics, workmen and other officers and servants with such powers and duties and upon such terms as to duration of office remuneration or otherwise as they may think fit; and to draw, accept endorse, negotiate and sell Bills of Exchange and Hundies with or without security and to receive and give receipts for all moneys payable to or to be received by the company and to draw cheques against the moneys of the company and generally to make all such arrangements and do all such acts and things on behalf of the Company, its successors and assigns as may be necessary or expedient and as are not specially reserved to be done by the Directors.

4. The said Lachminarayan Ramgopal & Son Ltd., shall be at liberty to deal with the Company by way of sale of the Company of cotton all raw materials and articles required for the purpose of the Company and the purchase from the Company of yarn cloth and all other articles manufactured by the Company and otherwise, and to deal with any firm in which any of the shareholders of the said Lachminarayan Ramgopal & Son Ltd., may be directly or indirectly concerned provided always such dealings are sanctioned passed or ratified by the Board of Directors either before or after such dealings.

Clause 8 provided that two of the members for the time being of the appellants were at the option of the appellants to be the ex-officio Directors of the Company and clause 9 empowered the appellants to assign the agreement and the rights of the appellants thereunder subject to the approval and sanction of the Board to any person, firm or Company having authority by its constitution to become bound by the obligations undertaken by the appellants. 10. No materials other than these were placed by the appellants either before the Income-tax Authorities or the High Court and the question that arise before us have to be determined only on these materials.

If on the construction of these documents we arrive at the conclusions that the position of the appellants was not that of servants but the agents of the Company the further question would have to be determined whether the activities of the appellants amounted to the carrying on of business. If they were not the servants of the Company, the remuneration which they received would certainly not be wages or salary but if they were agents of the Company the question would still survive whether their activities amounted to the carrying on of business in which case only the remuneration which they received from the Company would be income, profits or gains from business.

11. The distinction between a servant and an agent is thus indicated in Powell’s Law of Agency, at page 16 :- (a) Generally a master can tell his servant what to do and how to do it. (b) Generally a principal cannot tell his agent how to carry out his instructions. (c) A servant is under more complete control than an agent,

and also at page 20 :-
(a) Generally, a servant is a person who not only receives instructions from his master but is subject to his master’s right to control the manner in which he carries out those instructions. An agent receives his principal’s instructions but is generally free to carry out those instructions according to his own discretion, (b) Generally, a servant, qua servant, has no authority to make contracts on behalf of his master. Generally, the purpose of employing an agent is to authorise him to make contracts on behalf of his principal. (c) Generally, an agent is paid by commission upon effecting the result which he has been instructed by his principal to achieve. Generally, a servant is paid by wages or salary.

12. The statement of the law contained in Halsbury’s Laws of England – Hailsham Edition – Volume 22, page 113, paragraph 192 may be referred to in this connection :- “The difference between the relations of master and servant and of principal and agent may be said to be this : a principal has the right to direct what work the agent agent has to do : but a master has the further right to direct how the work is to be done.” 13. The position is further clarified in Halsbury’s Laws of England – Hailsham Edition – Volume 1, at page 193, article 345 where the positions of an agent, a servant and independent contractor are thus distinguished :- “An agent is to be distinguished on the one hand from a servant, and on the other from an independent contractor.

A servant acts under the direct control and supervision of his master, and is bound to conform to all reasonable orders given him in the course of his work; an independent contractor, on the other hand, is entirely independent of any control or interference and merely undertakes to produce a specified result, employing his own means to produce that result. An agent, though bound to exercise his authority in accordance with all lawful instructions which may be given to him from time to time by his principal, is not subject in its exercise to the direct control or supervision of the principal. An agent, as such is not a servant, but a servant is generally for some purposes his master’s implied agent, the extent of the agency depending upon the duties or position of the servant.”

14. Considering the position of the appellants in the light of the above principles it is no doubt true that the appellants were to act as the agents of the Company and carry on the general management of the business of the Company subject to the control and supervision of the Directors. That does not however mean that they acted under the direct control and supervision of the Directors in regard to the manner or method of their work. The Directors were entitled to lay down the general policy and also to give such directions in regard to the management as may be considered necessary.

But the day to day management of the business of the Company as detailed in Article 116 of the Articles of Association and clause 3 of the Agency Agreement above set out was within the discretion of the appellants and apart from directing what work the appellants had to do as the agents of the Company the Directors had not conferred upon them the further right to direct how that work of the general management was to be done. The control and supervision of the directors was a general control and supervision and within the limits of their authority the appellants as the agents of the Company had perfect discretion as to how that work of general management was to be done both in regard to the method and the manner of such work.

The appellants for instance had perfect latitude to enter into agreements and contracts for such purpose and to such extent and in such manner as they thought proper. They had the power to appoint, employ, discharge, re-employ or replace the officers and servants of the Company with such powers and duties and upon such terms as to duration of office remuneration or otherwise as they thought fit. They had also the power generally to make all such arrangements and to do all such things and acts on behalf of the Company, as might be necessary or expedient and as were not specifically reserved to be done by the Directors.

These powers did not spell a direct control and supervision of the Directors as of a master over his servant but constituted the appellants the agents of the Company who were to exercise their authority subject to the control and supervision of the Directors but were not subject in such exercise to the direct control or supervision of the principals.

The liberty given to the appellants under clause 4 of the Agency Agreement to deal with the Company by way of sale and purchase of commodities therein mentioned also did not spell a relation as between master and servant but empowered the appellants to deal with the Company as Principals in spite of the fact that under clause 8 of the Agreement two of their members for the time being were to be the ex-officio Directors of the Company. The power to assign the agreement and the rights of the appellants thereunder reserved to them under clause 9 of the Agency Agreement though subject to the approval and sanction of the Board was hardly a power which could be vested in a servant.

There was further the right to continue in employment as the agents of the Company for a period of 30 years from the date of the registration thereof and thereafter until the appellants of their own will resigned, which also would be hardly consistent with the employment of the appellants as mere servants of the Company. The remuneration by way of commission of 2 1/2 per cent. of the amount of sale proceeds of the produce of the Company savoured more of the remuneration given by a principal to his agent in the carrying out of the general management of the business of the principals than of wages or salary which would not normally be on such a basis.

All these circumstances together with the power of sub-delegation reserved under Article 118 in our opinion go to establish that the appellants were the agents of the Company and not merely the servants of the Company remunerated by wages or salary. 15. Even though the position of the appellants qua the Company was that of agents and not servants as stated above it remains to be determined whether the work which they did under the Agency Agreement amounted to carrying on business so as to constitute the remuneration which they received thereunder income, profits or gains from business.

The contention which was urged before us that the appellants only worked as the agents of the Mills Company and no others and therefore what they did did not constitute a business does not avail the appellants. The activities in order to constitute a business need not necessarily be concerned with several individuals or concerns. They would constitute business in spite of their being restricted to only one individual or concern. What is relevant to consider is what is the nature and scope of these activities though either by chance or design these might be restricted to only one individual or concern. It is the nature and scope of these activities and not the extent of the operations which are relevant for this purpose. 16.

The activities of the appellants certainly did not come within the inclusive definition of business which is given in section 2 clause 4 of the Excess Profits Tax Regulation, Hyderabad. Business is there defined to include any trade, commerce or manufacture or any adventure in the nature of a trade, commerce or manufacture or any profession or vocation but not to include a profession carried on by an individual or by individuals in partnership if the profits of the profession depend wholly or mainly on his or their personal qualifications unless such profession consists wholly or mainly in the making of contracts on behalf of other persons or giving to other persons of advice of commercial nature in connection with the making of contracts.

The work which the appellants did under the terms of the Agency Agreement constituted neither trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture nor was it a profession or vocation. 17. The activities which constitute carrying on business need not necessarily consist of activities by way of trade, commerce or manufacture or activities in the exercise of a profession or vocation. They may even consist of rendering services to other which services may be of a variegated character.

The consideration which apply in the case of individuals in the matter of determining whether the activities constitute a business within the meaning of the inclusive definition thereof set out above may not apply in the case of incorporated companies. Even though the activities if carried on by individuals might constitute business in that sense they might not constitute such business when carried on by incorporated companies and resort must be had to the general position in law in order to determine whether the incorporated company was carrying on business so as to constitute the income earned by it income, profits or gains from business.

Reference may be made in this context to William Esplen, Son and Swainston, Limited v. Commissioners of Inland Revenue [1919] 2 K.B. 731. In that case a private limited company was incorporated for carrying on business as naval architects and consulting engineers. Before the formation of the company, a partnership had existed for many years between three persons who, on incorporation, became the sole shareholders and directors of the company. The partnership had carried on the profession of naval architects and consulting engineers and the work done by the company was identical in character with that formerly done by the partnership which is succeeded.

The work done by the company was identical in all respects with the work of a professional naval architect and consulting engineer, and was performed by the said three shareholders and directors of the company personally. A question arose whether the company was carrying on a profession within the meaning of section 39 paragraphs C of the Finance (No. 2) Act, 1915. It was contended that it carried on a profession of naval architects and consulting engineers because the members composing it were three naval architects.

That contention was however negatived and it was held that even though what was to be looked at was the character of the work done by the company, it was not carrying on the profession of the naval architects within the meaning of the section, because for that purpose it was of the essence of a profession that the profits should be dependent mainly upon the personal qualifications of the person by whom it was carried on and that could only be an individual.

A company such as that could only do a naval architect’s work by sending a naval architect to its customers to do what they wanted to be done and it was held that the company was not carrying on a profession but was carrying on a trade or business in the ordinary sense of the term.

18. When a partnership firm comes into existence it can be predicated of it that it carries on a business, because partnership according to section 4 of the Indian Partnership Act is the relation between persons who have agree to share the profits of a business carried only by all or any of them acting for all. (See Inderchand Hari Ram v. Commissioner of Income-tax U.P. & C.P. [1952] I.T.R. 108)

But when a company is incorporated it may not necessarily come into existence for the purpose of carrying on a business.

According to section 5 of the Indian Companies Act any seven or more persons (or, where the company to be formed will be a private company, any two or more persons) associated for any lawful purpose may by subscribing their names to a memorandum of association …………. form an incorporated company, and the lawful purpose for which the persons become associated might not necessarily be the carrying on of business. When a company is incorporated for carrying out certain activities it would be relevant to enquire what are the objects for which it has been incorporated.

As was observed by Lord Sterndale. M.R., in Commissioners of Inland Revenue v. The Korean Syndicate Limited (1921) 12 Tax Cas. 181 : If you once get the individual and the company spending exactly on the same basis, then there would be no difference between them at all. But the fact that the limited company comes into existence in a different way is a matter to be considered.

An individual comes into existence for many purposes, or perhaps sometimes for none, whereas a limited company comes into existence for some particular purpose, and if it comes into existence for the particular purpose of carrying out a transaction by getting possession of concessions and turning them to account, then that is a matter to be considered when you come to decide whether doing that is carrying on a business or not.” 19. Justice Rowlatt followed the above view of Lord Sterndale, M.R., in Commissioner of Inland Revenue v. Birmingham Theatre Royal Estate Co., Limited (1923) 12 Tax Cas. 580 , and held that “when you are considering whether a certain form of enterprise is carrying on business or not, it is material to look and see whether it is a company that is doing it.”

The objects of an incorporated company as laid down in the Memorandum of Association are certainly not conclusive of the question whether the activities of the company amount to carrying on of business (See Indian Law Reports 55 Calcutta 1059 andMANU/WB/0002/1952 : [1951]19ITR571(Cal) ). But they are relevant for the purpose of determining the nature and scope of such activities. 20. The objects of the appellants in this case inter alia were to act as agents for Governments or Authorities or for any bankers, manufacturers, merchants, shippers, Joint Stock Companies and others and carry on all kinds of agency business.

This object standing by itself would comprise within its ambit the activities of the appellants as the agents of the Company and constitute the work which they did by way of general management of the business of the company an agency business. The words “carry on all kinds of agency business” occurring at the end of the object as therein set out were capable of including within their general description the work which the appellants would do as agents for Governments or Authorities or for any bankers, manufacturers, merchants, shippers and others when they acted as agents of the Company which were manufacturers inter alia of cotton piece goods they would be carrying on agency business within the meaning of this object.

Apart however from this there is the further fact that there was a continuity of operations which constituted the activities of the appellants in the general management of the Company a business. The whole work of management which the appellants did for the Company within the powers conferred upon them under Article 116 of the Articles of Association and clause 3 of the Agency Agreement consisted of numerous and continuous operations and comprised of various services which were rendered by the appellants as the agents of the Company.

The appellants were also entitled though with the sanction or ratification by the Board of Directors either before or after the dealings to enter into dealings with the Company by way of sales and purchases of various commodities. There was nothing in the Agency Agreement to prevent the appellants from acting as the agents of other manufacturers, Joint Stock Companies etc., and the appellants could have as well acted as the agents of other concerns besides the Company.

All these factors taken into consideration along with the fixity of tenure, the nature of remuneration and the assignability of their rights, are sufficient to enable us to come to the conclusion that the activities of the appellants as the agents of the Company constituted a business and the remuneration which the appellants received from the Company under the terms of the Agency Agreement was income, profits or gain from business. 21. The appellants were therefore rightly assessed for excess profits tax and these appeals must stand dismissed with costs. 22. Appeal dismissed.

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Par Inc. Case Study

The management at Par Inc. believes that with the introduction of a cut-resistant, longer-lasting golf ball could increase their market share. A new golf ball coating designed to resist cuts and provide a more durable ball have been developed and tested. A sample of 40 balls of both the new and current models were tested with a mechanical hitting machine so that any difference between the mean distances for the two models could be attributed to a difference in the two models. Therefore, the hypothesis test that Par could use to compare the driving distances of the current and new golf balls can be formulated as follows:

It is set to be a two-tailed test which refers to the difference between the mean distances. Here, refers to the mean driving distance of the new golf ball whilst refers to the mean driving distance of the current golf ball. When the difference between the mean distances is equal to 0, therefore, the null hypothesis rejected. This shows that the new golf ball is better.

With the formula, the value of the test statistics was computed. This is a necessary step to find the p-value. Next step would be computing the degree of freedom using the formula as such: . The findings presented a test statistics of and the degree of freedom of 76. Therefore, the p-value is greater than the level of significance which was chosen to be 0.05 and the null hypothesis is not rejected. It is recommended for Par Inc. to produce new golf balls with the coating as to increase their market share.



Standard Deviation

Standard Error


Using the formula, the interval estimation was calculated. Therefore, with confidence at 95% the differences between the mean distances are in between -1.385740214 and 6.935740214 yard.

The sample size is said to have an inverse relationship with standard error: as the sample size increases, the standard error decreases. It is believed that increasing the sample size gives a diminished return because the increased accuracy will be negligible. Therefore, it is suggested for Par Inc. to have a larger sample sizes for having more information delivers much accurate result.

b. The mean distance for current model, .
The mean distance for new model, .

Microsoft Excel was used to compute the standard deviation for both models. The standard deviation was formulated as follows: For the current model, =STDEV(A2:A41) giving the answer .
For the new model, =STDEV(B2:B41) giving the answer .

The test statistics was then formulated as follows:
Next, the degree of freedom was computed using the formula: With , the result shows the degree of freedom of 76.
To conclude, because the p-value , therefore there is not sufficient statistical evidence to infer that the null hypothesis is true.

NAB case study

Question 1: List one strength and weakness for each cultural perspective described in this case study. There are numerous cultural perspectives that have been provided. Three major cultural perspectives have been identified, these include: the integration perspective, ambiguity perspective, as well as the differentiation perspective.

The Strength of the cultural perspectives that is described in NAB: Cultural Change Program:

Integration Perspective at NAB: this is the most widely applied cultural change perspective. It may be reflected in highly visible and tangible manner all through the organization. It should be noted that there has to be accord in the entire firm and it may be reflected via diverse mediums of organizations such as performance metrics and targets, informal and formal rules, business strategies, as well as management practices that govern traditions stories, together with manifestations. In the situation of NAB, business strategies were client- focused. For the creation of the visible manifestations of the firm’s desired culture, the priorities were observed within the mission, vision statements, as well as in the strategic objectives (Allaire and Firsirotu, 2006). Differentiation Perspective: It views culture to incorporate various cultures. Given that it is highly focused on the inconsistencies that are got at the center of culture, it provides organization the opportunity of correcting inconsistencies thorough having better culture. When the inconsistencies are recognized, a number of cultural initiators may be identified with the firm, both externally and internally (Deal and Kennedy, 2002).

Ambiguity Perspective: The perspective, neither adheres to the differentiation nor the integration viewpoint of cultural perspective. On the contrary, it offers the suggestion that the relationships that exist between cultural manifestations are not having highly effective clarity; rather, they are lacking clarity. With them, there is complete vagueness, as well as a contradiction. Individuals within any firm may have common values and views that they share with one another. However, on some values or views, they may differ. It is observed to be a highly realistic perspective concerning culture since it enables the workers to bring forward the issues that they are disagreeing with the line managers. When the issues are established, via the ambiguity perspective, various steps might be taken in order to resolve them. This will also ensure that the employees are satisfied. Besides, the employees will be involved in the organization’s culture (Denison, 2007).

Weakness for the cultural perspectives that are mentioned within NAB: Cultural Change Program: The Integration Perspective: This perspective’s weakness is that when the integration perspective is having any trait that is unfavorable, it will be transferred everywhere within the organization since it is always present within the entire organization. In some cases, culture persists in manners that are invisible and which cannot be detected in the firm. This can also be very harmful (Denison, 2007). Differentiation perspective: through this perspective, various inconsistencies that lie at the culture’s focal point, both internally and externally can be identified. Its weakness is that culture is depicted to be a group of several manifestations that may be contradictory to one another (Denison, Cho, and Young, 2000).

Ambiguity Perspective: with the ambiguity perspective, employees may agree on certain management issues. However, in other instances, they may pretend to be ignorant. In some cases, they might be completely indifferent. At the same time, they may oppose the entire managerial line. Therefore, the ambiguity perspective in organizations always brings various issues that may make the employees within the organization to be dissatisfied (Jain & Thomson, 2008). Question 2: Complete a force field analysis using Kurt Lewin’s change management model clearly illustrating the driving and restraining forces for change in a force field diagram.

The Kurt Lewin’s Change Management Model

Force Field Analysis (Lewin, 1951)

‘Force Field Analysis’ Model that was developed by Lewin Kurt is highly beneficial in providing a description of the present performance level. Force Field Analysis is highly useful technique for decision-making. It helps organizations in making various decisions through the analysis of various forces that are for and against a given change. In addition, through it, organizations have the capacity to effectively communicate the reason that is behind the decisions that are made. It can be applied for two main purposes: deciding whether to proceed with the change; and also to enhance success chances through strengthening various forces that supports the change and also weakening various forces that are against the change (Lewin, 1951).

In addition, Force Field Analysis refers to a tool that is applied in order to analyze systematically the various factors that are got within problems that are very complex. It always frames various problems in terms of pressures or the various factors supporting the status quo, as well as the pressures supporting change in the direction that is desired. A factor may be individuals, attitudes, resources, regulations, traditions, needs, values, desires among others. Being a change management tool, it plays a major role in helping in the identification of the various factors, which have to be monitored and addressed for change to be highly successful (Lewin, 1951). Procedure:

Step 1: Definition of the Problem

In this step, organizations determine the nature of their present situation which is not acceptable, and which requires modification. It is always very prudent to separate specific problem from the things, which are working very well (Maslen and Platts, 1994).

Step 2: Definition of the Change Objective

This stage entails the determination of the desired situation, which is worth working to attain. There is need for organizations to be very specific (Maslen and Platts, 1994).

Step 3: Identification of the Driving Forces

This stage entails the determination of the various pressures or factors which support change in the direction that is desired. It also entails determining the forces’ relative strengths. In addition, the driving forcesshould be placed on a chart on Force Field Analysis diagram in labeled arrows with the arrow’s length reflecting each force’s relative strength. It is also very prudent to determine the interrelationships between the various driving forces.

Step 4: Identification of the Restraining Forces

At this stage, it is very prudent to determine the pressures or factors which resist the change that is proposed. These forces should be represented in the diagram like the ones of the driving forces. The interrelationships between the restraining forces should also be determined (Maslen and Platts, 1994).

Step 5: Development of a Comprehensive Change Strategy

The diagram that is created in stage three, as well as stage four reflect the thing that can be referred to as a quasi-stationary equilibrium state. Though this is a state that is comparatively stable, movement may be attained through changing the various factors that are presently contributing to the equilibrium. It should be noted that change might occur due to a combination of any these: strengthening one of the various driving forces, as well as the addition of new driving forces, reducing or removing the restraining forces (Lewin, 1951). The Driving Forces are always positive reasonable, economical, reasonable, and conscious.

On the other hand, the Restraining Forces are always negative emotional, social, unconscious, psychological, as well as emotional. When organizations are handling dealing with a change or when they are managing change or when they are reacting to given change, the two set of the forces ought to be considered. Lewin made the suggestion that to in order make change to be very easy, as well as long lasting the various forces that are working against the given change ought to be minimized instead of increasing the forces that are for the given change. He also made the suggestion that force modification will be beneficial in ensuring the maintenance of the status quo in a very easy manner instead of changing or instead of increasing the change forces (Thomas, 1985).

The above steps can be reduced into three steps:
Step 1: Unfreezing: in this step, the strength of the forces that are mandating the present equilibrium is reduced.

Step 2: Moving: in this step,the new values of the organization, behaviors, as well as attitudes are developed. They are beneficial in helping to move the firm forward.

Step 3: Refreezing: in this stage, when the changes have been made, the various forces ought to be stabilized. This is to ensure that a new equilibrium is maintained (Miner, 2007). However, in some cases, it is always criticized because when an organization is within an environment that is rapidly moving, it will not have the capacity to ‘refreeze’. In a case like that, refreezing will make the organization to be staid and stale. Lewin points out that Refreezing ought not to be viewed as a permanent phase, but a short term phase. In addition, it is highly significant for obtaining certain types of stability in organizations (Maslen and Platts, 1994). The arrow lengths are depicting the quantity of the forces. When a given change is implemented within an organization, the point of equilibrium is moved. For the movement of the equilibrium, driving forces must be increased or added. In addition, resistance forces ought to be reduced or removed (Thomas, 1985).

On the contrary, when the driving forces are enhanced, the intensity of resistance will also be enhanced. Hence, it is always good to minimize the resistance. This may be done through the use of various techniques such as motivation, commitment, as well as involvement (Maslen and Platts, 1994). Question 3: which cultural change perspective was adopted by NAB during its change program? The Australian Prudential Regulatory Authority (APRA) has identified numerous limitations in the bank’s internal control framework. In addition, there has also been the claim that various cultural issues lay at the center of the collapse of NAB. In order to obtain an enhanced comprehension of the processes and construct of the entity, effective analysis of the culture through the application of symbolism should be done. On the contrary, analyzing culture through the application of symbolism always lacks measurement scale; hence, it does not offer a ready-made formula to be applied in order to measure change, analysis, as well as improvement. In addition, it is always believed that individuals do not have the capacity to manage the things that they do not have the capacity to comprehend.

Therefore, this is the main reason as to why researchers, as well as practitioners must depend on the functionalist-integrative viewpoint of cultural change in order to get a much deeper insight into culture’s nature, as well as how culture may be managed effectively in order to attain the goals that are desired. The present, as well as the former executives of the bank share the functionalist-integrative perspective of culture. This should form a basis for APRA and PriceWaterhouse Coopers (PwC) to carry out proper investigations into the official losses of the Banks Trading. Functionalist-integrative viewpoint of culture lays much emphasis on various factors that are found to be prevalent within the entire organization. On the contrary, there is likelihood that foreign currency trading room where losses were incurred by the bank was totally distinct subculture to the firm. This illustrates that trading room of the bank was existing as a subculture to the firm, something that offers the suggestion that rogue traders always operate within functionalist-differentiation culture (Sorenson, 2002).

However, as illustrated by Dellaportas, Cooper & Braica (2007), a research that is focused on the bank’s foreign currency options trading room is attempting to adopt the integration perspective; however, it is at a very low level analysis. However the differentiation perspective is established to be better in the analysis of the relationships that exists between several subcultures in the organization. The multiple subcultures point out inconsistent cultural manifestations rather than being focused on a given subculture. Hence, it is established that the functionalist-integrative viewpoint is highly applicable and effective in the analysis of the culture within a single organizational department given that is its highly applicable, as well as effective on an organizational-wide basis (Dellaportas, Cooper & Braica, (2007; Graetz, Rimmer, Lawrence and Smith, 2006).

It should also be pointed out that integration viewpoint is highly opted by National Australian Bank during the change program. The steps that were taken by the firm in order to ensure cultural change include: Readjusting the major priorities in order to point out that National Australian Bank is an organization that is focused on the clients. Believing in making investments in its reputation, its people, as well as its culture Commencing to differentiate via its reputation and culture in order to ensure that their employees, customers, as well as the community benefits. Making visible manifestations of the culture via its visions, mission, as well as strategic objectives statements being reflected on whole portfolio of National Australian Bank group. Re-launching tangible change initiatives of National Australian Bank brand with an innovative, as well as a fresh logo. Regaining the public’s confidence through launching the brand and lobo with the Melbourne Commonwealth games of the year 2006. The bank was the top sponsor.

Focusing on various community developments

‘Developing various ‘team-oriented ‘ structures

Question 4: what would be your future recommendations to the CEO or HR team at NAB? There are numerous things that need to be done by the bank’s CEO, HR team in order to ensure its success in the future. First, there is a need for the new leaders that are appointed by National Australian Bank to make conscious efforts in order to effectively implement cultural changes in a manner that is highly effective. They should not focus mainly on the process; however, they should lay much focus on the gravity of the issue (Fairbairn, 2005). Additionally, within the firm, there were no clear responsibilities, as well as accountabilities. There is a need for the management of the firm to ensure that this is seriously fixed in order to ensure that change is effectively implemented y the organization.

Additionally, NAB is having a good news culture that ensures the prevention of bad news from arising. The issue is very serious since it is always good to adequately address bad news or problems in their nascent stage instead of waiting for them to be bigger. On the same note, NAB adheres to a Bureaucratic culture. It always tends to overcomplicate things. Therefore, through making a change, as well as enhancing the firm’s culture, there will be a positive difference. Generally, cultural changes always come along with very deep logic of personal commitment. The new CEO should view himself as the “Chief Ethics Officer” instead of a CEO (Trevino, Hartman and Brown, 2000).

Being a Chef Ethics Officer, the CEO should convey strict and strong ethics message that will help the co-leaders. In addition, being a leader, the CEO should have the knowledge of his responsibilities and powers. When these recommendations are put into place by the leadership of NAB, they will have the capacity to address the issues in a highly systematic manner. In addition, they will have the capacity to overcome the crisis. In addition, they will have the capacity to restore their brand image. The firm should also portray itself to be more focused on their customers rather than on profits given that when they portray themselves to be profit centered, they will engage in various activities that are unethical. Cases study 2

Question 1

As pointed out by Child (2005), when determining if a team or a firm over- organized or under-organized, there are always strengths, as well as concerns which have to be taken into consideration. The strengths which should be looked into include: very high commitment to the firm, as well as its mission; norms of straightforwardness and honesty; smart, as well as articulate management; very high interest in learning, as well as growth; and general manager and founders as role-models (Bradford & Burke, 2005). In addition, various firms will always face constant struggles in order to shun the extremes of over-organizing and under-organizing. Every service provider always has a built-in inclination to get off balance organizationally on a single side or to another.

The firms that are under-organized, their leaders always struggle mainly with efficiency: how things can be done. Because of inadequate organizing, organizational leaders always get it very hard to pull the correct “levers” and also to push the correct “buttons” in order to make the firms work (Bradford & Burke, 2005). Some of the various concerns which have to be looked into include individuals and systems failing to keep pace with the growth; lack of very clear structure, roles, as well as teamwork; lack of common direction, mission, as well as priorities; individuals are stretched to their limit; and the general manager and founders are both firm’s greatest strength, as well as the greatest weakness (DeKler, 2007).

There are several other signs of under-organization. administrators and staff are not sure of the activities that they should delegate and thee individuals to whom they should delegate; organizational members are unsure where they can serve best and where they can “plug in”; huge expenditures in terms of time, as well as effort is needed in order to get various programs adopted, as well as implemented; work load is distributed unevenly —some leaders and members are overworked whereas others are entirely left out; Leaders are very slow to respond and to discern to the members’ needs; Members of the organization are faintly aware of the congregational goals yet they are not well informed regarding the daily activities; The firm experiences huge programs overlapping, as well as consequent effort duplication (Carter, 2004). A firm that is unbalanced by excess organization is always challenged by effectiveness, the things that ought to be done. Over-organized firms have the capacity to move efficiently to make sure that various things are properly done. In addition, work is delegated smoothly, various job descriptions are effectively followed, and besides, committees deliberate (Schultz, D.P., Schultz, 2006). What are the implications for planning an OD intervention?

In the case, intervention planning was required since no individual took responsibility for anything. In addition, they had no structures or guidelines to follow in their work to the latter. Ben and Jerry needed to make it a family and fun work environment. To do this, they did not have the means to put authority in to force. When things got broken, no person could man up to take responsibility for the actions. Had Ben and Jerry ensured that there was authority over fun, it could have made the firm to avid this. If authority was replaced with friendship, they could have avoided the scenario. Is team building a good way to launch an OD effort in this case? Other approaches? Other than team building, several other approaches can be adopted by the firm. Among the various interventions that can be taken into consideration include: Organization Confrontation Meeting: through this change technique, the members of the organization will be mobilized in order to identify various problems, set various action targets, besides commencing to work on various problems.

In the case, it will most likely represent numerous meetings between the feuding groups within the organization. On the contrary, the data from the case offers the suggestion that the firm is not prepared for this kind of intervention (Murray, 2005). Inter-group relations: The interventions are specifically designed to enhance interactions between diverse groups, as well as departments within organizations. Microcosm group intervention entails a very small group of individuals whose backgrounds is closely matching the problems of the organization that are being looked into. Inter-group conflict model generally entails a consultant aiding two groups to comprehend the origin of their conflict besides choosing highly relevant solutions (Western, 2010). The various issues that face the firm are highly visible along alignment lines, focus, as well as leadership instead of a true conflict.

Large-group Interventions: The interventions entails gathering several stakeholders into a big meeting in order to clarify significant values; develop fresh working ways; to articulate a fresh organizational vision and also to provide solutions to various pressing problems of the organization. This appears like a very viable option majorly after a team building with some of the top team management. Trying this intervention prior to team building will have similar problems to confrontation meeting. It should be noted that OD is not a science, which may be placed into concise prescriptive. Ben & Jerry experienced issues that affected the entire organization. The firm’s board was not fully prepared to tackle its own issues. In addition, they become united in order to offer the leadership which was needed by the rest of the firm. Therefore, the starting point was the managers. The outdoor methods applied in this case may be effective activities for teambuilding. The other option applicable for the firm could have been intervention with the founders and the board and confronting them for lack of leadership, as well as their incapacity to effectively handle their own issues. What next steps would you recommend?

After the formation of the management team and its alignment with the founders and the board, there is a splendid opportunity of getting other individuals within the organization to be aligned with the management. In addition, they should be involved in the newly established goals. When the system is highly organized around certain goals, as well as missions, all individuals within the organization will work on the bigger issues. The innovative feature of the firm, as well as the level of commitment of the workers suggests the readiness for a large group involvement to take organization to better levels.

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Advisio Press

Victoria Chemicals: Case study

Victoria Chemicals: Case study


Victoria Chemicals is a major competitor in the worldwide chemical industry. They are a leading producer of polypropylene, which is a polymer used in products such as medical products and automobile components. Victoria Chemicals started up in 1967 when they built two plants, one in Merseyside, England and one in Rotterdam, Holland. Both plants were identical to each other and produced an equal amount of goods. In 2008 these two plants have an old-fashioned production process of polypropylene and the production costs are some of the highest in the industry.

The plants need to be renovated and rationalized. Victoria Chemicals was also under pressure from investors to improve their financial performance as the earnings per share had fallen from 250 pence in 2006 to 180 pence in 2007. Both the plant managers have made suggestions on how to improve the production in their plant. Investments will be made only in one of the plants. Summaries of the suggestions have been produced as the discounted-cash-flow (DCF). These two projects have been analysed from an external perspective. Problem statement

Should Victoria Chemicals make an investment into the renovation of the production line in the Merseyside or in the Rotterdam plant? Discussion and analysis is based on the following main items: A comparison of the two different investment plans and a critical assessment of included cash flows Nominal rate and real interest rate

The treatment of conflicts of interest and other ethical dilemmas that may arise in the investment decision The crossover problem
Investment criteria’s at Victoria Chemicals
Sensitivity analysis and critical values


By discussing the different posts and figures in the investment plans we have formed a report taking in consideration the different aspects of the two projects. A file in Excel was created to be able to change numbers and do new calculations to find out how NPV changes based on different figures in the cash flow to create a sensitivity analysis. Using both the excel sheets and the appropriate formulas we have been able to calculate the average annual addition to earing per share, the payback period, NPV and the internal rate of return . We also used the formulas from “Formulas for the course corporate finance”

We had to calculate the initial average annual addition to EPS and the payback period for the Rotterdam project, since they were not presented in the calculations. This we had to do in order to see how the original four investment criterion’s where affected by our adjustments to the calculations.

In the adjusted calculations for the Merseyside project, we removed both the overhead cost and the sunk preliminary engineering cost, before also adding the cannibalization cost. We took the cannibalization cost from the original calculations made in the Rotterdam calculations, since they represented a cannibalization prognosis based on the same increase in output at both projects.

In the adjusted calculations for the Rotterdam calculations, we removed the speculative income of the terminal land value and chose to keep the cannibalization cost starting from year 3. It is important to note that in order to be perfectly accurate, you should discount the full cannibalization cost with the real loss of output for the first three years. However, we chose not to because the overall effect of the outcome would have been very marginal and thus not changing the end decision.


A comparison of the two different investment plans and a critical assessment of included cash flow

When considering investments it is important that the decisions, in regards to which projects to invest in, are based on analyses with relevant, forecasted, figures of revenues and costs that will be used to indicate the cash flows of the project. These decisions are probably the most significant for a corporation and are critical for the overall objective to maximize shareholders wealth. Only revenues and costs that will occur due to an investment decision, both direct and indirect, are relevant.

When comparing the two different investment plans and the cash flows included, you can see that there are differences between the Merseyside and Rotterdam projects. In Merseyside tax has been included in the calculations but it is not included as a post, this could easily be added on a separate post, as done for Rotterdam.

In Merseyside a preliminary engineering cost of GBP0,5 million, which had been spent over the preceding 9 months, has been included. This is a sunk cost, i.e. an unrecoverable cost for which the firm is already liable . This is a cost already paid for and is not incremental with respect to the current decision and should not be included in the investment plan.

Overhead expenses are associated with activities that are not directly attributed to a single business activity but instead affect many different areas of the corporation. These costs are not incremental to the project and should not be included. But additional overhead expenses caused by the decision to take on the project must be included. Victoria Chemicals has a corporate-policy manual and according to the manual new projects should be able to sustain a reasonable proportion of corporate overhead expenses. Thus, all new capital projects should reflect an annual pre-tax charge amounting to 3.5 % of the initial asset investment for the project.

This cost has been included for Merseyside but not for Rotterdam. Though, according to the literature, overhead expenses should not be calculated on the full amount of the investment, as declared in the corporate policy manual, it is only the extra costs that stems from taking on the project that are relevant. Looking from an external perspective we have chosen to remove the overhead cost due to get a more accurate result when comparing two projects cash flows and disregarding the cooperate policy for the chance of getting mislead.

Cannibalization is when sales of a new product displace sales of an existing product . A consequence of a decision to invest in any of the two plants will lead to a reduction in sales of the other plant; this cost should therefore be included in the project plan. This has been taken into account in Rotterdam where NPV and IRR have been calculated with and without compensation for cannibalization but in Merseyside this cost has not been included at all.

Victoria Chemicals managed the distribution of the main component (propylene gas) in their product through a fleet of self-owned tank cars, which was controlled by a cost centre called the Transport Division, to the Merseyside plant. In order to be able to supply Merseyside with the extra quantity needed if the investment was realized, the Transport Division could use existing excess capacity of transport capability. Even though this internal service would not come with a charge, an opportunity cost would emerge as the transport resource could have been utilized in a way that potentially could bring an income instead. Therefore it should be seen as an incremental cost to the value lost by not utilizing it the best alternative way . One possibility is to outsource the logistics to an external company and then buy it as a service.

In the Rotterdam project we decided to remove the entire free cash flow income from the sales of the terminal land value. This is because the sale of the land suggests that the production is being discontinued after the 15 years, as the plant can’t operate without the continuous supply of gas. In order to include this value as a cash flow we would have to compare the effect of the end value both investments have on the factories. Because a liquidation of the factories also would inquire a lot of cost and the end value is highly speculative, we choose to not include the speculative land value at all in our calculations made on the Rotterdam project.

However if the investment in Merseyside is chosen, we should think about the opportunity of selling the right-of-way before the option expires in six months. If the investment is made in the Merseyside project, we have the opportunity to sell the option. There is no information of how much the option was bought for several years earlier.

Regardless of that sunk cost and assuming that the right-of-way could be sold, as the consultant believed, it would still generate a positive cash flow to the firm. This cash flow would be in favour for the decision of going forth with the investment in Merseyside. However, we don’t know for sure if the right-of-way could be sold, if there is a buyer at all, and therefore we chose not to include the highly speculative cash flow in the calculations for the Merseyside calculations. But we still think that the decision maker should consider the opportunity of selling the option if the Merseyside project is chosen.

Nominal rate and real interest rate

One employee at Victoria Chemicals´ Treasury staff discussed the difference in nominal and real interest rate. Nominal interest rate is adjusted for inflation and real interest rate is the rate without adjustment for inflation . Nominal rate minus the inflation equals to the real interest rate. When one discounts free cash flow one shall use the nominal rate if the cash flows are nominal, i.e. includes the inflation and real rate if cash flows are real, with no inflation included. In these two cases it is difficult to say what cash flows that are used. New sales (in millions) for example are the same every year, which indicates a real cash flow, but we do not have information about the price or demand over time. If the plans include real cash flows and the nominal rate is used for discounting, the NPV will be lower than if the real interest rate would have been used.

If the firm has used the nominal interest rate to discount real cash flows they have consequently underestimated the NPV of their projects. This might lead to the wrong investment decisions. We do not know for sure if the cash flows included in the plans are real or nominal so we choose to use the nominal interest rate, 10% in our calculations. The treatment of conflicts of interest and other ethical dilemmas that may arise in the investment decisions

Problems occur when people involved in projects have different agendas. Often it comes from people’s own self-interest and their focus on bonuses or credit. This is commonly known as the Agency problem . Referring to the text, ethical dilemmas are found at many places. The goal for companies is to maximize the profit . It is also commonly known that shareholders should be the ones to take in consideration investing in new projects. In this situation investing in either Merseyside or Rotterdam is filled with different arguments. Many of these arguments are built on self-interest connected to bonuses and does not prioritize the shareholder wealth.

First example is the Transport Division that does not want to take any responsibility over the need of a new car in Merseyside project since that could affect their bonuses negatively, something that should not be a reason for letting the project bare the costs. Another example also being an ethical dilemma is Morris calculations of standard deviation done on the Rotterdam case. Since she is a competitor of to the project we would not say that she is totally unbiased, therefore we should not fully trust her.

Tewitt, the assistant plant manager, wants to include an EPC project to the Merseyside project. The EPC project has been up before and has a negative NPV, which is the reason it has not been implemented. Since Tewitt still believes in the project he would now like to include it even though it is negative. That would not be for the shareholders best but for his best.

The two plant managers enhance their projects very different, one is really active taking every opportunity to talk about the project and the other keeps a low profile. This can affect the decision makers and personal feelings can affect the final decision.

The crossover problem

When choosing between projects we have to take in consideration both the NPV and the IRR. The IRR describes the expected return when investing in a specific project. The theory says that IRR is not to use when the projects differ either in scale, timing or riskiness . Comparing the Merseyside project with the Rotterdam one by looking at IRR is not to recommend in this situation. The timing of the projects is the same since they both cover a time of 15 years but their scales are not the same. Investments at Merseyside are much higher than at Rotterdam witch gives us the wrong conditions to make a fair comparison.

Looking at the risk level at the two projects we see that they differ here as well. Merseyside has a more stable and less risk while Rotterdam’s risk is higher. This is based on thoughts about how uncertain the Rotterdam project is. Since the project is totally new, with a new technology that will have to fit with the existing and guessing about efficiency rewards, the risk is higher than the improvement planed at Merseyside. Also, once the pipeline is in place there is no turning back. Another uncertainty is how the learning curve will progress. This makes net present value calculations being the most reliable alternative to use. We will choose the alternative between the two projects with the highest NPV .

Investments criteria’s at Victoria Chemicals

The Merseyside project original calculations vs. adjusted calculations

Average annual addition to EPS is unadjusted GBP0,022 per share and adjusted GBP0,019 Payback Period is unadjusted 3,8 years and adjusted 3,9 years Net present value is unadjusted GBP10,5 million and adjusted GBP9million Internal rate of return is unadjusted 24 % and adjusted 11,2 %

The Rotterdam project original calculations vs. adjusted calculations

Average annual addition to EPS is unadjusted GBP0,052 per share and adjusted GBP0,018 Payback Period is unadjusted 9 years and adjusted 9,8 years
Net present value is unadjusted GBP8,32 million and adjusted GBP-1,27 million Internal rate of return is unadjusted 14,0% and adjusted 9,1%

The Merseyside project adjusted calculations

The Rotterdam project adjusted calculations

It is only the Average annual addition to EPS value that is close to each
other in our adjusted calculations. However this economic indicator doesn’t take in to account the cost of interest rate impact of early investment in relations to later large investment and thus the average annual addition to EPS doesn’t give a fair picture even if it is positive. Initially, before adjustment been taking in account at the first glance the project in Rotterdam looks more profitable because of the higher NPV and IRR compared in Merseyside.

Sensitivity analysis and critical values

To conduct a sensitivity analysis we must first identify an uncertainty amongst the variables. In the Merseyside factory the construction will shut down the production for 45 days, which during this period the customers can buy the good from the competitors. The controller for Merseyside project who firmly believes that they have loyal customers is assuming that the output lost during these days, apart from the first year, have less or no effect on the years that follows. However, the polypropylene market is very competitive but both the controller and the vice president of Marketing are assuming that the lost business volume would return. This makes the output an uncertainty because an assumption is not a guarantee. Therefore, we used the excel sheet to make NPV close to zero to then compare the current gross profit with an average gross profit which has been presented below.

Average gross profit can shrink 6,8 % which gives a NPV of 0.071

Average gross profit must increase 1,2 % which gives a NPV of 0,1

To make it as straight forward as possible the variable that has been modified was the new gross profit. The reason behind choosing to focus on the new gross profit lies on the fact of not having the information in hand about the variable and fixed cost. Therefore, we choose to compare the two projects in this sensitivity analysis on the basis of the change on the percental change of the new gross profit. This analysis has been conducted through trial and error with a constant percentual factor that has been multiplied with new gross profit in every project to the point where NPV is close to zero. The result gives us the indication of the bottom line for the new gross profit in respective project that will make project attractive.

For all years the project in Merseyside could face a lower gross profit and still have a NPV over zero which indicates the level of sensitivity in this variable. On average the new gross profit can shrink down of a total of 6.8 % per year. These results indicate that the Merseyside project can be profitable even though they will face a lower sale. They have time to gradually steal back their customers from their competitors during the 15 years period and give the project a good buffer.

Rotterdam project display a different case. With an already negative NPV, the Rotterdam project has to increase their profit just to sustain the discount rate. The average gross profit must at least increase with a procentual factor of 1,2 % per year. Compared to Merseyside, the Rotterdam project is much more sensitive to reduced sales if that would occur, as the project is already negative. This means that in a competitive market there is a fair likelihood of losing money on the project. It is worth noting that these results are based on removing the sale on land at the end on year 15 which already gave a negative NPV.

Another variable we chose to consider in this sensitivity analysis is the diversity of the internal rate. We wanted to see the change of the NPV when given different interest rate. The chosen rates to discuss are a lower rate of 8% and a higher rate of 12%. We applied these rates on both projects. The results are the following:

r= 0.08 gives a NPV of 1.84 r= 0.08 gives a NPV of 11,03 r= 0.12 gives a NPV of -3,72 r=0.12 gives a NPV of 6,6

When lowering the internal rate to 8 percent, both project increases their NPV. The biggest affect are shown in the Rotterdam project, where the NPV goes from being negative to positive. However, the Merseyside project still generates a higher NPV in all interest rate scenarios, thus making it the preferable investment. When choosing a higher interest rate, the NPV will consequently be lower for both projects. As the Rotterdam project already where generating a negative NPV, it’s even less desirable at the higher interest rate with a more negative NPV. However the Merseyside project sustains the higher interest rate generating a positive NPV. Hence the Merseyside project can withstand a more fluctuating interest rate whereas for the Rotterdam project, only a lower rate would make a positive NPV. Analysing both these results in the sensitive analysis gives us the indication that the Merseyside project is a more sustainable investment. Conclusion

After a thorough analysis and after adjusting the investment calculations we have come to a conclusion that the Merseyside project is most profitable and preferable. The four different values included in the firm’s investment criteria’s:

Average annual addition to EPS (GBP) 0,0190,018
Payback period (years)3,99,8
NPV (million)9-1,27
IRR (%)11,29,1

As discussed earlier, NPV is the most relevant economical investment value to use when making decisions and also when choosing among projects. To maximize shareholders wealth one has to maximize the discounted cash flows in an investment project. As pointed out earlier IRR is uncertain though it has pitfalls. When comparing the figures for the two projects one can see that the Merseyside project is the most favourable one, with a positive NPV as well as the other criteria for the investment are fulfilled. The Rotterdam project has a negative NPV which tells us not to invest in this project even though we only had one choice.

The Rotterdam project does not fulfill the criteria for Payback period (10%). In addition the Rotterdam project has a higher risk and cannot be reversed if the new technology is implemented. New technique is the foundation for growth, but is now the right time to invest
in the new technology or should the firm wait until it is more established?

Lastly we would like to highlight the fact that Victoria Chemicals in future decisions should be aware of the sensitivity IRR has in sense of timing, scale and different risk levels. We also want them to reflect if they use real or nominal cash flows so that they can use the right interest rate when discounting cash flows.

Reference list

Berk, J. & DeMarzo, P., 2013. Corporate Finance. Third red. u.o.:Pearson. Copeland, T., Western, J. & Shastri, K., 2005. Capital Budgeting and Financial Structure. fourth red. u.o.:Pearson. Jones, T., 2004. Business Economics and Managerial decision making. u.o.:Wiley & Sons.