Category: Company Analysis

Product Management and Situation Analysis

Product Management and Situation Analysis
Product Management and Situation Analysis

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Product Management and Situation Analysis

This Case Assignment focuses on Volkswagen’s emissions scandal and related brand management and business ethics issues.

Product Management and Situation Analysis

Case Reading

A mucky business; the volkswagen scandal. (2015, Sep 26). The Economist, 416, 23-25.

Boston, W., & Houston-Waesch, M. (2015, Oct 15). Volkswagen suspends another top engineer; berlin orders recall; transport minister says recall of tainted diesel cars is mandatory. Wall Street Journal (Online).

Cremer, A. (2016, April 20). VW to pay each U.S. customer $5,000 to settle dieselgate: Die Welt. Reuters. Retrieved from http://www.reuters.com/article/us-volkswagen-emissions-court-idUSKCN0XH0ZV

Danny, Hakim, Kessler, A. M., & Ewing, J. (2015, Sep 27). As VW pushed to be no. 1, ambitions fueled a scandal. New York Times. De Cremer, D., & de Bettignies, H. (2013). PRAGMATIC BUSINESS ETHICS. Business Strategy Review, 24(2), 64-67.

Ewing, J. (2016, April 21). Volkswagen Reaches Deal in U.S. Over Emissions Scandal. New York Times. Retrieved from http://www.nytimes.com/2016/04/22/business/international/volkswagen-emissions-settlement.html?_r=0

Lane, C. (2015, Oct. 26). Emissions scandal is hurting VW owners trying to Resell. Retrieved from http://www.npr.org/2015/10/26/450238773/emissions-scandal-is-hurting-vw-owners-trying-to-resell.

La Monica, P.,R. (2015, Sep 23). Volkswagen has plunged 50%. will it ever recover? CNN Wire Service. 

Tabuchi, H., Apuzzo, M., &  Ewing, J. (2017). U.S. Charges 6 Volkswagen Executives in Emissions-Cheating Case. New York Times. Retrieved from https://www.nytimes.com/2017/01/11/business/volkswagen-diesel-vw-settlement-charges-criminal.html?_r=0

Here are some articles on brand equity and brand management.

Keller, K. L. (1993). Conceptualizing, measuring, and managing customer-based brand equity. Journal of Marketing, 57(1), 1-22. 

Helm, S., & Tolsdorf, J. (2013). How does corporate reputation affect customer loyalty in a corporate crisis? Journal of Contingencies & Crisis Management, 21 (3), p144-152.

Product Management and Situation Analysis

PROMOTION MANAGEMENT & SWOT ANALYSIS

Here is the brief overview of this cumulative Session Long Project (SLP). In this research project, you would work as a marketing consultant to develop a feasible marketing plan for your client. You would conduct both secondary research in SLP1 and SLP2 to glean the necessary information for your marketing plan in SLP3 and SLP4.

It is important to conduct quality market research on your focal product/company in order to develop realistic and workable marketing plans. Generally speaking, there are two types of research. One is secondary research, which refers to data collection using existing sources, and the other is primary research, which is your own data collection for the specific study at hand. The purpose of market research is to collect usable information to make more informed decisions on the business problem, thus increasing the chance of business success in the marketplace.

Please check the outline of the marketing plan, which provides information on:

  1. The final format for this cumulative session long project;
  2. A list of topics for the whole project;
  3. The continuity and connections among SLPs 1-4.

In this module SLP 2, conduct SWOT analysis for your charge based on the situation analysis in SLP1. This is the second step of this cumulative research project. Be sure to revise the sections in SLP1 and include them in this paper following the marketing plan outline provided above.

Product Management and Situation Analysis

SWOT Analysis

A thorough situation analysis in the Module 1 SLP is the foundation for a SWOT analysis. Develop statements of the company’s internal strengths and weaknesses, and external opportunities and threats. If there is any question as to whether a fact or issue is external (these lead to opportunity and threat statements) or internal (these lead to strength and weakness statements), ask this key question, “Would this issue exist if the company did not exist?” If the answer is yes, then the issue should be classified as external.

Note: Remember that alternative marketing strategies and tactics are not opportunities. Opportunities and threats exist independently of the firm. Strategies and tactics are what the firm intends to do about its opportunities and threats relative to its own strengths and weaknesses.

The SWOT will play a critical role (along with an in-depth understanding of target market needs/preferences and competition) in the development of goals, objectives, and marketing strategies and programs. Key strengths need to be matched to opportunities and converted to capabilities that help serve customer needs better and lead to competitive advantage.

Goals, strategies, and program ideas stem from an attempt to convert weaknesses into strengths and threats into opportunities. Some alternatives will also come from thinking about how to minimize the repercussions of weaknesses and threats that cannot be converted, and/or how to avoid them altogether. Follow the instructions below to identify strengths, weakness, opportunities, and threats.

Product Management and Situation Analysis

A. Strengths and Weaknesses (Internal)

Think about internal conditions; those things that management has some control over that are relevant to future success and effectiveness. The task is to identify internal strengths, which must be taken into consideration as management plans for the future.

Remember, a strength is any internal characteristic that improves effectiveness. Look for factors that help the company improve positioning in the marketplace, enhance financial performance, and most importantly, fight off threats and take advantage of opportunities in the external environment.

A weakness is any internal characteristic that limits effectiveness, performance, and the ability to accomplish objectives, meet threats, and take advantage of opportunities.

It is also important to point out that a particular fact about the internal environment may have a weakness and a strength dimension. For example, we might say that the company’s technical skills are of the highest quality and this is a strength, but since these skills are possessed by only a few employees, it is also a weakness in that we need more people with such skills and would be hurt if a few key people left the company.

Using the following 16 internal factors to stimulate your thinking, list all of the company strengths you can think of for each category. Then review the same list of 16 internal factors and develop a list of company weaknesses. (You may not have access to all of the information below, but try your best to identify at least five of them for your project).

Product Management and Situation Analysis

Internal Factors

The following categories of internal factors are commonly used to generate a list of specific company strengths and weaknesses. This list is to be used to stimulate your thinking about internal strengths and weaknesses.

  1. Management leadership/capabilities.
  2. Organization structure and management systems.
  3. Facilities, equipment, and materials.
  4. Technical skills and expertise.
  5. Dedication, morale, and motivation of employees.
  6. Capacity to meet demand—production capacity, including excess available for growing demand.
  7. Marketing effectiveness/efficiency—advertising, personal selling, public relations, products/services, prices, distribution, marketing research and planning, customer service, warranties, sales support, sales promotion, etc.
  8. Ability to deliver what the market wants.
  9. Ability to deliver in a timely manner.
  10. Image and reputation as perceived by customers and within the industry.
  11. Customer (and potential customer) perception—likes, dislikes, and perceptions of service, quality, etc.
  12. Financial performance—sales, market share, customer satisfaction/loyalty, and profits.
  13. Financial situation—availability of capital, internal funding, financial stability, etc.
  14. Cost of operations—high cost vs. low cost, rising costs, costs compared to competition (manufacturing, distribution, etc.)
  15. Geographic location(s).
  16. Other relevant competencies/resources that translate into strengths that have not been mentioned. Also, any weaknesses we have missed related to a lack of competencies and/or resources that are needed in the future.

Product Management and Situation Analysis

B. Opportunities and Threats (External)

Think about the most significant trends in the organization’s external environment that will have an impact on future success. The challenge is to identify relevant opportunities and threats outside management’s control that must be taken into consideration during the planning process. You will need to list and describe the factors/issues forming industry trends that may influence future efforts one way or the other, either as a positive force (opportunity) or as a barrier (threat).

An opportunity is the result of some trend or fact in the external environment that represents a marketplace and/or financial performance advantage. It may indicate a new direction, product or service, and/or resource requirement for the company. It represents an attractive arena for marketing action in which the company would enjoy a competitive advantage.

A threat is the result of some trend or fact in the external environment that represents an area of concern for management. It represents a challenge posed by an unfavorable trend or development that would lead, in the absence of effective marketing action, to the erosion of the company’s or industry’s position. A threat may:

  1. Directly or indirectly affect the business.
  2. Indicate an area to be avoided.
  3. Demand a strategic response.
  4. Represent an opportunity if responded to properly.

It should be pointed out that a particular trend in the external environment (for example, mergers/acquisitions, technological advancements, and/or a recent change in the way competitors operate and what they are offering the market) can imply both a threat and an opportunity. Sometimes in strategic planning we say that behind each threat (or problem) lies an opportunity.

Or an optimist in strategic planning will look at threats and try to turn them into opportunities. Thus, it should be remembered that if management can adapt properly to a threat (such as mergers and acquisitions), this trend may be viewed as an opportunity as well as a threat.

Review the following 13 categories of external environmental trend factors and list the trends or issues that are relevant to the company and industry. Then translate each factor identified into a specific opportunity and/or threat statement. That is, what are the implications of each environmental trend or issue outside the company in terms of specific opportunities and/or threats? (You may not have access to all the information below, but try your best to identify at least five of them for your project).

Product Management and Situation Analysis

External Environmental Trend Factors

The following categories of external environmental trend factors are commonly considered in the planning process. They are used to develop a specific list of company opportunities and threats. This list is to be used to stimulate your thinking about opportunities and threats in the external environment.

  1. Mergers and acquisitions—(e.g., among customers, potential customers, suppliers, competitors, and/or within the industry).
  2. Competitive trends—specific competitive strategies and programs, or recent changes such as lower prices or new products.
  3. Economic trends—forces and changes in the economy such as inflation, interest rates, recession.
  4. Technological trends—new technological innovations.
  5. Technical requirements—within the industry.
  6. Market/industry trends—size of firm related to industry, financial performance of the industry compared with the firm, size/growth rate of current and future potential market characteristics and trends in markets and industry.
  7. Customer and potential customer attitudes—preferences, expectations, problems, wants, needs, etc. What changes are anticipated?
  8. Legal trends—government regulations and policies.
  9. Societal/lifestyle trends—changes in people’s values, attitudes, and activities.

10. New products/services—on the market.

11. Supply sources.

12. Declining or increasing productivity—in the industry or economy.

13. Other industry trends not previous mentioned that are relevant to the future.

Product Management and Situation Analysis

Based on the detailed discussion of strengths, weaknesses, opportunities, and threats, use SWOT tables for the SWOT analysis. In other words, first state the facts based on your research, and then summarize the findings in a SWOT table. Note the examples below and follow the “best statements” to describe the strengths, weaknesses, opportunities and threats for your company and charge in SWOT table(s).

 ExamplesNot Useful StatementBetter StatementBest Statement
Internal StrengthsCustomer loyalty/brand imageWe have a strong brand image.We have a 42% market share and our brand is known worldwide.Our global market share has grown from 25% to 42% over the past four years. Independent surveys show our quality and image is rated No. 1 in our industry in the U.S. and Asia and No. 2 in Europe behind XYZ.
 Sales/ DistributionOur distribution is the best in the industry.Our product is available in more locations than our competitors’.Our extensive distribution network provides product within 10 miles of the home or work location of 95% of our target market. Our competitors only achieve this level for 40%-65% of the market.
Internal WeaknessesProduct costOur costs are high.Our major competitors, ABC and XYZ, produce in China for less cost.Our labor costs average $40/unit (in Detroit) vs. $12/unit for our competitors (in China). With product market prices of $120/unit we barely break even.
 Product LifeWe have product problems.Our product life is less than the competition.Typically, our product fails after one year. Our major competitor’s product lasts 2-3 years. Customers are willing to pay 50% more for our competitors’ product.
External OpportunitiesAlternative Distribution College CampusWe can leverage new distribution channels.Internet could be used to increase sales to college students.Direct Sales (via campus Intranet) and on-campus kiosks would more than double our coverage of our targeted Generation Y market.
 Export Growth via Strategic AlliancesExport markets can help us grow.Europe and Asia provide good opportunities to grow by partnering.Strategic alliances with ABC in Europe and XYZ in Asia would allow us to double international sales in two years.
External ThreatsSubstitutesSubstitutes are a threat.ABC’s new sugar-free sweetener may hurt us.In six months, ABC’s sugar-free sweetener has achieved 20% market share. Its share is expected to grow to 40% by next year.
 MergersCompetitor mergers could hurt us.Competitor XYZ is expected to acquire ABC.If XYZ acquires ABC, it will dominate the distribution network and limit our access.

Check the following link for some exercises to better understand SWOT elements.

SWOT Analysis Exercises (2010). Retrieved from http://www.cengage.com/marketing/book_content/1439039429_lamb/interactive_exercises/exercise03.html

Product Management and Situation Analysis

SLP Assignment Expectations

Use the following outline to organize your paper. Note that the letters “a, b, c…” and the numbers “i, ii, iii, iv…” below are used to show the major issues you need to include in your paper, but should not be used to format your paper.

III. SWOT Analysis (3-6 pages)

  1. Strengths and Weaknesses (Internal)
    1. Strengths
    1. Weaknesses
    1. Opportunities and Threats (External)
      1. Opportunities
      1. Threats
    1. SWOT Table

Note: Use double-spaced, black Verdana or Times Roman font in 12 pt. type size. Include a title page and references. Revise your Module 1 SLP based on the feedback from your professor and your additional research, and include the Module 1 SLP in the Module 2 SLP.

Explain clearly and logically the facts about your company and charge, and use the required reading to support your positions on the issues. Do not repeat or quote definitions. Your use of the required reading to support your opinions (that is, contentions or positions) should demonstrate that you understand the concepts presented.

Paraphrase the facts using your own words and ideas, employing quotes sparingly. Quotes, if absolutely necessary, should rarely exceed five words.

Academic papers at the master’s level should include citations and references. Look at different sources, especially credible and reputable resources such as The New York Times, The Wall Street Journal, Businessweek, and The Economist, to find the information for your paper. Also use Trident University’s online library databases such as ProQuest and EBSCO to find the information for your project. Your discussion on each topic should be a synthesis of the different sources. Taking shortcuts on the number and quality of your sources will result in a poor-quality marketing plan that will be of no use to your client.

Also, it is important that you reference your sources throughout the text of your marketing plan. Take the following paragraph as an example:

“As a result, telephone interviewers often do not even get a chance to explain that they are conducting a survey (Council for Marketing and Opinion Research, 2003), and response rates have steadily declined (Keeter et al., 2000) to reported lows of 7% (Council for Marketing and Opinion Research, 2003). This decrease presents a problem because not only does it increase the cost of conducting telephone surveys, but it also leads to questions concerning the generalizability of the results (Struebbe, Kernan & Grogan, 1986; Tuckel & O’Neill, 2002).”

There are different citation and reference formats such as APA, MLA, or Chicago. No matter which format you adopt for your marketing plan, make it consistent throughout the plan.

Also note: The marketing plan should use third person business writing. Avoid “we,” “our,” and “you.” Do not use contractions in business writing.

Product Management and Situation Analysis

Here are some guidelines on how to conduct information search and build critical thinking skills.

Emerald Group Publishing. (n.d.). Searching for information. Retrieved from http://www.emeraldinsight.com/learning/study_skills/skills/searching.htm

Emerald Group Publishing. (n.d.). Developing critical thinking. Retrieved from http://www.emeraldinsight.com/learning/study_skills/skills/critical_thinking.htm

Guidelines for handling quoted and paraphrased material are found at:

Purdue Online Writing Lab. (n.d.). Academic writing. Retrieved from https://owl.english.purdue.edu/owl/section/1/2/

Purdue Online Writing Lab. (n.d.). Quoting, paraphrasing, and summarizing. Retrieved from https://owl.english.purdue.edu/owl/resource/563/1/

Purdue Online Writing Lab. (n.d.). Is it plagiarism yet? Retrieved from https://owl.english.purdue.edu/owl/resource/589/02/

Your paper consists of arguments in favor of your opinions or positions on the issues addressed by the guidelines; therefore, avoid the following logical fallacies:

Purdue Online Writing Lab. (n.d.). Logic in argumentative writing. Retrieved from https://owl.english.purdue.edu/owl/resource/659/01/

Your SLP should not simply be a list of facts. Take the facts you find about the company, the charge, and the environments that the company faces, and explain how you think those facts will affect the financial future of the product or brand in your charge. The emphasis in grading your paper will be on the breadth and depth of your discussion of each topic, critical thinking, the clarity of your discussion, and the proper organization of the paper.

Below is a partial answer to the above homework questions by one of our writers. If you are interested in a custom non plagiarized top quality answer, click order now to place your order.

Product Management and Situation Analysis Essay

Promotion Management

Extensive market research is crucial to acquire pertinent information on the client company. Such information is useful in the creation of a situational analysis, which then enables the development of a SWOT analysis for the company. Ultimately, in order to conduct effective promotion management through a feasible marketing plan, there has to be an effective analysis of the internal and external factors affecting the firm. The section below outlines such factors affecting Apple Inc.

SWOT Analysis

Strengths and Weaknesses (Internal)

Strengths. Apple Inc. possesses a number of essential internal factors that fit into the category of strengths. These factors represent things inside the company that management has some level of control over, and which improve the effectiveness of the company.

Impressive brand reputation. The listing of Apple Inc. as the most valuable brand in the world presents an image of the reputation the company enjoys across the globe. Owing to such stellar valuations, as well as the global knowledge about the brand, Apple Inc. is in a strong position to control various aspects that hinge upon such an impressive reputation (Reuters, 2018). For example, the company may launch a new product and it will instantly gain global recognition and attention owing to the relation with the Apple brand. The management may make use of such reputation to develop a far-reaching marketing plan or incorporate cutting edge and risky incentives that other corporates may not attempt.

Strong financial performance. Apple Inc. is currently among the top most profitable firms in the world. The high levels of revenues combined with an increase year on year cash flow and a healthy profit margin provide for a financially strong firm. Apple Inc. has a vast reserve of cash and cash equivalent assets. This provides a key strength for the firm by way of availing extensive financial assets (Jurevicius, 2017; Securities and Exchange Commission, 2017). Such assets prove useful in growing the company through funding of research and development initiatives, acquisition and mergers, and development of impactful advertising and marketing campaigns.

Excellent business and design skills. A key element in Apple Inc.’s management is the stellar ability to design beautiful and usable products and to manage such a business behemoth efficiently. Such skills provide an advantage over their competitors who may not have the capacity to produce great products and at the same time manage the business aspect of the company effectively. These factors provide a competitive advantage over other firms that do not have such human resource assets.

Advertising and marketing abilities. Apple Inc.’s marketing and advertising campaigns are among the most impactful and with a high return on investment. Given the financial and human resources at their disposal, the company is able to budget for high impact campaigns. With the right workforce in place, the company is able to manage the marketing budget efficiently in comparison to competitors such as Samsung who use a larger share of their revenue, with a much lower brand recognition (Jurevicius, 2017).

A Loyal fan base and extensive distribution channels. Another strength for Apple Inc. is the loyal following it enjoys. With such a strong followership, the company is assured of constant growth in the sales of its products. In addition, the extensive direct and indirect distribution networks across the globe serve to ensure the customers are always within reach of the products they require.

Weaknesses. The weaknesses of Apple Inc. refer to the internal factors that limit the effectiveness of the company to perform efficiently, accomplish the various objectives, neutralize threats, and take advantage of the various available opportunities.

High pricing. A key element behind the loss of numerous potential customers for Apple is the high price tag for its products. While the premium pricing attracts customers with the ability to spend high amounts, it locks out millions of customers who could also boost the company’s revenue stream due to the large numbers that could translate to large volumes in terms of sales.

Incompatibility with other devices and operating systems. A major weakness of the products from Apple Inc. is that they are incompatible with third-party accessories, as well as other operating systems. Users and analysts have coined the term “Apple world” to refer to the use of products, software, accessories and services by Apple or its partners. Such a tight control over usage limits the number of people who purchase the products for lack of other required devices or failure to integrate with their existing ones.

Product Management and Situation Analysis

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Flybe vs Ryanair Company Review Paper

Flybe vs Ryanair Company Review
Flybe vs Ryanair Company Review

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Flybe vs Ryanair Company Review

Introduction

Flybe Group Plc is a company that is in the airline business. This organization came to existence in the year 1979. Flybe Group Plc was initiated when two companies, Intra Airways and Express Air Services came together for business (Flybe, 2015). It is worth noting that this company operates in many places and has a number of subsidiaries. This company has its domicile in Exeter and is known to be quite affordable since its cost is set at the lowest levels possible.

Interestingly, Flybe Group Plc has been able to make its name as the regional airline to go for despite the presence of many others. The company has been able to trade in the London Stock Exchange with other listed companies (London Stock Exchange, 2015).

Current performance

Currently, the performance of the company is worse than that of the previous year. From the income statement, it is quite clear that the group’s revenue dipped from 620.5 million pounds to 574.1 million pounds. This means that the group has not been able to generate as much revenue as it did in the year that ended in March 2014.

Compared to another player in the same industry revenue wise; Ryanair, the performance of Flybe Group Plc is bad. This is because from the income statement of Ryanair, the total revenue is seen to have increased from 5.036.7 million pounds for the year ended 31st March 2014 to 5,654.0 million pounds attained in the year ended 31st March 2015. This shows that Ryanair was able to generate more revenue than Flybe Group Plc.

Looking at the income results of the company in the year ended 31st March 2015, an operating loss of 12.7 million pounds was realized (Flybe, 2015). This is a very bad situation for the company bearing in mind that a profit was realized in the year that was closed on the 31st day of March 2014. It is worth noting that Flybe Group Plc realized 1.3 million pounds in terms of profit in the year that was closed on 31st March, 2016. This shows a very worrying movement in the profitability of this company.

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In terms of profitability, Ryanair seems to have recorded a very high increase in its operating profit in the year that ended on 31st March 2015. In this year, Ryanair managed to realize an operating profit of 1,042.9 million pounds against 658.6 million pounds recorded in the year closed on 31st March 2014. This shows a very significant increase in the level of operating profitability unlike the case of Flybe Group Plc where a loss was recorded. Under this circumstance, it is reasonable to point out that the Ryanair has a bigger capacity of growth than Flybe Group Plc.

Liquidity

Liquidity of an organization refers to the ability to translate the available assets into cash. The liquidity of a company is always determined by looking at the ease with which a company is able or has been able to avail cash from most of its assets. To determine the liquidity of Flybe Group Plc, it is necessary to come up with the liquidity ratios of the company. The calculation of the liquidity ratios for Flybe Group Plc will focus on the year closed on 31st March, 2014 compared to the year ended 31st March 2015. Some of the liquidity ratios include current ratio, cash ratio, working capital and quick ratio.

Current Ratio

The current ratio of an organization is obtained by getting a division of the current assets by the current liabilities (Robert, 2010). For Flybe Group Plc, the current ratio for the years ended on the 31st day of 2015 and 2014 are as follows.

YearRatioCurrent AssetsCurrent Liabilities Ratio 
2015Current308.3257.2      1.20
2014Current304.8216.4      1.41

From the above schedule, it is evident that the liquidity of Flybe Group Plc in the year ended on 31st March 2015 is lower than the previous year. This is because the liquidity dropped from 1.41 to 1.20.

The current ratio for Ryanair, a competitor in the industry is as follows;

YearRatioCurrent AssetsCurrent Liabilities Ratio 
2015Current5,742.003,346.00           1.72
2014Current3,444.302,274.50           1.51

From this calculation, it is evident that Ryanair was able to have a higher current ratio in the year ended 2015 than the previous year. This is not the case with the current ratio obtained by Flybe Group Plc. From the calculation of current ratio of Flybe Group Plc, it is seen that there is a decrease in the current ratio obtained in the year ended 2014 from 1.41 to 1.2 calculated for the year ended 31st March 2015.

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Net Working capital ratio

This liquidity ratio is used in measuring by what level the current assets are when compared to the current liabilities, in the absence of cash. This means that the net working capital ratio is used in measuring the excess of current assets as compared to the current liabilities. It is obtained by dividing the current assets less cash by the current liabilities of an organization. The current ratios of Flybe Group Plc for the years ending 31st March of 2014 and 2015 respectively are as follows.

YearRatioCurrent Assets-cashCurrent Liabilities Ratio 
2015Working capital130.4257.2       0.51
2014Working capital126.9216.4       0.59

Compared to the year ended 31st March 2014, the networking capital is seen to have gone down showing negative movement of the company’s ability to take care of current liabilities.

For the net working capital ratio for Ryanair, the calculation is as below;

YearRatioCurrent Assets-cashCurrent Liabilities Ratio 
2015Working capital4557.4257.2         17.72
2014Working capital1714.2216.4           7.92

These calculations for Ryanair show that there is a very significant increase in the net working capital obtained in the year 2014 compared to that obtained in the year ended 31st March 2015. In the year ended 2014, Ryanair had a net working capital ratio of 7.92, while in the year ended 2015 it increased upto 17.72.

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Liquidity comparison with competitor (Ryanair) based on current ratio and networking capital

Quick ratio

This is a liquidity ratio that is used to derive an organizations muscle towards taking care of its short-term liabilities through the utilization of the current assets that can be converted into cash quickly (Aalst & Wil 2011). Therefore, stock is reduced from the current assets amount that is used in dividing by the current liabilities. Therefore, the formulae for quick ratio is (current assets-stock)/current liabilities. The quick ratio for Flybe Group Plc is as follows

YearRatioCurrent Assets-stockCurrent Liabilities Ratio 
2015Quick ratio301.2257.2       1.17
2014Quick ratio298216.4       1.38

From the above calculation, it is clear that the quick ratio in the year ended 31st March 2014 is higher than that of the year ended 31st March 2015. This shows that Flybe Group Plc’s capability in the previous year was better, a situation that reflects poor ability of the company.

For Ryanair, the quick ratios for the two years ended 31st March 2014 and 2015 respectively are as follows;

YearRatioCurrent Assets-stockCurrent Liabilities Ratio 
2015Quick ratio5739.93346           1.72
2014Quick ratio3441.82274.5           1.51

From the schedule above, Ryanair is seen to have made an increase in its quick ratio from 1.51 in the year ended 2014 to 1.72 in the year closed in 2015 (Ryanair, 2015). This is not the case with the quick ratio of Flybe Group Plc where the quick ratio dropped from 1.38 to 1.17.

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Profitability Ratio analysis

Profitability ratios are usually used in finding out how the assets of an organization have been employed in the process of generating profit (Papadopoulos, 2011). This is a very good ratio in the analysis of an organization financially. This is because all businesses are set up for the purpose of generating some considerable gain after a given period of time.

Gross profit margin

This is a ratio calculated through the division of the gross profit of an organization with the net sales recorded. For Flybe Group plc, the gross profit margin ratios for the years ended 31st March 2014 and 2015 respectively are as follows;

YearRatioGross profitNet Sales Ratio 
2015Gross profit Margin-12.7574.1       (0.022)
2014Gross profit Margin-1.5620.5       (0.002)

From the above calculation of gross profit margin, it is evident that it is negative for both years. However, the gross profit margin for the year ended march 2015 is poor than that of the previous year.

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For Ryanair, the gross profit margin is as follows

YearRatioGross profitNet Sales Ratio 
2015Gross profit Margin982.46073.00.2
2014Gross profit Margin591.45654.00.1

Comparatively, Flybe Public Plc is seen to have posted poor results in terms of profitability compared to Ryanair. In the year ended 31st March 2015, Flybe Group Plc had a gross profit margin of (0.022) while Ryan air had 0.2. This shows that in terms of gross profit in relation to sales, Ryan air had a good level of gain.

Company Review Findings and conclusions

From the ratio analysis for Flybe Group Plc, several findings come up. Firstly, the decrease In the current ratio of Flybe Group Plc in the year ended March 2015 shows that the company’s ability to take care of the current liabilities decreased. This means that Flybe Group Plc has to look for alternative ways of raising funds in case there is need to pay for current liabilities. With current ratio, the higher the ratio the better for a company since it means that the ability to take care of its current liabilities is stronger (Rajasekeran, 2012).

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With net working capital ratio, the higher the ratio, the better for a company. A higher ratio means that a company is able to convert its current assets into cash and finance its current liabilities in the absence of ready cash (Kaplan, 2011). In the case of Flybe Group Plc, the net working ratio is seen to have dropped from 0.59 to 0.51 in the year ended 31st March 2015.

This means that the company’s ability to finance its current liabilities from other current assets in exclusion of cash got weaker. According to Tracy (2012), a good performing company is able to handle current liabilities even without using its cash.

In the year ended 31st March 2015, the gross profit Margin for Flybe Group Plc went down compared to what was realized in the year ended 31st March 2014. This means that the company’s use of its assets for profit generation went down. With poor profitability, it means that a company cannot grow properly.

After the analysis and findings, it is reasonable to state the position of Flybe Group Plc in the industry. Firstly, its performance is poor compared to previous year. Secondly, the company’s performance compared to that of a competitor in the industry is very poor. Therefore, the management of Flybe Group Plc should come up with strategies of improving the performance of the company.

One of the things that the management should look for is the use of information technology. According to Proctor (2011), information technology is one tool that is capable of bringing improvement in performance of an organization. This is supported by Pathak (2014) who says that the information technology is important in many areas of a business including auditing. Additionally, coming up with strategies that support improvement is always an important aspect in business (Thompson, 2014).

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Conclusion

According to Gray et al. (2011), a company review is a very important activity for organizations. This is because it gives an organization an opportunity of looking at the way its performance is moving. For example, the analysis of the financial performance of Flybe Group Plc has shown how poor the performance is compared with the previous year and Ryanair which is a competitor in the industry.

From the analysis, Flybe Group Plc has been able to post poor results in the year ended 31st March 2015 compared to what was attained in the year ended 31st March 2014. Additionally, compared with Ryanair, the performance of the company is also poor. Ryanair is seen to be posting financial results which are likely to catapult the company to great heights. For better analysis of a company, financial ratios are very useful (Debarrshi, 2012).

This is because the financial ratios bring about various aspects of a business as reflected in their different levels. When carrying out a company review, it is important to carry out comparisons for different years of operations. Additionally, it is good to understand the position of a company within a particular industry.

Comparison with other players in the industry is necessary since it ensures that a company understands how the performance is compared to that of other players. Keller and Price (2013) point out that industry comparison enables a company carry out improvements and corrections so that there may be creation of competitive edge in the industry or market.

References

Aalst, V.& Wil M.P., (2011), Process Mining: Discovery, Conformance and Enhancement of Business Processes, Springer

Debarrshi, B. (2012), Management Accounting, Pearson Education India

Flybe (2015), Annual report-Flybe, Retrieved from https://www.flybe.com/corporate/investors/2014/annual-results-2014/Flybe-Group-plc-Annual-Report-2013-14.pdf, (Last accessed 15th March 2016)

Gray, S., Salter, S., & Radebaugh, L. (2011). Global accounting and control: A managerial emphasis. New York: Wiley.

Kaplan, Robert S. and Bruns, W. (2011), Accounting and Management: A Field Study Perspective, Harvard Business School Press.

Keller, S. & Price, C. (2013), Beyond Performance: How Great Organizations Build Ultimate Competitive Advantage, John Wiley & Sons.

London Stock Exchange (2015) Listed Companies, Retrieved from https://www.google.com/?gws_rd=ssl#q=london+stock+exchange+listed+companies+flybe+group+plc, Last accessed (Last accessed 15th March 2016)

Papadopoulos, P. (2011), Investment Report – Fundamental Analysis/ Ratio Analysis, Grin Verlag

Pathak, J. (2014), Information Technology Auditing:An evolving agenda, Willey Publishers, Springer

Proctor, K (2011), Optimizing and Assessing Information Technology: Improving Business Project Execution, John Wiley & Sons

Rajasekeran, P. (2012), Financial Accounting, Pearson Education India

Robert, L. (2010), Ratios Made Simple: A beginner’s guide to the key financial ratios, Harriman House Ltd.

Ryanair (2015) Retrieved from https://investor.ryanair.com/wp-content/uploads/2015/07/Annual-Report-2015.pdf, last accessed (Last accessed 15th March 2016)

Thompson,JL. (2014). Understanding Corporate Strategy. Cengage Learning Chew, L. & Parkinson, A. (2013), Making Sense of Accounting for Business, Harlow: Pearson

Tracy, A. (2012), Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyze Any Business In The World, Ratioanalysis.net

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Flybe Group Plc In Comparison With Ryanair: Company Review

Flybe Group Plc In Comparison With Ryanair
Flybe Group Plc In Comparison With Ryanair

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Flybe Group Plc In Comparison With Ryanair

Company Review

Introduction

Flybe Group Plc is a company that is in the airline business. This organization came to existence in the year 1979. Flybe Group Plc was initiated when two companies, Intra Airways and Express Air Services came together for business (Flybe, 2015). It is worth noting that this company operates in many places and has a number of subsidiaries. This company has its domicile in Exeter and is known to be quite affordable since its cost is set at the lowest levels possible.

Interestingly, Flybe Group Plc has been able to make its name as the regional airline to go for despite the presence of many others. The company has been able to trade in the London Stock Exchange with other listed companies (London Stock Exchange, 2015).

Current performance

Currently, the performance of the company is worse than that of the previous year. From the income statement, it is quite clear that the group’s revenue dipped from 620.5 million pounds to 574.1 million pounds. This means that the group has not been able to generate as much revenue as it did in the year that ended in March 2014.

Compared to another player in the same industry revenue wise; Ryanair, the performance of Flybe Group Plc is bad. This is because from the income statement of Ryanair, the total revenue is seen to have increased from 5.036.7 million pounds for the year ended 31st March 2014 to 5,654.0 million pounds attained in the year ended 31st March 2015. This shows that Ryanair was able to generate more revenue than Flybe Group Plc.

Looking at the income results of the company in the year ended 31st March 2015, an operating loss of 12.7 million pounds was realized (Flybe, 2015). This is a very bad situation for the company bearing in mind that a profit was realized in the year that was closed on the 31st day of March 2014. It is worth noting that Flybe Group Plc realized 1.3 million pounds in terms of profit in the year that was closed on 31st March, 2016. This shows a very worrying movement in the profitability of this company.

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In terms of profitability, Ryanair seems to have recorded a very high increase in its operating profit in the year that ended on 31st March 2015. In this year, Ryanair managed to realize an operating profit of 1,042.9 million pounds against 658.6 million pounds recorded in the year closed on 31st March 2014. This shows a very significant increase in the level of operating profitability unlike the case of Flybe Group Plc where a loss was recorded. Under this circumstance, it is reasonable to point out that the Ryanair has a bigger capacity of growth than Flybe Group Plc.

Liquidity

Liquidity of an organization refers to the ability to translate the available assets into cash. The liquidity of a company is always determined by looking at the ease with which a company is able or has been able to avail cash from most of its assets. To determine the liquidity of Flybe Group Plc, it is necessary to come up with the liquidity ratios of the company. The calculation of the liquidity ratios for Flybe Group Plc will focus on the year closed on 31st March, 2014 compared to the year ended 31st March 2015. Some of the liquidity ratios include current ratio, cash ratio, working capital and quick ratio.

Current Ratio

The current ratio of an organization is obtained by getting a division of the current assets by the current liabilities (Robert, 2010). For Flybe Group Plc, the current ratio for the years ended on the 31st day of 2015 and 2014 are as follows.

YearRatioCurrent AssetsCurrent Liabilities Ratio 
2015Current308.3257.2      1.20
2014Current304.8216.4      1.41

From the above schedule, it is evident that the liquidity of Flybe Group Plc in the year ended on 31st March 2015 is lower than the previous year. This is because the liquidity dropped from 1.41 to 1.20.

The current ratio for Ryanair, a competitor in the industry is as follows;

YearRatioCurrent AssetsCurrent Liabilities Ratio 
2015Current5,742.003,346.00           1.72
2014Current3,444.302,274.50           1.51

From this calculation, it is evident that Ryanair was able to have a higher current ratio in the year ended 2015 than the previous year. This is not the case with the current ratio obtained by Flybe Group Plc. From the calculation of current ratio of Flybe Group Plc, it is seen that there is a decrease in the current ratio obtained in the year ended 2014 from 1.41 to 1.2 calculated for the year ended 31st March 2015.

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Net Working capital ratio

This liquidity ratio is used in measuring by what level the current assets are when compared to the current liabilities, in the absence of cash. This means that the net working capital ratio is used in measuring the excess of current assets as compared to the current liabilities. It is obtained by dividing the current assets less cash by the current liabilities of an organization. The current ratios of Flybe Group Plc for the years ending 31st March of 2014 and 2015 respectively are as follows.

YearRatioCurrent Assets-cashCurrent Liabilities Ratio 
2015Working capital130.4257.2       0.51
2014Working capital126.9216.4       0.59

Compared to the year ended 31st March 2014, the networking capital is seen to have gone down showing negative movement of the company’s ability to take care of current liabilities.

For the net working capital ratio for Ryanair, the calculation is as below;

YearRatioCurrent Assets-cashCurrent Liabilities Ratio 
2015Working capital4557.4257.2         17.72
2014Working capital1714.2216.4           7.92

These calculations for Ryanair show that there is a very significant increase in the net working capital obtained in the year 2014 compared to that obtained in the year ended 31st March 2015. In the year ended 2014, Ryanair had a net working capital ratio of 7.92, while in the year ended 2015 it increased upto 17.72.

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Liquidity comparison with competitor (Ryanair) based on current ratio and networking capital

Quick ratio

This is a liquidity ratio that is used to derive an organizations muscle towards taking care of its short-term liabilities through the utilization of the current assets that can be converted into cash quickly (Aalst & Wil 2011). Therefore, stock is reduced from the current assets amount that is used in dividing by the current liabilities. Therefore, the formulae for quick ratio is (current assets-stock)/current liabilities. The quick ratio for Flybe Group Plc is as follows

YearRatioCurrent Assets-stockCurrent Liabilities Ratio 
2015Quick ratio301.2257.2       1.17
2014Quick ratio298216.4       1.38

From the above calculation, it is clear that the quick ratio in the year ended 31st March 2014 is higher than that of the year ended 31st March 2015. This shows that Flybe Group Plc’s capability in the previous year was better, a situation that reflects poor ability of the company.

For Ryanair, the quick ratios for the two years ended 31st March 2014 and 2015 respectively are as follows;

YearRatioCurrent Assets-stockCurrent Liabilities Ratio 
2015Quick ratio5739.93346           1.72
2014Quick ratio3441.82274.5           1.51

From the schedule above, Ryanair is seen to have made an increase in its quick ratio from 1.51 in the year ended 2014 to 1.72 in the year closed in 2015 (Ryanair, 2015). This is not the case with the quick ratio of Flybe Group Plc where the quick ratio dropped from 1.38 to 1.17.

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Profitability Ratio analysis

Profitability ratios are usually used in finding out how the assets of an organization have been employed in the process of generating profit (Papadopoulos, 2011). This is a very good ratio in the analysis of an organization financially. This is because all businesses are set up for the purpose of generating some considerable gain after a given period of time.

Gross profit margin

This is a ratio calculated through the division of the gross profit of an organization with the net sales recorded. For Flybe Group plc, the gross profit margin ratios for the years ended 31st March 2014 and 2015 respectively are as follows;

YearRatioGross profitNet Sales Ratio 
2015Gross profit Margin-12.7574.1       (0.022)
2014Gross profit Margin-1.5620.5       (0.002)

From the above calculation of gross profit margin, it is evident that it is negative for both years. However, the gross profit margin for the year ended march 2015 is poor than that of the previous year.

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For Ryanair, the gross profit margin is as follows

YearRatioGross profitNet Sales Ratio 
2015Gross profit Margin982.46073.00.2
2014Gross profit Margin591.45654.00.1

Comparatively, Flybe Public Plc is seen to have posted poor results in terms of profitability compared to Ryanair. In the year ended 31st March 2015, Flybe Group Plc had a gross profit margin of (0.022) while Ryan air had 0.2. This shows that in terms of gross profit in relation to sales, Ryan air had a good level of gain.

Company Review Findings and conclusions

From the ratio analysis for Flybe Group Plc, several findings come up. Firstly, the decrease In the current ratio of Flybe Group Plc in the year ended March 2015 shows that the company’s ability to take care of the current liabilities decreased. This means that Flybe Group Plc has to look for alternative ways of raising funds in case there is need to pay for current liabilities. With current ratio, the higher the ratio the better for a company since it means that the ability to take care of its current liabilities is stronger (Rajasekeran, 2012).

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With net working capital ratio, the higher the ratio, the better for a company. A higher ratio means that a company is able to convert its current assets into cash and finance its current liabilities in the absence of ready cash (Kaplan, 2011). In the case of Flybe Group Plc, the net working ratio is seen to have dropped from 0.59 to 0.51 in the year ended 31st March 2015.

This means that the company’s ability to finance its current liabilities from other current assets in exclusion of cash got weaker. According to Tracy (2012), a good performing company is able to handle current liabilities even without using its cash.

In the year ended 31st March 2015, the gross profit Margin for Flybe Group Plc went down compared to what was realized in the year ended 31st March 2014. This means that the company’s use of its assets for profit generation went down. With poor profitability, it means that a company cannot grow properly.

After the analysis and findings, it is reasonable to state the position of Flybe Group Plc in the industry. Firstly, its performance is poor compared to previous year. Secondly, the company’s performance compared to that of a competitor in the industry is very poor. Therefore, the management of Flybe Group Plc should come up with strategies of improving the performance of the company.

One of the things that the management should look for is the use of information technology. According to Proctor (2011), information technology is one tool that is capable of bringing improvement in performance of an organization. This is supported by Pathak (2014) who says that the information technology is important in many areas of a business including auditing. Additionally, coming up with strategies that support improvement is always an important aspect in business (Thompson, 2014).

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Conclusion

According to Gray et al. (2011), a company review is a very important activity for organizations. This is because it gives an organization an opportunity of looking at the way its performance is moving. For example, the analysis of the financial performance of Flybe Group Plc has shown how poor the performance is compared with the previous year and Ryanair which is a competitor in the industry.

From the analysis, Flybe Group Plc has been able to post poor results in the year ended 31st March 2015 compared to what was attained in the year ended 31st March 2014. Additionally, compared with Ryanair, the performance of the company is also poor. Ryanair is seen to be posting financial results which are likely to catapult the company to great heights. For better analysis of a company, financial ratios are very useful (Debarrshi, 2012).

This is because the financial ratios bring about various aspects of a business as reflected in their different levels. When carrying out a company review, it is important to carry out comparisons for different years of operations. Additionally, it is good to understand the position of a company within a particular industry.

Comparison with other players in the industry is necessary since it ensures that a company understands how the performance is compared to that of other players. Keller and Price (2013) point out that industry comparison enables a company carry out improvements and corrections so that there may be creation of competitive edge in the industry or market.

References

Aalst, V.& Wil M.P., (2011), Process Mining: Discovery, Conformance and Enhancement of Business Processes, Springer

Debarrshi, B. (2012), Management Accounting, Pearson Education India

Flybe (2015), Annual report-Flybe, Retrieved from https://www.flybe.com/corporate/investors/2014/annual-results-2014/Flybe-Group-plc-Annual-Report-2013-14.pdf, (Last accessed 15th March 2016)

Gray, S., Salter, S., & Radebaugh, L. (2011). Global accounting and control: A managerial emphasis. New York: Wiley.

Kaplan, Robert S. and Bruns, W. (2011), Accounting and Management: A Field Study Perspective, Harvard Business School Press.

Keller, S. & Price, C. (2013), Beyond Performance: How Great Organizations Build Ultimate Competitive Advantage, John Wiley & Sons.

London Stock Exchange (2015) Listed Companies, Retrieved from https://www.google.com/?gws_rd=ssl#q=london+stock+exchange+listed+companies+flybe+group+plc, Last accessed (Last accessed 15th March 2016)

Papadopoulos, P. (2011), Investment Report – Fundamental Analysis/ Ratio Analysis, Grin Verlag

Pathak, J. (2014), Information Technology Auditing:An evolving agenda, Willey Publishers, Springer

Proctor, K (2011), Optimizing and Assessing Information Technology: Improving Business Project Execution, John Wiley & Sons

Rajasekeran, P. (2012), Financial Accounting, Pearson Education India

Robert, L. (2010), Ratios Made Simple: A beginner’s guide to the key financial ratios, Harriman House Ltd.

Ryanair (2015) Retrieved from https://investor.ryanair.com/wp-content/uploads/2015/07/Annual-Report-2015.pdf, last accessed (Last accessed 15th March 2016)

Thompson,JL. (2014). Understanding Corporate Strategy. Cengage Learning Chew, L. & Parkinson, A. (2013), Making Sense of Accounting for Business, Harlow: Pearson

Tracy, A. (2012), Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyze Any Business In The World, Ratioanalysis.net

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Madison Plc Funding Analysis

Madison Plc Funding Analysis
Madison Plc Funding Analysis

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Madison Plc Funding Analysis

Introduction

Organizations are usually formed with an objective of gaining profit and attaining growth. This means that the management of an organization is always aimed at ensuring that operations are in the right order for such to happen. This calls for various processes to be initiated for the purpose of proper operation. Firstly, proper strategic planning has to be carried out.

Secondly, the finances of an organization have to be organized so that the reported results may be impressive. To understand better, company analysis is necessary since it gives a brighter picture of an organization’s financial status. This report will focus on Madison Plc for analysis. It will give a detailed explanation of the various funding sources that Madison Plc can have for its expansion plans.

Additionally, the advantages and disadvantages of each source of funding identified will be explained deeply. For better understanding, the report will also focus on the ways that Madison Plc can manage the sources of funding for better results. In the main part of this report, matters related to management of working capital will also be highlighted. 

For better understanding of this company’s investment options, analysis of different options will be highlighted and implications outlined properly. Additionally, the report will show ratio analysis of two companies that it is aiming at acquiring; thus getting an opportunity to make a choice. In the conclusion part of this, a summary of the main point will be indicated for better understanding.

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Funding

For most organizations, getting adequate funding is one of the major challenges of being in business (Johnson, Scholes & Whittington 2007, p. 12). This is because resources are usually scarce, and money is part of scarce resources. Madison Plc has to seek more funding for the purpose of expanding its operations across the globe as planned. This means that the company has to look for the sources of more money. The different sources of funding that Madison Plc can utilize are explained below.

  1. Debt financing

Debt financing refers to raising capital for a business through getting loans or credit facilities from lenders (Gupta 2011, p. 43). This means that an organization may go ahead and apply for financing in some of the known lenders. Interestingly, companies are known to rely on lenders as a means of accessing more capital for its operations (Kaplan & Norton 2004, p.98).

Therefore, Madison Plc can move ahead and approach some of the available lenders for funds to push forward its expansion agenda. This may be done through various arrangements; Madison Plc may get into an agreement with lenders regarding the percentage amount of gain to share. Secondly, the parent company and Madison Plc may agree on the payment period for any more financing granted.

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  • Advantages of debt financing

Debt financing is associated with various benefits. One of the advantages of using debt financing is that the risk associated with giving some ownership to new investors is reduced. With debt financing, an organization obtains money from lenders who do not need any part of the company. As a matter of fact, debt financing connects the lender and an organization through the periodic payments.

Secondly, it does not subject an organization to divided control as is the case with equity financing. This means that decision making organ of the organization keeps on functioning normally. The third benefit of debt financing is that an organization is able to have more money as retained earnings. It has been observed that despite the fact that the company pays interest on debt, the amount of money spared which would have gone to additional investors witnessed in equity financing.

  • Disadvantages of debt financing

One disadvantage of debt financing is that the company bears the burden of debt management. Having taken financing from loans, an organization has to ensure that the facility is properly management (Kaplan and Norton 2006, p.89). The burden of following up on the repayment records is tedious and a burden to an organization. Additionally, debt financing involves more cost for an organization. According to Arnold (2009, p.24), going for debt financing means that an organization has to pay interest to cover the cost of getting the credit facility.

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  1. Equity financing

Equity refers to the shares of an organization. Therefore, Madison Plc can use equity as to fund its operations. Through equity, this company can invite interested investors to purchase some shares in the company. This will make the investors shareholders while the company benefits from the money paid for the shares.

Advantages of funding through equity

One advantage of equity financing is that it creates a possibility of meeting people who are beneficial to an organization. Having investors purchase the shares of a business may create the benefit of having knowledgeable people form part of new investors. The benefits may also come as a result of having new investors who have more resources to lend to the organization. Having more able people get in the ownership of a business is always very important.

This is because the new investors may extend more money for use in the operations of an organization.  Additionally, the new shareholders may be able to give the organization beneficial business connections. According to Hill and Jones (2007, p.19), new owners of a business may bring about the much needed network in the business community.

The second benefit of equity financing as a source of capital is that there is no burden involved in management of credit facilities. It is worth noting that whenever an organization gets into debt, there is always need to have proper credit management, something which is not experienced with equity financing. The burden of extra cost incurred through payment of interest is not experienced with the use of equity financing.

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Disadvantages of equity financing

Equity financing is known to have various disadvantages to an organization. The first disadvantage is that the new investors will have to get part of the company’s profits. According to Neale and McElroy (2004, p.16), important to note that shareholders are usually motivated by the share of profit that they get from an investment. This means that the profit of an organization will end up being divided among the increased number of shareholders. The second disadvantage of going for equity financing is that the management of an organization becomes more divided.

Equity financing is known to divide the control in management of an organization (Debarrshi 2012, p. 98). With shared control of the business, decision making process becomes complicated. Finally, equity financing is disadvantageous in that unnecessary disagreements may arise. This becomes more complicated if some of the new shareholders are not team players.

  1. Retained profits financing

Retained profit is the other source of capital that Madison Plc can have. With retained profit as a source of capital, an organization usually ploughs back some of the earned profit. This means that instead of the profit being allocated for other purposes such as payment of dividends, the company uses it to carry out capital operations.

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Advantages of funding through retained profit

One advantage of financing the operations of a business through retained earnings is that the level of debt in the organization does not increase. With retained earnings, the business does not incur any cost such as interest on loans as is the case in debt financing. This means that an organization does not reduce its net profit as a result of financing expenses.

The second benefit of financing through retained earnings is that an organization maintains its independence. This means that the management of an organization is not diluted as a result of new investors in the shares of an organization. This means that the decision making process in the organization does not become complicated and unnecessarily long. Additionally, conflicts in the organization do not increase as would be the case with equity financing.

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Disadvantages of funding through retained profit

One disadvantage of using retained earnings as a source of capital is that it takes a long time before a considerable amount of money is ploughed back. It is worth noting that retained earnings reduce the speed with which an organization can grow through more investments. It is usually a very slow source of revenue. Secondly, retained earnings as a source of capital reduce the liquidity of an organization.

Using retained earnings to expand or have more investments means that cash for the business is reduced. This risks crippling other business commitments that require cash. Additionally, the use of retained earnings as a source of financing denies an organization an opportunity to gain from new members of the organization as is the case in equity financing.

Efficient working capital management in improving cash flow

It is worth noting that proper management of the working capital of an organization is very important (Gray, Salter & Radebaugh 2011, p. 34). This is because it contributes in shaping the well being of an organization. Madison Plc can do away with some of the non-current asset. Additionally, for proper management of the working capital of Madison Plc, long-term debt financing can be sought.

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Break-even analysis as a tool for decision making

Break-even analysis is a tool used in determining the level of operation in which an organization will be able to just cover its costs. At the break-even point of an organization, there is no loss or profit made from operations in place (Keller & Price 2013, p.56). Break-even point is usually indicated through showing that the income generated equals the total cost involved. For Madison Plc, break even analysis can be helpful in deciding which software to produce. This can be done through looking at the cost that would be covered by the returns.

Breakeven point= Sales = Variable Cost +Total Cost

Madison Super

Assuming that the fixed cost = $5,500

And variable cost = $2,015 per unit

The price per unit of output=$6,200

P × Q = Vc × Q + Fc

5,500*Q = 2015Q + 5,500

5,500 Q = 2,015Q + 5,500

5,500Q – 2015Q = 5,500

3,485Q = 5500

Q = 5,500 / 3,485

Q = 1.57 units

The BEP in units= 1.57 units

Break-even point in terms of money= (1.57 units) × ($5,500) = $8,635

Therefore, the breakeven point is at the point where the sales stand at $8,635.

Profit=Sales-Total cost

=Total cost=$7,515

=$8,635-7,515=1,120

Madison Platform:

Assuming that the fixed cost = $8,500

And variable cost = $1,847 per unit

The price per unit of output=$6200

P × Q = Vc × Q + Fc

6,200 *Q = 1847Q + 8,500

6200 Q = 1847 Q + 8,500

6200Q – 1847Q = 8,500

4,353Q = 8,500

Q = 8,500 / 4,353

Q = 1.95 units

The BEP in units= 1.95 units

Break-even point in terms of money= (1.95 units) × ($6,200)

= $12,090

Therefore, the breakeven point is at the point where the sales stand at $12,090.

Profit=$12,090-Total cost

Total cost=$10,347

=12,090-10,347=$1,743

Loss

From the break-even points of the two options, Madison Plc should invest in Madison Platform since profit at the break-even point is higher than that of Madison Super.

Other factors a firm may take into account when making investment decisions

Making of investment decisions are usually very sensitive for an organization. This is because they determine the future of an organization. Investment decisions should be done with care since any mistake may lead to poor performance of organization. The other factor that Madison Plc may take into consideration when making investment decisions is the payback period of each investment option.

The payback period of an investment refers to the duration that an investment will take before the initial capital used is recovered. Therefore, Madison Plc should go for investment options that have the shortest payback period. According to Boddy (2005, p.80), an investment that has a short payback period is the best for an organization. A short payback period of an investment means that in a short while, an organization will start enjoying profit without considering the capital employed.

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The other factor that Madison Plc should consider when making investment decisions is the accounting rate of return. According to Proctor (2012, p.21), rate of return refers to the amount an investment pays back to the organization with regard to the capital involved. It is important for Madison Plc to go for investments with the highest accounting rate of return.

Ratio analysis of Puteaux France and Melia Portfolio Research Spain for consideration by Madison Plc

Financial ratio analysis is a tool used in analyzing the performance of an organization. Financial ratios are usually useful in scrutinizing various aspects of a business. For the purpose of decision making regarding the company that Madison Plc should invest in, the profitability, liquidity and efficiency ratios of Puteaux digital France and Melia Portfolio Research Spain will be calculated.

  • Liquidity ratio

Liquidity ratio measures capability of an organization to handle short-term commitments through the use of its short-term assets (Hermanson& James 2012, p.16). Some of the liquidity ratios for two companies are as calculated below.

The current ratio

Current ratio = Current assets

                       Current liabilities

Puteaux digital France
 Short-term assetsLiabilities (short-term)Current Ratio
20113,8792,1841.78
20124,4571,4902.99
20138,3301,6934.92
Melia Portfolio Research Spain   Current Assets Current Liabilities Current Ratio 2011 3,879 9,834 0.39 2012 4,457 13,490 0.33 2013 8,330 17,687 0.47 

From the current ratios calculated above, Puteaux is seen to have the best relationship of current assets with current liabilities. The current assets are seen to cover the existing assets in more than 1 time. Under this ratio, Madison Plc should go for Puteaux digital France. According to Collier, (2009, p. 17), current ratio should not be too high.

Quick ratio

Acid test ratio = Current Assets – Stock

Current Liabilities

Puteaux digital France
 Current Assets – stockCurrent liabilitiesQuick Ratio
20113,8792,1841.78
20124,4571,4902.99
20138,3301,6934.92
Melia Portfolio Research  Spain
 Current Assets-stockCurrent LiabilitiesQuick Ratio
20113,8799,8340.39
20124,45713,4900.33
20138,33017,6870.47

From the quick ratios calculated above, Puteaux is seen to have the best relationship of current assets with current liabilities less stock as indicated by the quick ratio, which is more than 1. The current assets are seen to cover the current assets in more than 1 time without consideration of the inventory. Under this ratio, Madison Plc should invest inPuteaux digital France.

  • Profitability ratios

Net-profit margin

Net profit margin Net profit x 100

Sales

Puteaux digital France
 Net Profit before TaxSales%
20111,6589,40617.63
20122,19710,81220.32
20132,39511,51620.80
Melia Portfolio Research  Spain
 Net Profit  Sales%
2011-1,38715,529-8.93
2012-1,59517,849-8.94
2013-1,83320,516-8.93

Considering the net profit margin, Madison Plc should invest in Puteaux digital France. This is because it has a high net profit margin compared to Melia Portfolio Research Spain. A high net profit margin indicates that an organization has a higher growth capability than another one whose net profit margin is low.

Return on Capital Employed

This is a measure of the gain realized in comparison with the capital invested.

Return on capital employed=Operating profit x 100

Capital

Puteaux digital France
 Net Profit before TaxCapital%
20111,6587,87321.06
20122,19710,06921.82
20132,39512,46419.22
Melia Portfolio Research  Spain
 Net Profit before TaxCapital Employed%
2011-1,3874,910-28.25
2012-1,5953,315-48.11
2013-1,8331,482-123.68

The return on investment of the two companies shows that Puteaux has a better return. This means thatPuteaux has been able to realize more gain on the capital invested. Therefore, Madison Plc should invest inPuteaux digital France since it has a higher net profit margin than Melia Portfolio Research Spain.

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  • Efficiency ratios

Asset turnover ratio

Asset turnover ratio measures the extent to which an organization’s assets have been utilized.

The asset turnover ratio = Sales Revenue

 Net Assets

Puteaux digital France
 SalesNet assetsAsset  turnover ratio
20119,4067,8731.19
201210,81210,0691.07
201311,51612,4640.92
Melia Portfolio Research  Spain
 SalesNet assetsAsset  turnover ratio
201115,5294,9103.16
201217,8493,3155.38
201320,5161,48213.84

From the calculations above, Melia Portfolio Research Spain is seen to be having a higher asset turnover ratio. This means that Madison Plc should be interested in putting his money on Melia Portfolio Research Spain than Puteaux digital France.

Upon analysis of the several ratios for two companies, most ratios are in favor of Puteaux digital France. Therefore, Madison Plc should confidently go for Puteaux digital France as the best investment option.

Recommendations

It is always important for organizations to ensure that actions that are fundamental in performance improvement are done in the earliest time possible. Therefore, it is significant for the management of Madison Plc to guarantee that all what is required for the purpose of making the investment plans successful is done early enough. Firstly, the management of this company should ensure that the source of financing for new investment is identified as soon as possible.

With several sources of finances being in place, it is reasonable to go for the option that gives the organization optimal results. Additionally, the company should look for the option that upholds the independence of the company. With this in mind, Madison Plc should go for debt financing as the source of finance for its projects.

Working capital management is a very fundamental aspect in business. Madison Plc should ensure that there is proper management of working capital for the purpose of creating sustainability of the current position of the organization. It is important for the company to guarantee that the best ways of improving the working capital of the organization are employed. Disposal of some long term assets should be done on time to create better current health in the organization.

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Conclusion

From the ratio analysis, it is evident that the company has been able to have a good performance. This means that ratio analysis should be carried out regularly to ensure that the various aspects of Madison Plc are understood well. Madison Plc should also ensure that proper working capital management takes place. This is important since it safeguards that the company improves its current health. Madison Plc should certify that there is good choice of investments.

According to Angwin (2007, p.46), investment decisions should always be made in such a way that encourages good performance and optimal performance. To succeed in making good investment decisions, the organization should use the available investment analysis tools. With this done, it will be possible to make all decisions regarding investments.

In terms of financing, the company should ensure that it goes for debt financing. This is good for this company since it will guarantee that there is independence in management. Additionally, debt financing will increase the value of retained earnings for the company.

References

  1. Angwin, D 2007,Mergers and Acquisitions. Oxford: Blackwell.
  2. Arnold, G 2009, Corporate Financial Management. (4th Ed) Harlow: FT/Prentice Hall.
  3. Bertalanffy, L 1950, “An Outline of General System Theory.” British Journal for the Philosophy of Science, Vol. 1, No. 2
  4. Bertalanffy, L 1968,General System Theory: Foundations, Development, Applications New York: George Braziller
  5. Bocij P, Greasley A and Hickie S 2008,Business Information Systems (4th Ed.), Harlow: FT/Prentice Hall,
  6. Boddy, D 2005,Management: An Introduction, (3rd Ed), Harlow: Pearson Education Limited
  7. Collier, P.M2009,Accounting for Managers: Interpreting Accounting Information for Decision Making. (3rd Ed) Chichester: Wiley.
  8. Debarrshi, B 2012, Management Accounting, Pearson Education India
  9. Gray, Salter &Radebaugh 2011, Global accounting and control: A managerial emphasis. New York: Wiley.
  10. Gupta, A 2011, Financial Accounting for Management: An Analytical Perspective, Pearson Education India.
  11. Hermanson& James, 2012, Accounting Principles Volume II, Dow Jones-Irwin
  12. Hill, CL and Jones, GR (2007),Strategic Management Theory: An Integrated Approach. Boston: Houghton Mifflin.
  13. Johnson, G, Scholes, K and Whittington, R 2007, Exploring Corporate Strategy. (8th Ed) Harlow: FT/Prentice Hall.
  14. Kaplan, RS and Norton, DP 2004,Strategy Maps: Converting Intangible Assets into Tangible Assets. Cambridge, Mass: Harvard Business School Press.
  15. Kaplan, RS and Norton, DP 2006,Alignment: How to apply the Balance Scorecard to Corporate Strategy. Cambridge, Mass: Harvard Business School Press.
  16. Keller, S & Price, C 2013, Beyond Performance: How Great Organizations Build Ultimate Competitive Advantage, John Wiley & Sons.
  17. Neale, B and McElroy T 2004,Business Finance:: A Value Based Approach (1Ed) Harlow: FT/Prentice Hall
  18. Proctor, R 2012,Managerial Accounting: Decision Making and Performance Improvement (4th Ed) Harlow. FT/Prentice Hall.

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TATA Group; A Critical Analysis

TATA Group

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TATA Group

Abstract

            TATA Group is among the largest Indian conglomerates, which has grown immensely over the years to become a well-recognized brand. The company is mostly known for its major businesses including TATA Motors, TATA Steel, TATA Power, TATA Consultancy Services, Titan, TATA Teleservices, TATA Communications and TATA Global Beverages. In this report, TATA’s environment is analyzed to determine internal and external environment factors that affect the company’s performance.

Through the SWOT and PESTEL analysis, the business environment is assessed. The company’s steel business is currently undergoing challenges after British Steel’s closure decision. In this relation, the company must seek alternative areas to invest in to ensure that the business continues to thrive.

Spain and China are suggested as potential countries and these are discussed in regard to their attractiveness. The paper also provides recommendations for TATA based on information collected from the report. By the end of the report, the reader will have a greater understanding of TATA, its operations and factors that affect its performance.

TATA Group

Introduction

TATA Group has developed its niche as a leading multinational company in India and in the world, having evolved from a small family business began 148 years ago. Taking advantage of increasing globalization, the company has expanded its business across borders and increased the types of businesses that it deals with by venturing into different industries. TATA’s success is associated with the favorable macro-environment, particularly in India that helped the company grow significantly.

The company’s commitment to success cannot be underestimated either and it is notable that by leveraging its strengths and market opportunities, TATA has grown its portfolio tremendously. TATA continues to expand its operations internationally through global acquisitions. However, not all its ventures have been successful, owing to country-specific factors that influence its business operations.

Selecting a potential country for further global expansion therefore requires that TATA performs thorough market research to establish marketplaces in which the company is likely to thrive.  This paper seeks to identify factors in the macro-environment, which may have influenced TATA’s success as a leading company in India. It also outlines some of the countries in which TATA could further expand its operations and provides a recommended country TATA’s steel business.

Company Background

TATA Group is considered one of India’s global pillar, whose multinational status has seen it become a major conglomerate in India. The company which was formed in 1868 is headquartered in Mumbai, Maharashtra. TATA owns several companies which are independently operated and has over 600,000 employees. Through the years, the company has made several acquisitions across the globe, further improving its international presence.

The company continues to enjoy a global reach and considerable profit levels, with the latest financial information indicating that the company garnered $108.7 billion in 2014/2015 financial year (tata.com). TATA Group consists of different sub-companies including TATA Motors, TATA Steel, TATA Power, TATA Consultancy Services, Titan, TATA Teleservices, TATA Communications and TATA Global Beverages.

Besides its many sub-companies, TATA’s growth can be attributed to the purchase of various businesses globally including Daewoo Commercial Vehicle Company, Land Rover, Jaguar Cars, Eight O’clock Coffee an Good Earth Corporation among others, propelling it to an internationally recognized organization (tata.com).

Discussion

Macro-environmental factors

SWOT Analysis

Strengths Strong financial performance Brand strength Foreign investment Diversification  Management professionalism and regard to employee welfare International acquisitions and collaboration Corporate social responsibility/ Commitment towards national growthOpportunities Favorable government policies Emerging markets and developing countries Strategic alliances and mergers New product lines Increasing per capita income Changing customer needs
Weaknesses Excessive debt Diversification Management and control Controversy on illegal land acquisition Environmental concernsThreats Rising cost of material and manufacturing Competition Economic and business volatility

Strengths

TATA’s strong financial performance plays a major role in enhancing its performance. Based on its last financial results, the group collectively earned $108.7 billion in revenue and $6.7 billion in profits in the 2014/2015 financial year. The company also owns major assets and property, which further enhance its financial position. Lynch (2012) notes that when a company is financially stable, it is more likely to mitigate any threats within the market place.

Brand strength remains a major boost for TATA. The company is not only well known in India but also internationally, mostly for its motor vehicle and steel business. This means that customers are more likely to trust its products and services.

TATA has invested significantly in foreign markets through direct investment, subsidiaries, strategic alliances and subsidiaries (Au, Ayyagari and Spencer, 2015). This gives the company a strong ground in the global market and also promotes its financial performance. Due to its global presence, TATA has gained tremendous experience on international trade and is therefore capable of enhanced success in terms of internationalization. 

TATA has invested in numerous industries and this form of diversification is of great significance to its portfolio. To begin with, it means that the company can shield itself in times of financial crisis by benefitting from companies that are performing well. In essence, other companies can support the company’s performance in the event that certain industries are affected by business or environmental factors; thus enhancing continuity (Ramachandran, Manikandan and Pant, 2013).

Management professionalism and regard to employee welfare has ensured retention of professional managers and high performing employees. TATA is known for its hands-off approach where managers are allowed to make independent decisions without influence from the owners. This hastens business processes and is therefore considered a major strength for the company. It also provides attractive benefits for its employees and is thereby considered an employer of choice.

International acquisitions and collaboration ensure that the company’s international presence continues to grow. These add to the company’s financial performance and international experience and are therefore of major significance.

TATA is known for its commitment to corporate social responsibility, having undertaken numerous projects to promote living standards in India. TATA has invested in education, research, art, sports and cultural endeavors and is well known for its philanthropy. In 2007, TATA received the Carnegie Medal of Philanthropy (Carnegie, 2015). Corporate social responsibility is hailed in the business world as an efficient way to create a strong brand by creating community trust (Grant, 2016).

Opportunities

Favorable government policies have ensured that TATA conducts its business effectively. The company has received major support from the government of India and this has to a great extent enhanced its performance. TATA has also been well received in other countries where it operates. This is an opportunity that the TATA could utilize by investing more in its business.

Emerging markets including rural areas and developing countries present a good opportunity for TATA to exploit. The company should therefore work towards reaching these markets before they are exploited by others.

Strategic alliances and mergers are still a lucrative approach towards enhancing the company’s global market. It is notable that many companies across the globe are seeking companies they can collaborate with to achieve various goals including technological innovation. Companies considering buy-outs due to financial difficulties are also increasing and TATA could take advantage of such opportunities for growth.

TATA Group can enhance its performance through diversifying into new product lines. This will enhance their performance and hence promote is global position.

Weaknesses

TATA operates numerous companies and is constantly engaging in investment activities that require large amounts of money, such that it has accumulated a significant level of debt. These are repaid from its business proceeds and this means that in the event that business is affected by unforeseen risks, it may be difficult for the company to effectively repay the loans (Boone and Kurtz, 2012).

Diversification is considered a positive aspect of business performance. However, it may also present difficulties in management, such that the company fails to ensure optimal performance for each product (Boone and Kurtz, 2012). This could threaten TATA’s performance.  

The TATA family is no longer managing the group of companies and this has been delegated to independent companies, which work under the board. Management and control issues could therefore be experienced if the respective managers are not as committed to success as the owners.

Controversy on illegal land acquisition has tainted TATA’s image to a significant extent. The company was a victim of public uproar on land grabbing accusations. This has affected TATA Tea and TATA Steel in India, where communities have claimed ownership of land possessed by TATA. 

Environmental concerns have also emerged, with the company being accused of encroaching natural endowments and polluting the environment (Masani, 2015). This may affect the company’s reputation and thus limit its performance.

Threats

The rise in the number of businesses globally cannot be underestimated and TATA therefore faces stiff competition from emerging and existing businesses.

Rising cost of material and manufacturing is affecting the company’s productivity, given that it has to contend with lower profits than it would if the conditions remained the same.

TATA like any other company faces a major challenge in the form of economic and business volatility. According to Grant (2016), the world economy is highly unstable and components including interest rates, inflation, availability of credit, per capita income and customer demand keep changing. This is a major risk for global companies such as TATA.

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PESTEL Analysis

Political Factors

These refer to factors in the political environment in which a company operates. India enjoys a generally stable political environment that is suitable for business. TATA is however exposed to changes in government regimes that may influence the business environment through new regulations and policies (Beneke et al, 2013).

An example of a new law that is bound to affect TATA is the new rule on corporate social responsibility, where companies may be expected to give 2% of net profit earned towards community development. Given that TATA operates in different countries, the risk of international trade regulations is eminent. An example is the adoption of policies aimed at protecting local organizations, which is bound to affect international companies in a significant manner.

Economic Factors

The global economic conditions in recent years have been volatile and this to s significant extent affects company performance. The global economic crisis for example hit most companies, affecting their profitability. The collapse of British Steel following market factors is also a demonstration of economic impact on the business. India’s steel market remains among the largest in the world and this has ensured that TATA’s steel business grows steadily.

Social

The community in which TATA operates has influenced the company’s operations both positively and negatively. As the company expands, there are greater expectations from the company to give back to the community (Masani, 2015). This is further exacerbated by competitive pressure. TATA must therefore invest more in community social responsibility in order to create a good name for itself. Globalization has led to changes in indigenous culture and this has prompted TATA to invest in activities aimed at preserving the Indian culture.

Technological

            In a world where technology is evolving rapidly, TATA is faced by the need to keep investing in newer technology. Customers are increasingly demanding highly sophisticated products and TATA is affected through increased expenditure for these products. In car manufacturing for example, the acquisition of Jaguar and Land Rover presents the company with a daunting task in terms of innovation, which will ensure that these cars maintain their class. The company must therefore be in touch with advances in technology to maintain its competitive position (Masani, 2015).

Environmental

There is growing pressure for companies to preserve the environment through exercising safe environmental practices; including the preservation of natural resources and reducing pollution. The company is striving to protect the environment through taking specific measures such as producing low fuel consumption cars and reducing gas emissions.

The company also participates in activities aimed at reducing industrial pollution, such as “Green Earth” campaigns; and preventing deforestation (tata.com). In the past, TATA has received criticism over river pollution, air pollution through gas emissions and natural resources encroachment.

Legal

            TATA operates in different countries where varying laws governing business operations and issues such as taxation, employment and environmental responsibility among other factors (Beneke, 2013). The company has also been exposed to various legal battles during its existence, including legal cases challenging land ownership such as the Kerala Government law suit. In this case, TATA Tea was accused of grabbing 3,000 acres of government land in Munnar.

Potential international marketplaces for TATA foreign acquisition

            As the world becomes increasingly interconnected following globalization, TATA may choose to invest in other countries, which also demonstrate great potential for business. Some of the countries in which TATA could invest in are discussed below.

Spain

The Forbes Magazine ranks Spain as the second-best country to invest in (Rapoza, 2015). This is based on its stable economic environment and the business environment has improved tremendously. The government recently reduced corporate taxation from 30-28% and tax rate on income from 56-47% (Rapoza, 2015). Tax on savings has also decreased, meaning that disposable income among consumers is bound to increase.

These conditions are favorable for the company and TATA should therefore consider investing in Spain. Currently, Spain’s GDP per capita is $1.7 trillion. At more than 3% per year, Spain’s economic growth can be considered strong; having recovered from the property boom effects. The country is highly ranked 16th in terms of purchasing power parity globally. TATA could therefore benefit significantly through investing in Spain for its steel business due to market availability.

China

            China has been considered an attractive market to invest in, mostly based on its vibrant economic growth and the low cost of inputs and resources, including cheap labor. China has in the recent past attracted major investors who seek to capitalize on the favorable business conditions and government policy aimed at attracting foreign direct investment (Jalil and Feridun, 2011). The country also enjoys a stable political environment. It is notable that China is slowing down in terms of inward foreign direct investment and increasingly favoring alliances (Davies, 2013). This is therefore a great opportunity for TATA to leverage on.

In recent years, China has witnessed increased economic strength. Until 2015 when India overtook China as the fastest growing economy, China was taking the lead and this still presents the country as a lucrative marketplace to invest in. The country’s growth has averaged 10% over the last 30 years and its GDP per capita was $19.392 trillion in 2015 (IMF, 2016). The GDP growth in 2015 was recorded at 6.9%.

            Preferred international marketplace for TATA Steel

TATA Steel faces a major challenge as British Steel heads for closure. Based on the discussion of potential global marketplaces where TATA could seek further acquisitions in China is recommended as the preferred location to further internationalize its steel making business. This is based on its favorability in terms of investment environment, government policy and steady economic environment.  Johnson et al. (2014) notes that in order to make a decision on investment, the macro-environment within the country must be effectively studied to ensure that it will enhance business performance.

One of the first indicators of a conducive business environment is the economic environment, which should favor business growth and continuity. In this case, it can be established that the company is performing well and that potential for growth is high. Secondly, government accommodation towards foreign companies is also an important consideration for TATA to consider (Au, Ayyagari and Spencer, 2012). The survey on China indicates that the government policy supports foreign direct investment and TATA can therefore invest with confidence.

China’s government is on a mission to promote economic performance and reduce poverty; which has resulted in aggressive approaches aimed at increasing investment within the country. According to the Five-year Plan for 2016-2020, China aims at eliminating poverty and enhancing China’s development through creating a ‘new normal’, where China will no longer be viewed as a ‘cheap’ hub but an established economy (Hong, Cheung and Sit, 2015). One of the major ways this will be achieved is through promoting innovation investment, which TATA could leverage.

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Conclusion

            This report explores TATA Group and its environment, establishing that it is influenced by various factors in its internal and external environments. It can be established that the company is performing exceptionally and that its current approach of managerial independence has contributed to its growth.

Owing to the high level of diversification, the company’s risks are spread across many sectors and this creates financial security. The company like any other company faces stiff competition and factors in the environment affect its operations. An example is British Steel which has been affected by economic factors, threatening its closure. In order to further expand its operations to other international markets, TATA could choose between Spain and China.

These two countries present perfect opportunities for the company, although China is considered as having greater potential for growth. This is because of its high economic growth and the fact that its steel industry has grown significantly.

Recommendations

TATA faces significant threats as established in the SWOT analysis. To address these challenges, the company needs to capitalize on its major strengths and opportunities to recover from such threats. An example is utilizing its strong financial position to invest more in new technology and innovation to create a competitive edge.

            Continued diversification efforts by TATA need to be managed in order to ensure that they do not overwhelm the company. As noted in Masani (2015), too much diversification may hurt the company’s prospects and it is best that it engages in only what is achievable.

            The need to protect the company from legal issues is imperative. This means that TATA should seek to refrain from activities that expose the company to such, including environmental degradation. In this relation, it should get more vigilant in terms of environmental conservation.

In its quest to invest more in the international market, the company must ensure that a thorough background is conducted to ensure that the country will accommodate the company.

Secondly, TATA needs to determine the possible unforeseen risks that may emerge in the market and thus develop a risk mitigation plan that can be applied in such a case.

References

Au, L. A., Ayyagari, M., & Spencer, J. (2015). Strategic Responses to FDI in Emerging Markets: Are Core Members More Responsive Than Peripheral Members Of Business Groups? Academy Of Management Journal, 58(6), 1869-1894. doi:10.5465/amj.2012.0521 Retrieved from eds.b.ebscohost.com/ehost/detail/detail?vid=5&sid=a0b3dfef-e1fe-4e6f-a386-ec4d7de005a4%40sessionmgr106&hid=103&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#AN=111855985&db=bth

Beneke, J., et al. (2013). The influence of perceived product quality, relative price and risk on customer value and willingness to buy: a study of private label merchandise. Journal of Product & Brand Management, 22(3), pp.218-228.

Boone, L. E., & Kurtz, D. L. (2012). Contemporary Marketing. New York: Cengage Learning. Carnegie. (2015). Announcing the 2015 Carnegie Medal of Philanthropy Honorees. Retrieved from https://www.carnegie.org/news/articles/announcing-the-2015-carnegie-medal-of-philanthropy/

Grant, R. M. (2016). Contemporary Strategy Analysis: text and cases, 9th edn. Chichester: Wiley & Sons.

Hong, W., Cheung, D. & Sit, D. (2015). China’s 13th Five-Year Plan (2016-2020): Redefining China’s development paradigm under the New Normal. Retrieved from https://www.fbicgroup.com/sites/default/files/China’s%2013th%20Five-Year%20Plan%20(2016-2020)%20Redefining%20China’s%20development%20paradigm%20under%20the%20New%20Normal.pdf

International Monetary Fund, IMF. (2016). Report for Selected Countries and Subjects. Retrieved from www.imf.org/external/pubs/ft/weo/2013/01/weodata/weorept.aspx?sy=1980&ey=2018&sort=country&ds=.&br=1&pr1.x=40&pr1.y=0&c=924&s=NGDP_RPCH%2CPPPPC&grp=0&a=

Jalil, A., & Feridun, M. (2011). Long-run relationship between income inequality and financial development in China. Journal of the Asia Pacific Economy, 16 (2). pp. 202-214

Johnson et al. (2014). Exploring Strategy: text and cases, 10th edn. London: Pearson.

Lynch R (2012). Strategic Management, 6th Ed. London: Prentice Hall 

Manikandan, K. S., & Ramachandran, J. (2015). Beyond institutional voids: Business groups, incomplete markets, and organizational form. Strategic Management Journal, 36(4), 598-617. doi:10.1002/smj.2226 Retrieved from eds.b.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=88d6a802-f8b6-4c73-bae4-1116ab61ef00%40sessionmgr107&vid=1&hid=103

Masani, Z. (2015, February 6). Tata: India’s Global Giant. [Audio podcast]. Retrieved from www.bbc.co.uk/programmes/b0512j9b

Ramachandran, J., Manikandan, K. S., & Pant, A. (2013). Why Conglomerates Thrive (Outside the U.S.). Harvard Business Review, 91(12), 110-119. Retrieved from eds.b.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=5262165e-4c89-48a6-9114-63d931dbabb8%40sessionmgr104&vid=1&hid=103

Rapoza, K. (2015). The Best Countries for Your Investment. Retrieved from www.forbes.com/sites/kenrapoza/2015/03/06/the-best-countries-for-your-investment/#52070d661e12

TATA Website. http://tata.com/

Valick, A. & Benavides, T. J. (2011). Practical Human Resources for Public Managers: A Case Study Approach. Boca Raton, FL: CRC Press.

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Balanced Score Card Implementation & the Internal Business Process Perspective

Balanced Score Card
Balanced Score Card

Balanced Score Card Implementation & the Internal Business Process Perspective

Introduction

            The balanced score card is a very important management as it can improve the overall performance of the organization (Braam & Nijssen, 2011). The tool can only be highly effective in case the organization, as a whole, is willing to implement the management changes (MacKay, 2004). In several instances, the organizations have failed to realize the target changes mainly due to the lack of enthusiasm and corporation from the members. Nonetheless, there are few cases where the use of the BSC has been deemed highly fruitful.

For instance, BAE is one of the best company where the use of the BSC tool has been proved to be highly effective. Therefore, this paper will examine the degree of the BAE system’s effectiveness in implementing the BSC management tool. In particular, it will evaluate the efforts it made in trying to compel the employees to be receptive towards the introduced BSC initiative and how the move paid off.

The Use of the Balanced Score Card by BAE System

            According to Murby & Gould (2005), the BAE System was initially owned by the British government before, it was privatized in the year 1979. Therefore, the sudden change of hand in the management of the organization meant that there had to implementation and use of the Balanced Score Card tool. Nonetheless, the tool was implemented on a partial manner where the effective management skills were maintained (Murby & Gould, 2005).

There had to be the implementation of the cultural change where the five vital values. Any organizational aspect that could boost the company in realizing its values and goals in an easier manner was also encouraged. BAE endorsed a number of initiatives that would ensure there was higher reception of the management changes upon the implementation of the Balanced Score Card tool.

            First, the company ensured it retained all the positive values associated with the initial British Company. It carried out analysis of the earlier management procedures where all the major strengths were identified in order to be retained. For instance, it identified that the management team had a very good reputation in addition to making use of advanced technology (Murby & Gould, 2005).  

Murby & Gould (2005) also point out that the cash-flow was also positive while at the same time having an excellent outreach towards the export market. The company also enjoyed a pool of skilled employees. As a result, the company had to retain these positive value in as much it wanted to execute an overhaul in the management program.

MacKay (2004) avers that the identification and retention of the positive values and attributes associated with an organization is highly effective in trying to make the current employees in an organization feel appreciated. As a result, makes it easy for the employees to accept any major organizational changes to occur with minimal resistance as they also feel part and person of the organization.

            The BAE proceeded in identifying the weaknesses of the initial company. It incurred huge production cost especially during the initial design stage (Murby & Gould, 2005). Furthermore, it also lacked proper marketing strategies when it came to the exploitation of the new markets (Murby & Gould, 2005). BAE experience a lot of poor response from the customers due to the ever changing in their tastes and preferences.

The business prospective for the company was also nose-diving mainly due to the eroding of its initial shares from the target market. BAE experienced a lot of stiff competition from the American rivals and the other Europe companies. Braam & Nijssen (2011)assert thatthe identification of the areas of weaknesses, in any organization, is highly important. It, simply, acts as an important basis for the initiation of the recommended changes.

The employees also tend to be highly receptive towards the implementation of the effective managerial changes as they would like to see their organization prosper. In short, the identification of the weakness as the basis for implementing the significant managerial changes acts as an important basis for the full cooperation from the overall pool of employees.

            The management team also ensured the Balanced Score Card program was implemented in a procedural and not in an authoritative manner. At this juncture, BAE had to employ an important strategy where the businesses were arranged in an interlocking manner where each and every employee stood a chance of benefiting from the changes (Murby & Gould, 2005). Moreover, the company also dismantled the top-bottom or the authoritative managerial approach and enacted the more employee friendly, democratic managerial approach.

In fact, the move enabled each and every employee to feel valued, thus, helping in bringing the best side out of them (Braam, 2012). BAE wanted to use the Balanced Score Card tool to change the organizational culture as this was deemed the main hindrance towards the implementation of the proper working principles and the eventual realization of ever jading profit margin.

            BAE used a seven-step management platform in order to implement the recommended changes. There was reviewing of the company’s competitiveness, the inclusion and the top management team, and the creation of a new vision (Murby & Gould, 2005). The proper communication channels were created in order to realize the new vision of the company in addition to the creation of important short terms objectives.

The company also implemented or created a teamwork spirit as its main organizational culture (Murby & Gould, 2005). The last step entailed the determination of the successful implementation of the cultural changes. BAE wanted to assess whether the employees remained committed towards maintaining the recommended changes.

Conclusion

            Despite the use realization of an overhaul change in the management practices being a no easy thing, the BAE case can be regarded different. For instances, the dismantling of the authoritative organization system and making use of the division of the responsibility was a very important step. The change helped to boost the image of the company as its one of the most important contemporary issue where organization are required to be liberal.

References

Braam, G.J.M. (2012). Balanced Scorecard’s interpretative variability and organizational change. In C.-H. Quah & O.L. Dar (Eds.), Business Dynamics in the 21st Century (pp. 99-112). Retrieved from Trident University Library.

Braam, G.J.M., & Nijssen, E.J. (2011). Exploring antecedents of experimentation and implementation of the balanced scorecard. Journal of Management & Organization, 17(6), 714-728. Retrieved from Trident University Library.

MacKay, A. (2004). A practitioner’s guide to the balanced scorecard: A practitioners? Report based on: Shareholder and stakeholder approaches to strategic performance measurement using the balanced scorecard? Chartered Institute of Management Accountants. Retrieved from http://www.cimaglobal.com/Documents/Thought_leadership_docs/tech_resrep_a_practitioners_guide_to_the_balanced_scorecard_2005.pdf

Murby, L., & Gould, S. (2005). Effective performance management with the balanced scorecard: Technical report. Chartered Institute of Management Accountants. Retrieved from http://www.cimaglobal.com/Documents/ImportedDocuments/Tech_rept_Effective_Performance_Mgt_with_Balanced_Scd_July_2005.pdf

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Organizations and Management in the 21st Century

Organizations and Management
Organizations and Management

To what extent is our understanding of organizations and management over the last 100 years applicable to the 21st century?

The understanding of organizations and management over the last 100 years applies to the 21st Century. The organization is a group of people who have a structured management system that directs them to pursue a common objective (Scott, and Davis, 2015, p. 45).

Notably, within that period of 100 years, many people attempted to provide relevant knowledge that could improve efficiency in organizations and management process.

In conclusion, the knowledge acquired concerning organizations and management over the last 100 years has a great impact on the 21st century.  In the past, the team was not complex like today where the firm has many department and activities.

Organizations and management Case Anlysis

The management adapted new methods to comply with new changes in a firm. Therefore, that understanding of organizations and management has helped the teams in the current century (Bohari, Hin, and Fuad, 2017, p. 56). Managers to allocate enough resources depending on the nature of goals set. Also, the use of new technological methods can help the firm to perform and compete effectively in the market.

Total Quality management is a plan that makes the management to be focused on customers and improvement of processes. SWOT analysis should be completed to provide enough knowledge concerning internal and external factors of a firm. The understanding of organizations and management should be the base of bringing change in the firm. Management needs such understanding to develop effective strategies that may improve the performance of a team.

References

Bohari, A.M., Hin, C.W. and Fuad, N., 2017. The competitiveness of halal food industry in Malaysia: A SWOT-ICT analysis. Geografia-Malaysian Journal of Society and Space, 9(1).

Ozguner, Z. and Ozguner, M., 2014. A managerial point of view on the relationship between of Maslow’s hierarchy of needs and Herzberg’s dual factor theory. International Journal of Business and Social Science, 5(7).

Sallis, E., 2014. Total quality management in education. Routledge.

Sargeant, A. and Jay, E., 2014. Fundraising management: analysis, planning and practice. Routledge.

Scott, W.R. and Davis, G.F., 2015. Organizations and organizing: Rational, natural and open systems perspectives. Routledge.

Waring, S.P., 2016. Taylorism transformed: Scientific management theory since 1945. UNC Press Books.

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