Wednesday, July 4, 2007

How Does Culture Influence Your Company's Strategic Planning?

When it comes to strategic planning and implementation, culture can play a large role in many aspects of the planning process. In particular, mission/vision statements, time horizons, and marketing are key areas that can be greatly influenced by culture.

A company’s mission statement is supposed to reflect the overall goals of the company, and should clearly state what the company is trying to achieve. These large objectives can be heavily influenced by the culture in which the company is a part. For example, if an oil company is part of a culture that values environmentalism, its mission statement will likely reflect the oil company’s commitment to preserving, rather than destroying, the environment while at the same time providing its customers with the oil they need. However, if this oil company is situated within a culture that cares more about progress and price than the environment, the company’s mission statement may not mention the environment at all, but instead emphasize its commitment to providing customers with the cheapest oil possible.

During the process of goal setting, time horizons can vary greatly depending upon the overall culture’s perception of time. For example, one company may define a “short term” goal as 6 months, whereas another culture may say “short term” and mean five years. How a culture perceives time, and what the cultural expectations of “timeliness” are will undoubtedly have an influence on how business goals are made and implemented. Time perceptions vary so much that in Belgium, for example, it is acceptable to say that something will be ready in a “little hour,” but in the US this expression would not make sense. This expression illustrates that in Belgium an “hour” is a rather flexible notion, whereas in the US an “hour” is a very exact idea.

Marketing is perhaps the aspect of business that is most heavily influenced by culture since it deals directly with the public and is trying to appeal to their particular cultural sensibilities. There are countless examples of products doing well in one country and failing in another simply because the packaging colors symbolize different things in different cultures (Ball et al., 2006, 485). When ever a company decides to enter a market, even domestically, it is paramount that market research be conducted to assess the cultural mores of the targeted market.

Companies also need to realize that “culture” is not static, and it does not apply to everyone within a certain country or demographic. In order for one’s marketing efforts to be successful the sub-culture of a particular market must also be assessed if it is to those that the product or service is geared to. A very well known example of this would be marketing to the new “tween-agers,” those in pre-adolescence, who have their own sub-culture that is different from both the larger adult and teenage cultures.

It is impossible for culture not to impact domestic business operations since every country has its own culture and every company is situated within a country. Because we are so immersed in our own cultures as individuals, it is easy to forget that how we conduct business and make plans is just as culturally bound as how others conduct business in their own countries. Our domestic culture dictates how our domestic companies operate, so it would be absolutely impossible to separate out culture from business. The question should therefore ask “how does domestic culture impact domestic business operations” rather than “could culture impact domestic business operations.”

Source:

Ball, Donald A. et al. (2006). International Business: The Challenge of Global Competition. Mc-Graw-Hill Irwin. New York, New York. P. 382-399, 484-486.


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Friday, June 22, 2007

Should Human Right be Taken into Consideration When Granting Preferential Trading Rights?

When it comes to international trade, there are two types of trade agreements that can have a direct influence on human rights; preferential trade agreements and trade sanctions. Whereas trade sanctions stop or severely limit the amount of trade between two countries, preferential trade agreements grant certain trade privileges to a particular country, such as very low import taxes. Although the potential effects of trade sanctions on human rights in the sanctioned country are somewhat obvious, the effects of preferential trade agreements can have many of the same negative effects as sanctions, but in a more obscure manner.

Take, for example, a situation involving three countries; A, B, and C. Country A is a wealthy developed country that has decided to give Country B, a developing country with high human rights standards, preferential trade rights in the form of no import taxes. Country C, another developing country with many known human rights violations, may also trade with Country A, but must pay the usual amount of import taxes. Both Country B and Country C export sugar to Country A.

Under these conditions, which country will assume the dominant position in Country A's sugar market? Clearly it will be Country B, since the people of Country A will be able to purchase sugar from Country B at lower prices than from Country C. How will this effect the people of Country's B and C? Those in Country B (who already have higher human rights standards than Country C) will prosper due to their sugar trade with Country A, while the people of Country C (who are already suffering from human rights violations) will suffer even more since their sugar trade with Country A will decrease as a result of Country A's preferential trade agreement with Country B.

As this scenario illustrates, when a developed countries grant preferential trading rights to developing countries who have high human rights standards over those developing countries who do not, the result is that those already suffering from domestic human rights violations suffer even more. Even though the developed country may view the preferential trade agreement as a "reward" to those developing countries who maintain high human rights standards, they may be compounding the negative situation in those low-human-rights developing countries. Essentially, these preferential trading agreements may act as partial (or complete depending on the case) sanctions against competing countries who are not granted the same preferential rights.

The World Trade Organization's policies are not very clear on this matter. "What about trade preferences made conditional upon human rights protection?...General national programs offering lower tariffs for development purposes are allowed, and what’s more, the granting state may require the beneficiary to adhere to certain standards for eligibility. Just how much a WTO Member can decide for itself whether or not to grant preferences is somewhat open – clear discrimination among similar potential recipients would probably be seen as a violation of trade obligations – but it is clear that the use of conditions in the first place is permissible" (Schefer, 2007, 8-9).

Clearly the developed international community should encourage and try to protect human rights in developing countries around the world, and that supporting human rights violating countries via open trade seems to go against this goal. In reality, however, sanctioning trade with these countries, or granting preferential trading rights to their competitors, only hurts those they are trying to help.

Therefore human rights should be taken into consideration when deciding which countries should or should not be granted preferential trading rights, but perhaps the result of such considerations will not be as expected.

Source:

Schefer, Krista Nadakavukaren. (January 2007). Economic Sanctions and Human Rights/Preferential Trade and Human Rights. NCCR Trade Regulation - Swiss National Center of Competence in Research. Reference URL: http://www.nccr-trade.org/images/stories/publications/IP4/ip4%20benefri%20t&hr.pdf

(ps - I really thought this paper was great if anyone else is interested in this topic!)





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Saturday, June 16, 2007

What's the Best Way to Enter a Foreign Market?

Scenario: Your US company has come up with a way to produce a computer that is just as good as your competitors but can be manufactured at half the cost. Now you would like to sell these computers in the EU. What should you do?

Option A: Export computers to the EU from the US.

This mode of entry falls under the category of international trade.

Pro: The greatest benefit of exporting is that it does not require a lot of additional investments and it is the least risky of all given options. Because the manufacturing stays within the US, it is not necessary for the company to have foreign employees or to directly invest in any foreign country. The company must decide whether it will choose to export directly, via a separate foreign sales company or a foreign sales division within the existing company, or to export indirectly via manufacturing export agents, export commission agents, export merchants, or international firms. Indirect exporting requires less investment than does direct exporting, and is often the initial mode of exportation (Ball et al., 2006, 431). Exporting also allows for a relatively inexpensive trial run to see how well the computers sell in the EU.

Con: The main drawbacks of exportation are that it requires a lot of paperwork, knowledge of trading laws and restrictions, and the payment of taxes and fees associated with goods leaving and entering various countries. However there are many well known shipping companies that are able to handle these requirements for the company for a fee.

Option B: License a EU firm to manufacture and market the computers in the EU.

This mode of entry falls under the category of transfers.

Pro: Like exporting, licensing requires very little investment capital. The company can grant an already existing firm in the EU the rights to manufacture, market, and sell the computers in exchange for an initial licensing fee and between 2-5% royalties for every computer sold in the EU for the duration of the contract (Ball et al., 2006, 433). This method is inexpensive, profitable, and does not require the company to exert a lot of effort or spend a lot of time on the project once a suitable EU firm has been found and is under contract.

Con: The main drawback to licensing these rights to another firm has to do with the intellectual and financial risks involved, both during the duration of the contract as well as after its expiration. Under this agreement the company will have to divulge its computer manufacturing techniques to the EU firm and must trust that the EU firm will pay the correct amount in royalties to the company. There is always the possibility that the EU firm will not uphold the terms of the contract, making it necessary for the company to sue the EU firm for any unpaid royalties and patent/copyright infringements. This process can be expensive and time consuming. After the contract has expired there is also the possibility that the EU firm will continue to use the knowledge gained from the company to produce competitive computers, and could possibly take over any market share that the company may have gained during the duration of the contract. Furthermore the EU firm may begin to export the competitive computers to the US, where it will have the opportunity to gain market share from the company in its own domestic market (Ball et al., 2006, 433). Lastly, by licensing these rights to an EU firm the company is giving up its control over almost all aspects of the computers, from manufacturing to marketing to distribution. Disputes over any of these processes may arise and the company will have little sway in determining how any of these aspects are handled in the EU.

Option C: Set up a wholly owned subsidiary in the EU.

This mode of entry falls under the category of foreign direct investment.

Pro: The advantages to setting up a wholly owned subsidiary are great in terms of keeping control over the entire production and distribution process. Because the company would own the subsidiary completely, it would be able to oversee all aspects of the business and be able to run the company much like it runs the one in the US. The only necessary changes would be those needed to uphold the laws of the host country. There are also three different ways to set up a wholly owned subsidiary, each of which has its own benefits and drawbacks. For the scope of this post, however, I will simply list the various options; build a new plant from scratch, buy a plant that already exists, or purchase a distributor that already has an established distribution system and market (Ball et al., 2006, 434).

Con: The main disadvantages to this method are that it is very costly regardless of which option is chosen, it is time intensive, and it requires a large investment in human capital abroad such as employees. It is also very risky since a foreign market must be established, without the benefit of a ‘trial run‘ that is possible via the method of simple exportation.

Suggested Course of Action:

Because I do not have any information about the computer company in question, such as its financial status, marketing history, etc., I do not believe it is possible to make an educated suggestion on which option the company should choose to sell computers in the EU. Therefore my decision would be to choose the method that is the least expensive, least risky, and least time consuming - simple exportation to the EU from the US. This way the company would be able to quickly stop selling its computers in the EU if they were not selling well, increase the amount of computers exported if sales are high, and have the ability to move further into the foreign market later on if conditions prove favorable in the EU.

Sources:

Bell, Donald A. et al. (2006). International Business: The Challenge of Global Competition. Mc-Graw-Hill Irwin. New York, New York. P. 431-34.

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Wednesday, June 13, 2007

Microloans - A Win-Win for Everyone

Microlending is the process of giving very small loans ranging from $50 to a few hundred dollars to entrepreneurs in developing countries. These relatively small loans, known as microloans, are used to promote grass-roots economic development, and have so far proven to be a very effective means of boosting the standard of living for participating borrowers, as well as the overall economies of participating countries. Although at first the idea of lending money to the poorest people in the world does not seem to make financial sense, in fact, it does.

Microloans are made typically at the prevailing commercial loan rate, and have a repayment rate between 90 to 100%, depending on the particular country (Bell et al., 346-7, 2006). Not only is this good news for entrepreneurs seeking such loans, but for lending institutions as well. With such an attractively high repayment rate, many lending institutions have come to consider microlending as very profitable venture. So far this seems to be one of those rare win-win situations for everyone.

But why do microloans have such high repayment rates, often times higher than repayment rates found in developed countries? Essentially the answer boils down to human psychology, pride, and the importance of feeling productive. In developed countries, repaying a loan is often regarded as a necessary evil, or as part of a larger financial plan. For borrowers in developing countries, however, being given the opportunity to receive a loan is in itself a matter of pride (someone has enough faith and trust in you to lend you money) so repaying the loan is of utmost importance to the borrower’s sense of self-worth.

One well known organization that uses microloans as a way to help women rebuild after war is Women for Women International. In countries like Afghanistan and Bosnia, Women for Women International organizes women into “entrepreneurial groups” that are responsible for repaying microloans after being giving the necessary entrepreneurial education and skills. In this way group members hold each other accountable for repayment and as well as provide support to each other during the process of establishing their small businesses (WomenForWomen.org). This is just one example of what used to be a traditional charity that has now embraced the idea of grass-roots economics by providing such loans.

Another important point that should be noted is many of these microloans are going to women around the world, rather than to men. According to the Microcredit Summit Campaign women are better candidates for microloans in developing countries for a variety of reasons including; being a good credit risk, investing more in their children and families which leads to the better care, education, and social development of the next generation, and raising women’s social status by allowing them to generate household income (MicrocreditSummit.org). By granting loans to women, cultural and societal development is encouraged along with economic development.

Although microlending is not a new concept, in recent years it has grown in popularity due to the ever increasing data that supports its effectiveness. Microlending helps developing nations by giving impoverished people the chance to start businesses, increase their sense of self-worth, boost their economies, and provide secure returns to investors. The idea of “charity,” or simply handing out goods and money, is not as beneficial to developing economies or to individuals as are microloans. For everyone involved, microlending is a beneficial practice that is both economically sound and socially ethical.

Sources:

Bell, Donald A. et al. (2006). International Business: The Challenge of Global Competition. Mc-Graw-Hill Irwin. New York, New York. P. 346-7.

Microcredit Summit Campaign. “About the Microcredit Summit Campaign - Why Target Women?” Reference URL: http://www.microcreditsummit.org/aboutmicrocreditsummit.htm

Women for Women International. “Microcredit Lending Programs.” Reference URL: http://www.womenforwomen.org/mlp.htm

If you would like to get involved, please visit Speak Sexy Online to find out how you can help Women for Women International with just one click!






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Thursday, June 7, 2007

How Investing Overseas Can Help Your Domestic Market

Investing overseas can help a firm protect its domestic market in three different ways. The first is to establish foreign operations in countries where the firm has major clients (Ball et al., 61, 2006). For example, if a U.S. firm has many customers in France, establishing subsidiaries in France to service those customers will prevent competition by similar firms in France from acquiring those customers. This strengthens the U.S. firm because they now have the opportunity to prove that they can service customers in France as well. This strategy is not very risky because the domestic firm already has customers in the foreign country. Rather than attacking the foreign market, the domestic firm is just defending itself from foreign competitors.

The second way a firm can protect its domestic market by investing overseas is to attack the foreign market in the hopes that the foreign firm will be so focused on defending its local market that it will lessen its efforts to gain customers in the domestic firm's market (Dell et al., 61, 2006). For example, if Domestic Firm A sells a similar product or service as Foreign Firm B, DFA can begin operations in FFB's country in the hopes of taking away some of FFB's customers, and causing FFB to focus on keeping its own share of its domestic market. While FFB is being attacked in its own country, DFA can work on gaining more of its own domestic market away from FFB. This technique is really one of deceptive distraction and is much riskier than the previous example because in this scenario the domestic firm must spend some resources "distracting" the foreign firm, and some resources on gaining a larger portion of its domestic market. Both of these tactics must be done at once if the plan is to succeed.

The final reason that investing overseas can strengthen a firm's domestic market has to do with costs of production. If a foreign firm can produce the same product at a lower cost than a domestic firm, and sell that product at a lower price (by exporting it) in the domestic country, then the domestic firm is at a disadvantage. One way to become more competitive is to outsource part or all of a firm's production to the "cheaper" foreign country and continue to resell the product in the domestic firm's country (Ball et al., 61, 2006). Outsourcing allows the domestic firm to utilize the lower production costs in the foreign country while remaining competitive in its domestic market. This strategy is also not very risky because it is lowering the firm's costs while defending its domestic market against foreign competition. Rather than spending more of its resources, the aim of this technique is to reduce costs and gain resources.

Although considered controversial, outsourcing continues to be a necessary part of staying competitive in today's globalized world. Two leading countries in the market for less expensive, quality labor are China and India. However, less expensive labor is not the only characteristic firms are looking for when deciding where to outsource services or production. "Deep technical and language skills, mature vendors and supportive government policies" (BusinessWeek Online, March 20, 2007) are also key factors, all of which can be found in India. For countries like the United States, where wages are high, utilizing the people and skills found in other countries and expanding to become an international firm is quickly becoming a requirement rather than a choice.

Sources:

Bell, Donald A. et al. (2006). International Business: The Challenge of Global Competition. Mc-Graw-Hill Irwin. New York, New York. P. 61.

China, India Seen Dominating Outsourcing. (March 20, 2007). BusinessWeek Online. Reference URL: http://www.businessweek.com/globalbiz/content/mar2007/
gb20070320_778394.htm?chan=search


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Tuesday, June 5, 2007

The Rebirth of Community Spirit

"Personal computing is more and more 'interpersonal' - people use computers to relate to others online" (Crainer quoting Tapscott, 273, 2006).

Written almost ten years ago, Tapscott's prediction that the internet would become a community springboard rather than an isolating phenomena has come true. Commonly referred to as "Web 2.0," this new movement of up and coming websites is all about interaction, communication, and mass customization. Instead of viewing the web as a conglomerate of static pages designed by a group of highly skilled programmers, Web 2.0 sites encourage browsers to make spaces that are all their own (customized templates, backgrounds, music, etc.) while at the same time integrating features that instantly connect like-minded others.

Blogging is just one example of this community trend. Not only are people able to share their thoughts, experiences, and opinions with the world at large, but many bloggers find that the "at large" part isn't as big as many assume. In fact, the ability to instantly post comments on blog posts with links that go back to one's own blog or email address creates a link-web that is often very particular to a certain group of people. The same bloggers find themselves running into each other all over the web, particularly via "web communities" such as MyBlogLog and Technorati. It's very common to find the same group of people chatting together in many different web "places." Rather than being isolating, the web has become *the number one* means of finding people who are similar to you, especially among those who have grown up with it.

One criticism of "cyber-friends" is that they never meet in "real life" so can not really be considered "real friends" or their online interactions as truly "social" events. However, the more the web becomes a place for everyone, the less people are inclined to think those they meet over the web are "weirdos" or "freaks" as was once the stereotype, and the more real life meetings occur. One website in particular, Last.fm, is leading the way for music buffs with similar tastes to meet at concerts. People from all over the world can log in, import local concert times, dates, and venues, and click to list that they will be attending. Other people can then join the list of people attending, and plan to physically meet at the concert. More and more sites are enabling "cyber" friends to become decidedly "real."

What does this mean for the world of business? It means people are no longer afraid to trust those they meet, or do business with, online. Rather than isolating individuals and securing them to their cubicles, the internet has the ability to bring together intellectual resources from around the world. It means that everyone is finally realizing that those little smiley faces and typed words are coming from a very real human being on the other end of the connection. A human being that is physical, is potential, and is giving us the capability to do business anywhere and with anyone. Tapscott was right when he said that community spirit is being renewed, but our community is now the entire world.

Sources:

Crainer, Stuart. Active Learning. (2006).The Ultimate Business Library: The Greatest Books That Made Management (The Ultimate Series). Capstone Publishing Limited.

Tapscott, Don. Growing Up Digital: The Rise of the Net Generation


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Thursday, May 24, 2007

Blatant Lying or Smart Advertising? The MetLife Case.

Although the words "deceptive" and "advertising" are considered by many to be synonyms, there are certain industry standards that should be upheld for the good of the public. While mild exaggerations such as "the best" or "the brightest" are widely accepted, blatant lying is usually frowned upon. For example, it seems obvious that one should not advertise toothpaste as a cure for the common cold, nor life insurance as a retirement savings policy. However, the latter is exactly what MetLife did in the early 1990s to the dismay of many befuddled nurses.

But just how bad was telling nurses that a whole life insurance policy was actually a retirement savings plan? After all, whole life policies do have an investment aspect to them. In addition to the basic death benefit of all life insurance policies there is also a "cash value" with whole life policies. This cash value is made up of one's premium payments minus "administrative fees and a profit margin plus the cost of death protection" (Orman, 70, 2004). What's left after all these deductions and fees are taken out goes into a tax-deferred savings account.

That's right, a savings account...that could also be referred to as "retirement savings." By focusing on this aspect of the policy, all MetLife did was shift the focus from the insurance aspect of the policy to the savings aspect of the policy. So, was this really lying, or did MetLife just do what most advertisers do and cater their sales presentations to the expected needs or a particular group? Sure they may have used words like "contributions" instead of "premiums," but this is just a matter of semantics. After all, no one was being physically harmed or endangered by purchasing this product, and they were getting additional insurance coverage, something most people need anyway, even if they don't realize it. So, again, should this have been considered "lying"?

Apparently the courts thought so, and MetLife was ordered to pay out upwards of $2 billion dollars in damages (Hartley, 2005). Still I'm not convinced that what MetLife did was entirely wrong. Yes, it was first and foremost an insurance policy that they were selling, but it was also a savings account that could potentially be used for retirement. One could argue that advertisers and sales representatives need to disclose the entirety of a product to potential buyers rather than just one or two aspects, but in reality, what advertisers do that?

Sources:

Hartley, Robert F. 2005. Management Mistakes and Successes. Eighth edition. Hoboken, NY. John Wiley & Sons Inc.

Orman, Suze. 2004. Ask Suze...About Insurance. Riverhead Books. New York.


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Tuesday, May 22, 2007

The Growing Obsession with Customization

The very foundation of value chain management is giving customers exactly what they want when they want it. With this end in mind, keeping up with the perpetually fluctuating whims and expectations of consumers can pose quite a challenge to the production side of both large and small companies. One of the most difficult trends to keep pace with is consumer's increasing expectation of product customization. "Most engineers are seeing requests for customized products increase year after year. And it's clear that increase is having an adverse impact on time available for product design changes, new product development, and innovation" (Market Wire, May 21, 2007).

From colors to functions to software, more and more people are approaching products with the expectation of being able to make it suit their particular needs. Rather than being pleasantly surprised with products that do offer customizable features, consumers are angrily surprised when confronted with products that don't.

Many companies, however, are jumping at the opportunity to fill niches that personalize everything including cookie tins with corporate logos, made-to-order bras, and high-end wrapping paper with specific names or slogans emblazoned on water-resistant paper (BusinessWeek Online, Spring 2007)! If a company does find a way to make their products quickly, efficiently, and fully customized they will undoubtedly reap the rewards in today's highly, and perhaps overly, personalized climate.

An example of true production innovation combined with complete customization is the Build-A-Bear company that has gained much popularity in the last five years. Instead of having customers instruct the company on exactly what kind of stuffed animal to make via an online form or the like, the Build-A-Bear company has made making the customized bear itself an integral part of the shopping experience. In malls all across the United States, Build-A-Bear stores entice shoppers in to physically make the stuffed animal of their choice. Customers proceed along a pre-arranged "assembly-line" that starts with the selection of a plain stuffed animal and ends at the check-out counter with a fully personalized product, including clothes, shoes, accessories, and a name. Customers not only end up with exactly what they want, but the activity of putting the product together is an enjoyable and memorable experience. Of course this particular production model can only work with a very specific product type (obviously it would not work with anything that requires technical skills), but the Build-A-Bear company does illustrate the advantage of "thinking outside the box" and can be used as an inspiration when necessary.

Sources:

Breaking the Mold. Spring, 2007. Business Week Online. Reference URL: http://www.businessweek.com/magazine/content/07_17/b4031445.htm?chan=
innovation_innovation+%2B+design_innovation+strategy

Current State of Build-to-Order Practices Hinder Product Development and Innovation. May 21, 2007. Market Wire Online. Reference URL: http://www.marketwire.com/mw/release_html_b1?release_id=255119

Build-A-Bear Official Website: http://www.buildabear.com/


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Friday, May 18, 2007

Positive Manipulation & The Seven Habits of Highly Effective People

Stephen Covey - The Seven Habits of Highly Effective People, 1989

When it comes to the genre of self-improvement and self-help books, Stephen Covey's classic The Seven Habits of Highly Effective People is unquestionably one of the most influential. Although Crainer's review of the book, as well as the self-improvement genre in general, is decidedly negative and cynical, many people have found a lot of merit in what Covey, and others like him, have to say.

Admittedly, The Seven Habits offers advice that is double-edged; instructing people on how to act as though they genuinely care about others but only to the extent that it will make them money (Crainer, 2006). At first glance this type of advice may seem distasteful, as it appears to promote dishonesty. However, this book is not about how to be virtuous, but about how to be successful, and part of being successful is knowing how to use those around you to achieve the best results.

This idea manifests in many forms, such as how to best motivate employees or how to tell someone bad news without making it seem so bad. All of these techniques are examples of subtle manipulation. But manipulation is not a negative thing if that manipulation is being used to better the situation *for everyone.* Of course any manipulation that is solely for self-gain and at the expense of those being manipulated should be avoided, if for no other reason than this type of manipulation tends to have negative consequences for the manipulator in the long run.

Another point Crainer dislikes about Covey is the fact that “Covey suppresses his own negative feelings while at the same time preaching honest communication…The aim is to achieve the desired outcomes with minimal resistance” (Crainer, 2006). Just because someone chooses not to express his/her feelings does not mean he/she is lying. If one’s goal is to find a quick and effective solution to a problem, and introducing personal feelings into the conversation will only serve to unnecessarily complicate the situation, then not communicating those feelings is helping the communication process, not distorting it. Open communication does not have to include personal feelings for it to be open. Instead it can include ideas, perspectives, argumentative points, etc. Feelings are only useful to an open line of communication if those feelings are central to the discussion.

Although Crainer’s portrayal of The Seven Habits is undoubtedly biased and unfavorable, this classic has become an icon of the self-improvement genre for a reason, and has resonated with millions of people who believe that success is realistically attainable by following some very simple, and usually obvious, social rules.

Sources:

Crainer, Stuart. Active Learning. (2006).The Ultimate Business Library. Capstone Publishing Limited.


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Thursday, May 17, 2007

The Farmer in the Dell, The Farmer in the Dell, All Praise the Farmer in the Dell!

The amazing success of Dell computers seems contrary to many of today's business trends. In a field where innovation is key, and being "the first" to introduce new technology into a market appears to be crucial for success, Dell managed to reign supreme by doing exactly the opposite. Instead of spending large amounts of money toward product development, Dell allocated only 10% of its revenues for research and development, while competitors such as Gateway, Compaq, HP, and Cisco budgeted between 20-45% of their revenues for research and development (Hartley, 2005). Dell patiently waited for its competitors to spend their money and time in product development, and would scoop up the "new" technology only after it entered a market. Not only was Dell able to save on R&D, but it could offer the "new" technology at lower prices. Apparently many consumers were more than willing to wait for the less expensive Dell versions to become available rather than buying the newest innovations right away.

The second important way that Dell saved money was in the production process. Dell was vigilant in continually streamlining the production process, making sure production details were communicated, and using machines and computers whenever possible, thereby reducing costs associated with employees (Hartley, 2005).

These cost saving measures on the production side, as well as being the first computer company to offer direct sales to consumers, saving greatly in the process, has kept Dell a leader in the computer sales market.

Today, Dell is still striving to provide consumers with the least expensive computers possible. Dell's latest move has been to announce that they will be offering Linux, the free open-source operating system, rather than Microsoft's Windows, as an option during the customization process (Zachary, 5/16/2007). Dell is also leading the way in the rapidly developing country of India, where it is already one of the fastest growing companies. In fact, Dell's plan is to target the Educational, Governmental, and Public Sectors (ITVar News, 5/17/2007). Dell is once again positioning itself to outdo its competition, especially now that Michael Dell has returned to the helm.

Sources:

Hartley, Robert F. 2005. Management Mistakes and Successes. Eighth edition.
Hoboken, NY. John Wiley & Sons Inc.

Dell Aims for Government Business. May 17, 2007. IT Varns News Online. Reference URL: http://www.itvarnews.net/news/journal_comments.asp?JournalID=4746&
PagePosition=1&sTitle=Dell%20aims%20for%20government%20business

Zachary, Daniel. May 16, 2007. Dell Backs Open Source Operating System.
City on a Hill Press Online. Reference URL: http://www.cityonahillpress.com/article.php?id=650


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Tuesday, May 15, 2007

Are Corporate Blogs Becoming Necessary?

One of the most exciting trends in the world of internet communication is the growing use and influence of blogs. Short for "web logs," these online journals are not only growing in numbers, but also in influence. Unlike the older "gripe sites" which were relatively isolated websites that allowed people to comment or complain about a company's management, procedures, or work environment (Robbins, 2005), blogs are very interconnected, particularly due to their integration with social networking sites such as Technorati and MyBlogLog. Once someone publishes a blog entry it has the potential to reach thousands of people within minutes. "Some bloggers have "viewership" in the millions, rivaling some television program audiences" (Voigt, 2006). This can either be very good or very bad from a business perspective.

Rather than trying to silence this type of public scrutiny, many companies have decided to create their own blogs. By doing this they can stay on top of what is being said about them in the ever-growing "blogosphere" and can quickly correct any misinformation or false accusations that appear on the web. Just as "grips sites" were and are useful for a company to gauge the overall mood and discontents of its employees, blogs are a perfect way to widen the scope of feedback from employees to the general public.

Other uses for blogs are public relations, a medium for dispensing new company information or products, and as a way to make the company seem "user-friendly" or accessible. This latter point is becoming increasingly important for maintaining a good reputation, as many young people expect immediate corporate responses to their complaints. "As a public relations tool, a quick, honest blog response from the company CEO "is better than the polish of a press release," Ito (head of Technorati) said. "Speed and tone of response is critical ... even if it's just, `I'm sorry, we don't know what's going on, we're looking into it'" (Voigt, 2006).

Perhaps blogs are the future of corporate public relations, and companies would be better off asking themselves *when* they will launch their own blog, rather than *if* they will launch a blog.

Sources:

Robbins, Stephen P. and Mary Coulter. 2005. Management.
Eighth edition. Upper Saddle River, NY. Pearson Education Inc.

Voigt, Kevin. (December 20, 2006). Companies Ponder the Blog Option.
CNN Online. Reference URL: http://www.cnn.com/2006/BUSINESS/
11/07/digitalbiz.blogging/index.html

Other:

Technorati URL: http://www.technorati.com

MyBlogLog URL: http://www.mybloglog.com


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Monday, May 14, 2007

Making the Psychology of Sunk Costs Work for You

When making a decision, one of the worst errors is that of sunk costs; continually investing time, energy, and money into a project or course of action that is not meeting its performance expectations or goals (Robbins, 2005). Sunk cost errors are rooted in the human psychological need to persevere and succeed regardless of insurmountable obstacles. This need is emotionally compounded as more and more resources are invested into attaining an outcome that is logically implausible.

From a purely economic perspective, sunk costs refer to costs that have "already been committed and cannot be recovered" (Mankiw, 2007, 297). These costs should be ignored when making future decisions because there is no course of action that would be able to recover these resources, especially the time that has already been lost. Although this concept is easy to understand, people do not always make decisions rationally. Instead many allow feelings of regret to cloud their better judgment, and continue on a failing path instead of admitting defeat, letting go, and avoiding future losses.

For astute managers, and people in general, however, understanding the psychology behind sunk costs can be very beneficial. A shrewd negotiator, for example, can deliberately cause someone to feel as though they have already invested a great deal into a project so that they will be more willing to settle on less-than-desirable terms. In fact, this negotiation technique is used by real estate moguls, such as Donald Trump. Better known as the “Invested Time Principle,” this technique states that one of the best ways to get a seller to lower their price is by asking a lot of questions, having many meetings, and waiting to make an offer. The goal is to make the seller spend as much time as reasonably possible trying to sell the property to you. This works because “the more time a person has invested in a transaction, the less likelihood he or she is going to give it up…People hate the idea of having wasted time on something that doesn’t work out, after they have spent enough time on something, they’ll do anything they can to salvage the transaction” (Ross, 2005, 66). In other words, the best resource to make an opponent waste is their time, because they will almost always make the sunk costs error and agree to a course of action that they should logically not agree to.

Sources:

Mankiw, N. Gregory. (2007) Principles of Economics. Forth edition. Thomson South-Western.

Robbins, Stephen P. and Mary Coulter. (2005) Management. Eighth edition. Upper Saddle River, NY. Pearson Education Inc.

Ross, George H. (2005) Trump Strategies for Real Estate; Billionaire Lessons for the Small Investor. John Wiley & Sons, Inc.


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Saturday, May 12, 2007

In Defense of Gen Y

"The Gen Y'ers I know are all about 'me', from what I have seen, they are selfish and very self-centered, and they will do anything to get ahead of everyone else, no matter who they hurt or step on on the way there. They use enviromentalism as a way to make themselves feel better, and feel that they are actually doing something to positively contribute to society, and to make up for past transgressions. Yes there are some out there that truly believe in these special causes, but they are few and far between in this new generation. You ended it with a statement that Gen Y has 'high ethical standards', I have to say that I disagree with you on that statement, the Gen Y'ers that I know are far from ethical..." (Kristofer, Commenting on the Gen Y Shift)

First, when I speak of the "Gen Y Workforce" I am indeed referring to those in the corporate business world who are college educated and primarily middle to upper class in the United States.

Now, I completely agree with you when you call this generation selfish and self-centered. No doubt we have grown up in a world where everything is adaptable and catered to us. When we use a computer, we customize it to our needs. When we use the internet, we customize everything about our experience of it. We expect everything we touch to come with switchable features, different colors, sounds, and extensions.

When it comes to the way we work, we translate these tangible customizations into the expectation of intangible flexibilities, such as flexible working hours and environments.

"Generation Y is much more proactive in assuming they can have flexibility," said Betty Purkey, manager of work-life strategies at Texas Instruments, where 60 to 70 percent of its U.S. tech workers and managers telecommute using PDAs, laptop computers and remote access to the company's network. Companies increasingly see flexibility as a necessity if they hope to fill vacancies as baby boomers begin to retire en masse" (Sidime, May 9, 2007).

These kinds of expectations are selfish, as Gen Y assumes that they we be able to make our own hours and work from wherever we choose - even if it's in the middle of a relaxed cafe half way around the world.

We are not, however, cut throat or immoral in our approach to those we work with. In fact honesty and trust is the very essence of our culture. "...generation Y like to trust people, so if managers can build that trust they will benefit from young people than experience a lack of benefit" (Gedda, May 12, 2007). Because we don't believe in hierarchical leadership, open communication is vital for our respect. If a company, and those in management positions, don't satisfy our "need to know every detail" philosophy, then we will leave and look to organizations that will. Of course, from a management perspective needing to keep up this intense level of communication is new, and can seem incredibly time and energy consuming. So it is understandable why older managers who are used to the "just do as I say because I am your boss" work environment will think this new group of employees are very arrogant in their way of thinking. But this is a misconception. We are not arrogant, but need this transparency to foster feelings of trust and collaboration. Without this, we have no motivation to work for this particular person or company. We will just quit and move on.

When it comes to philanthropy and generosity, of course we devote ourselves to causes that make us feel good about ourselves. But everyone throughout time has run on such internal reward systems! Instead of looking at our volunteerism and contributions from an individual perspective, we have to look instead at what we are actually doing, what kinds of impacts are we actually having on society. Not only are we using our own free time to give back to our communities, but we expect the companies we work for to give back as well.

"A survey conducted by Deloitte & Touche USA LLP shows that Generation Y workers want the companies they work for to offer volunteer programs. The survey, which polled workers 18-26 years old, shows that 97 percent of respondents believe companies should offer employees opportunities to contribute their work-related talents. However, only 39 percent of respondents said their companies provide such opportunities. When asked why volunteering was important, those polled said because they wanted to have a meaningful impact on their communities" (insideindianabusinessreport.com).

97 percent is a very high number! We feel that companies have a moral obligation to be positive influences on their communities, and the more we enter the business world, the more we are demanding businesses "step up" and do more with their money and positions. We are actively seeking out employment at such companies. I think this says a lot about our high ethical standards and expectations.

Like every generation, there are many individuals who do not uphold or display the dominant traits of the larger group. Overall I strongly believe that Generation Y is selfish in our expectations regarding day-to-day activities. We want our working environment to be completely catered to our individual tastes and needs. On the other hand, we are very just in our treatment of others, demand honesty among co-workers, and feel that giving back to our communities is a responsibility rather than an option.



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Friday, May 11, 2007

Maslow's Hierarchy of Needs and the Gen Y Shift

Maslow - Motivation and Personality, 1954

According to psychologist Abraham Maslow, all people have a hierarchy of needs that begins at the bottom with physiological needs, such as food and shelter, and moves upward through safety, love, and esteem needs toward the pinnacle of self-actualization. When this hierarchy is used practically by managers it allows them to make note of exactly where their employees fall and what needs are most important to them at that time. By identifying these needs, managers have a better understanding of what will motivate a particular group of workers. For example, in a country where food is scarce employees would very likely fall on the very bottom of the Maslow's hierarchy, and would be wholly concerned with their physiological needs. Offering these employees a course on respecting one's self and others would not contribute to their overall well-being or job satisfaction because such a course would only appeal to those in a higher needs category, such as esteem.

However, identifying which need category employees are in at any given time is not always as simple as in the above example. In the United States, for instance, Generation Y is just beginning to enter the work force, and many well established companies are finding it very difficult to retain new recruits. Some of this may be due to the fact that Generation Y is in a different needs category than were previous generations. Things that used to motivate new employees, such as high pay, good benefits, and high status positions don't seem to be enough anymore.

The answer to why could be seen as a generational shift from the Esteem category to the Self-Actualization category. In the esteem category, people "have a need or desire for a stable, firmly based, (usually) high evaluation of themselves, for self-respect, or self-esteem, and for the esteem of others. By firmly based self-esteem, we mean that which is soundly based upon real capacity, achievement and respect from others." (Maslow 1943) Today, many companies try to recruit and keep employees by appealing to these needs. After all, high pay and high positions are all valuable to someone who needs to feel like they are an important contributing factor to a company's success. And while these needs may have been the driving force for previous generations, it is not for Generation Y.

One reason is because Generation Y has grown up in an environment that stressed the importance of self-esteem, self-respect, and respect for others from the very beginning of their educations. (Business Week 2005) Movements such as feminism and anti-discrimination laws have all helped to shape the idea that they are valuable and worthy. Unlike in the past, Generation Y does not need that kind of validation from their employers.

Instead, Generation Y is approaching employment with the goals and needs espoused in the Self-Actualization category, which "refers to the desire for self-fulfillment, namely, to the tendency for him to become actualized in what he is potentially. This tendency might be phrased as the desire to become more and more what one is, to become everything that one is capable of becoming." (Maslow 1943) In fact, this definition is precisely what many Generation Y employees say they are looking for from their professions. Many are consciously leaving or turning down high-paying, prestigious jobs in order to follow their individual dreams. (Business Week 2005) By seeking out opportunities for self growth, even as unpaid volunteers, Generation Y is posing a challenge to the way many in corporate America reward and motivate employees.

Rather than quickly labeling Generation Y as selfish or fickle, companies should instead focus on ways to challenge new recruits on more personal levels by offering opportunities for self-directed work, entrepreneurship, or by working toward larger goals such as environmentalism. Companies that realize and exploit this shift in needs will surely benefit from Generation Y's creativity, high ethical standards, and innovations.

Sources:

Crainer, Stuart. March 2006. The Ultimate Business Library. Capstone Publishing Limited.

Maslow, A. H. A Theory of Human Motivation. Jul 1943. Psychological Review, Vol 50(4), pp. 370-396.
Reference URL: http://ebsco.waldenu.edu/ehost/detail?vid=10&hid=113&sid=
767b414a-568f-4622-a74f-ea5544ae2784%40sessionmgr102

Welcome to the Gen Y Workplace. May 4, 2005. Business Week Online. Reference URL: http://www.businessweek.com/bwdaily/dnflash/may2005/nf2005054_4640_db_083.htm
?chan=search


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Thursday, May 10, 2007

Action Learning Poised for Takeoff

Action Learning, 1979, Reg Revans

For anyone who has ever sat through a three hour lecture, bored beyond comprehension, and thought to themselves 'there must be a better way,' Reg Revans' learning theory is for you. Revans believed in learning through active collaboration and "doing" things in small groups rather than by passively listening to the "wisdom" of an expert. Instead of lectures and books, Revans expounded upon the insights that could be gained via questioning and critical thinking. His theory eliminated the traditional hierarchies of education (teacher/student, expert/non-expert) and instead focussed on the unique ideas, insights, and innovations that could be garnered from each individual. In this way, no one was held above the rest as an "authority" on a subject. As expected, traditional learning institutions in Revans' home country of Britain did not appreciate his radically different ideas, and for the most part, rejected them during the 1970s.

However, in today's social and business climate of egalitarianism, team-orientation, and instant communication across hierarchical boundaries, Revans' active learning theory could be poised for serious reconsideration, particularly among generation Y-ers. His fundamental idea that one should share failures and weaknesses, as well as strengths and knowledge is very inspiring to a generation that already views "complete privacy" as a rather antiquated value. Leaders are no longer being judged by their stoic veneers of strength and omnipotence, but instead by their ability to admit flaws and acknowledge personal vulnerabilities. In fact, the recent biographical movie "The Queen" is a perfect example of Britains' changing outlook on leadership as it tries to explain why the emotionally open Princess Diana was so beloved while the traditionally detached Queen was despised. This shift in values is prime to support Revans' belief that only through honesty can real learning take place, and real solutions be found.

Sources:

Crainer, Stuart. Active Learning. (2006).The Ultimate Business Library. Capstone Publishing Limited.

the Queen. (2006). Movie. Reference URL: http://www.imdb.com/title/tt0436697/



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Wednesday, May 9, 2007

Ask Yourself, What Would Machiavelli Do?

The Prince - Machiavelli, 1513

When we here the name "Machiavelli" or the term "Machiavellian" used to describe someone, it is often considered a negative attribute or characteristic. Famous for his (a)moral stance of "the ends justify the means," Machiavelli has become a symbol for unethical or shady practices, both in business and life decisions.

In his book, "The Prince," Machiavelli outlines many of the principals on which he based his seemingly ruthless approach to diplomacy and leadership. He stresses the need for appearance over quality, force over reason, and stealth over honesty.

Although these tactics are overtly frowned upon in today's business world, they are nevertheless used effectively. For instance, if a top manager projects confidence, he or she has a greater ability to garner employee trust and loyalty. This in turn could lead to higher productivity, less employee turnover, and a general state of well-being for the company...regardless of whether or not the manager is actually confident in themselves or the company.

Interestingly, as more organizations push for an open, honest, and supportive company culture, employees are becoming happier and more productive, leading to higher profits. (Robbins, 2005) It is possible then to assume that if Machiavelli were alive today, he would choose to appear "nicer" or "more supportive" to his followers or employees, as this type of "means" would produce the most effective and lucrative "ends." Therefore, being called Machiavellian might not be so bad after all.

Sources:

Crainer, Stuart. The Ultimate Business Library. Capstone Publishing Limited, March 2006.

Robbins, Stephen P., Coulter, Mary. Management, Eight Ed. Pearson Education, Inc., 2005. Ch. 3.

Negligent Consumers vs. Unethical Companies

Can any company "really expect the average consumer to act with strict prudence" and do companies need to take precautions "with the worst case scenario in mind as to consumer behavior" (Hartley, 33, 2005)?

These two questions illustrate one of the most striking ethical issues that face every product-based company in operation. In the particular case of Firestone and Ford, consumers were held partly responsible for their tire blowouts and Explorer roll-overs because they did not check their tire pressures before driving, over-loaded their vehicles, and drove at high speeds for long periods of time. According to Firestone and Ford, the results of this consumer negligence was not something their companies should be held accountable for. Not surprisingly, this stance did not sit well many of their consumers, nor the general public. And although checking tire pressure before driving is commonly recommended in vehicle operation manuals, rarely, if ever, does anyone follow this guideline.

But does having this disclaimer in an operations manual eliminate manufacture culpability completely, or should a company go further to protect consumers when the potentially negligent behaviors of consumers (such as not checking tire pressure consistently) is known beforehand by the manufacturing company? Perhaps in the Firestone/Ford case the answer to this question seems simple because the consequences of the known consumer negligence could result in consumer fatalities.

But what of companies whose products, when and if misused, have less dire consequences? For example, consumers commonly use Q-tips to clean their ears despite the many health warnings against this practice. In fact, Q-tips makes it very clear on their packaging that using their product to clean ears is not recommended, and goes further by suggesting other, more appropriate, ways to use Q-tips. Now suppose a law suit is filed claiming that someone has lost part of their auditory abilities due to repeatedly using Q-tips to clean their ears. Is this person's hearing loss the responsibility of the Q-tips manufacturers, or of the consumer?

An even more extreme case would be the now famous McDonald's Hot Coffee Incident (Lectric Law Library) that resulted in warning labels being placed on all hot beverage containers stating that the contents of the container was indeed "hot" and could potentially cause burns. Was it McDonald's fault that this particular consumer was burned when she spilled hot coffee on herself? Are these warning labels ethically necessary from McDonald's perspective?

Using these three cases as examples, it is possible to see how fine a line there exists between what consequences are the responsibility of a manufacturing company verses the responsibility of a negligent consumer. Like most ethical issues, the answer to this question seems to be a matter of degree - How likely is it that consumers will improperly use the product? How severe are the consequences of its improper use? - In today's litigious society, failing to address these questions before incidences arise will be costly at best.

Sources:

Hartley, Robert F. 2005. Management Mistakes and Successes. Eighth edition. Hoboken, NY. John Wiley & Sons Inc.

The Actual Facts About the McDonald’s Coffee Case. Lectric Laws Library Stacks. Reference URL: http://www.lectlaw.com/files/cur78.htm

Tuesday, May 1, 2007

The Problem with Snapple, Part II

Do you think Snapple should have been sold for $300 million?

Yes, I think Snapple should have been sold for $300 million. By the time Quaker Oats decided to give up its rejuvenation efforts and sell Snapple, the continued losses of keeping Snapple would have been more than the immediate loss of selling Snapple for such a low price. Although Quaker Oats did not recoup much of its investment, the sale did allow the company to stop losing money, which was more important at that time.

What are the social implications related to this case? What did you learn that might be helpful in your work?

The main social implication related to the acquisition of Snapple was the overall negative effect it had on Quaker Oats’ profitability, and therefore the financial well-being of Quaker Oats’ shareholders. If the main responsibility of managers is to the owners, or shareholders, of a company, then making a large purchase, such as purchasing Snapple for $1.7 billion, without considering all of the financial ramifications of the purchase is very socially irresponsible. According to the Classical view of social responsibility, managers are supposed to maximize shareholder’s profits (Robbins, 2005). Clearly in the case of Snapple, this did not happen as profits decreased as a result of the acquisition.

By reviewing this case I learned that top level managers are just as likely to allow their egos to intervene in their decision-making as is everyone else who achieves a certain level of success. No matter what field one is in, previous successes have a tendency to overshadow the hard and clear facts of future decisions. In this example, the success of Gatorade overshadowed the practicality that was needed when reviewing the clearly declining financial situation of Snapple before its purchase.

To Sum Up...

Smithburg’s purchase of Snapple illustrates the necessity of fully evaluating any major acquisition. This includes knowing the current competitive market, understanding the production and distribution methods, and having a financially sound plan in place to make a declining company profitable, or to raise the demand for products of an already profitable company. If after the purchase has been made and the plans have been carried out, the acquisition is still not profitable, then it is also vitally important to realize that less money will be lost by selling the failing company quickly for a relatively low price than by keeping the failing company and continuing to lose money.

Bibliography

Hartley, Robert F. 2005. Management Mistakes and Successes. Eighth edition. John Wiley & Sons, Inc.

Mankiw, Gregory N. 2007. Principles of Economics. Fourth edition. Thomson South-Western.

Robbins, Stephen P., Coulter, Mary. 2005. Management. Eighth edition. Upper Saddle River, NY. Pearson Education Inc.

Wednesday, April 25, 2007

The Problem with Snapple, Part I

CEO William D. Smithburg of Quaker Oats purchased Snapple for $1.7 billion in 1994. In 1997 Smithburg sold Snapple to Nelson Peltz for $300 million, reported a $1.11 billion quarterly loss, and resigned from his position as CEO (Hartley, 2005). Smithburg’s decision to purchase Snapple was not based on solid financial reasoning or research, but an egotistical hunch that he could turn Snapple around as he had done with Gatorade. By acquiring the already declining Snapple, Quaker Oats was forced to spend the next few years trying to salvage what was left of a company with too much market competition and an outdated production system. In the end, Smithburg proved to be a socially irresponsible manager whose duty to uphold Quaker Oats’ profits was less important than (dis)proving his own managerial superiority.

Do you think Snapple could have been turned around?

No I do not think Snapple could have been turned around once it was purchased by Quaker Oats for two reasons, neither of which have to do with the very high price of its acquisition. First, Snapple iced tea sales were already lagging at the time of purchase. The main reason for this lag was increased market competition by firms such as Coke, Pepsi, and Lipton, who were able to manufacture and sell similar drinks for lower prices than could Snapple (Hartley, 2005). Because Quaker Oats could not eliminate this competition, and had no concrete plans of how to make Snapple drinks more appealing to consumer after the purchase of Snapple other than to pair it with Gatorade, Quaker Oats’ other popular drink, there was no reason to believe that Snapple sales would or could rise in the future. Second, the production and distribution system of Snapple was not thoroughly investigated before its purchase (Hartley, 2005). This meant that Quaker Oats had very little information regarding the costs associated with producing Snapple, making it nearly impossible to correctly gauge its profit/cost ratios, or what would be needed to streamline the production of Snapple to lower its overall production costs. Taken together, these reasons show that Quaker Oats had no idea how it would make Snapple profitable from either the demand side (by eliminating or stemming market competition) or the supply side (by lowering production costs).

Do you think the premium retail price for Snapple was a serious impediment?

Yes, I think the premium price of Snapple was a very serious problem that ultimately brought about its demise. When Snapple was first introduced into the market it was the only flavored iced tea drink of its kind, making its premium price sustainable. However, as other companies began producing similar drinks that could be substituted for Snapple, the only choice Snapple had to remain competitive would have been a reduction in price. Basic supply and demand dictates that as supply rises and demand is held constant, the equilibrium price of a good will fall, and any company continuing to sell at above market, or premium, prices will eventually be forced out of the market completely (Mankiw, 2007). Because Snapple chose to keep its prices above that of the market equilibrium (perhaps due to its high production costs), its sales decreased, and it became obvious that they could not rely on consumer brand loyalty to keep sales up and the company profitable.

Friday, April 20, 2007

Better to Make a Mistake Than Do Nothing At All

Not making a decision is as potentially damaging to a company as making a bad decision. It is easy to see how errors of omission could be made and go unnoticed until the consequences of inaction become apparent much later on. Many people, managers included, delay making decisions that are difficult or complicated. This delay may take the form of over-analyzing, mental procrastination, or hoping that the problem will simply "resolve itself" in time. In both one's personal and professional lives omissions usually lead to undesirable outcomes since no direct action was taken to avoid or change them.

Errors of commission, on the other hand, are easily made by pro-active people. Bad decisions can be due to haste, under-analyzing a situation, making a decision without first having all the facts or data. The results of these mistakes can be seen quickly and can often be traced back to a particular source or decision.

In today's rapidly changing business environment, errors of omission may perhaps take less time to notice that they did in the past, whereas errors of commission ma be easier to fix by making another hasty corrective decision. Although both types of errors have the potential to break a company, I think it would be more advantageous to act quickly and then make a corrective decision if necessary than to not act at all and watch your company slowly fade.

Thursday, April 12, 2007

Making the Perfect Gen Y Work Environment - Or Else!

As the first wave of Generation Y makes its way into the workforce, well established corporate cultures are being forced to change - not only the way employees are recruited, but also the way new recruits are treated. Born between 1977 and 1997, Generation Y is the first to have grown up with the internet, be technologically savvy, and have career ambitions that go well beyond earning a high salary. (Business Week, 2005) As company’s are quickly realizing, Generation Y expects to be treated with respect, be constantly challenged with new and innovative tasks, and have the freedom to set their own schedules. As Daun Paris, president of Eastern Consolidated points out, “They want to be able to create their own situations and do it their way.“ (Marsh, 2007) Because of this, Generation Y is largely against high degrees of power distance, and do not feel obligated to stay working for a company that makes them uncomfortable or does not suit their own particular needs.

Despite being deemed self-centered and self-interested by former generations, Generation Y also has a fierce desire to help and protect the larger community; ranging from environmental concerns to human rights activism. (Business Week, 2005) They are consciously seeking out jobs that allow them to work toward these larger causes while at the same time satisfying their own personal growth needs.

So, what does this mean in terms of corporate culture? Using the nine criteria suggested by the GLOBE research program, (Robbins 2005) a successful work environment for Generation Y would be:

Assertive - High: The ability to be confrontational and tough, particularly with higher-ups, is an essential component for Generation Y. They want their opinions to be heard and respected, as well as for their ideas to be taken seriously.

Future Orientation - High: Organizing, planning, and creating “the next new thing” is exactly what motivates Generation Y.

Gender Differentiation - Low: Growing up on the heels of the 1970s feminist movement, this generation does not believe gender should be a factor in the workforce. Both genders should be equally heard and represented.

Uncertainty Avoidance - Low: Social norms and conventions are precisely what Generation Y enjoys breaking and going against. They hold innovation and change above tradition.

Power Distance - Low: Although their may be “leaders,” everyone’s ideas should be taken seriously, and a friendly (rather than respectfully reserved) work environment should be fostered.

Individualism/Collectivism - Both Low and High: Although highly individualized in the sense that they value personal success over company loyalty, they are largely collective in as they want to work toward larger societal causes such as environmentalism.

In-Group Collectivism - High: They value being part of a “team.” This can be exploited through group projects, and a strong company culture. They want to be proud of where they work and what they stand for.

Performance Orientation - Medium: Although it is important to be successful in the end, Generation Y also believes that how they get achieve success is also important. Trying is considered just as valuable as succeeding.

Humane Orientation - High: More so than previous generation, Generation Y is concerned with being fair, tolerant, embraces diversity, and believes equality is crucial to success.

Each of these dimensions should be carefully considered by existing organization trying to retain new recruits from Generation Y. Because they’ve grown up in a culture where job and family stability is a thing of the past, members of Generation Y do not think twice about leaving jobs that they dislike. Catering to their expectations, rather than trying to impose existing company values upon them, is a necessity for company’s wanting to lower turn-over and increase new employee retention.

Overall Generation Y will have it their way, and if they don’t find a company that suits their needs, they will simply create one.

Sources:

Marsh, Amanda. Management Matters. 2/16/2007.
Commercial Property News, Vol 21, Issue 4. P. 16. Reference URL: http://ebsco.waldenu.edu/ehost/detail?vid=11&hid=15&sid=
e515f4da-425b-4bf8-80da-8e159d847566%40sessionmgr2

Welcome to the Gen Y Workplace. May 4, 2005. Business Week Online. Reference URL: http://www.businessweek.com/bwdaily/dnflash/may2005/
nf2005054_4640_db_083.htm?chan=search

Robbins, Stephen P. and Mary Coulter. 2005. Management. Eighth edition. Upper Saddle River, NY. Pearson Education Inc.

Thursday, April 5, 2007

Connection Between Women Managers and the Internet

Having the ability to embrace diversity and incorporate change quickly is one of the greatest determining factors of success for companies today. Changes in workforce composition and the medium of conducting day-to-day business activities are two key factors that need to be fully considered and addressed by managers at all organizational levels. In particular, more women are occupying top-management positions, in part due to the proliferation of e-businesses.

According to an article published in the Journal of Leadership Studies (2000), online businesses are providing a way for more women to become top-level managers. Because e-businesses are still a fairly new frontier, they are breaking many of the “traditional” pathways to becoming CEOs or Company Directors. These positions were often handed down from one man to another via familial or social networks, creating the “glass ceiling” effect that many women encountered during the 1980s and 90s. However, since the introduction of the more egalitarian culture, strongly supported by e-businesses, such networks are largely frowned upon and women are encouraged to pursue top-level positions. (Klein 2000)

However, the link between women in top-level management and the internet seems to go both ways. Not only do e-businesses facilitate the insertion of women into these positions, but women who have made it into these top- level positions in more “traditional” companies are now leading those companies toward the internet. Ann Moore, Chairman-CEO of Time Inc., is a perfect example of a women who has taken over a very “traditional,” male-dominated company and is now spearheading an initiative to take things digital. Not only did she preside over the launch of People.com, but she is currently working towards a new health portal that should rival WebMD. (Business Week 2007) Moore is trying to create a place for Time Inc. to prosper in the future by staying abreast of new technologies and remaining competitive without dragging the company down in the process.

Regardless of the particular circumstances, it is necessary for managers to make pro-active decisions that allow their companies to change with the times, be it more women in top-level management or a greater reliance on technological advances such as the internet.

Sources:

Klein, Esther E. The Impact of Information Technology on Leadership Opportunities for Women: The Leveling of the Playing Field. Journal of Leadership Studies, Vol. 7, 2000.

Moore, Ann. Edgy Days at the Top of Time Inc. Business Week, 2/12/2007. Issue 4021, p23-23, 1p, 2c. Reference URL: http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=23855503&loginpage
=Login.asp&site=ehost-live&scope=site

Friday, March 30, 2007

US Consumer Pessimism May Lead to Economic Downturn

According to an article published in the April 11th edition of Business Week Online, there is a general pessimism among U.S. consumers concerning the future of the economy despite moderate growth trends that imply economic stability for the remainder of 2007. Although unemployment is currently at 4.4% nationwide, a low since 2001, and 180,000 new jobs were created in March alone, the public still feels shaky about what the coming months will bring. Some obvious reasons for their uncertainty is the Iraq war and the continually changing price of oil. Just how pessimistic one is seems to be related to one’s annual income, namely the wealthy are the least pessimistic of all, while the poor hold the most doubts. (Coy, 2007)

The discrepancy between analytic forecasts and general public opinion should not be taken lightly. Consumer pessimism has the potential to become a self-fulfilling prophecy. Greater pessimism leads to less consumption because people are worried about what the future might bring so decide to save more, which lowers aggregate demand for goods and services. In turn, less demand means less revenue for firms, which will eventually lead to less job creation, and an overall downturn in the economy. In essence, what the public expects to happen, will indeed happen. Their expectations will become their reality due to the self-protective actions (ie less consumption) they take today. In fact, less consumption could cause a significant fall in GDP, as consumers make up roughly 70% of all U.S. GDP. (Coy, 2007) So despite a rather optimistic outlook among forecasters for 2007, public uncertainty and fears for the future may sway the economy downward in very real terms.

Source: Coy, Peter. “The Economy: Why So Gloomy?” Business Week Online. April 11, 2007. Reference URL: http://www.businessweek.com/investor/content/apr2007/pi20070411_639834.htm?
chan=top+news_top+news+index_businessweek+exclusives

Thursday, March 22, 2007

Go Ahead, Have a Cig Kiddo

Why should cigarette manufacturers be permitted complete freedom to target developing countries?

Like any other business, cigarette manufacturers should be able to pursue the objective of profit maximization as long as they fulfill their social obligations and are within the confines of the law (Robbins, 2005). Faced with tightening regulations in developed countries, it makes financial sense for cigarette companies to target their products to foreign consumers whose countries have less restrictive laws. It is the responsibility of national governments, not private enterprises, to concern themselves with the well-being of citizens. If a government decides that smoking has more negative effects on the nation than is tolerable, it will enact laws that will force cigarette companies to conduct business accordingly. Similarly, if consumers do not want to incur the health costs of smoking, they will not buy cigarettes, thereby limiting the profitability of cigarette companies and restricting their expansion. Both governments and consumers have the power to control the operations of cigarette companies, so regardless of which country is targeted, the amount of expansion into that country is always the responsibility of the country itself.

Thursday, March 15, 2007

Efficiency Wages Not So Efficient Anymore

The March 28th online edition of Business Week reports that electronics retailer Circuit City is planning to lower employee wages across the board as a way to reduce costs and boost profits. Faced with fierce competition from long-time rivals such as Best Buy, Circuit City is hoping the wage cuts, along with other structural changes, will allow them to stay ahead of other electronics retailers. (Business Week, 2007)

Previously employees at Circuit City were paid above market, or efficiency, wages. Voluntarily paying higher than average wages has its benefits. First, higher wages attract a better pool of employee candidates. Second, it reduces employee turnover because less people leave for other equitable-position jobs at competing companies. Less turnover leads to a well-trained and experienced sales staff, and eventually more sales. Finally, higher wages gives employees the impression that the company cares about them, which fosters company loyalty and a greater willingness to perform to the best of their abilities while on the job.

In fact, these benefits were taken into account during Circuit City’s decision making process. The retailer realized that the general composition of its sales force would change due to the pay cuts. One major drawback is that the competency of its sales staff will decrease as its best employees leave for higher paying jobs. Also, the time and effort needed to train new employees will undoubtedly have a negative impact on sales in the near future. Because of these changes, “Circuit City is expecting to have consolidated net sales growth of 8% during fiscal 2007, down from the 9% to 10% originally forecast.” (Business Week, 2007) This means that the estimated effect of efficiency wages is between 1-2% of Circuit City’s net sales.

Interestingly, Circuit City does not intend to hire more employees at lesser wages. Instead they will be rehiring the same amount of workers as before. Normally companies that pay above market wages hire fewer employees to keep costs at reasonable levels, leading to less demand but greater supply in the labor force since more people want the higher-paying jobs. Now that Circuit City is lowering its wages to the market equilibrium but keeping the number of employees constant, the demand is not changing, but the supply should decrease because less people will want to work at Circuit City under the new wage structure.

Source:

“Circuit City Cuts Wages to Juice Profits.” Business Week Online. March 28, 2007.
Reference URL: http://www.businessweek.com/investor/content/mar2007/pi20070328_712708.htm?
chan=top+news_top+news+index_investing